Arbitration in Brazil: from childhood to maturity

November 2015 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

financierworldwide.com

Arbitration in Brazil can be divided into three stages: implementation, consolidation and improvement.

Despite the fact that arbitration was already envisaged by the Brazilian legislator since 1824 (although in a completely different formula), it all dates back to 1996, when the Brazilian Arbitration Act (Law n. 9.307) was enacted, thus commencing what one may call ‘phase one’.

However good the text and its articles were, it could not have prevented some setbacks in the implementation of the law, even though it came into force immediately. The initial obstacles were mainly related to claims that the law was unconstitutional, supported by many Brazilian scholars, who sought judicial remedy to prevent the Arbitration Act from producing legal effects.

Eventually, in 2001 the Brazilian Federal Supreme Court (STF) ruled that the law was constitutional, putting aside any remaining discussions related to the law’s implementation. Phase two was underway.

From that moment on, arbitration has seen a steep ascension in Brazil and gained increasing acceptance and credibility among legal and business representatives, including Brazilian companies, scholars and courts. Countless contractual issues arising after 2001 have been resolved through arbitration.

The Brazilian Superior Court of Justice (STJ) has played a major role in consolidating the institute. This Court, which under Brazilian law also has jurisdiction over the recognition and enforcement of foreign arbitral awards, has rendered several decisions reaffirming arbitration’s principles and the validity of arbitration clauses, protecting the institute whenever one party attempted to remove the competence of an arbitral tribunal to solve a dispute, even though there was contractual agreement on this dispute resolution method.

The ‘culture’ of arbitration was gradually becoming more popular in the Brazilian legal system. The reasons for such exponential growth were derived from the advantages of arbitration itself: the celerity of proceedings, confidentiality, flexibility, the specialisation of arbitrators’ in judging matters normally more complex than those put before magistrates and, consequently, the higher probability of rendering safer decisions.

Although the costs are much higher in arbitral proceedings, they are counterbalanced by the advantages of arbitration. At the end of the day, parties freely choose to enter into complex agreements because they know, beforehand, that if a controversy arises, they will be able to choose their own arbitrator and (hopefully) have a decision rendered in less time than it would take a judicial court.

The inclusion of arbitration clauses in all sorts of contracts, both commercial and non-commercial, is no longer just a ‘wave’; rather, it has been the rule for some time. Rarely do high-value sale and purchase agreements, constructions contracts and corporate bylaws opt to empower the judicial branch to resolve disputes instead of arbitral tribunals. The latest statistics state that around 400 commercial arbitrations are commenced annually in Brazil, 300 of which are filed before Brazilian institutions.

According to Walid Hamida and Thomas Clay in L’argent dans l’arbitrage, 2013, arbitration has evolved to become a true ‘market’ – not only in Brazil, but worldwide.

Recently, a new (and equally important) aspect of arbitration has been observed: the strategic component that allows it to be used as a tool to encourage parties to reach a settlement during arbitral proceedings, or, more often, shortly after they are initiated.

As Professor Arnoldo Wald points out in his recent article on the subject, Arbitration as catalyst for settlement, RAM 42, efforts to settle are among the duties of those engaged in arbitration, as set forth in article 21, paragraph 4 of the Brazilian Arbitration Act. Conciliation objectives are set forth in article 125 of the Brazilian Code of Civil Procedure Law as obligations of judges.

Sometimes arbitrators, even though they are technically capable of deciding a dispute in accordance with each party’s claims, are not fully aware of all underlying negotiation details, so they must be sensitive enough to get the parties together and try to make them reach a settlement whenever they feel there is scope for it. In other words, arbitrators might (and even should) function as mediators when the specific circumstances of the case allow them to.

Terminating a conflict soon after it has flared, avoiding unnecessary costs and time for both parties and arbitrators, is the ultimate goal of each and every lawsuit. So, using arbitration as a tool for catalysing settlement is extremely positive in many aspects.

Since August, arbitration in Brazil has entered the so-called ‘improvement’ stage, with Brazilian Arbitration Act undergoing its first reform in almost 20 years.

Although Brazil’s public administration has actively participated in a growing number of arbitrations in the last few years, always involving ‘transferable public property rights’ (or disposable rights), the legislator, through Law n. 13.129/15, decided to make this allowance crystal clear in the renewed article 1 of the Arbitration Act, applicable for both direct and indirect public administration. Judgment by equity, however, is prohibited in all arbitrations involving public entities.

Other relevant changes were made to the Brazilian Arbitration Act. Despite being well known and widely accepted in many arbitrations, in which one of the parties request that the arbitral tribunal render an anticipated decision on part of the merits, partial arbitral awards are now expressly allowed by the law. Arbitration clauses may be inserted in LLC bylaws after being approved by 50 percent of voting shares, and are binding even for minority shareholders who are entitled to exercise their withdrawal right in the 30 days following approval of the clause. Prior to the arbitral tribunal’s formation, “provisional measures of protection and urgent relief” may be requested by any of the parties directly to a judicial court. Filing a request for arbitration expressly tolls statute of limitations. Finally, by mutual agreement, parties may choose not to be bound by the provision of the rules of an arbitral institution or specialised entity requiring the appointment of a sole arbitrator, co-arbitrator or chairman of the tribunal from a roster of arbitrators.

In summary, the legislator’s fundamental objective was to strengthen and enhance the use of arbitration in Brazil rather than stimulating recourse to the judicial branch, which is overloaded.

In addition to all the changes promoted by the Brazilian legislator, the Court of Appeals of the State of São Paulo, which deals with the largest number of lawsuits in Brazil, has decided that all litigations involving pre and post-arbitration matters shall be judged by specialised chambers, whose jurisdiction solely embraces arbitration, bankruptcy and corporate reorganisations.

This is another clear indication of how important arbitration is in Brazil. It is not only the future of dispute resolution in Brazil; it is the present – and has been for a while.

Alexandre de Mendonca Wald is a partner and Riccardo Giuliano Figueira Torre is an associate at Wald. Mr de Mendonca Wald can be contacted on +55 11 3074 6003 or by email: amw@wald.com.br. Mr Torre can be contacted on +55 11 3074 6058 or by email: riccardo@wald.com.br.

Alexandre de Mendonca Wald and Riccardo Giuliano Figueira Torre

Wald