Brazil: arbitration law reloaded

August 2015 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

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Foreign companies doing business in Brazil often turn to arbitration as a form of dispute resolution. Arbitration is particularly popular because of its flexibility and efficiency in comparison to litigation. Arbitration proceedings held in Brazil are subject to Brazilian law, regardless of the nationality of the parties.

The major turning point in the development of arbitration in Brazil was the enactment of the Brazilian Arbitration Law (the Law) in 1996. Until then, many held that arbitration clauses were illicit, arguing that they deprived parties of their right of access to justice. Because the Law asserted the legality of arbitration clauses, its constitutionality was indeed challenged, but Brazil’s highest court decided in favour of its constitutionality in 2001.

Among its main features, the Law recognises the parties’ right to determine the substantive law applicable to the dispute, a choice which is rarely recognised by Brazilian state courts. Parties may decide that rules of arbitral institutions are applicable to the proceedings, or even determine procedural rules themselves. The Law also puts arbitral awards on an equal footing with judicial decisions, meaning that domestic awards (awards issued in Brazil) do not need the exequatur by a state court before being enforceable in Brazil, and foreign arbitral awards (those issued outside Brazil), just like foreign judicial decisions, require the exequatur before being enforceable on Brazilian territory.

After almost 20 years in force, the Law has recently been amended. Law No. 13,129 dated 26 May 2015 will enter into force on 27 July 2015. The goals of this law are mainly to incorporate current practices and developments in case law, and to clarify controversial issues.

Main changes

For years, scholars have debated whether public entities were entitled to conclude and agree on arbitration clauses. Such clauses are only valid if the subject matter of the dispute refers to patrimonial rights that the parties can waive (the so-called objective arbitrability). Since public entities usually deal with public interests, some held that disputes involving them were not arbitrable. Now the Law states very clearly that public entities are entitled to sign arbitration clauses as long as the issue in dispute is arbitrable, i.e., refers to patrimonial rights that can be waived. Thus, in this regard Brazilian rules are now aligned with the rules of many other countries such as Portugal, France and Germany. One peculiarity is, however, that arbitration proceedings must be public, which constitutes an exception to the rule of confidentiality applying to arbitration proceedings.

Another hot topic relates to corporate disputes and arbitration. It is very common for the by-laws of Brazilian companies to contain an arbitration clause. It was disputed until the recent amendment of the Law whether or not shareholders that voted against the arbitration clause were also bound by it. According to the amendments, all shareholders are bound by the clause, but those who voted against it have the right to leave the company. This change in the Law is likely to be challenged as being unconstitutional, given the right of access to justice.

The amendments also integrate the existing practice regarding arbitrators’ powers to issue precautionary measures. Once an arbitral tribunal is constituted, arbitrators are the only ones who can decide on parties’ requests for precautionary measures. Prior to the constitution of the arbitral tribunal, state courts can issue such measures, but they will expire if arbitration is not requested within 30 days. Once an arbitral tribunal is constituted, arbitrators may change or revoke measures issued by state courts. While these rules strengthen the position of an arbitral tribunal, state courts are still the only ones which can apply compulsory measures and sanctions. In comparison, the German Code of Civil Procedure (ZPO) contains more detailed information on the powers of state courts while enforcing arbitrators’ precautionary measures (Section 1041). The amendments to the Brazilian Arbitration Law do not go that far and leave some space for practitioners and case law to further develop the issue.

One of the changes affects partial awards. Formerly, the Law did not deal with partial awards. It hence was disputed whether a partial award could be challenged or whether the parties had to wait until the final award was issued. With the amendments, the Law now expressly allows arbitrators to issue partial and final awards, and clarifies that partial awards may be set aside, meaning that the 90-day period to challenge an award, as determined by the Law, starts running when the partial award is served upon the parties. The clarification will be well received by arbitration practitioners.

The rules on requests for clarification and correction of an arbitral award have also been changed. According to the Law, the deadline for such requests is five days from the notification of the award; arbitrators then have 10 days to issue a new award. The 90-day period for requesting the annulment of an award starts counting from notification of the new award. However, parties often refer to arbitration rules of arbitral institutions which allow longer periods to request clarifications or corrections. It was then questionable whether these longer periods might have any influence on the period to request the setting aside of the award, and some held that the request for annulment would be time-barred if the legal deadline of five days for the request for clarification was not complied with. The amendments now put an end to this uncertainty and clarify that the parties may freely determine the deadline for requesting clarifications. As a consequence, such a determination shall not affect the deadline for a request to vacate the award. This is also the solution of the legal systems in Germany (Sections 1058 and 1054 of the ZPO) and France (Sections 1485 and 1486 of the French Code of Civil Procedure, relating to internal arbitration). Only the deadlines for the request of clarifications are quite different – one month in Germany and three months in France, if the parties did not agree on a different term.

The consequences of the challenge of an intra petita arbitral award have also been amended. If the decision does not decide all issues of the dispute, the Law used to say that the arbitral award should be annulled and the dispute would be referred back to the arbitral tribunal. With the amendment, such an award is no longer set aside, but the parties may request a supplementary award on the issues not yet decided. Nevertheless, the wording of the amendment does not allow a clear understanding of whether the arbitral tribunal or a state court is competent to render this supplementary award.

Some further changes refer to the point in time in which the statute of limitations is interrupted, the means of communication between arbitral tribunals and state courts (cartas arbitrais) and how to deal with incidental issues relating to non disposable rights in the course of arbitration proceedings.

All in all, the changes are positive and allow for more transparency in the conduct of arbitral proceedings. They should contribute to the further development of arbitration in Brazil.

Dr Mark C. Hilgard and Dr Roberto Figueiredo are partners, and Ana Elisa Bruder is a foreign associate, at Mayer Brown LLP. Dr Hilgard can be contacted on +49 69 7941 2271 or by email: mhilgard@mayerbrown.com. Mr Figueiredo can be contacted on +55 11 2504 4234 or by email: rfigueiredo@mayerbrown.com. Ms Bruder can be contacted on +49 69 7941 1778 or by email: abruder@mayerbrown.com.

Dr Mark C. Hilgard, Dr Roberto Figueiredo and Ana Elisa Bruder

Mayer Brown LLP