International Commercial Arbitration in Brazil

Introduction

In Brazil, arbitration is a dispute resolution mechanism used mostly for complex matters. The legislation supporting arbitration proceedings in the country is dated 1996 (Federal Law No. 9,307/96) (the Arbitration Act), but it was only after the decision from our Supreme Court of Justice confirming its constitutionality in 2001,^[2] that arbitration spread, establishing itself as a mechanism for dispute resolution in the country.

The Arbitration Act was based on the UNCITRAL Model Law on International Commercial Arbitration (although with some adjustments) and is internationally considered a modern and safe regulation for the practice of both domestic and international arbitrations.

The Arbitration Act does not differentiate international arbitrations from domestic arbitrations, and does not contain rules specifically applicable to either of them. Thus, international and domestic arbitrations are treated equally by the legislation. This situation has not prevented arbitral tribunals from adopting different practices – aligned with the international experience – when dealing with international arbitrations. Some of these practices are addressed in this chapter.

As is the case in most countries, arbitration in Brazil is authorised only between persons or entities capable of contracting and cannot involve non-­waivable rights^[3] (disputes involving these rights should always be resolved through courts). The Brazilian Arbitration Act allows settling ‘through arbitration disputes related to patrimonial rights over which they may dispose’.

The new Brazilian Code of Civil Procedure (Federal Law No. 13,105/15), which came into force in 2016, did not bring substantial innovations to arbitration in Brazil, having mostly confirmed certain common practices, in addition to reinforcing the admissibility of arbitration as a dispute resolution mechanism in Brazil. Similarly, Federal Law 13,129/2015 – which aimed at modernising the Arbitration Act, brought some improvements to the previous legislation, while maintaining its core structure.

For example, Federal Law 13,129/2015:

• confirmed the possibility of an interim relief being temporarily granted by the courts, conditional on a review by the arbitral tribunal as soon as its formation is completed;
• confirmed the possibility of partial awards;
• established a procedure – called ‘arbitration letter’ – in which an arbitral tribunal may request the aid of the judicial courts for acts that demand the use of force;
• resolved discussions on whether the public administration can settle its disputes through arbitration, authorising this possibility; and
• modified some provisions of the Corporation Act (Federal Law 6,404/76) in order to authorise the inclusion of arbitration clauses in the by-laws of public corporations.

Brazil has ratified both the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention) and the Inter-American Convention on International Commercial Arbitration (the Panama Convention). Brazil is also a party to the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards (the Montevideo Convention), as well as the Geneva Protocol of 1923 on arbitration clauses. Finally, the confirmation of foreign arbitral awards rendered in Member States of Mercosur (Brazil, Argentina, Uruguay and Paraguay) is regulated by the Protocol on Jurisdictional Assistance in Civil, Commercial, Labour and Administrative Matters, also known as the Las Leñas Protocol.^[4]

Infrastructure and construction are still two of the main sectors relying on arbitration for solving disputes, but M&A and corporate disputes are also very commonly settled by arbitration. Disputes with public administration entities are increasingly shifting to arbitration, given the authorisation provided in Federal Law 13,129/2015.

On the other hand, investment arbitration is non-existent in Brazil, since the country has chosen not to participate in the dispute settlement system between investor and state. This option led Brazil not to subscribe to the 1965 Washington Convention establishing the International Centre for the Settlement of Investment Disputes (ICSID) system and not to ratify any of the bilateral investment protection and promotion agreements signed in the 1990s.

Another feature of arbitration in Brazil is the influence of the civil law system. In general, arbitrations, even when dealing with international cases, tend to follow civil law practices. This means that awards are normally based on the interpretation of the written law. Decisions from the Brazilian courts are certainly a relevant convincing factor, but because only very specific precedents (normally from the superior courts) are considered biding in the legal system, in general (and this is debatable in very specific circumstances) the arbitrators are not obliged to respect precedents from the judicial courts.

In other words, if the parties agree to select Brazilian law as the substantive law applicable to the dispute, the arbitrators will have to decide the case in accordance with the Brazilian legislation (e.g., the Brazilian Civil Code), but in general they will not be bound by court decisions interpretating the legislation.

Also, as discussed below, certain procedural practices, which are seen in common law countries – such as broad or extensive discoveries – are not commonly used specially in domestic arbitrations. International practices, such as the International Bar Association (IBA) Rules on the Taking of Evidence, are more commonly applied in international arbitrations.

Finally, Brazilian courts are well recognised for being friendly to arbitration. The courts respect the principle of kompetenz-kompetenz (The arbitral tribunal empowered to assess its own jurisdiction). In fact, there are several decisions from the Superior Court of Justice stating that jurisdictional matters should be first assessed by the arbitrators, and are only subject to a revision by the courts after the conclusion of the proceedings, in a setting aside lawsuit (or in the confirmation proceedings of an foreign arbitral award).^[5]

According to the Superior Court of Justice, the kompetenz-kompetenz principle should only be disregarded in very exceptional situations, for example when it is absolutely clear that the arbitration clause is non-existent, invalid or voided.^[6]

Also, Brazilian courts tend to support arbitration clauses and arbitral awards, setting awards aside only in very specific and extreme situations.^[7]

Arbitration involving public administration

Federal Law 13,129/2015 answered the question of whether the public administration^[8] may solve its disputes through arbitration, authorising this possibility provided that the proceedings are not confidential, and the case is not decided exclusively ‘by fairness’ (but rather in accordance with the substantive law chosen by the parties).

Before the enactment of the Federal Law 13,129/2015, the need for a specific law authorising arbitrations involving the public administration was a controversial matter. The Superior Court of Justice had the opportunity to address the matter in some occasions.

One of these opportunities involved the COPEL case, a dispute between parties that entered into an administrative agreement for the purchase of electricity. In 2014, the Superior Court of Justice decided that the dispute involves waivable patrimonial rights, so it could be settled through arbitration. It also concluded that the validity of arbitration clause was a matter to be assessed by the arbitration tribunal.^[9]

With the enactment of Federal Law 13,129/2015, the admissibility of arbitration involving government administrative entities became undisputable. The arbitration clause does not need to follow any other formal requirement and no special permission is needed for the execution of an arbitration clause. The only requirements provided by Federal Law 13,129/2015 are the publicity of the proceedings and a final determination in accordance with the law (no judgment ‘by fairness’ is authorised).

Brazilian courts also tend to uphold arbitration clauses signed by the public administration. The decisions authorising the public administration to space arbitration are rare and normally involve specific issues of the case, such as, for example, the finding that the dispute falls outside the scope of the arbitration clause.^[10]

Brazil more recently enacted a Decree (Decree 10,025/19) regulating the use of arbitration and other types of dispute resolution mechanisms with the federal government. The Decree provides that such arbitrations must be seated in Brazil, conducted in Portuguese and decided in accordance with Brazilian law. Also, it confirms that the arbitrations will not be confidential and will preferably be administered by an accredited arbitration centre.

Procedure of arbitration in Brazil

Parties are free to agree on the procedure to be followed in their arbitrations. The only boundaries provided by the Arbitration Act are the principles of (1) right to be heard, and the (2) equal treatment.^[11]

The parties are also free to define the rules to be followed in the selection of arbitrators (which are normally three, one selected by each party and the third, who acts as chairman arbitrator, jointly selected by the party-appointed arbitrators). Renowned law professors and senior partners of law firms are normally appointed as arbitrators, but any person can be appointed, and, in specific situations, professionals of other areas (such as engineers and accountants) are selected. In practice, parties normally rely on the procedural rules of the arbitral institutions elected in the arbitration clause, making specific adjustments when executing the terms of reference, such as defining procedural deadlines, the procedure for the appointment of experts, the language of the procedure and the responsibility for procedural costs.

The procedures normally follow the same structure as seen internationally. It starts with the appointment of arbitrators, followed by the execution of the terms of reference, the presentation of written submissions, the production of non-documental evidence^[12] (the stage in which a hearing usually takes place), the submission of closing statements and finally the rendering of an award.

Bifurcation is authorised and commonly used in Brazil, both for domestic and international arbitrations, and especially when the parties raise jurisdiction objections.

The Arbitration Act does not provide for confidentiality in any form, but the parties are free to agree on that respect. By agreement, the great majority of cases are confidential, and the rules of the most commonly used arbitration institutions contain confidentiality provisions, from which the parties can opt out.^[13]

In fact, confidentiality is considered one of the main advantages of arbitration when compared to court proceedings (which, as a rule, are public). Confidentiality allows the parties to settle their differences without worrying about potential side effects of a public dispute. It also tends to encourage settlements (which will be naturally protected by the confidentiality of the arbitration).

Finally, orality is a striking feature of arbitrations in Brazil, both for domestic and international arbitration. Hearings frequently start with a presentation of the case by each side, followed by the hearing of each side’s legal representatives and then by the hearing of witnesses. Experts are normally the last to be heard. After the end of the hearing, and unless there is additional evidence to be produced, parties are granted a period to present their closing statements (which are normally in writing).

Arbitration proceedings in Brazil normally take between 18 and 24 months to be concluded for cases that do not demand extensive expert examinations, and between 48 and 60 months for cases that demand this kind of evidence. This does not include post-award court proceedings relating to the award.

Production of evidence

Parties are free to produce all evidence considered necessary for the presentation of their case. The arbitral tribunal may deny the production of any evidence considered useless or unnecessary. The parties may (with limits) request documents that are with third parties or other parties. However, this possibility has some limits, even in international arbitrations.

Broad or extensive discoveries are not provided for in Brazilian law^[14] and are not part of the country’s procedural culture.^[15] Companies are not obliged to keep their records ready for full examination in Brazil, nor to broadly disclose their files at an opponent’s will. As a rule, the parties are only obliged to disclose documents that are clearly relevant to the dispute and are sufficiently individualised or specified.^[16] Apart from that, and particularly if the other party has no legal right to access the information, no additional discovery should be authorised.

The arbitral tribunal is also free to order the production of any supplementary evidence deemed necessary and may require that the parties clarify the facts or present documents for the tribunal’s consideration at any time before the award. Arbitral tribunals tend, however, to rely on the evidence produced by the parties, rather than requesting evidence on their own. Thus, when the production of some evidence is ordered by the arbitral tribunal on its own initiative, usually there is a precise delimitation of the scope and purpose of the evidence.

There is no pre-defined order for evidence to be produced, so if the parties do not reach an agreement on the matter, the order of production ends up being defined by the arbitral tribunal. Normally arbitral tribunals prefer to receive oral evidence (i.e., witness testimony) before ordering the production of expert examinations, avoiding expert evidence (which tends to be expensive and time-consuming) as much as possible.

There are no specific rules in Brazil relating to the production of evidence in arbitrations, and the procedural rules of the arbitration institutions in Brazil deal very briefly with the matter, so it is common that parties and arbitrators rely on soft law. Therefore, international arbitration practice influences the production of evidence in Brazil.

For example, the IBA Rules on the Taking of Evidence are frequently used as a guide on the matter, especially when the arbitration is international and there are parties or lawyers from different jurisdictions.

In any case, certain general practices are frequently followed, such as the following:

• the parties have the right to comment on all evidence produced in the case, as well as to produce counterevidence in response to all evidence produced;
• documents are normally presented jointly with the submissions presented by the parties;
• the examination of witnesses is conducted by the lawyers, with limited interference from the arbitral tribunal (following the international practice and contradicting the practice seen in Brazilian courts until the enactment of the Brazilian Code of Civil Procedure of 2015);
• expert evidence can be produced by experts appointed by the parties or selected by the arbitral tribunal, depending on the agreement between the parties and on the views of the tribunal (especially in international arbitrations, tribunals tend to leave the production of the expert evidence to the parties, instead of nominating an expert themselves);^[17]
• in general, discoveries are limited to documents clearly relevant to the case and sufficiently individualised or specified by the parties; and
• there is no statutory provision demanding that witnesses provide written statements, although parties can agree on the provision of these statements. This practice is more commonly seen in international arbitrations.

The arbitral tribunal has the power to evaluate the materiality and credibility of all evidence produced during the proceedings and there is no standard to be followed for defining the value of each piece of evidence to the case. The arbitral tribunal is also not obliged to address all evidence produced in its award. As long as its conclusions are justified in a logical and reasonable way, the award will be valid.

Appointment of arbitrators and the duty of disclosure

According to the Arbitration Act, ‘any legally capable individual’ may serve as arbitrator and Brazilian law does not carry any citizenship or qualification requirement.^[18] Therefore, arbitrators in both domestic and international proceedings may be foreigners and non-lawyers.

Further, pursuant to the Arbitration Act, arbitrators must exercise their functions with impartiality, independence, competence, diligence and discretion, and must disclose any facts likely to give rise to justified doubts as to their impartiality and independence.^[19]

The Brazilian Code of Civil Procedure contains lists of situations in which a judge is precluded from hearing a case.^[20] These lists are also applicable to arbitrators due to a provision of the Arbitration Act.^[21] This provision should be applied with caution, since judges and arbitrators develop significantly different kinds of professional relationships and, therefore, may end up in a conflict of interests (or lack impartiality) in significantly different situations.

For example, because some arbitrators are also lawyers, they may find themselves involved in legal works in favour of or against one of the parties involved in the case. They may also be part of law firms in which other lawyers are acting on behalf of, or against, one of the parties. These scenarios are never seen with judges (who are prohibited from practising as lawyers), so the Brazilian Code of Civil Procedure does not deal with them.^[22]

On the other hand, the Brazilian Code of Civil Procedure prohibits a judge who has already decided a case in a certain level of jurisdiction from judging the same case in any other level of jurisdiction. This provision is practically inapplicable to arbitrators, since appeals in arbitration proceedings are almost non-existent.

Consequently, scholars advocate that the provisions of the Brazilian Code of Civil Procedure should be construed in a way that effectively captures their ‘spirit’. When applying these provisions to arbitrations, one should try to understand what is behind each of these situations in which a judge is prevented from judging a case, checking whether the reasons for these prohibitions would also recommend the non-confirmation or the removal of an arbitrator. Most importantly, these provisions should be considered non-exhaustive when applied to arbitrations.

According to the Arbitration Act,^[23] the arbitrators have a duty to disclose, before accepting the position, any fact that gives rise to justified doubt as to their impartiality and independence. As there is no definition in law of what should be specifically disclosed by the arbitrator, the IBA Guidelines on conflicts of interest are a commonly used reference in Brazil, both for domestic and international arbitrations.

Basically, the IBA presents three lists of situations (not exhaustive) that usually occur in practice to provide concrete guidance in assessing the impartiality of arbitrators.

The Red List contains a non-exhaustive enumeration of specific situations that should raise justifiable doubts as to the impartiality and independence of the arbitrator. The Orange List is a non-exhaustive list of specific situations that may, in the eyes of the parties, raise doubts as to the impartiality or independence of the arbitrator. The Green List contains a non-exhaustive list of situations in which there is no apparent or actual conflict of interest, from an objective point of view. Thus, the arbitrator has no duty to reveal situations that fall within this Green List.

In addition, pursuant to Article 20 of the Arbitration Act, a party that intends to raise objections concerning impartiality or independence of the arbitrator must do it at the earliest possible opportunity. There are controversies on whether the failure to comply with this provision prevents the party from raising the matter in the future (especially in a setting aside lawsuit).

Brazilian courts are dealing more frequently with discussions about the arbitrators’ duty of disclosure and the effects of failing this duty. There is an increasing number of setting-aside lawsuits on the grounds of lack of impartiality or independence and failure on the duty of disclosure.

For example, in 2022, the São Paulo State Court annulled an arbitration award because the arbitrator had previously worked for one of the parties for several years. The Court decided that the arbitrator failed to comply with the duty to disclose with regard to a relevant matter, so the award should be annulled. The court also decided that the evidence produced in the arbitration could not be used in the new procedure, since it was produced in front of an impeded arbitrator.^[24]

Another award was recently annulled by the São Paulo State Court because, among other matters, one of the arbitrators failed to disclose a professional relationship with the firm that represented one of the parties.^[25]

In 2020, the São Paulo State Court annulled an award on the grounds that one of the arbitrators failed to disclose that he had participated as arbitrator in another separate proceeding involving one of the parties and relating to a similar legal relationship.^[26]

Some say that these recent cases are threatening the continuance of the arbitration practice in Brazil. In our view, these cases are a natural effect of the flourishing growth seen during the past 20 years in the practice of arbitration. With more cases being solved by arbitration, more issues will appear and matters will be taken to, and decided by, our courts. If decided in a reasonable way, in accordance with the law, these setting aside lawsuits may even foster the development of arbitration, as seen in other countries.

Enforcement of the arbitration award

In accordance with the Arbitration Act, the arbitral award produces the same effects as a judicial award.^[27] In addition, the Brazilian Code of Civil Procedure provides that the enforcement of an arbitration award should follow the same procedure designed for the enforcement of judicial awards.

The party seeking the enforcement should file a submission briefly explaining what was decided in the arbitration and present a copy of the arbitral award. If the submission is in order, the court will summon the debtor to pay the amount defined in the arbitration award within 15 business days, under the penalty of (1) a fine of 10 per cent of the unpaid amount, and (2) attorney fees fixed at 10 per cent of the unpaid amount. If no payment is made, the assets of the debtor will be subject to seizure and, afterwards, to liquidation.

One of the measures that can be adopted to force the debtor to pay the award is the ‘protesting’ of the arbitration award before a notary officer. The protest has the effect of blacklisting the debtor, affecting its ability to enter into new business relationships – especially receiving new fundings.

Requests for preliminary injunctions are also authorised during these proceedings (especially in the beginning). Judges may order, for example, the freezing of assets if there is compelling evidence that the debtor is unreasonably disposing its assets to avoid payment of the award.

There is very limited space for a defence in the enforcement procedure. In summary, the debtor may only claim that:

• the arbitral award is null (under the situations addressed below – article 32 of Arbitration Act);
• it is not the actual debtor in accordance with the arbitration award;
• the seizure of its assets has not followed the applicable procedural rules or their evaluation is incorrect;
• the amounts claimed exceed the definitions of the award;
• the court lacks proper jurisdiction for the enforcement of the award; and
• the obligation was fulfilled after the award was issued (i.e., by a payment or a setting-off of amounts).^[28]

For a while, there was a discussion on whether the claim of nullity of the award could be raised after the end of the limitations period of 90 days applicable to setting aside lawsuits (see below). Recently, the Superior Court of Justice^[29] decided that this limitation period is appliable to both a setting aside lawsuit and a defence against an enforcement procedure on the grounds of nullity (since they have the same scope) and, therefore, a debtor who does not challenge an award within 90 days of its rendering has waived its right of raising this matter (even in defences against enforcement proceedings started after the end of this 90-day period).

The defence does not stay the execution of the award unless the debtor presents collateral and the court finds that (1) the defensive arguments are likely to be accepted, and (2) the debtor is under an imminent risk of damage.^[30]

Setting aside lawsuits

The Brazilian Arbitration Act^[31] contains an exhaustive list of specific situations in which the award can be set aside, which are:

• the arbitration agreement is null or invalid;
• the award was rendered by a person who was impeded from being an arbitrator (including arbitrators that lack impartiality or independence);
• the award does not contain a report on the background of the arbitration, the grounds for the decision or the operative part;
• the award was rendered outside the scope of the arbitration agreement;
• there was prevarication, concussion or corruption;^[32]
• late delivery of the award (beyond the time by which the award was to be rendered);^[33]or
• the arbitrators failed to respect the principles of the right to be heard, equal treatment, impartiality or unbiased judgment.

The situations are very limited, involving exclusively serious violations to procedural duties or rights. A review on the merits of the award is never authorised in accordance with Brazilian Arbitration Act, as repeatedly decided by the courts.^[34]

The setting aside lawsuit must be filed within 90 days of the delivery of the award (partial or final) or the decision on the request for clarification.^[35]

Brazilian courts continue to maintain a pro-­arbitration approach when reviewing annulment lawsuits, that is, actions to vacate Brazilian arbitral awards. A study conducted by the Brazilian Arbitration Committee (CBAr) concluded that Brazilian courts rarely annul arbitral awards, and, in the rare situation when they do, the grounds are consistent with Article 32 of the Arbitration Act.^[36] As an example, in 2012, Brazilian courts decided to set an arbitral award aside because, although the dispute resolution clause contained in the agreement provided exclusively for ‘mediation’ as a dispute resolution mechanism, the complaining party ended up being submitted to an ‘arbitration’.^[37]

Accordingly, in May 2021, the State Court of São Paulo denied an annulment suit under the finding that the party was seeking a reassessment on the merits of the case, which was not authorised in accordance with Brazilian law.^[38] The same conclusion was more recently reached by the same court also in another annulment claim.^[39]

Final remarks

Arbitration in Brazil has developed as an efficient and safe mechanism for dispute resolution. Arbitration players are generally satisfied with its deliveries and the parties tend to comply with the arbitral awards. Traditionally, setting aside lawsuits are rare and arbitral awards are only annulled in drastic situations – such as cases of clear violation of procedural rights.

More recently, debates over the duty to disclose have become more intense and setting aside lawsuits involving the matter are more frequent. These debates have inspired some legislative initiatives^[40] for regulating the duty to disclose, among other things (such as a maximum number of cases an arbitrator should be simultaneously involved in). These initiatives are seen with reservations by the arbitral community in Brazil, since they tend to limit the parties’ free will. Up to now, no such initiative has passed and arbitration in Brazil is still under a modern and internationally accepted regulation.

Arbitration institutions and organisations are working hard to establish a transparent and fruitful dialogue with both the judiciary and Congress about the matter. The main goal is to demonstrate that excessive regulations are a disservice to the practice and deviations to the standards expected from an arbitrator are properly dealt with by the arbitral system, so no excessive oversight is needed.

Also, the practice of disclosure is becoming more mature, with arbitrators being more careful when assessing potential situations of conflicts. Parties are also being required to play their role, investigating the available data in search for situations that could raise concerns over an appointed arbitrator.

These debates are certainly welcome and, if conducted and addressed in good faith, will collaborate even further with the growth of the arbitration practice in Brazil.

Notes