Introduction
Confidentiality under Brazilian law
Unprecedented position held by Appellate State Court of São Paulo
Is confidentiality at risk in judicial proceedings discussing arbitration-related matters in Brazil?
Confidentiality has long been portrayed as one of the core foundations on which arbitration rests. Usually, the secrecy of arbitration proceedings has been regarded as a key "selling point" to companies worldwide. For them, the need to settle disputes effectively and discreetly often outweighs the considerable expense associated with arbitration. As arbitration involves claims arising from complex agreements dealing with sensitive commercial and corporate information, frequently protected by non-disclosure provisions, the parties usually prefer not to see their dealings published in any capacity, as this could result in the disclosure of sensitive business or corporate information, as well as tactical advantages to their competitors. As such, even when local laws do not rule that arbitrations should be confidential (as it is in the case of Brazil's Arbitration Law,(1) for example), either the arbitration clauses or the arbitral institution's rules usually provide for the confidentiality of arbitration proceedings as a matter of practice.
Even though litigation before the Brazilian state courts is relatively inexpensive when compared with most common law jurisdictions, the agility, reliability and secrecy afforded by arbitration makes it an increasingly attractive option to most players in competitive markets. Recently, however, the decisions rendered by the Appellate State Court of São Paulo in appeals discussing the annulment of arbitral awards have put the confidentiality of the proceedings at risk, resulting in the disclosure of the parties to the arbitration, their information and documents, the arbitrators' names, the motions filed and decisions issued throughout the arbitration.
Confidentiality under Brazilian law
Brazil's Federal Constitution states that the law may only restrict the publicity of procedural acts when either the right to privacy or general public interest demand it (article 5th, LX). In addition, all judgments rendered by the judiciary must be public, yet the law may order that certain procedural acts take place under seal to protect the parties' right to privacy, as long as it does not interfere with the public's general right to information.
In 2016, a new Code of Civil Procedure came into force in Brazil. The Code of Civil Procedure sets out that all procedural acts shall be public as a rule. However, confidentiality may apply to disputes involving the following:
- public interest (article 189(I));
- marriage, separation, divorce, civil unions, filiation, child support, and custody of infants and teenagers (article 189(II));
- information protected by the right to privacy (article 189(III)); and
- arbitration, as long as the parties show that the arbitration itself was confidential (article 189(IV)).
In interpreting this provision, the courts have understood that article 189 of the Code of Civil Procedure does not provide an exhaustive list of confidentiality requirements, but rather, it provides a list of examples.(2) Courts, for example, historically recognise that proceedings dealing with sensitive commercial information or industrial secrets can be put under seal to protect the companies' confidential information.(3)
Therefore, the general rule under both the Constitution and the Code of Civil Procedure is that proceedings shall be public and, consequently, any interested citizen may have access to the case records, unless the law provides otherwise or the parties are entitled to secrecy to protect the public interest or the right to privacy.
Unprecedented position held by Appellate State Court of São Paulo
Even before the 2015 Code of Civil Procedure was enacted, Brazilian courts have historically ruled that proceedings involving arbitration-related matters – such as pre-arbitration measures, annulment proceedings of arbitration awards, enforcement proceedings of arbitral awards, and letters of request sent by the arbitral tribunal to the judiciary – shall be put under seal.
Recently, however, two decisions rendered by the Appellate State Court of São Paulo came as an unpleasant surprise to the arbitration community. In one of these cases, article 189(IV) of the Code of Civil Procedure – the very provision on which the confidentiality of the proceedings involving arbitration-related matters is based – was declared unconstitutional by the Court.(4) In the other case, the Court simply lifted the confidentiality provision when judging an annulment proceeding of an arbitral award.(5)
In the first case, the Appellate State Court of São Paulo upheld the position (initially expressed by the trial court judge) that article 189(IV) of the Code of Civil Procedure was unconstitutional, as it was supposedly incompatible with the aforementioned provisions of Brazil's Constitution. Putting aside discussions about constitutional law and whether the Appellate State Court of São Paulo followed the proper procedure for declaring such legal provision unconstitutional, for the purposes of this article it is relevant to highlight that the Court held that:
- Brazil's Federal Constitution sets a standard for the publicity of all judicial acts, admitting confidentiality only in exceptional circumstances and to safeguard the right to privacy or the general public interest.
- The Code of Civil Procedure – as with any infra-constitutional law – shall be subject to and interpreted in accordance with the Constitution's rules, and, therefore, the legislature could not have used such law to except the safeguards provided for by the Constitution.
- Even if one admits that the provisions of the Code of Civil Procedure could restrict constitutional rights – such as the right to information – such provisions shall be interpreted narrowly.
- By generally providing for the confidentiality of proceedings discussing arbitration-related matters, the Code of Civil Procedure unduly benefitted the interests of private parties in detriment to the public right to information, without proper consideration of the actual and specific matter discussed in each proceeding.
- The said provision of the Code of Civil Procedure would be contrary to the public interest and harmful to the legal system, both because it leads to an asymmetry of information among legal practitioners and because it makes it impossible for case law to be known, in detriment to the legal security and predictability promoted by modern civil procedure.
In the second decision, the Appellate State Court of São Paulo lifted the secrecy of the judicial proceeding without further consideration of the legal grounds. After partially annulling an interim arbitral award, the confidentiality of the case records was then unceremoniously lifted and, therefore, the parties' names, the names of the arbitrators and the documents rendered in the arbitration (including the award and motions filed by the parties in the arbitration) became available to the general public.
As was to be expected, these two decisions were not well received by Brazilian commentators and the arbitration community in general, as they were claimed to have largely ignored other constitutional rights – namely the essentiality of business secrets, guaranteed as an integral part of free initiative and the freedom of competition, which are also protected by Brazil's Constitution (articles 1(IV) and 170(IV)), and the recently enacted Economic Freedom Law (article 2).(6) Some commentators have also referred to the prior case law of Brazil's Superior Court of Justice, which had by then long recognised the need for confidentiality in cases dealing with strategic or sensitive commercial or corporate information.
Is confidentiality at risk in judicial proceedings discussing arbitration-related matters in Brazil?
Although these two recent decisions of the Appellate State Court of São Paulo are concerning – especially given the increasing number of arbitration-related judicial proceedings – extensive research into the case law of the appellate state courts and the Superior Court of Justice confirms that these decisions still reflect an isolated position on the issue. In fact, these decisions seem to stand alone even within the Appellate State Court of São Paulo, as prior rulings have largely upheld the judges' duty to preserve the confidentiality established in arbitration agreements.(7)
Meanwhile, the decisions of other Appellate State Courts have favoured the confidentiality of judicial proceedings in claims arising from or related to arbitration, based primarily on the fact that article 189(IV) of the Code of Civil Procedure provides for a well-founded exception to the Constitution's rule about publicity. Some rulings also point to the fact that article 22-C of Brazil's Arbitration Law(8) authorises the confidentiality of court proceedings even in the enforcement of letters of request sent by arbitral tribunals to the judiciary. This means that there would be no sense in restricting the interpretation of article 189(IV) of the Code of Civil Procedure, and, therefore, restricting the secrecy of other proceedings arising from or related to arbitration.
While the Superior Court of Justice has not yet ruled on the issue specifically, the general understanding remains in the sense that article 189 of the Code of Civil Procedure does not present an exhaustive list of the cases that should be put under seal, therefore allowing courts to order confidentiality in other circumstances, such as the cases dealing with sensitive commercial or industrial information.(9)
Moreover, the Superior Court of Justice's recent rulings have also upheld the confidentiality of acts practised by Appellate State Courts in connection with arbitral proceedings, such as in the case of letters issued by arbitral tribunals to the judiciary requesting the registration of orders for the attachment of assets. In another case, the Superior Court of Justice ordered the exclusion of an arbitration award from the case records at the request of one of the parties, to preserve the confidentiality of the arbitration proceedings.(10)
Therefore, currently, there seems to be no immediate cause for concern of a widespread devaluation of the principle of confidentiality by the Brazilian courts. A respect for confidentiality is the very same quality which largely helped to popularise arbitration as an efficient dispute resolution mechanism. Regardless, lawyers dealing with corporate and commercial disputes should be aware and closely monitor such discussion, as it may well impact the perceived benefits of arbitration.
For further information on this topic please contact Gisela Ferreira Mation, Leandro Felix or Igor Bechtlufft at Machado Meyer Advogados by telephone(+55 11 3150 7000) or email (gm[email protected] or [email protected]). The Machado Meyer Advogados website can be accessed at www.machadomeyer.com.
Endnotes
(1) Federal Law No. 9.307/1996, with the amendments introduced by Federal Law No. 13.129/2015.
(2) See, for example, the decisions rendered by the Appellate State Court of Paraná, appeal No. 0055981-95.2020.8.16.0000, reporting judge Abraham Lincoln Calixto, 4th Civil Panel, ruled on 8 March 2021; and appeal No. 0705306-39.2020.8.07.0000, reporting judge Angelo Passareli, 5th Civil Panel, ruled on 16 July 2020.
(3) See, for example, Superior Court of Justice, appeal No. REsp 1217171/RJ, reporting justices Marco Buzzi and Luis Felipe Salomão (leading vote), 4th Panel, ruled on 10 March 2020.
(4) See Appellate State Court of São Paulo, appeal No. 2263639-76.2020.8.26.0000, reporting judge Cesar Ciampolini, 1st Commercial Chamber, ruled on 2 March 2021.
(5) See State Court of São Paulo, appeal No. 1048961-82.2019.8.26.0100, reporting judge Azuma Nishi, 1st Commercial Chamber, ruled on 10 March 2021.
(6) Federal Law No. 13.874/2019.
(7) See, for example, the decision rendered by the State Court of São Paulo, appeal No. 2090719-38.2016.8.26.0000, reporting judge Ricardo Negrão, 2nd Commercial Chamber, ruled on 14 June 2016; appeal No. 2122048-29.2020.8.26.0000, reporting judge Alexandre Lazzarini, 1st Commercial Chamber, ruled on 29 October 2020.
(8) "Article 22-C. The arbitrator or the arbitral tribunal may issue an arbitral letter for a national court to perform or order the performance of an act requested by the arbitrator, within its territorial jurisdiction". Free translation from the original in Portuguese.
(9) See supra at fn No. 3. See also Superior Court of Justice, appeal No. REsp 1082951/PR, reporting justice Raul Araújo, 4th Panel, ruled on 6 August 2019.
(10) See Superior Court of Justice, appeal No. REsp 1678224/SP, reporting justice Nancy Andrighi, 3rd Panel, ruled on 7 May 2019; Superior Court of Justice, appeal No. CC 122.439/RJ, reporting justices Massami Uyeda and Luis Felipe Salomão (leading vote), 2nd Panel, ruled on 11 September 2013.