Recently gathered empirical data strongly favours the inclusion of of arbitration provisions in corporate documents.

The Catholic University of Sao Paulo has conducted research into decisions rendered by the state appellate court regarding companies' decision-making processes.

Researchers analysed more than 60 appellate court decisions published between 1997 and 2010 that specifically dealt with the invalidation of corporate deliberations. Although 95% of active companies in Brazil are organised as limited liability companies, the vast majority of the decisions related to shareholders' meetings within the context of so-called sociedades anônimas (corporations).

This discrepancy in the numbers is down to pure economics: the stakes are significantly higher in corporations, which normally results in these cases reaching the courts through adjudication, instead of conflicts being resolved out of court, as is the case with limited liability companies.

The study revealed that most court cases upheld corporate decisions. When the appellate court reversed a particular deliberation, in more than 70% of cases it was on the grounds of a lack of a particular formality under Brazilian corporate law (eg, failure to commence shareholders' meetings properly or meet quorum, or issues relating to the statute of limitations). In a few cases the court carried out a merits-based review of the corporate decisions, which were normally related to the abuse of corporate power, damages to shareholders and lack of justification.

However, the problem is not so much with the technical aspects of the decisions issued by the Brazilian judiciary. Precedents are consistent in these matters and some states, such as Rio de Janeiro, have even created specialised courts specifically to hear corporate disputes, which has improved the quality of the judgments. Furthermore, looking at past corporate cases, the courts show a trend of adopting a 'business judgement rule', which seems to discourage judges from interfering with the merits of corporate decisions.

The main problem which has been revealed by this research is the lengthy time that it takes to decide such cases: only 22% of cases were resolved within three years of filing, with as many as half of them taking up to six years to be finally decided by the appellate court.

As the saying goes, delayed justice is no justice at all. This is particularly true for corporate cases, where a reliable and streamlined dispute resolution process may literally become a matter of life or death for corporations when it comes to conflicts arising from, for example, M&A transactions, structural changes and capital increases.

Therefore, the recent empirical data strongly favours the use of arbitration in the context of corporate disputes. However, to ensure a swift resolution of shareholders' disputes through arbitration, it is necessary to pay attention to the underlying arbitral clauses, which must be consistent throughout the corporate documents - whether they be included in the articles of incorporation, the bylaws or a shareholders' agreement.

For further information on this topic please contact
Fernando Eduardo Serec or Antonio M Barbuto Neto at Tozzini Freire Advogados by telephone (+55 11 50 86 50 00), fax (+55 11 50 86 55 55) or email ([email protected] or [email protected]).