Arbitration has advanced considerably in Brazil in recent years. The number of cases, both domestic and international, has increased dramatically over the past decade. Further, Brazilian courts are almost uniformly supportive of arbitration as a form of dispute resolution.
The sharp rise in International Chamber of Commerce (ICC) arbitration illustrates this. In 1994, arbitrations seated in Brazil or involving Brazilian parties ranked 26th among ICC proceedings. From 2006 to 2009, these figures rose to fourth overall. Since then, Brazil has been involved in the most ICC proceedings among all Latin American countries.(1) Further, between 2009 and 2010 alone, the values involved in arbitration rose by over 180%. In recent years, similar rates have been maintained, if not increased.(2)
Brazil has become one of the top users of commercial arbitration in the world. Further, the country ranks number one among Latin American countries in an accelerating trend towards arbitration as the dispute resolution mechanism of choice for contracts of considerable value or complexity.
Advantages and disadvantages
The main advantages of commercial arbitration compared to court litigation are:
- reduced periods;
- specialised and neutral arbitrators; and
Although the direct costs involved in arbitral proceedings may be considerably higher than those of most court litigation, the possibility of obtaining a final decision in an average of one to two years (as opposed to five to 10 years with litigation) – particularly when considerable sums are involved – usually means that the cost-benefit analysis favours arbitration.
In recent years, legislation has come into force expressly allowing arbitration clauses in public concessions and contracts with state regulatory agencies. The possibility of submitting disputes with public entities to private tribunals, rather than state courts, has become increasingly attractive to investors that might otherwise be concerned about issues of partiality towards government bodies.
The high costs and absence of an appeal procedure are widely perceived as the disadvantages of arbitration, as compared to litigation. These two potential downsides can be mitigated (or even avoided) by including well-drafted arbitration clauses in contracts that justify arbitration by their nature, complexity or value.
The Arbitration Law (9307/1996) is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law and on the Spanish Arbitration Law 1988.
Although the Arbitration Law did not officially adopt the UNCITRAL Model Law (for which reason Brazil is not part of the official list of UNCITRAL Model Law countries), it has influenced the Arbitration Law considerably, particularly in relation to:
- the formal and substantive requirements of arbitration agreements;
- the principle of competence-competence (see "Risk of court intervention"); and
- the possibility of obtaining judicial relief, especially for interim and preservation measures.
Mandatory legislative provisions
Arbitration in Brazil can be used to resolve disputes involving negotiable rights of a pecuniary nature (ie, not involving civil guarantees, family or labour rights) between parties that have full legal capacity.
The Arbitration Law requires that agreements to arbitrate be in writing. The law also requires that arbitral clauses relating to contracts of adhesion (ie, where a standard form contract is imposed on one party without the possibility of negotiating terms and conditions) must be in bold type and initialled by the adhering party (usually a consumer).
The Arbitration Law does not specify time limits on parties' right to seek redress. Specific limitations are provided for different types of legal action under Articles 205 and 206 of the Civil Code, which also apply to arbitration.
Article 205 of the Civil Code establishes an overall limitation of 10 years for all legal actions that have no specific limitation provided by law.
Article 206 establishes one to five-year limitations for specific matters (eg, insurance claims, alimony, residential rent, civil guardianship and debt enforcement).
The limitation period is triggered by an event for which redress might be claimed (eg, contractual default) and is interrupted by service of process on the offending party and the commencement of legal action.
In Brazil, the most commonly used arbitration organisations in large commercial disputes are:
- the International Court of Arbitration of the ICC;
- the Centre for Arbitration and Mediation of the Chamber of Commerce Brazil/Canada;
- the São Paulo Chamber for Mediation and Arbitration;
- the Arbitration Centre of the American Chamber of Commerce; and
- the Conciliation and Arbitration Chamber of Fundação Getúlio Vargas.
Formally, arbitration agreements must be made in writing and signed by the parties; however, on a case-by-case basis, signing may be not required if consent has been unequivocally expressed by other written means, such as by specific reference to the arbitration clause by email or fax.
An arbitration clause that specifically refers disputes under the contract to arbitration under the rules of an arbitral organisation will automatically set aside the jurisdiction of the courts. However, arbitration clauses should also include the method of appointing arbitrators, the seat of the proceedings and the language of arbitration.
In relation to post-dispute agreements to arbitrate (see "Separate arbitration agreement"), the Arbitration Law requires the following:
- full civil qualification, consisting of the parties' full names, professions, document identifications and addresses;
- full civil qualification, consisting of the arbitrators' full names, professions, document identifications and addresses or, if applicable, identification of the arbitration organisation that will appoint the arbitrators;
- the subject of arbitration; and
- the place where the award will be made.
Separate arbitration agreement
An arbitration agreement can be a clause in the main contract or a separate document to which the main contract specifically refers.
If the main contract does not provide for arbitration, the parties can still use arbitration through a post-dispute arbitral submission.
Unilateral or optional clauses
Optional clauses that provide for the possibility of choosing litigation or arbitration are unusual and their validity under Brazilian law is questionable. Some institutions, such as the Centre for Arbitration and Mediation of the Chamber of Commerce Brazil/Canada, expressly bar such clauses from their admissible criteria.
Arbitration agreements are separate from the main contract and any nullity of the main contract does not affect the validity of the arbitration agreement.(3)
Breach of an arbitration agreement
Court proceedings in breach of an arbitration agreement
If a party starts court proceedings in breach of an arbitration agreement or otherwise refuses to engage in arbitration where a valid arbitration agreement exists, court assistance can be obtained to order a submission to arbitration.(4)
Article 7 provides a safety net to ensure that arbitration agreements are upheld where a party refuses to comply. Under Article 7, a judge can issue an injunction replacing the will of the party with his or her own and nominate an arbitrator on the party's behalf.
Further, where there is a valid arbitration agreement, courts have no jurisdiction over the merits of the matter. In these circumstances a judge must claim non-competence over the proceedings, and will most likely be required by the opposing party or the appellate court to do so.
Arbitration in breach of a valid jurisdiction clause
If arbitration is started in breach of a valid jurisdiction clause, the injured party can apply to the arbitrator to stay his or her competence over the dispute and apply for a judicial injunction to restrain the arbitral proceedings.
Brazilian courts have issued injunctions to restrain proceedings started abroad, where an arbitration agreement is breached or where the applicable law of the contract is pending a judicial decision. Parties may be subject to a daily fine for non-compliance.
Joinder of third parties
The Arbitration Law does not specifically provide for the joinder of parties that are not originally bound by the arbitration agreement. Legal theory mostly considers that third parties cannot join arbitral proceedings voluntarily or otherwise be compelled to join.
Case law is not unanimous in this respect, although it is unlikely that an arbitral tribunal or court will grant a request to bind a non-party to arbitration. In rare cases, third-party joinders have been allowed under the argument of implied consent, group company doctrine or connection of subject matter.
Number and qualifications/characteristics
Parties can nominate a sole arbitrator or a tribunal comprised an odd number of arbitrators.(5) If the parties nominate an even number of arbitrators, the arbitrators will choose another arbitrator to act as chair through a majority vote.
Typically, each party will nominate one arbitrator (up to a total of two), who in turn will nominate a third arbitrator to act as chair.
Although no specific requirements regarding the characteristics of arbitrators exist (other than a bar in Article 14 of the Arbitration Law against conflicts of interest), it is generally understood that arbitrators should be persons who enjoy full legal capacity and are trusted by the parties. Otherwise, the law provides no specific requirement as to education or professional experience.
Independence and impartiality
Any person who might have an interest in the parties or outcome of the dispute cannot act as an arbitrator.(6) Arbitrators are prevented from having any financial, political or effective link with any of the parties or the dispute. Further, on nomination, arbitrators must disclose any existing facts that might raise suspicion as to their impartiality or independence.
Appointment and removal
Appointment of arbitrators
When an arbitration agreement does not specifically provide for the nomination of arbitrators, parties will nominate arbitrators jointly (see "Number and qualifications/characteristics"). Further, judicial assistance can be requested to carry out nominations if the arbitration agreement and applicable rules are silent in this regard or if a party refuses to appoint its own arbitrator.(7)
Removal of arbitrators
Challenges to the appointment of an arbitrator can be made on the grounds of impediment and suspicion, which are the same grounds as apply for disqualifying judges under the Code of Civil Procedure.
Similar to the red-list factors in the International Bar Association (IBA) Guidelines on Conflicts of Interest, 'impediment' essentially means that an arbitrator is objectively partial to one of the parties or the outcome of the dispute.
Suspicion is comparable to the orange-list factors in the IBA Guidelines. These are subjective indications that the arbitrator in question might be partial to one of the parties or a specific outcome.
Under Article 15 of the Arbitration Law, parties have a right to challenge the appointment of an arbitrator and may also waive this right. Unlike with judges, no specific circumstances require the removal of an arbitrator, if at least one party does not wish to do so.
Commencement of arbitral proceedings
Proceedings are deemed to have begun as soon as the arbitral tribunal is constituted, which happens once all arbitrators have accepted their respective nominations.(8)
In arbitration, parties can choose or otherwise define the procedural rules, as long as the following general principles of law are respected:
- equality of the parties;
- impartiality of the arbitrator; and
- the principe du contradictoire (the adversarial principle).
Although parties are generally free to choose the procedural rules, the Arbitration Law establishes some formal boundaries that cannot be waived by mutual agreement in relation to:
- the formal and substantive requirements of final awards;(9) and
- the possibility of setting aside an award.(10)
Arbitrators are considered de facto judges for the purposes of the proceedings to which they are nominated.(11) For this reason, arbitrators enjoy similar powers to judges, except policing powers.
Brazilian procedure follows the inquisitorial model, whereby a judge or arbitrator guides proceedings in order to reach an informed decision on the matter. In accordance with civil procedure, evidence belongs to the adjudicator, who can require whatever proof he or she considers necessary to reach a full understanding of the dispute.
For this reason, arbitrators (like judges) can order the disclosure of any documents or require the testimony of any witness they consider necessary, and can request judicial assistance to force compliance.(12)
Scope of disclosure
Full US-style discovery is unusual in Brazilian commercial arbitration. Although possible in principle, arbitrators are reluctant to order parties to provide specific documents, unless a party shows that a given document is essential to the arbitration.
In practice, parties must prove their own claims through their own means. It is unusual for a party to be ordered to produce evidence against itself. However, Brazilian law allows evidence to be produced by any legal means.
Parties are free to agree on the order and form in which evidence will be presented or the procedure for examining witnesses. In principle, parties are also free to adopt evidentiary mechanisms typical of common law jurisdictions that would otherwise be inadmissible in the Brazilian courts, such as US-style disclosure.
However, parties cannot limit the scope of the inquisitorial powers of arbitrators, who are free to request any evidence deemed necessary.
The vast majority of arbitrations are confidential, which is one of the main differences between arbitral proceedings and litigation. Although the Arbitration Law does not specifically provide for the confidentiality of proceedings, this is generally understood to fall within the parties' discretion to establish their own procedural rules.
Further, the arbitration rules of the most commonly used arbitration institutions contain specific provisions allowing parties to make the proceedings confidential, which is permitted under Brazilian law.
Courts will usually intervene in arbitration only on the request of one of the parties. Articles 6 and 7 of the Arbitration Law contain specific provisions allow for injunctions, either ordering that procedures be conducted according to the relevant arbitration agreement or staying proceedings if a conflict of jurisdiction exists.
Further, if there is an 'empty agreement' (ie, providing for arbitration without giving information on establishing the tribunal or applicable rules), either party can request the other to appear before a judge in order to conclude a valid agreement which will govern the proceedings.
Judicial interim or preservation measures are allowed in Brazilian arbitration. While some Brazilian states have established first-instance courts with jurisdiction to hear business disputes (ie, commercial courts), no courts have specific jurisdiction over arbitration.
Risk of court intervention
In principle, if there is a valid arbitration agreement, any court hearing the dispute must defer jurisdiction to the arbitral tribunal.
On limited grounds, parties can attempt to restrain proceedings through injunctions. However, unless the arbitration agreement is obviously flawed, it is unlikely that Brazilian courts will interfere with arbitral proceedings.
Competence-competence is a cornerstone of Brazilian arbitration. If a party wishes to raise objections to a tribunal's jurisdiction, it must do so at the first possible moment after the tribunal has been established.(13)
In such cases the tribunal will usually bifurcate proceedings in order to give both parties an opportunity to argue their views. Objections can then be dismissed or granted, which may result in the termination, suspension or stay of proceedings.
Arbitrators are appointed similarly to judges and are given the necessary powers to hear proceedings according to the applicable arbitration rules.(14) For this reason, arbitrators can order any provisional measures deemed necessary, including granting security for costs. Arbitrators can also request judicial assistance to enforce measures in case of non-compliance.
Compensation for damages is the most common remedy in arbitration. As long as the subject matter of the dispute is arbitrable, an arbitrator can award the same remedies as a civil judge, including specific performance, declarations and compensation.
Rights of appeal and challenge
A challenge to an arbitral award must follow the procedure outlined in the Code of Civil Procedure and must be raised within 90 days of the award.(15)
An award can be challenged on the following grounds:(16)
- The arbitration agreement is invalid.
- The award was made by an arbitrator who should not have been appointed to the position.
- The award does not contain the details required by the Arbitration Law (ie, a description of the dispute, the motives of the arbitrator and operational details).
- The award exceeds the scope of what the parties have claimed.
- The award and decision do not consider all of the claims put forth by the parties.
- Corruption or embezzlement occurred during the proceedings.
- The time limit for making the award was not respected.
- There was a breach of due process.
Excluding rights of appeal
Due to the constitutional guarantee to full access to the judiciary,(17) parties cannot exclude each other's right of appeal. However, a judge will not review the merits of an arbitral award, except under the limited grounds for challenging awards (see "Right of appeal/challenge") or due to matters of public policy.
Legal fee structures
The Brazilian Bar Association provides a schedule of minimum mandatory fees applicable to different types of legal work. For all values above those minimum fees, lawyers are free to negotiate the most appropriate form of billing with their clients.
Although fee structures vary widely in view of the type and amount of work and the lawyer or firm involved, in arbitration it is not unusual for legal work to be charged on an hourly basis. Depending on the matter, clients can also negotiate a cap on overall charges.
Cost allocation is typically done according to the procedural rules that apply to a given dispute. In practice, the arbitrator will decide on the allocation of costs after an award is made.
Costs are typically attributed to parties in proportion to their losses. If a party is liable for 100% of the disputed amount, 100% of the costs will be payable by that party. In a split decision in which each party is liable for 50% of the value in question, costs are apportioned accordingly. However, no mandatory provision exists in this sense and parties can choose the method for the allocation of costs that suits them best.
Although methods for the allocation of costs vary widely from case to case and from arbitrator to arbitrator, the main factors considered in allocating costs are the subject matter of the dispute and the value involved.
Arbitral awards have a similar effect to judicial orders. Except under the limited circumstances in which an award can be challenged (see "Rights of appeal/challenge"), domestic awards are considered final and enforceable.
To enforce a domestic arbitral award, a party must submit it to an expedited judicial enforcement procedure in a local court, in the same manner as a judicial order.
Brazil is party to the New York Convention, which it ratified on July 23 2013.(18) Brazil is also party to:
- the Organisation of American States (OAS) Inter-American Convention on International Commercial Arbitration 1975;
- the Geneva Protocol on Arbitration Clauses 1923;
- the OAS Inter-American Convention on the Extraterritorial Validity of Foreign Judgments and Arbitral Awards 1979;
- the Mercosur Protocol on Jurisdictional Assistance and Cooperation Regarding Civil, Commercial, Labour and Administrative Matters 1992; and
- the Mercosur Agreement on International Commercial Arbitration.
In Brazil, foreign arbitral awards are recognised and enforced in a straightforward manner, unless objective grounds for the denial of recognition apply.(19)
Additionally, any foreign judgment (judicial or arbitral award) made by a foreign tribunal must comply with Superior Court of Justice Resolution 9/2005, which specifically regulates the procedure and requirements for recognition of decisions made abroad before the Superior Court of Justice.
Foreign judgments become effective only once the Superior Court of Justice confirms them and are subject to the following requirements:
- The tribunal that made the award must have had jurisdiction over the parties or the subject matter of the dispute.
- The party against which the award is being enforced must have been properly notified of the arbitration before the start of the arbitral tribunal or otherwise served of process according to the applicable law of the dispute.
- The award must be equivalent to a final enforceable decision in the jurisdiction where it was made.
- The award must be notarised at the Brazilian embassy or the consulate of the seat of arbitration and must be submitted to the Superior Court of Justice with a certified translation (by a sworn public translator).
- The award must not be contrary to public policy.
These are the only formal aspects of foreign awards that the Superior Court of Justice examines. They seek to ensure that the party against which an award is being enforced was granted the right to a full defence, and that Brazilian law was not violated during the proceedings.
The Superior Court of Justice is reluctant to examine the merits of a foreign judgment during confirmation proceedings.
Length of enforcement proceedings
Resolution 9/2005 seeks to accelerate the recognition and enforcement of foreign awards. Recognition before the Superior Court of Justice usually takes between six and 15 months to conclude. Once recognised, awards are subject to enforcement proceedings, which can last from a couple of months to several years, depending on the nature of the debt, the jurisdiction at federal or state level and the availability of assets for enforcement.
Congress has proposed a new Arbitration and Mediation Law. From the information provided thus far, rumoured reforms include a specific section concerning arbitration involving the state and state entities.
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