An Overview of Brazil’s Arbitration Landscape

Introduction

Arbitration in Brazil 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 a decision from the Supreme Court of Justice confirming its constitutionality in 2001 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 (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.

Infrastructure and construction are still two of the main sectors relying on arbitration for solving disputes, but mergers, acquisitions 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 No. 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 binding in the legal system, in general (and this is debatable in very specific circumstances) 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 Brazilian legislation (e.g., the Brazilian Civil Code), but in general they will not be bound by court decisions interpreting the legislation.

Also, as discussed below, certain procedural practices, which are seen in common law countries – such as broad or extensive discovery – are not commonly used, particularly 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 being empowered to assess its own jurisdiction). In fact, there are several decisions from the Superior Court of Justice (which assesses violations of the Constitution) 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 a foreign arbitral award).

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.

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

Arbitration involving public administration

Federal Law No. 13,129/2015 resolved the question of whether the public administration could solve its disputes through arbitration by 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 Federal Law No. 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 on a few occasions.

One of these 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 COPEL dispute involves waivable patrimonial rights, so it could be settled through arbitration. It also concluded that the validity of the arbitration clause was a matter to be assessed by the arbitration tribunal.

With the enactment of Federal Law No. 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 No. 13,129/2015 are the public nature 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. Decisions authorising the public administration to avoid 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.

Decree No. 10,025, enacted in September 2019, regulates the use of arbitration and other types of dispute resolution mechanisms with the federal government. The Decree provides that these arbitrations must be seated in Brazil, conducted in Portuguese and decided in accordance with Brazilian law.

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 the right to be heard and equal treatment.

The parties are also free to define the rules to be followed in the selection of arbitrators (of which there are normally three: one selected by each party and the third, who acts as chair of the tribunal, jointly selected by the party-appointed arbitrators). Renowned law professors and senior partners of law firms are typically appointed as arbitrators, but any person can be appointed and, in specific situations, professionals in other areas (such as engineers and accountants) are selected.

The procedure normally follows the same structure as seen internationally. The appointment of arbitrators is followed by the execution of the terms of reference, the presentation of written submissions, the production of non-documentary evidence (the stage at 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, for both 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.

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

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. These time frames do not apply to 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 (within limits) request documents that are with third parties or other parties. However, this possibility has some limitations, even in international arbitrations.

Broad or extensive discoveries are not provided for in Brazilian law and are not part of the country’s procedural culture. 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. 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.

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 (in international arbitrations, in particular, tribunals tend to leave the production of the expert evidence to the parties, instead of nominating an expert themselves); 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. In Brazil, testimonial evidence is usually produced at the hearing.

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 requirements regarding citizenship or qualifications. 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.

The Brazilian Code of Civil Procedure contains lists of situations in which a judge is precluded from hearing a case. These lists are also applicable to arbitrators owing to a provision of the Arbitration Act. 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 – or their law firms – may find themselves involved in legal work in favour of or against one of the parties involved in the case. 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.

On the other hand, the Brazilian Code of Civil Procedure prohibits a judge who has already decided a case at a certain level of jurisdiction from judging the same case in any other level of jurisdiction. This provision is inapplicable to arbitrators in practice, 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 that an arbitrator is either not confirmed or removed. Most importantly, these provisions should be considered non-exhaustive when applied to arbitrations.

According to the Arbitration Act, 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, for both domestic and international arbitrations.

The IBA presents three lists of situations (which are 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, and should always be disclosed. 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, so their disclosure may be recommended, depending on the specificities of the case. 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, so the arbitrator has no duty to reveal these situations.

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 about 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 State Court of São Paulo annulled an arbitration award because the arbitrator had previously provided legal services 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 a new procedure as it was produced in front of an impeded arbitrator.

Another award was annulled by the State Court of São Paulo because, among other matters, one of the arbitrators failed to disclose a professional relationship with the firm that represented one of the parties, having acted jointly with that firm in other cases.

In 2020, the State Court of São Paulo 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 concerning a similar legal relationship.

The view has been expressed that these recent cases are threatening the continuance of arbitration practice in Brazil. In the authors’ opinion, 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, the 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.

In this sense, an award rendered in April 2023 is being considered emblematic by scholars, as it differentiates the duty of disclosure from lack of impartiality. The lawsuit was filed before the State Court of São Paulo to discuss a breach of the duty of disclosure by arbitrators who had previously represented one of the parties in other cases. The judge considered that the fact should have been disclosed, but concluded that there was no evidence of concrete prejudice to the arbitrator’s impartiality, and dismissed the case. This matter was assessed as a discrete case (though, as noted above, the IBA Rules on the Taking of Evidence are often used).

Finally, a political party has recently filed an action before the Supreme Court of Justice with the aim of obtaining a ‘binding guidance’ on how Section 14 of the Arbitration Act should be interpreted. According to the political party, courts are wrongfully limiting the extension of the duty of disclosure, excluding relevant facts and circumstances from this duty. The action advocates that every fact or circumstance that could, in the eyes of the parties, raise doubts about the impartiality of the arbitrator should be disclosed. Furthermore, the political party alleges that this duty falls exclusively on the arbitrators and that the parties have no duty whatsoever to investigate facts that could jeopardise the arbitrator’s impartiality.

The action is still at a very preliminary stage and no decision on its merits is expected in 2023.

Enforcement of the arbitration award

In accordance with the Arbitration Act, the arbitral award produces the same effects as a judicial judgment (see further, below). In addition, the Brazilian Code of Civil Procedure provides that the enforcement of an arbitration award should follow the same procedure as for the enforcement of judicial awards. To be approved, the arbitration award must meet certain requirements, including not violating public policy (Brazilian Procedure Code, Article 963).

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, subsequently, to liquidation.

Requests for preliminary injunctions are also authorised during these proceedings (especially at the beginning); for example, judges may order 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 scope for a defence in the enforcement procedure.

Setting-aside lawsuits

The Brazilian Arbitration Act contains an exhaustive list of specific situations in which an award can be set aside.

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.

A setting-aside lawsuit must be filed within 90 days of the delivery of the award (partial or final) or a decision following a request for clarification.

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 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. As an example, in 2012, a court decided to set aside an arbitral award 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’.

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. The same conclusion was reached by the same court in another annulment claim.

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 arbitral awards. Traditionally, setting-aside lawsuits are rare and arbitral awards are only annulled in exceptional circumstances, such as cases of clear violation of procedural rights.

More recently, debates about 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 for regulating the duty to disclose, and other things such as a maximum number of cases an arbitrator should be involved in simultaneously. These initiatives are viewed 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 the regulation of arbitration in Brazil is still modern and internationally accepted.

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.

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

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