Contributed By Demarest Advogados
Over the last the two decades there has been a significant increase in the use of arbitration as an alternative means for the resolution of domestic and international disputes. This is the result in large part due to a legislative effort to improve the legal framework of arbitration in Brazil.
The enactment of the Brazilian Arbitration Act (“BAA”) in 1996, followed by the confirmation of its constitutionality by the Federal Supreme Court in 2001, in addition to the ratification of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“NY Convention”), have all contributed significantly to the prevalence of arbitration in Brazil.
This pro-arbitration legislative environment has also been embraced by the Brazilian courts, which have become almost uniformly supportive of arbitration, acknowledging it as a valid means of dispute resolution and increasingly recognising its legitimacy and autonomy.
An example of this is the creation by the State Court of São Paulo, which has specialised chambers for the resolution of arbitration-related disputes, both at lower court and appellate court levels. Such chambers have jurisdiction to administer and rule upon cases in matters such as pre-arbitral interim relief, coercive measures in aid of arbitration and lawsuits to enforce or set-aside arbitral awards.
To illustrate the prevalence of arbitration in Brazil, the 2018 International Arbitration Survey, which was held at the Queen Mary University of London, partnered by White & Case LLP, analysed the evolution of international arbitration and placed São Paulo in eighth place in the overall ranking – identifying Brazil as an arbitration-friendly jurisdiction.
Arbitration is most frequently used in Brazil for the resolution of disputes involving: (i) construction and infrastructure projects (such as oil, gas and electricity); (ii) commercial and financial agreements; (iii) corporate controversies; and (iv) agricultural matters.
An English translation of the BAA can be found at the website of the Brazilian Arbitration Committee: http://cbar.org.br/site/legislacao-nacional/lei-9-30796-em-ingles/
The current trend concerning arbitration in Brazil in 2018/19 relates to disputes involving the disruption of commercial agreements and corporate liability as a result of the Lava Jato Operation (“Operation Carwash”), which is considered to be the largest corruption and money-laundering scandals in the country’s history.
Another trending topic in Brazilian arbitration is the recent amendment of Law Decree No. 5.452/1946 (also known as Consolidation of the Labor Laws (“CLL”)) by Federal Law No. 13.467/2017, which reformed Brazilian labour law. Among other changes, the latter enabled the resolution of certain labour disputes by way of arbitration, which was not authorised under the previous legal regime. Consequently, arbitration institutions are having to create specific sets of rules for labour arbitration and, in turn, labour law reform is promoting academic debate on the development of labour arbitration in the country.
Discussions on costs associated with the arbitral proceedings, vis-à-vis the constitutional right of access to justice, are also common when arbitration is used as a method of dispute resolution because the costs involved are generally higher than the costs associated with court litigation. In light of this, discussions on third-party funding and arbitration involving impecunious parties are also on the rise.
Arbitration is most frequently used for the resolution of disputes involving: (i) construction and infrastructure projects (such as oil, gas and electricity); (ii) commercial and financial agreements; (iii) corporate conflicts; and (iv) agricultural matters.
However, the latter amendment of the Brazilian Arbitration Act, through Law No. 13.129/2015, expressly provides for the use of arbitration by the public administration in respect of freely transferable property rights, confirming the trend in case law that recognises the jurisdiction of arbitral tribunals to rule upon cases involving public administration. This has entailed an increase in the number of agreements that contain arbitration clauses and is already resulting in an increase in the use of arbitration in disputes arising out of such agreements.
In 2018/19, we have seen an increase in the use of arbitration by the construction sector, which we expect will be maintained in the coming years as a direct consequence of the damages that resulted from the Lava Jato operation and the subsequent disruption of commercial agreements and the selling of assets.
There are several arbitral institutions in Brazil. The most prominent and the most commonly used to resolve large commercial disputes are:
In addition, in 2017 the Court of Arbitration (“Court”) of the International Chamber of Commerce (“ICC”) established a case management team in São Paulo. According to statistics released in 2018, Brazil ranks in third place among those countries where parties are represented in cases before its Court of Arbitration, only behind France and the United States.
Even though there are no specific reports on the arbitral institutions most used for international arbitration, the 2017 Annual Report of Arbitration in Brazil (the most recent report available) from the Arbitration Committee of the Center of Studies of Law Firms (CESA) ranked the ICC, CAM and CAM-CCBC as the institutions with the most ongoing proceedings involving foreign parties (49%, 15.79% and 13.6%, respectively).
Arbitration in Brazil (both domestic and international) is governed by the BAA, which was amended by Law No. 13.129/2015.
For matters on which the BAA is silent, the Brazilian Code of Civil Procedure (Federal Law No. 13.105/2015 (“BCCP”)) could apply in a subsidiary manner, depending on the factual and legal circumstances of the case. There are no legal provisions or consolidated case law that provide for automatic application.
Although the BAA is not a verbatim adoption of the UNCITRAL Model Law, the latter has considerably influenced the drafting of the former, as can be seen from several similarities of both instruments, such as, but not limited to: (i) party autonomy to establish procedural rules and select governing law; (ii) enshrinement of the competence-competence rule and of the presumption of separability of the arbitration agreement; (iii) the duty of the arbitrator to disclose facts that generate justifiable doubts as to its independence and impartiality; and (iv) authorisation for the arbitral tribunal to grant injunctive and interim relief, among others.
The BAA does not contradict the UNCITRAL Model Law in any significant way. Regarding the differences between the BAA and the Model Law, it is worth noting that the BAA does not make a distinction between domestic and international disputes.
There has been no significant change to the BAA in the past year, nor to any other legislation that may affect the practice of arbitration in Brazil.
However, in 2015, there was a noteworthy amendment to the legislation, which resulted in changes to the arbitration landscape in Brazil. Law No. 13.129/2015 modified the BAA, introduced several changes that were already accepted among scholars and the courts, as well as new mechanisms to improve the administration of arbitration proceedings.
The main changes were related to: (i) the scope of the application of arbitration, by expressly authorising the use of arbitration by the public administration and the insertion of arbitration agreements into corporate documents; (ii) the competence of the court to rule on the recognition of foreign arbitral awards; (iii) the power of judicial courts to issue preliminary/interim relief before commencement of arbitral proceedings; (iv) the choice of arbitrators, establishing that the parties to the arbitration agreement may provide for the exclusion of specific rules enacted by the chosen arbitration chamber for the purpose of limiting the choice of arbitrator to a ‘list of arbitrators’; and (v) the possibility of arbitral tribunals issuing partial awards.
Law No. 13.129/2015 also established the ‘arbitration letter’, pursuant to which the arbitral tribunal may request the national courts to carry out acts that fall outside the scope of the tribunal’s powers (such as coercive measures).
The BCCP was enacted in 2015, bringing with it several provisions that generally support arbitral proceedings. The most relevant include the express acknowledgement of the jurisdictional nature of arbitration, the arbitral letter and the recognition that any judicial lawsuit arising from a confidential arbitration shall also be deemed confidential.
The parties can enter into an arbitration agreement through an arbitration clause or a submission agreement (called “compromisso arbitral” in Portuguese).
Concerning form, in order for the arbitration clause to be enforceable, it must be established in writing, inserted into the underlying agreement itself or into a separate document or amendment referred to therein.
When drafting arbitration clauses, practitioners should ensure that: (i) all the parties involved have full legal capacity to engage in arbitration; (ii) the subject matter of the dispute is arbitrable (ie deemed to be freely transferrable property rights, also known as ‘negotiable rights’); and (iii) Brazilian public policy is not violated.
Also, since the issue of third-party joinder remains unsettled in Brazil, practitioners should be precise when drafting arbitration clauses that provide for multi-party and/or multi-contract disputes.
In adhesion agreements (that is, where a standard form contract is imposed on one party without the possibility of negotiating terms and conditions), the arbitral clause must be in boldface type and the adhering party must expressly sign it in addition to signing the main agreement. The courts have only accepted exceptions to this rule in cases in which the adhering party is fully aware of arbitration practices and is highly educated in such matters.
If the main agreement does not contain an arbitration clause, the parties may still resort to arbitration in the event that a dispute arises by agreeing to sign a submission agreement that observes the same legal requirements as set forth in an arbitration clause.
It is important to note that in the event of non-compliance with the legal requirements, the parties must raise questions regarding the nullity, invalidity or inefficacy of the arbitration agreement as soon as the arbitration proceeding is initiated. If the interested party fails to do so, the lack of a formal objection may be considered in most cases to be a new independent consent to arbitrate and the arbitral proceeding will continue as normal.
Under Brazilian Law, the term "arbitrability" refers to the possibility or not of a certain dispute being referred to arbitration in light of subjective and objective criteria. Subjective arbitrability consists of the parties’ capacity to engage in arbitration, whereas objective arbitrability refers to the subject matter in dispute.
As to subjective criterion, the BAA provides that the parties must have full legal capacity to engage in arbitration (ie the capacity to enter into an agreement). Regarding objective criteria, the BAA limits arbitration to conflicts involving freely transferable property rights (also referred to as ‘negotiable rights’), which means that certain matters are generally not arbitrable even if the parties mutually agree to arbitrate. Among others, family law, tax law, bankruptcy law and criminal law matters, as well as certain public policy matters, are deemed non-arbitrable. Certain disputes concerning competition law, antitrust and securities transactions are considered arbitrable, even though they involve the public interest to some extent.
Most commercial disputes are deemed arbitrable, including disputes involving government-controlled entities and the public administration, subject to the exceptions listed above.
The courts have tended to confirm the enforcement of arbitration agreements. In a study elaborated by the Brazilian Arbitration Committee (CBAr) and the Brazilian Association for Arbitration Students (ABEArb), which analysed 63 decisions on the enforcement of arbitration agreements from 2008 to 2015, it was found that in the majority of cases the courts recognised and applied the competence-competence principle, thus confirming the arbitral tribunal’s priority to rule on its own jurisdiction.
The research also found that, in general, the courts are of the view that bankruptcy proceedings cannot be resolved under arbitral proceedings. The courts have also ratified that arbitration agreements are enforceable in relation to public entities.
Lastly, the courts find that arbitration clauses on standard forms are usually not enforceable against the adhering party.
Article 8 of the BAA provides for the autonomy of the arbitration clause in relation to the main contract, which means that the validity of an arbitration clause must be determined separately from the validity of the main contract. Thus, even if the main contract is found to be invalid, this does not necessarily lead to the invalidity of the arbitration clause.
Parties may establish the mechanisms and proceedings for the selection of arbitrators or refer to the rules of an arbitration chamber.
The parties can appoint either a single arbitrator or a panel composed of an uneven number of arbitrators. If the parties appoint an even number of arbitrators, the arbitrators must choose another arbitrator in order to form an arbitral tribunal with an uneven number of arbitrators. The most prominent arbitration institutions restrict the number of members of the arbitral tribunal to three.
The Brazilian Arbitration Act provides that any person with legal capacity who enjoys the trust of the parties can be an arbitrator, as long as he or she acts with impartiality and independence. A person who can be characterised as having an impediment or is subject to suspicion (as provided for in the BCCP and further analysed in the answers to the questions below) is prevented from becoming an arbitrator.
Active judges are also barred from acting as arbitrators, in accordance with the Organic Law of the Judiciary (Federal Law No. 35/1979).
Foreign arbitrators routinely serve in panels seated in Brazil, since the Brazilian Arbitration Act does not require arbitrators to be Brazilian nationals or residents.
Although the Brazilian Arbitration Act does not expressly forbid legal entities from acting as arbitrators, this would be impossible in practical terms.
Prior to the amendment to the BAA in 2015, some arbitral institutional rules limited the choice of arbitrators to a pre-determined list of arbitrators, which should include the president of the arbitral tribunal. However, the parties are now entitled to set aside this limitation.
Should the parties’ chosen method for selecting arbitrators fail, they may: (i) agree on a new method or nominate an appointing authority to that end; (ii) rely on the provisions of the rules of the chosen arbitration institution regarding the default appointment of arbitrators; and/or (iii) require court assistance, as set forth in articles 6 and 7 of the BAA, which provide that, in such an event, a judge may appoint a sole arbitrator to resolve the dispute.
If the parties’ chosen method for selecting arbitrators fails and they do not come to an agreement and the institutional rules do not provide a solution (or if it is an ad hocarbitration), the courts may intervene in order to assist the parties in appointing the arbitrators.
In such cases, according to paragraph 2 of article 13 of the BAA, the parties shall require that the arbitrator be competent to rule on the dispute, following the procedure set forth in articles 6 and 7 of the BAA.
Arbitrators may be challenged on the same grounds of impediment and suspicion that are applicable to judges, as set forth in articles 144 and 145 of the BCCP. Note that the IBA Guidelines on Conflicts of Interest in International Arbitration may be applied as soft law, but this is not a strong trend.
Regarding the grounds for impediment, Brazilian Law establishes that the arbitrator shall be removed in cases where: (i) he or she has acted as an agent/representative of a party, or has acted as an expert witness or testified as a witness; (ii) he or she has rendered a decision within the same dispute; (iii) his or her close relative is acting in the case as counsel to one of the parties; (iv) his or her close relative is a party; (v) he or she is a member, officer or manager of a legal entity that is a party; (vi) he or she is the heir presumptive, donee or employer of any of the parties; (vii) an educational institution with which he or she has an employment relationship is a party; (viii) a party is a client of his or her close relative; or (ix) he or she filed a lawsuit against a party or its lawyer.
The definition of impediment is similar to the red list factors in the IBA Guidelines on Conflicts of Interest.
Regarding the grounds for suspicion, Brazilian law establishes that the arbitrator shall be disqualified if: (i) he or she is a close friend or in conflict with the parties or their lawyers; (ii) he or she receives gifts from the parties, advises the parties regarding the subject matter of the arbitration or provides the means to cover the expenses of the proceeding; (iii) a party is a creditor or debtor of the arbitrator or his or her close relatives; and (iv) he or she has an interest in the outcome of the dispute.
The definition of suspicion is similar to the orange list factors in the IBA Guidelines on Conflicts of Interest.
According to Article 14, paragraph 1 of the BAA, before accepting service, a person appointed to act as an arbitrator has a duty to disclose any fact that he or she finds relevant that would likely give rise to justified doubts as to his or her impartiality or independence.
As per the proceedings for the challenge of arbitrators, the interested party shall file the challenge directly to the sole arbitrator or to the arbitral tribunal, specifying his or her reasoning and evidence. If the challenge is accepted, the disqualified arbitrator shall be removed and replaced by a substitute. However, the rules of the arbitratral institution chosen by the parties may provide for a different proceeding to challenge and remove an arbitrator.
If the parties did not appoint a substitute arbitrator in the arbitration agreement, the rules of the arbitral institution on this matter shall be applied. If the parties do not come to an agreement and the institutional rules do not provide a solution (or if it is an ad hoc arbitration), the interested party shall request assistance from the courts, as provided for in article 7 of the BAA.
It is also relevant to note that the CAM-CCBC, one of the most prominent arbitration institutions in Brazil, has established a specific proceeding for handling challenges to arbitrators by determining that an ad hoc committee shall be instituted to rule upon every challenge to arbitrators (Article 5.4 of the CAM-CCBC’s Rules and the CAM-CCBC’s Administrative Resolution No. 25/2017).
It is the parties’ right to challenge or not appoint an arbitrator and, as such, this right can be waived or simply not exercised. There are no specific circumstances that require an arbitrator to be removed should the parties not wish it so.
To be considered independent and impartial, an arbitrator must be free from the impediments listed above.
Additionally, it is common for arbitral institutions to provide their own questionnaires and codes of ethics, which must be respected by both the arbitrators and the parties. Such codes usually do not go beyond the practices established on international soft law, such as the IBA Guidelines on Conflicts of Interest.
As per 3.2 Arbitrability, the BAA limits the objective arbitrability to cases involving freely transferable property rights, which means that certain matters may not be challenged through arbitration even with the agreement of the parties, eg family law, tax law, bankruptcy law and criminal law matters, as well as certain public policy issues.
In general, disputes concerning competition law, antitrust and securities transactions, although involving public interest to some extent, are deemed arbitrable. There is some controversy as to the arbitrability of intellectual property rights, labour law matters and restructuring proceedings.
The BAA, following its amendment, has expressly established that disputes with public entities are arbitrable as long as these disputes concern freely transferable property rights.
Article 8 of the BAA expressly provides for the competence-competenceprinciple, which means that the arbitral tribunal has priority over the national courts to rule on its own jurisdiction.
Whereas the parties can submit a dispute about jurisdiction to the judiciary, in the great majority of cases these cases are denied due to the competence-competenceprinciple.
As mentioned in 5.2 Challenges to Arbitration, the BAA expressly provides for the competence-competenceprinciple.
However, there are only two situations in which the courts can address issues of jurisdiction, namely: (i) under article 7 of the Brazilian Arbitration Act, when there is a ‘void’ or ‘pathological’ arbitration clause,ie a defective arbitration clause, the interested party may request that the other party be ordered to appear in court so that the submission agreement can be signed and (ii) under Article 32 of the Brazilian Arbitration Act, the interested party may attempt to vacate an arbitral award.
The scenarios related to jurisdiction include: (i) the arbitration agreement is null; (ii) the award was rendered by an individual who was not allowed to serve as an arbitrator; (iii) the award did not comply with the requirements of Article 26 of Brazilian Arbitration Act; (iv) the award exceeded the limits of the arbitration agreement; and (v) it has been duly proven that the award was made through unfaithfulness, extortion or corruption.
Parties may only challenge the jurisdiction of the arbitral tribunal before the courts after an award has been rendered and, as a rule, solely on the grounds of the events listed in Article 32 of the BAA.
Any attempts to discuss the jurisdiction of the arbitral tribunal prior to the issuance of the award are likely to be dismissed on the basis of the competence-competence principle.
The courts have shown a tendency to hear applications solely based on matters of public policy and the validity of the arbitration clause itself, such as the need for the clause to be in writing and claims regarding consent to the clause itself. In this regard, the competence-competence principle is used to resolve matters of admissibility and jurisdiction. In addition, the BAA theoretically allows for a full review of questions of admissibility and jurisdiction after the arbitral award has been rendered.
Brazilian courts have a consolidated pro-arbitration position. Therefore, as a rule, the courts refuse to hear cases that involve a breach of an arbitration agreement. Once again, the competence-competenceprinciple is widely respected and utilised.
However, it is important to note that, according to paragraph 3 of Article 485 of the BCCP, the defendant must raise a motion to dismiss the lawsuit on grounds of the existence of an arbitration agreement. If he or she fails to act accordingly, he or she will be deemed to have waived the arbitration agreement and the court proceedings shall continue.
The BAA does not provide specific rules regarding the effects of an arbitration agreement on third parties, although the arbitration rules of some major arbitral institutions in Brazil partially provide for such cases.
Brazilian courts have, in certain instances, established that a non-signatory may be bound by an arbitration agreement if he or she replaced the contracting party that originally entered into the agreement or if he or she significantly participated in negotiating the arbitration agreement. Several precedents recognise the application of the ‘group of companies’ and ‘group of contracts’ doctrines in order to extend the arbitration agreement to non-signatories. This position, however, is not free from opposition.
In this respect, it is relevant to mention some cases that have been placed under the spotlight in Brazil regarding this issue during the past years. For example: (i) the Trelleborg Case, in which the São Paulo Appellate Court extended the effect of an agreement to arbitrate to a non-signatory based on its active participation in the performance of the agreement (TJSP, Appeal No. 267,450,4/6-00, May, 2006); (ii) the Comverse Case, in which the Brazilian Superior Court of Justice extended the effect of an agreement to arbitrate to a non-signatory, also based on its active participation (STJ, Contested Foreign Award No. 3,709/US, June, 2012); (iii) the Paranapanema Case, where the Brazilian Superior Court of Justice granted the extension of arbitration clauses to ancillary contracts (STJ, Special Appeal No. 1,639,035/SP, September, 2018); and (iv) the Continental Case, where the Brazilian Superior Court of Justice recognised the possibility that an arbitral tribunal could pierce the corporate veil and extend its jurisdiction to a non-signatory party (STJ, Special Appeal No. 1,698,730/SP, May 2018).
With this in mind, it is possible that these types of extensions would reasonably apply to both foreign and domestic third parties.
Arbitral tribunals may grant interim measures necessary to protect the parties’ rights at any time throughout the arbitral procedure.
The Brazilian Arbitration Act does not set limits on the arbitral tribunal’s power to issue interim measures within its jurisdiction. An arbitral tribunal may issue temporary restraining orders or interim relief sought by the parties, as well as ex parte remedies, without hearing the respondent's arguments. Such orders are binding on the parties.
The most common type of interim relief requested is aimed at compelling the opposing party to produce evidence and to compel witnesses to attend hearings. Other reliefs may also be granted, such as orders for one of the parties to refrain from performing certain acts.
If the arbitral tribunal is not yet constituted, the parties may resort to the state courts, as per Article 22-A of the BAA.
Finally, certain arbitral institutions, such as the CAM, CAM-CCBC and ICC, have specific rules for Emergency Arbitrator Proceedings.
Before the arbitral tribunal is constituted, the parties may submit urgent preliminary relief requests to the judiciary. In such circumstances, once constituted, the arbitral tribunal will assess the courts’ decision and decide on whether or not to maintain it. After the constitution of the arbitral tribunal, the parties may only seek interim relief directly from the tribunal.
Courts also play a role in enforcing preliminary or interim measures granted by arbitral tribunals. The BCCP created a mechanism named ‘the arbitral letter’ in order to facilitate communication between the courts and the arbitrators, especially regarding the enforcement of interim relief measures granted by arbitrators. In the event of the enforcement of interim relief measures, the courts will not reassess the merits of those decisions. Moreover, the courts may grant interim relief in aid of foreign seated arbitrations, since the BAA applies to both domestic and international disputes. In this context, the courts may grant various preliminary or interim reliefs, for instance: (i) disclosure of documents and evidence production subject to certain limits; (ii) a stay on the effects of shareholders’ meetings, deliberations and other corporate activities; (iii) seizure of assets; and (iv) other miscellaneous orders aimed at preserving the status quo and ensuring the effectiveness of the final arbitral award.
The use of emergency arbitrators is not subject to any legal restriction. In fact, certain arbitration institutions have already issued specific regulations governing emergency arbitration procedures.Emergency arbitrators are generally empowered to grant the same reliefs as judges, except for reliefs that involve coercive measures.
As a general rule, the national courts cannot interfere once an emergency arbitrator has been allocated to a certain matter. Nonetheless, depending on the rules governing the emergency arbitration, there may be concurrent jurisdiction.
There is no express provision barring orders concerning security for costs, which may be granted based on the broad power of judges and arbitrators to grant interim reliefs in general (Articles 22-B of the BAA and 300 of the BCCP).
A request for interim relief should generally meet two requirements: (i) fumus boni iuris, ie the likelihood of the requesting party prevailing; and (ii) periculum in mora, ie the risk of irreparable harm or of a harm that is difficult to repair. In case of a request for security for costs, such requirements would generally be met upon presentation of evidence that the counterparty might not have sufficient funds to reimburse the costs of the arbitration to the requesting party.
The main rules regarding the arbitral procedure are set forth in the BAA, the arbitration agreement and the rules of the arbitration institution chosen by the parties, if any.
In general, the parties are free to decide on the procedure to be followed by the arbitral tribunal and may tailor the arbitration to their needs. The procedure to be followed may be based on the rules of an arbitral institution or be entirely decided by the parties, as provided for in Article 21 of the Brazilian Arbitration Act. The parties may also make changes to these rules, as long as they observe the mandatory provisions of Brazilian law and do not violate the due process of law.
If the parties do not resort to the rules of an arbitral institution or make no decision on the rules governing the procedure on the arbitral agreement, the arbitral tribunal will do so.
There are some procedural rules and core principles of Brazilian law that the arbitral tribunal must observe, such as the fair and equal treatment of the parties, due process, the right to be heard and present a thorough defence and the impartiality of the arbitrators, which are considered to be constitutional rights and thus subject to public policy.
There are no specific steps required by law. However, considering that the parties must receive equal treatment and both have the right to be heard and to present a thorough defence, it is clear that the parties must have the opportunity to present their case and refute the other party’s claims.
Moreover, the BAA includes the following mandatory provisions that the parties cannot waive or derogate: (i) the formal and material requirements of the award and (ii) the right to make a court application to set-aside the arbitration award.
As per Article 18 of the Brazilian Arbitration Act, arbitrators have powers similar to those of judges, with the exception of enforcement and coercive powers. Accordingly, an award issued by an arbitrator does not need to be ratified by the judiciary.
The arbitral tribunal must conduct the proceeding in a way that allows it to reach an informed decision on the dispute; the parties cannot limit the tribunal’s power.
With regard to the production of evidence, arbitrators can determine the submission of any documents or order any witness to provide testimony. The arbitrators are entitled and responsible for requesting the production of any evidence they deem necessary.
An arbitrator must be impartial and independent, as well as considerate and dedicated to the role he or she exercises. Arbitrators must bear responsibility in the case of a breach of duty. They must also bear civil liability and are obligated to compensate the parties for damage caused by their negligence or misconduct. They are also subject to the criminal law provisions (the rules applicable to public servants also apply to arbitrators).
The legal representatives must be duly empowered and authorised to represent the party. As a rule, the legal representative appointed to represent a party in a hearing must provide a letter or power of attorney from the party confirming powers of representation and the extension of such powers. The same requirement applies to foreign companies, which may also be subject to additional formalities related to the legalisation of such letters/power of attorney for use abroad (for example by means of apostille, notarisation and/or authentication certificates).
As per Article 21 of the Brazilian Arbitration Act, the arbitral tribunal is free to decide on every aspect relating to the taking of evidence. The arbitrators, at the request of the parties or on their own motion, may take depositions, hear witnesses, carry out expert examinations (both of party-appointed experts and tribunal-appointed experts) and determine the production of any other evidence deemed appropriate. The oral evidence is produced at the hearing and the documentary evidence must be presented alongside the parties submissions.
Brazilian legal procedure has an inquisitorial nature. Judges and arbitrators have the discretion to decide whether or not to authorise the production of the evidence requested by the parties.
The production and the submission of evidence in Brazil differs somewhat from the US system; for example a ‘fishing-expedition’ and/or broad discovery is highly unusual. An arbitral tribunal might order the opposing party to produce certain documents on a limited basis, but only for as long as the requesting party is able to justify the need for it and clearly specifies the documents sought.
However, arbitrators are reluctant to order the production of evidence. This is mainly due to the fact that while Brazilian law allows for the production of evidence by any legal means it prohibits the parties from producing ‘self-incriminating evidence’.
Finally, from a practical standpoint, the presentation of written witness statements in domestic arbitration is quite unusual. However, there are no restrictions on the use of such evidentiary means, which is more frequently seen in arbitration involving foreign parties or arbitrators. Cross-examination is allowed and generally takes place during the evidentiary hearings.
On the taking of evidence, the BAA provides that the arbitrators, at the request of the parties or on their own motion, may take depositions from the parties, hear witnesses, carry out expert examinations (both of party-appointed experts and tribunal-appointed experts) and determine the production of any other evidence deemed appropriate.
Apart from these stipulations, there are no specific rules on this matter. However, the IBA Rules on the Taking of Evidence in International Arbitration are becoming more popular in Brazil and it is becoming common for arbitration agreements to use them as a reference, especially in proceedings where one of the parties comes from a common law jurisdiction.
With regard to foreign and domestic matters, there are no differences in the rules for taking of evidence.
The BCCP and the amendment of the BAA by Law No. 13129/2015 brought about modifications regarding the attendance of witnesses and the production of documents in arbitration proceedings through the creation of the arbitral letter.
If a witness refuses to attend a hearing without presenting a plausible reason for being absent, the arbitrator may compel him or her to attend, as well as request, through an arbitral letter, the enforcement of its decision by the courts. The same may occur with regard to the production of documents.
Specifically, in relation to the powers of the arbitral tribunal regarding the attendance of a witness or the production of documents, Brazilian law does not differentiate between parties and non-parties.
Note that it is also possible for courts to assist on the production of evidence even before the arbitration is commenced, such as collecting the deposition of a witness or obtaining an expert evaluation on perishable assets by means of a specific pre-arbitral precautionary measure provided for in the BCCP.
One of the main differences between arbitral proceedings and litigation is that the vast majority of arbitrations are confidential.
Although the BAA does not specifically provide for the confidentiality of proceedings, such provision is commonly inserted by the parties in the arbitration agreement. Moreover, the rules of arbitral institutions generally contain specific provisions allowing the parties to make the proceedings confidential. However, when involving public entities, the BAA (Article 2, paragraph 3) specifically states that the proceedings must respect the principle of publicity.
The BCCP established a regime of automatic confidentiality for judicial proceedings related to arbitration, such as pre-arbitral precautionary measures, enforcement measures and actions to set-aside the award, for as long as the parties demonstrate that the arbitral proceeding at hand is confidential.
Regarding the constituent parts of the arbitral proceeding, if the proceeding is considered to be confidential the parties are prohibited from disclosing any documents produced in the course of the arbitration. If they do so, they may be held liable for damages.
However, if the arbitral tribunal so authorises, any document (documents, pleadings, the award etc) may be presented in another dispute as ‘borrowed evidence’. The BAA does not specifically regulate the use of borrowed evidence, but neither does it prohibit it. When analysing the request for use of borrowed evidence, the arbitral tribunal must consider whether the parties involved in the other dispute are the same, whether the other dispute is also confidential and the importance of presenting such a document as evidence. Moreover, depending on the origin of the material, the tribunal must also carefully consider privilege issues.
The BAA requires the following five mandatory elements be included in an arbitral award: (i) a summary of the arbitration proceeding; (ii) a thorough justification of the tribunal’s conclusions regarding every factual and legal issue brought in the proceeding; (iii) respect for the objective and subjective limitations on the tribunal’s jurisdiction – underlined by the agreement or by law; (iv) specific decisions on the subject matter(s) of the dispute; (v) the date, place and signature of all arbitrators.
If any of those elements are not present, the parties may challenge the decision and seek annulment in the courts. Moreover, Article 23 of the BAA determines that the award must be rendered within the time frame established by the parties or, in the absence of such a provision, within six months from the date of the commencement of the arbitration or from the date of the substitution of an arbitrator. In practice, the parties tend to provide for a specific deadline, dated from the submission of the closing arguments or from the last filing of the parties (such as submission on costs).
However, if the award is rendered after the time limit, according to Article 32, VII of the BAA it may be considered to be null and void. However, prior to requesting the annulment, the interested party must notify the arbitral tribunal of the expiration of the time limit and grant an additional term of ten days for the rendering of the arbitral award.
Brazilian law does not provide for specific limitations on the remedies that an arbitral tribunal may award. However, the award will ultimately be enforced by the courts, who may enforce limitations such as declaring the impossibility of specific performance after the award has been rendered.
The reimbursement of costs and fees is usually determined at the arbitral tribunal’s discretion, per the BAA. Additionally, the tribunal is free to allocate the reimbursement of attorney’s fees as long as they have been previously agreed and not excluded by the parties.
When allocating costs, arbitral tribunals generally follow a ‘costs follow the event’ approach. More specifically, arbitrators tend to take into account the percentage of claims denied and granted in relation to each party, which entails the notion that the higher the percentage of the claims granted in favour of a party, the lower the amount of costs it will be compelled to pay.
If the parties have not established an applicable interest rate, the arbitral tribunal often relies on the National Treasury’s official index, ‘SELIC’ rate, currently 6.50% annually, but may also rely on the default interest rate for judicial matters, corresponding to 1% monthly.
The possibility of a revision of an award is very limited. The parties may present a motion for clarification of the award before the arbitral tribunal. However, the parties can only address issues concerning material errors, obscurity, contraction or omission of an arbitral award.
The arbitral tribunal must decide on the motion for clarification within ten days, but such a deadline may be modified by agreement of the parties or by the rules of the arbitration institution. After such clarification, the interested party has 90 days to present a motion before the courts to vacate or set-aside the arbitral award.
Article 32 of the Brazilian Arbitration Act provides for the grounds for vacating the award. Most of them refer to the composition and the powers of the arbitral tribunal, limitations to the scope of the award given under the arbitration agreement or the law, the subject matter of the dispute and the validity of the arbitration agreement.
As per Article 26, paragraph 4 of the Brazilian Arbitration Act, the interested party may also file suit before the courts to require the delivery of a complementary award if the arbitrator does not decide on all of the requests submitted.
The parties cannot alter the scope and/or exclude the possibility of challenge to the arbitral award. This would be contrary to public policy, since judicial control of the arbitral award, even though limited to very few circumstances, is considered to be a means to ensuring the legitimacy of arbitration as a whole.
Furthermore, the majority of scholars understand that the parties may not expand the scope of the challenge to the arbitral award to create new grounds for a challenge or to submit the merits of the dispute to the national courts. It is uncommon to see contractual provisions that expand the scope of challenge, and it is unlikely that courts would uphold such provisions.
The judicial review of arbitral awards is generally limited to formal/procedural aspects, such as: (i) nullity of the arbitration agreement; (ii) impediment of the arbitrator; (iii) violation of due process and lack of opportunity to present the case: (iv) lack of reasoning of the award ; (v) exceeding the limits of the arbitrator’s jurisdiction and; (vi) corruption, among others. The courts cannot review the merits of the case.
Brazil is a signatory to the New York Convention without any reservations or declarations. The convention was approved and enacted through Presidential Decree No. 4,311 on 23 July 2002, following legislative approval through Legislative Decree No. 52, dated 5 April 2002.
Brazil has also signed several multilateral treaties on international commercial arbitration, such as the Geneva Protocol on Arbitration Clauses of 1923, the Montevideo Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards of 1979, the Panama Inter-American Convention on International Commercial Arbitration of 1975, the Las Leñas Protocol on Judicial Cooperation and Assistance within the Mercosur of 1992 and the 1998 MERCOSUR Agreement on International Commercial Arbitration.
Brazil has not yet signed any international conventions regarding international investment arbitration.
The BCCP provides that any foreign award will only become enforceable upon recognition by the Superior Court of Justice.
In order for an award to be enforced in Brazil, the interested party must present a duly certified copy of the award apostilled or authenticated by a consular authority, a duly certified copy of the arbitration agreement and a sworn translation of both documents.
After serving the opposing party and granting it with the opportunity to present defensive motions, which have a limited scope, the Superior Court of Justice will then decide on recognition of the award.
It is currently unclear if an award set-aside by the courts in the seat of arbitration would be enforced in Brazil. Even though there are precedents pointing towards non-recognition/enforcement, recent cases have held that the Superior Court of Justice is not bound by decisions of the court of the seat of arbitration.
The chances of a state entity successfully raising a defence of sovereign immunity in the enforcement stage are low.
The Superior Court of Justice does not recognise awards that are considered to be offensive to national sovereignty, public policy or good morals/human dignity, as well as awards that fall within the scope of the applicable provisions of the New York Convention, which are mirrored by the BAA. Moreover, in order for an award to be enforceable, it must have become res judicata (which means that it cannot be subject to any other appeals) and the arbitral tribunal that issued it must have had jurisdiction over the dispute and have respected the mandatory principles listed in 6.2, Role of the Courts, during the proceeding.
The Superior Court of Justice remains vigilant to violations of Brazilian public policy. However, its analysis of the merits of the case is limited.
Brazilian Law does not provide for class or group arbitration. Class action laws and arbitration laws are separate to arbitral proceedings. However, at the end of 2018 the State Court of São Paulo accepted a collective arbitration, pursuant to which the shareholders of Petrobras decided to sue the company (as a result of the Lava Jato corruption scandal). The arbitrability of such claims follows the general rule set forth by the BAA, namely that only matters involving freely transferable property rights may be subject to arbitration. In any event, the practice of class arbitration in Brazil is still in its early stages.
The role of an arbitrator in Brazil is equivalent to that of a judge, which might entail civil or criminal liability. Article 13, paragraph 6 of the BAA provides that in performing his or her duty the arbitrator shall proceed with impartiality, independence, competence, diligence and discretion. There is no specific code of ethics applicable to arbitral proceedings in Brazil, even though arbitral institutions generally have guidelines on the subject.
In summary, such specific requirements demand that the arbitrator: (i) acts impartiality towards the parties, their counsel or the dispute in question; (ii) is capable of competently resolving the controversy; (iii) has the knowledge and expertise to resolve the matter in dispute; (iv) proceeds diligently and efficiently to provide the parties with a just and effective resolution to their dispute, as well as remain free from bias; and (v) act with discretion by keeping the proceedings confidential.
Moreover, it is important to mention that arbitration in Brazil does not need to be conducted by lawyers. However, if this is the case, the duties contained in the Statute of Lawyers and Code of Ethics and Discipline enacted by the Brazilian Bar Association are applicable.
It is important to note that, in a widely publicised decision rendered on 19 April 2017 (the Abengoa Case), the Superior Court of Justice (STJ) held that an arbitrator’s failure to disclose material facts affecting his independence and impartiality set aside the confirmation of the arbitral award because it violated public policy.
Brazilian law does not provide for rules or restrictions on third-party funders; the main issues are the same as in other jurisdictions (for example, it is necessary to disclose information about third-party funders, conflicts with arbitrators etc). Despite the lack of regulation, third-party funding activities are increasing and arbitral institutions such as the CCBC have already issued a resolution expressly governing the subject (Resolution No. 18/2016).
Even though the BAA is silent about the possibility of consolidating separate arbitral proceedings into a single arbitration, the BCCP provides for the consolidation of lawsuits when two or more suits are considered to be related. Such consolidation is viable and commonly takes place.
However, as a rule, the parties may face restrictions depending on the status of the proceedings and on the views of different panels of arbitrators. Institutional rules also play a relevant role in the consolidation of arbitral proceedings.
The BAA does not provide specific rules regarding the effects of an arbitration agreement on third parties, although the arbitration rules of some major arbitral institutions in Brazil partially provide for such circumstances. However, several precedents recognise: (i) the group of companies and group of contracts doctrine; (ii) active participation in the performance of the agreement; (iii) extension of arbitration clauses to ancillary contracts; and (iv) piercing of the corporate veil (and others) in order to extend the arbitration agreement to non-signatories.