Commercial arbitration is a commonly used and respected method of dispute settlement in Brazil in corporate and business matters. Although court litigation is still the prevalent way to resolve disputes, arbitration is becoming more and more dominant in certain areas and particular industries (such as corporate disputes, construction, energy and oil and gas disputes, among others). Arbitration is also seen as particularly attractive to resolve complex business disputes in general.
Traditional advantages of arbitration are, inter alia:
The most criticised features of arbitration are:
The case-law of the courts has made Brazil an arbitration-friendly jurisdiction, therefore arbitration is frequently used not only in the international context but also for the resolution of domestic disputes. Since 2015, an amendment to the Brazilian Arbitration Act has clarified that the contracts involving the Public Administration can also be subject to arbitration proceedings. The number of cases involving public contracts related to infrastructure in general, such as concessions or PPPs is growing.
According to the statistics for 2020, Brazil has recently become the second jurisdiction with the largest number of parties in International Chamber of Commerce (ICC) proceedings, only behind the United States. The number of Brazilian arbitrators and of international cases seated in Brazil has also been steadily growing over the years, as well as the use of Brazilian law and Portuguese in international proceedings.
The main impact of the COVID-19 pandemic was undoubtedly the acceleration of the digital transformation of the practice of arbitration. Arbitral institutions and arbitral tribunals quickly moved everything to a digital environment. Pending cases moved forward after the initial halt and new cases continued to be filed.
The use of electronic pleadings and communications has become the default way to handle arbitral proceedings, representing a shift from the now obsolete presumption that hard copy filings were mandatory. Meetings and hearings have also become fully virtual. Most arbitral institutions have adopted rules or guidelines to facilitate such remote proceedings and virtual hearings. Some of these changes have come to stay.
Arbitration is likely to remain paperless in the future and, even when the pandemic is over, virtual or hybrid hearings (partly virtual, partly in person) will continue to be utilised in various situations.
As per the available statistics, the main industries that use arbitration remain in the construction, energy and infrastructure sectors. Arbitration has also become prevalent for the resolution of corporate disputes, regardless of the industry. The COVID-19 pandemic has had an impact in certain kinds of contracts, in particular due to the lockdown measures taken by the local authorities throughout the country, that caused certain businesses to close, the performance of contracts to stop for some time and the general economic activity to suffer a sudden decrease.
Construction contracts, commercial lease agreements, power purchase agreements and concession contracts were some of the types of contracts that generated more disputes, frequently in arbitrations. However, parties in general also seemed more willing to negotiate settlements or amendments to the existing contracts in order to face the new situation and many cases were resolved before they were even adjudicated.
The most relevant arbitral institutions in Brazil (frequently used for both domestic and international cases) are:
All the institutions mentioned above have offices in Brazil, some in more than one city, and they have different rules, scales of fees and other characteristics. The ICC is well established for international cases, but local institutions have a growing caseload of disputes involving foreign parties and international contracts. The CAM-CCBC is the leading Brazilian institution in the market in general, and some other institutions have a distinct presence in some areas (for example, the CAM-B3 is related to the São Paulo Stock Exchange and has a focus on corporate disputes, the FGV is big in the energy sector, and the CBMA is the leading institution in sports arbitration). Some international institutions, such as the London Court of International Arbitration (LCIA) or the International Centre for Dispute Resolution (ICDR) are also used for international cases from time to time, but they do not have a local presence.
Currently there is a recommendation of the National Council of Justice (CNJ) that requires at least two civil district courts in the Capital in each state to have a specific jurisdiction related to arbitration cases. The actual number of specialised courts will vary in each state.
The state of São Paulo is the most populous and economically strong in the country. The city of São Paulo is the most frequent seat for arbitrations, and therefore it concentrates most cases of arbitration-related court disputes. The Court of Appeals of the State of São Paulo (TJSP) went beyond and specialised two chambers in the Court of Appeals that have specific jurisdiction to hear and decide all appeals in arbitration matters (either domestic or international arbitration disputes).
Arbitration in Brazil is essentially governed by the Brazilian Arbitration Act (Law No 9,307/1996, as amended by Law No 13,129/2015). Several features of Brazilian Arbitration Act are inspired by and reflect the UNCITRAL Model Law, such as:
Conversely, the Brazilian Arbitration Act diverges from the UNCITRAL Model Law in some aspects:
Brazil is also a party to the 1958 New York Convention, enacted through the 2002 Federal Decree No 4,311, 1975 Inter-American Panama Convention and the 1998 Mercosur Agreement on International Commercial Arbitration of Buenos Aires.
There are no current projects aimed at significantly modifying the Brazilian Arbitration Act (the most recent and relevant changes were introduced in 2015 by Law No 13,129). However, there are news of bills and projects of statutes and regulations that may affect in different manners the legal framework of arbitration in Brazil. For instance, there is a bill pending in Congress that would create a special regime for the arbitration of tax disputes (2019 Law Project No 4,257).
Pursuant to Article 4, paragraph 1 of the Brazilian Arbitration Act, the arbitration clause must be in writing, although the case law acknowledges agreements proven by documents, such as an exchange of e-mails, despite of the existence of a formal signature of the parties. Arbitration clauses in contracts of adhesion in general must obey stricter requirements (eg, in writing, in a separate attachment, in bold, with a signature or endorsement specifically for the arbitration agreement), ensuring the valid expression of will of the vulnerable party. In this sense, the arbitration clause will only be deemed valid either if the adherent or employee initiates the arbitration proceedings or expressly agrees to the insertion of such a clause in the contract.
Naturally, ordinary principles and rules regarding formation and interpretation of contracts in general apply to the arbitration agreement. Hereof, valid arbitration agreements must identify a legal, possible, and determinable object, as well as be concluded by capable agents with powers to do so. For instance, arbitration agreements involving government-controlled entities must be concluded by government officials with powers to act and settle on behalf of the institution they represent.
Last, the arbitration agreement does not need to be necessarily inserted in the contract it relates to; it can be part of a separate document.
In Brazil, arbitration can be chosen by the parties to settle any dispute relating to patrimonial and disposable rights (see Article 1 of the Brazilian Arbitration Act). Contractual matters in general are arbitrable, as well as damages, as these claims relate to rights that may be assigned, transmitted, waived, or settled.
There are special rules for labour disputes, for example, that are only arbitrable if the employee earns a certain wage or more.
Disputes involving public entities are arbitrable to the extent that the rights at issue are disposable. Matters that involve jus imperi are not arbitrable.
In general, non-patrimonial and/or non-disposable rights may not be referred to arbitration, meaning that disputes involving personality rights or rights of minors, for example, necessarily fall within the jurisdiction of the national courts.
National courts have developed a very pro-arbitration case-law, and regularly enforce arbitration agreements, unless they are prima facie null and void or invalid. The Superior Court of Justice has recognised in several precedents that the courts have to enforce arbitration agreements and that arbitrators shall be the first to analyse the objections to the validity of arbitration agreements and their decision can only be reviewed later, in a lawsuit to set-aside the award.
National courts will also enforce the choice of law of the parties in relation to the arbitration agreement.
Brazilian courts enforce arbitration agreements either by preliminarily dismissing disputes initiated in violation of an existing arbitral clause, (see Article 485, item VII of the Brazilian Code of Civil Procedure), or by ordering recalcitrant parties to arbitrate, as a consequence of what is called the positive effects of arbitration agreements (see Article 7 of the Brazilian Arbitration Act).
Article 8 of the Brazilian Arbitration Act expressly provides for the separability of arbitration agreements from the underlying contract, by specifying that the arbitration clause is accepted as a distinct agreement per se. This means not only that the nullity of the main contract does not necessarily entail the invalidity of the arbitration agreement, but also that the invalidity of the arbitration clause will not render the underlying agreement invalid. The separability of the arbitral clause is widely accepted by the existing case law.
The appointment of arbitrators constitutes one of the matters on which parties have great discretion to agree on, in line with Article 13, paragraph 3 of the Brazilian Arbitration Act. However, it is very frequent that parties simply incorporate the rules of an arbitral institution in this regard.
Parties are entitled to choose any arbitrators that they trust (regardless of specific requirements related to their background, qualifications, nationality or licence to practice). The number of arbitrators must be an odd number (Article 13, paragraph 1 of the Brazilian Arbitration Act). The selection of arbitrators is subject to the same impediment, suspicion or recusal grounds that apply to judges in general as per the Code of Civil Procedure.
Lastly, the 2015 amendment to Brazilian Arbitration Act incorporated a rule according to which the parties can override by mutual agreement any institutional rules limiting the choice of arbitrators to a reference list (pursuant to Article 13, paragraph 4), provided that the institution may overview and control the appointments, and that in the case of multiparty arbitrations, institutional rules for the formation of the arbitral tribunal shall prevail if the parties cannot agree as to the selection of the arbitrators.
Ad hoc arbitration is quite rare in Brazil, so most arbitrations take place under institutional rules that provide for specific appointment systems in case the parties fail to establish particular provisions in this regard. Should this not be the case, however, the parties may ask a state judge to follow the procedure provided for in Article 7 of the Brazilian Arbitration Act and determine the appointment or the method of appointment of the arbitrator(s).
Regarding multi-party arbitrations, most institutions have specific rules designed to preserve the equality and avoid unfair treatment of the parties in the formation of the arbitral tribunal. Therefore, if the parties cannot agree on the appointment of the arbitrators, the institution will usually appoint the whole arbitral tribunal, aligned with international arbitration practice.
Pursuant to Article 7 of the Brazilian Arbitration Act, courts are entitled to compel recalcitrant parties to arbitrate. If the arbitration agreement is silent and incomplete as to how the arbitrators must be selected, the judge may then appoint the arbitrator(s) or choose a method for the parties or an institution to do so. If the arbitrators chosen by the parties fail to agree on a third arbitrator, and if the arbitral clause does not resolve this situation, it is up to the state judge to appoint the last arbitrator (see Article 13, item 2 of the Brazilian Arbitration Act).
This intervention of the courts will only be acceptable if the arbitral clause does not provide for a procedure to select the arbitrator(s) and also does not refer to an institutional rule to resolve this issue.
An arbitrator can be challenged on the grounds of impediment or suspicion should there be any circumstances that may objectively affect their independence or impartiality, as per rules similar to the ones applicable to state judges (see Articles 14 and 15 of the Brazilian Arbitration Act). As a general rule, arbitrators may not be close relatives or friends of the parties or counsel and may not have any economic interest in the dispute. Defects in the composition of the arbitral tribunal are grounds for a setting-aside action, as determined by Articles 32, item II, and 33 of Brazilian Arbitration Act.
The party wishing to present a challenge must file a motion directly to the arbitrator or to the chair of the arbitral tribunal, or according to the applicable institutional rules.
Parties are not allowed to challenge the arbitrator if they became aware of the reasons for the challenge prior to their appointment, as stated by Article 14, paragraph 2 of the Brazilian Arbitration Act.
Should the challenge be successful, or if the arbitrator resigns, a substitute arbitrator will replace the removed arbitrator, following the same rules as applied to the appointment of the initial arbitrator – that is, the party or the institution that appointed them will appoint the substitute arbitrator.
Arbitrators must have legal capacity and count on the parties’ trust (see Article 13 of the Brazilian Arbitration Act). Arbitrators are required to act with impartiality, independence, competence, diligence, and discretion throughout the proceedings (see Article 13, paragraph 6 of the Brazilian Arbitration Act). There are no further legal requirements related to the arbitrator’s professional background, qualifications, nationality, or licence to practice.
An arbitrator must fulfil the requirements related to impediment and suspicion posed by Articles 14 and 15 of the Brazilian Arbitration Act. To that end, arbitrators must abide by the duty to disclose any relevant information and circumstances likely to give rise to objective or justifiable doubts as to their independence and impartiality. The Brazilian Arbitration Act specifically points out to rules under the Brazilian Code of Civil Procedure in this regard (see Articles 144 and 145). In this sense, Brazilian law expressly states that arbitrators are never allowed:
Besides the rules provided for in the Code of Civil Procedure, the IBA Guidelines on Conflicts of Interests are frequently considered by institutions and arbitrators as to what should or should not be disclosed. Arbitral institutions also often have their own codes or rules of ethics that will apply to arbitrators in proceedings before such institutions.
Non-patrimonial and non-disposable rights are not arbitrable (see Article 1 of the Brazilian Arbitration Act), therefore business and corporate transactions in general are arbitrable. Conversely, disputes relating to personality rights, non-economic rights, family issues, criminal matters, to mention a few examples, have their jurisdiction reserved to national courts.
There are also matters that are subject to intermediate regimes. This is the case of consumer disputes, labour-related disputes, disputes with insolvent companies, and arbitrations involving the public administration or state entities, for example, that are arbitrable to some extent, with certain limitations.
The principle of competence-competence applies under Brazilian Law and is expressly provided for in Article 8, sole paragraph, of the Brazilian Arbitration Act. Pursuant to this principle, the arbitral tribunal has jurisdiction to decide on its own jurisdiction and has the first word on it. As is well established in the case law of the Superior Court of Justice, judicial courts can decide on the matter only after the arbitral tribunal has issued it award, in a setting-aside proceeding, except in extraordinary circumstances where it is abundantly clear and prima facie beyond any reasonable doubt that there is actually no arbitration agreement or that the agreement is flagrantly null and void.
In the presence of an arbitration agreement, the judge shall dismiss any court proceedings and refer the parties to arbitration. However, the Brazilian Arbitration Act reserves admissibility or jurisdiction-related issues as one of the grounds for a setting-aside action, as per Article 32 (eg, void arbitration agreement), and such matters may be reviewed de novo.
Pursuant to Article 20 of the Brazilian Arbitration Act, the party wishing to raise issues related to the jurisdiction must do so to the arbitral tribunal at the first opportunity after the commencement of the arbitration. The same concept applies to challenges on the grounds of suspicion or impediment of an arbitrator or arbitrators, or as to the inexistence, invalidity or ineffectiveness of the arbitration agreement. If the interested party fails to do so timely, the lack of a formal objection may defeat the right to challenge.
In any event, once challenged, the arbitral tribunal shall then rule on its own jurisdiction, either granting the challenge and directing the parties to the competent court, or rejecting it, in which case the arbitration will proceed normally. In this last case, the award will still be subject to review by the competent judicial authority (see Article 20, paragraph 2 of the Brazilian Arbitration Act), by means of a setting-aside action based on the grounds of Articles 32 and 33 of the Brazilian Arbitration Act. In this scenario, parties are only allowed to raise challenges in court after the award has been rendered.
In short: challenges on jurisdiction shall be filed to the arbitral tribunal as soon as the arbitration has been initiated, and the decision of the arbitrators is subject to judicial review within 90 days of the rendering of the award (see Article 33, paragraph 1 of the Brazilian Arbitration Act).
Although courts are not supposed to review the merits of arbitration awards, issues involving jurisdiction or admissibility give opportunity to a de novo standard of judicial review. Therefore, state courts are allowed to fully re-examine these matters.
If court proceedings are commenced in breach of an arbitration agreement, the interested party must raise such issue as a preliminary objection when presenting its response (as a rule, within a 15-day timeframe after service of process, pursuant to Brazilian Code of Civil Procedure). Once the objection is raised, the judge shall examine the existence of the arbitration agreement, and will dismiss the action with grounds on Article 485, item VII of the Brazilian Code of Civil Procedure, unless the arbitration agreement is clearly and prima facie invalid or null and void, or inexistent. As mentioned, Brazilian case law is strongly pro-arbitration, and the courts regularly enforce arbitration agreements.
The Brazilian Arbitration Act does not provide whether or not or under what circumstances may an arbitral tribunal assume jurisdiction over individuals or entities that are not parties to an arbitration agreement nor signatories to the contract containing the arbitration agreement. The solution to this issue is essentially left to the case law and general contract principles are applicable (ie, the court will examine whether this third-party has tacitly agreed to arbitrate its disputes, if it has actually performed contractual obligations or has acted as if it was a party to the arbitration agreement).
In this sense, there are some relevant precedents signalling that a non-signatory party can be bound by an arbitration agreement whenever it has an actual and relevant participation in its negotiation or performance. Scholars also discuss the possibility of extending the arbitration agreement under the group of companies’ doctrine. The jurisdiction over third parties is usually a very fact-intensive analysis, and therefore decided on a case-by-case basis. There is no relevant difference between foreign or domestic third parties in this analysis.
The Brazilian Arbitration Act does not establish beforehand the types of relief that may be granted by the arbitral tribunal (eg, injunctions, specific performance, declarations, costs and interests). Therefore, there is no a priori distinction between the types of relief that may be granted by arbitral tribunals (or by emergency arbitrators). In general, all kinds of interim relief that can be granted by judges in similar cases can also be granted by arbitral tribunals, including the imposition of a variety of penalties and the necessary procedural sanctions on parties that fail to comply with their orders (astreintes).
Prior to the Commencement of the Arbitration
Prior to the commencement of the arbitration, pursuant to Article 22-A of the Brazilian Arbitration Act, interim relief may be requested directly from a state court. Only after the arbitral tribunal has been confirmed, potential requests for interim relief can (and must) be addressed directly to the arbitrators, who may also review and re-decide any applications previously granted or denied by a state court.
After the Commencement of the Arbitration
Once the arbitration is initiated, according to Article 22-B of the Brazilian Arbitration Act, the arbitral tribunal concentrates full powers to grant preliminary or interim relief, which are binding and, as such, may be enforced in a court of law. Article 22-C of the Brazilian Arbitration Act provides for the arbitration letter, an instrument that may be issued by the arbitral tribunal so that the competent judicial court enforces any orders rendered in the arbitration. Although the arbitral tribunal has exclusive jurisdiction to grant or deny the interim relief, only judicial authorities have coercive powers to enforce material measures.
The Brazilian Arbitration Act does not expressly provide or (nor forbids) the emergency arbitrator. However, some institutional rules provide for emergency arbitrators (see, for example, Article 29 and Appendix V of the ICC 2021 Rules and Administrative Resolution No 44/2020 from CAM-CCBC in this regard). Likewise, in the event that a party fails to comply with the order of an emergency arbitrator, it shall be enforceable before the Judiciary under the same above-mentioned provisions.
Although security for costs does not constitute a frequent practice in arbitrations seated in Brazil and in the national case law (in comparison to common law jurisdictions), the arbitral tribunal faces no legal restraints to order it, provided there are reasons that justify such measure.
Arbitration procedure is basically governed by the Brazilian Arbitration Act, which loosely sets out general rules and features of the proceedings. The Brazilian Code of Civil Procedure does not apply directly to arbitration proceedings (although some of its principles may be indirectly applicable). Therefore, the procedural framework for arbitration in Brazil comes from the Brazilian Arbitration Act, supplemented by the arbitration rules of the institution administering each case.
There are also some specific or local laws regarding aspects of certain kinds of arbitrations that may be applicable, such as in disputes involving state entities/public administration.
As mentioned, the Brazilian Arbitration Act is quite flexible and does not set out relevant steps required by law. Institutional rules and practice have moved towards a more or less standard procedure that can be summed up on the following steps:
All procedural acts must necessarily obey general principles such as the due process of law, equal treatment of the parties, and the adversarial principle, among others (see Article 21, paragraph 2 of the Brazilian Arbitration Act).
Article 18 of the Brazilian Arbitration Act states that the arbitrator is the judge in fact and in law, having all the same powers as a state judge, apart from coercive ones.
The most relevant duties imposed by the Brazilian Arbitration Act are those associated with independence and impartiality of arbitrators. The Article 13, paragraph 6 of the Brazilian Arbitration Act also establishes a duty for the arbitrators to act in a competent, diligent, and discreet manner while conducting the proceedings.
Arbitrators must also abide by the duty to disclose any relevant information and circumstances likely to give rise to justifiable doubts as to their independence and impartiality. Arbitral institutions frequently provide their own codes or rules of ethics that will also apply to arbitrators in proceedings before such institutions.
The Article 17 of the Brazilian Arbitration Act provides that arbitrators shall be considered equivalent to government officials for purposes of criminal liability. Scholars agree that arbitrators should not be held liable unless they act with gross negligence or wilful misconduct.
Parties are free to choose their legal representatives, if any, in each case. Legal representatives do not need to fulfil any particular qualifications or requirements to appear in arbitration proceedings in Brazil.
According to the Brazilian Arbitration Act, it is up to the arbitral tribunal to decide on every aspect associated with the taking of evidence, as long as it deems it appropriate to do so (see Article 21, item 2 of the Brazilian Arbitration Act). Parties are free to request to collect and submit pieces of evidence that seem relevant, but the arbitral tribunal possesses discretion to reject what it deems to be useless or unnecessary. Article 22 of the Brazilian Arbitration Act establishes that arbitrators may rule on the production of expert evidence, as well as hear the testimony of the parties and of witnesses, at the request of the parties or sua sponte.
Internationally accepted tools can be used to assist in convincing the arbitral tribunal, and have been incorporated by local practice (eg, witness statements, cross-examination, expert testimony, document production through Redfern Schedule, inter alia). However, broad discovery is not accepted, unless the parties have agreed to engage in it. International standards on the production of evidence, such as the IBA Rules, are frequently used both by parties and arbitrators.
It is up to the arbitral tribunal to decide on every aspect associated with the taking of evidence, as long as it deems it appropriate, pursuant to the principle of freedom of decision of arbitrators (see Article 21, item 2 of the Brazilian Arbitration Act).
Article 22, paragraph 2 of the Brazilian Arbitration Act provides that arbitrators may request the assistance of the competent state court to bring a witness to be heard, should he or she fail to comply with a timely formal request. Judicial authorities are entitled to use police force if needed. The same Article 22, paragraph 2 of the Brazilian Arbitration Act provides that failure of a party to give personal testimony may lead to negative inferences, as opposed to the situation of a witness, who, instead, can be compelled to appear.
The Brazilian Arbitration Act imposes an obligation of discretion on the arbitrators (see Article 13, paragraph 6), but it does not address the confidentiality of the arbitration proceedings. Yet, confidentiality is usually a feature of arbitration in Brazil, either being provided for by institutional rules or the arbitration agreement itself.
Conversely, specific facts arising from arbitral proceedings may need to be disclosed when the arbitration involves a public-traded company, as per rules governing the capital markets, even if the proceedings themselves remain confidential. These pieces of information, however, are limited, such as the estimated value of the dispute or simply the existence of a claim itself, as long as it may impact the market.
Finally, arbitrations involving the public administration must be public, as they must obey the constitutional principle of publicity (see Article 37 of the Constitution of the Federative Republic of Brazil and Article 2, paragraph 3 of the Brazilian Arbitration Act).
According to Article 24 of the Brazilian Arbitration Act, the arbitral award must necessarily be in writing.
Furthermore, pursuant to Article 26, it must contain important formal requirements, including:
The arbitral award must also specify the parties’ duties regarding costs and expenses for the arbitration, establishing each party’s portion of responsibility to that effect (see Article 27 of the Brazilian Arbitration Act).
According to Article 23 of the Brazilian Arbitration Act, unless the parties have agreed otherwise, the arbitrators must deliver the award within six months of the date of the commencement of the arbitration. However, more frequently, arbitral institutional rules set different timeframes – usually 90 to 120 days after the final summations are filed.
Failure to deliver the award within the specified timeframe affects its validity, as it constitutes grounds to declare the award void, and thus to set-aside the award under Article 32 of the Brazilian Arbitration Act.
The Brazilian Arbitration Act does not establish any limits or restrictions on the types of remedies than an arbitral tribunal may award. According to general principles of civil procedure, an award can be of a declaratory, constitutive, or condemnatory nature. Therefore, there are no a priori limits whatsoever defined by the Brazilian Arbitration Act for an arbitral tribunal to award (eg, injunctions, specific performance, declarations, cost and interest, punitive or moral damages), which may vary according to the applicable substantive law. Likewise, arbitrators have powers to impose penalties and procedural sanctions on parties that fail to comply with their orders (astreintes).
As per Article 18 of the Brazilian Arbitration Act, arbitrators act as judges in fact and in law. The Brazilian Arbitration Act also provides that the arbitral award shall address and decide on the parties’ duties related to the costs and expenses of the arbitration, establishing each party’s portion of responsibility to that effect (see Article 27). In this regard, arbitral tribunals usually apply the rule according to which costs follow the event, with the winning party being entitled to proportionally recover its reasonable expenses. It must be noted, however, that parties have considerable discretion to agree on whether reimbursement of the legal costs, fees for technical witnesses, among other expenses will or not be due, and frequently reach specific agreements in this respect.
It is also worth mentioning that both the Brazilian Code of Civil Procedure (see Article 85) and the Brazilian Bar Association Statute (see Article 22 of the Law No 8,906 of 1994) have rules on what is locally known as "sucumbência", a fee that is payable by the defeated party directly to the counsel of the prevailing party. Most scholars consider that, although it is mandatory in litigation, the fee of "sucumbência" is not owed in arbitration, unless the parties have expressly agreed so.
The Brazilian Arbitration Act does not provide for an appeal of an arbitration award. Once rendered, the arbitral award is said to be final and definitive.
However, Article 30 of the Brazilian Arbitration Act provides for the possibility of a request for clarification, a limited-scope recourse designed to address and correct specific defects of the awards (such as omissions, obscurities, doubts, contradictions, or material errors). This motion is widely used in arbitrations in Brazil, both domestic and international, but rarely results in any change of the award.
Additionally, a party can seek the setting-aside of an award, for formal or procedural reasons. The lawsuit to set-aside and award has limited grounds (see Article 32 of the Brazilian Arbitration Act), and the merits of the award cannot be rediscussed in court.
Basically, arbitration awards can be set-aside if they:
The set-aside action has limited scope and must be filed within 90 days of receipt of notification of the award, as per Article 33, paragraph 1 of the Brazilian Arbitration Act.
Lastly, an award can also be challenged by means of a debtor’s defence, should it be the case that the prevailing party has sought enforcement in court. This judicial defence is also limited to matters such as standing to sue/legitimacy, jurisdiction, excessive enforcement, among others (see Article 525 of the Brazilian Code of Civil Procedure), and the nullity of the award cannot be discussed in this defence on the grounds of Article 32 of the Brazilian Arbitration Act if the timeframe of 90 days has already passed.
The right to challenge an award is not considered to be subject to party autonomy and therefore, according to public policy, its exclusion or expansion is not allowed under Brazilian law.
The merits of an arbitration award cannot be reviewed in court. Brazilian case-law is very strong in this sense. Awards can only be set-aside due to procedural defects and, even then, challenges to arbitral awards are rarely successful. According to a recent article published by Judge Andréa Galhardo Palma, of the Business Court of São Paulo, with jurisdiction over arbitration cases, the percentage of annulments of arbitral awards in the State of São Paulo has been "negligible", that is, more than 95% of annulment requests are rejected.
Brazil is signatory of the 1958 New York Convention, in force since 2002, as per Federal Decree No 4,311, and no reservations have been made.
Brazil is also signatory of the following treaties on arbitration:
Enforcement procedure will depend on whether the award is domestic or foreign (as per the seat of the arbitration): awards issued in Brazil are considered domestic awards; awards issued abroad are deemed to be foreign awards (see Article 34 of the Brazilian Arbitration Act).
Domestic awards are not subject to appeal and may be enforced directly before the national courts of first instance, as the equivalent of a local judgment (see Article 31 of the Brazilian Arbitration Act). In limited circumstances, domestic awards may be challenged through a setting-aside action in Brazil (see Article 32 of the Brazilian Arbitration Act).
Foreign awards must face a homologation proceeding before the Superior Court of Justice so that they become enforceable in Brazil (see Article 35 of the Brazilian Arbitration Act and Article 106, I, I of the Constitution of the Federative Republic of Brazil). Foreign awards may be challenged during the homologation proceeding on the grounds set out in the 1958 New York Convention.
There is only one precedent in the Superior Court of Justice, the EDF case, in which there was an attempt to homologate an award that had been set-aside at the seat (in that case, in Argentina). Homologation was denied.
If the set-aside proceedings in the courts at the seat are still on-going, the award may be homologated and enforced in Brazil, but the Superior Court of Justice has discretion to stay the enforcement or to order the posting of security until the set-aside action becomes final, under Article 6 of the 1958 New York Convention.
The case law of the Superior Court of Justice over the past years has been very favourable to the recognition of foreign awards. Denial of homologation has been rare, in very specific situations (most frequently when there was no proof of the existence of an arbitration agreement). Therefore, the interpretation of public policy as a ground to refuse recognition of a foreign arbitration award has been restrictive. One recent case that gained the headlines was the Abengoa case, in which homologation of an award rendered in the USA was denied on public policy grounds because one of the arbitrators had failed to disclose facts that the court considered relevant as to determine his independence and impartiality (a business relationship between his law firm and an affiliate of one of the parties). However, statistics show that most foreign awards are homologated, and that refusal is the exception.
The Brazilian Arbitration Act does not provide for express rules about class-action or group arbitration.
However, as a matter of fact, there has been a number of class arbitrations filed in Brazil over the last few years, mostly related to minority shareholders’ rights.
This kind of procedure is being tentatively accepted on the grounds of private autonomy, so that parties resort to arbitration to settle a specific dispute regarding homogeneous rights, and, on other hand, as a reinterpretation of the litigation rules that provide for judicial class-actions, under what scholars consider to be a microsystem of collective procedures in the Brazilian procedural law framework (see rules on class action set out on Brazilian Public Civil Action Act, Law No 7,347/85, and Consumer Defence Code, Law No 8,078/90).
In any event, it must be recognised that class arbitration is still something very new in Brazil, and its requirements and effects are still largely unexplored by scholars and the case law.
There are no specific ethical codes provided for by law immediately applicable to arbitrators or counsel in arbitrations. As most arbitrators and counsel are lawyers, Brazilian Bar Association ethical standards do apply to such activities (see the Brazilian Bar Association Statute, Law No 8,906 of 1994). Moreover, arbitral institutions often have their own sets of ethical standards or rules, as well as some bodies that bring together different arbitration institutions (eg, see CONIMA Code of Ethics for Arbitrators).
Although the Brazilian Arbitration Act does not address third-party funding, Brazil has an open approach to this matter. Some institutional rules set forth that a party must disclose whether or not it is being funded by a third-party, to avoid potential conflicts of interest. Both international and national funders are doing business in Brazil and ultimately contributing to develop this market.
The Brazilian Arbitration Act contains no provisions on consolidation of proceedings. Therefore, the rules and conditions on consolidation will be governed by the provisions of the arbitration agreement, if any, or by those set forth on institutional rules that may apply in each case. To that extent, case law is usually considered to be relevant whether the dispute:
The Brazilian Arbitration Act does not expressly regulate the matter. However, case law has been pointing towards the understanding that a non-signatory party can potentially be bound by an arbitration agreement if it had a relevant participation in its negotiation or performance, or on the grounds of doctrines such as group of companies, related contracts, or, further, tacit consent (by means of previous unequivocal evidence of an intent to arbitrate). All these inquiries depend on the facts of each case and it is very difficult to draw general rules as to the binding of third parties.
Brazil woke up to arbitration during the 1990s. A new Arbitration Statute was enacted in 1996, Law 9.307, the Brazilian Arbitration Act (BAA). The BAA gave full force to arbitration agreements, set the arbitral award at equal footing with judgments from judicial courts and simplified the recognition and enforcement of foreign arbitral awards. The first years were difficult, there were few cases and some local courts were sceptical about the novelty. In 2001 the Supreme Court upheld the constitutionality of the BAA and in 2002 Brazil adopted the New York Convention, making it a legally safe seat for international arbitration. Since the ruling of the Supreme Court, the case law of Brazilian courts in general has been consistently pro-arbitration.
The last couple of decades have seen a boom in commercial arbitration in or Brazil related to Brazil. Brazil has consistently ranked as one of the leading nationalities of parties in International Chamber of Commerce (ICC) Arbitrations in this century, and in 2020 ranked second place, only behind the United States. The ICC recently opened an office in São Paulo to handle cases related to Brazil, and local arbitration institutions are also very active, the most well-known being the CAM-CCBC (the Centro de Arbitragem e Mediação da Câmara de Comércio Brasil-Canadá). São Paulo, Rio de Janeiro and Brasília have become important seats and Portuguese has also become a language that is often used in international arbitration proceedings related to Brazil. Brazilian arbitrators and lawyers are very busy working on large, complex and sophisticated cases, in Brazil and abroad.
Brazil is not a party to the ICSID Convention and has not ratified any investment treaties providing for investor-state arbitration. International arbitration related to Brazil is essentially international commercial arbitration. However, an amendment to the BAA enacted in 2015 clarified that the public administration may enter into arbitration agreements, and many government contracts do have arbitral clauses and are subject to arbitration.
The Impacts of COVID-19 in Arbitration Proceedings
It is impossible to address recent trends and developments in the arbitration scene and not mention the COVID-19 pandemic.
Brazil has been badly hurt by the pandemic and has suffered one of the highest death tolls and contamination rates in the world. The Supreme Court decided very early on, in the first months of 2020, that apart from the Federal Government, States and Municipalities have concurrent powers to establish local rules related to health protection. Therefore, lockdown and social distancing orders varied a lot not only from time to time but also from place to place within the country. The pandemic and the various measures of the authorities restricting the functioning of businesses, transportation and services had huge economic impacts. Congress passed legislation dealing temporarily with the impacts of COVID-19 in certain kinds of contracts, and also providing for financial governmental support to some businesses and aid to people with low or no income.
Insofar as arbitration goes, the pandemic forced parties, arbitrators and institutions to move quickly and to adapt to a totally virtual environment.
Disruptions to arbitration proceedings
As a matter of fact, disruption in arbitration proceedings was not very significant. After a first wave of stays and postponements in early 2020, when it was still uncertain whether the pandemic would last for a long time or not, arbitration proceedings resumed quickly and continued to be processed, filed and move along smoothly. Arbitral institutions immediately reacted and put in place rules and instruments to enable the parties and arbitrators to continue to work remotely. All physical filings were suspended once the pandemic hit and proceedings became completely paperless. Meetings and hearings moved online to various platforms, such as Zoom, Webex or Teams.
It is relevant to mention that the Brazilian Judiciary already had a high degree of digitalisation of judicial proceedings before the pandemic, and all national courts also moved to completely remote work very quickly. Judicial hearings also moved to these online platforms since the beginning of the COVID-19 pandemic.
There was some debate among practitioners once arbitrations turned virtual whether parties were entitled to a physical hearing, and if the arbitral tribunals had powers to order online hearings even if one of the parties objected to it, or if doing so would amount to a violation of due process of law, and put the validity of the ultimate award at risk. The law was silent and this was an unprecedented situation. Considering all national judicial courts, including the Supreme Court, also moved online and held virtual hearings, it rapidly became clear that the judiciary would not accept such an argument to uphold a challenge to an arbitral award. Remote online hearings became the norm for arbitration during the pandemic, unless both parties requested the case to be stayed.
Terms of reference of new cases now regularly incorporate a specific clause expressly allowing the arbitral tribunal to order online hearings if it deems useful and/or necessary, even against the will of one of the parties. Although practitioners ordinarily recognise that these powers are inherent to all arbitral tribunals, making them explicit does away with any risk of a setting-aside action based on allegations of violation of due process as a result of the holding of virtual hearings.
Arbitrators and counsel were also quick to readapt and to establish specific rules in each case to maintain the integrity of the proceedings, and particularly to make sure witness testimony could not be tampered with in a virtual environment (for example, by ensuring the witness is alone in a room and with no access to smart phones or other means of communication while he/she is being questioned).
Are the changes here to stay?
The big question mark is whether these changes are temporary and life will go back to the previous normal once the pandemic goes away or if they have come to stay. There seems to be a consensus in the Brazilian arbitral community that some things have changed for good, and some may return to how they were before, at least to some extent.
No one wants to resume making physical filings of motions and documents. Physical filings are burdensome, expensive, environmentally wrong and pointless. The way digital filings are made may be changed or perfected with new tools, but they will remain the norm.
Simple meetings, such as case management conferences or meetings for the discussion and signature of the terms of reference will probably remain online in the vast majority of cases. Practice has shown that using online platforms is cheaper, faster and works well. There is no need to travel or to move within busy cities to meet in one place, and therefore there is no cost, no time lost in transit and accommodating schedules is much easier. Moreover, people are now used to online meetings, trust their efficiency and know that they do work.
More complex meetings, such as hearings of the merits of the cases will probably go back to an in-person format once it becomes safe. There is a general feeling among practitioners that some subtle perceptions may get lost in a virtual hearing, and that testimony and argument may be more effective when made in-person. Legal teams also work better and in a more integrated way when together in the same physical location, and interactions among arbitrators are richer. There is still value to the chats among arbitrators over lunch or coffee breaks, bringing them closer to each other and making mutual understandings and consensus easier to reach.
However, unless a certain witness is absolutely key to a case, it is hard to imagine people traveling from distant places to render one-or-two-hour testimonies in a hearing, as it often happened before. There will certainly be a good number of witnesses testifying remotely in what are now being called hybrid hearings (partly in-person, partly remote), which are likely to become the new normal for merits hearings.
Although it is hard to say now what will happen in the future, and there is a good deal of guessing involved, there is no doubt that COVID-19 generated a digital revolution in the arbitration scene in Brazil, that will have lasting impacts on how proceedings are handled in the future. There is no going-back from the paperless world.
Most arbitrations in Brazil are confidential, not because the law mandates so, but because parties agree to confidentiality and many institutions have rules about the default secrecy of proceedings. As a result, any statistics about arbitration are scarce and frequently unreliable.
Apparently, COVID-19 did not result in a big increase in the overall number of disputes, but the economic downturn of 2020 and the lockdown and social distancing measures taken by various authorities resulted in a surge of certain types of disputes going to arbitration.
Many arbitrations were filed on the basis of force majeure allegations, either to justify non-performance of contractual obligations, or the adaptation or revision of contractual terms, or simply to seek termination of certain contracts.
For example, power purchase agreements in the energy free market are almost always subject to arbitration. These contracts usually have a minimum take-or-pay quantity of energy that the buyer agrees to. When industries and businesses in general were shut down because of the pandemic, they were suddenly consuming almost no energy at all, had big impacts in their revenue but still had the commitment to pay the contractual minimum amount. Several of these buyers started arbitrations.
The construction industry is also a frequent user of arbitration, and many works were obligated to stop for some time, or to proceed with restrictions. These disruptions also generated many arbitrations discussing the responsibility for the ensuing cost overruns and time extensions for completion.
Some government contracts were also heavily impacted by the pandemic, such as concessions of airports and toll roads. The prices of these long-term contracts are usually calculated based on the projections of future traffic at the time of their signing, that allows the private party to project its future revenues. COVID-19 heavily reduced all kinds of traffic overnight, and the recovery of these activities has shown to be slow. This situation resulted in strong and lasting effects in relation to the income of the private operators. Concessionaires have filed several arbitrations against public entities requesting the revision of contract prices.
Resolution of the cases
It is hard to say as a general rule what the outcome of these cases was or will be (many cases are still pending). On the one hand, many decisions are confidential. On the other hand, these cases are not uniform, each contract is a different contract, risks are allocated differently and the impacts of the pandemic and the governmental measures in each one of them is individual and specific.
One thing arbitration practitioners' seem to agree, though, is that parties are tending to be more open than before to negotiate settlements or to mediate their disputes (mediation of commercial disputes is still rarely used in Brazil, but its use has gained traction over the last years, particularly since the enaction of the 2015 Mediation Act). Many COVID-19 cases settled and the arbitrations were dismissed. However, it is still too early to say whether this willingness to negotiate and to settle may be a trend of the market for the future or if it is simply a hiccup due to the dire current economic situation.
Bankruptcy and Arbitration
An important recent legislative development was the enaction of the new Bankruptcy Law in December of 2020 (Law No 14.112). In line with the existing case-law, the new Bankruptcy Law expressly provided for the arbitrability of disputes involving insolvent companies.
As a rule, an arbitration agreement entered into before a company initiates a bankruptcy or a reorganisation (Chapter 11) proceeding remains valid and enforceable. The bankruptcy or the reorganisation do not stay pending arbitration proceedings and do not prevent the filing of new claims in arbitration (Article 6, paragraph nine of the new Bankruptcy Law).
Enforcement of an arbitration award will be subject to the judicial rules of the bankruptcy or of the reorganisation, but the validity and the obligatory nature of the arbitration proceedings themselves shall not be affected by the insolvency of the party.
The principle of the prevalence of the arbitration agreement and the arbitration proceeding in spite of the bankruptcy or the reorganisation of one party was already recognised by the majority of the case-law of the Superior Court of Justice and of the Court of Appeals of São Paulo since the enaction of the BAA. The fact that it has been explicitly incorporated by the Bankruptcy Law, however, significantly strengthens the legal security in this regard.
Expedited Arbitration Proceedings
Two of the complaints most often made by arbitration users is that proceedings take too long and the costs are soaring too high. One of the ways to tackle this market perception is to offer specific sets of rules for simplified and cheaper expedited proceedings.
This is not only a local trend, but also an international one. The ICC, for example, has adopted expedited rules in 2017, which were revised in 2021.
The fast-track procedure is usually applicable to disputes up to a certain value, depending on the rules of each institution (USD3 million in the case of the ICC, since 2021), or to any cases over that amount if the parties choose so. The production of evidence needs to be limited, sometimes documents only, and cases are ordinarily decided by single arbitrators, instead of three-member arbitral tribunals.
The use of one arbitrator instead of three, the shorter deadlines for submissions and decisions and the limits on the production of evidence all ensure that the expedited proceeding is cheaper and faster than the regular one. However, parties must be prepared to a different scenario than the one they are used to, in which they cannot appoint a co-arbitrator and their counsel will be subject to some limitations and constraints as to the presentation of the case.
The trade-off seems to be acceptable for the market, though, considering many arbitration institutions in Brazil have recently adopted expedited arbitration rules. There is no coincidence there. If the offer of expedited rules is growing, it must be that institutions have identified a demand for them.
Centro Brasileiro de Mediação e Arbitragem (CBMA) was one of the first to locally adopt expedited rules, in 2015, for cases up to BRL6 million. Camarb- Câmara de Mediação e Arbitragem Empresarial Brasil adopted expedited rules in 2019, for cases up to BRL3 million.
CAM-CCBC introduced expedited arbitration rules in February 2021, for cases below BRL3 million. Câmara de Conciliação, Mediação e Arbitragem (CIESP FIESP) followed the flock in March 2021, but limiting its expedited rules to cases up to BRL2 million.
Finding ways to reduce the costs and time associated with arbitration proceedings is certainly an important trend for the future, and expedited arbitration rules may play an important role in this area.
Brazilian courts are slow in deciding the merits of cases, lawsuits are subject to several appeals and take a long time to end. However, courts are very effective and quick when facing preliminary injunctive relief. The courts frequently grant preliminary orders in arbitration-related cases before the arbitral tribunal is formed, sometimes ex parte.
In any event, arbitration users are many times sceptical about the ability of the Judiciary to handle complex cases. Therefore, there is a trend to offer the alternative of an emergency arbitrator to handle preliminary requests before the formation of the arbitral tribunal.
The ICC adopted emergency arbitrator rules in 2012. In Brazil, this movement began later. The CAM-CCBC adopted opt-in rules in 2018, but they were never used in practice, so new default opt-out rules were introduced in 2020. Camarb also created emergency arbitrator rules in 2020, and the CBMA has specific emergency arbitrator rules for sports arbitration proceedings since 2019.
This is another trend that shows institutions are paying attention to the demands of clients and are trying to offer different tools to make arbitration more effective and user-friendly.
Disclosures by Arbitrators
The importance of disclosures of possible conflicts of interest by arbitrators has been addressed by a recent precedent in the Court of Appeals of São Paulo which set-aside an arbitral award in August 2020.
The BAA establishes that the arbitrators have the duty to disclose any facts that may bring into question their impartiality or independence to act in the case (Article 14, paragraph 1 of the BAA). In this precedent, the presiding arbitrator failed to disclose that during the arbitration he had been appointed as a co-arbitrator in another allegedly related case by an affiliate company of one of the parties. The Court found that the duty to disclose had been breached by the arbitrator and decided to set aside the award.
In March 2021 a court of first instance in São Paulo preliminarily stayed the effects of a partial ICC award in the Eldorado-Paper Excellence case, in a setting-aside action. One of the many allegations of the claimant is that one of the arbitrators failed to disclose prior business relationships he allegedly had with one of the law firms involved in the case. The allegation was widely reported in the newspapers. The case is still pending.
Another important precedent in this regard is the 2017 Abengoa case decided by the Superior Court of Justice, in which recognition of a foreign arbitral award was denied due to the failure of the presiding arbitrator to disclose a business relationship between his law firm and an affiliate of one of the parties. The arbitration was seated in New York, and the local courts had refused to set aside the award due to the lack of disclosure. The Superior Court of Justice, however, considered the arbitrator’s duty to disclose a matter of Brazilian public policy and denied recognition.
There are some subjective criteria that make room for many grey areas as to what must or does not need to be disclosed. The BAA mentions “justifiable doubts” as to the arbitrator’s independence. What constitutes a “justifiable doubt”, however, may be debatable in many situations. The Abengoa case is a perfect example, if one considers that the Brazilian courts had a different approach to that of the US courts in relation to the materiality of the facts that had not been disclosed by the arbitrator.
In any event, these cases highlight the relevance Brazilian courts place on the duty to disclose facts that may put the independence and impartiality of the arbitrators into question. Arbitrators and institutions have to be particularly careful in this regard, or else they run the risk that the arbitration award may later be set aside or become unenforceable.
It is important to mention that the parties also play a role in matters of disclosure. Arbitrators do not have a duty to investigate all possible relationships a party may have, so it is up to the parties to inform in as much detail as possible what it is that they wish to be disclosed by the arbitrator.
As an example of the role of the parties as to disclosures of arbitrators, the CAM-CCBC issued a rule in 2016 recommending parties that resort to third-party funding to inform that they are being funded, and by whom, so that the arbitrators may be able to check whether they have any conflicts in relation to the funder.
According to Article 14, paragraph 2 of the BAA, arbitrators cannot be challenged (and as a consequence an award cannot be set aside) due to facts that the party already knew and failed to raise in a timely manner.
Confidentiality versus Transparency
Although Brazilian law does not establish the confidentiality of arbitration proceedings, as matter of fact most arbitrations in Brazil are confidential – except those involving entities of the public administration – either by express agreement of the parties or by reference to institutional rules that provide for confidentiality.
The Brazilian Code of Civil Procedure enacted in 2015 created a rule according to which lawsuits related to confidential arbitration proceedings should be processed under seal, subject to judicial secrecy. The rule was welcome by practitioners at the time, as confidentiality is often referred to as one of the features that favours the choice of arbitration over litigation by parties, and it would now be possible to keep it even if the need to go to court arose.
A few recent decisions in the Judiciary of São Paulo, however, in the first semester of 2021, both in the first instance and in the Court of Appeals, have considered this rule to be unconstitutional and lifted the seal of some actions to set aside arbitration awards. There is no serious challenge to the legality of the confidential arbitration proceedings themselves, but the confidentiality of judicial proceedings related to arbitrations is being questioned.
It is still too early to tell whether this case-law will eventually prevail, but it shows part of the legal community is uncomfortable with what is seen by some as an excessive secrecy of the world of arbitration.
As is the case internationally, there have been calls for more transparency in arbitration in Brazil. The judges that rendered these decisions expressly mentioned the need for such transparency, so that people in general can know better who the arbitrators are, how the cases have been handled and what is being decided.
In this regard, there have been some important developments lately aimed at improving transparency and reducing the suspicion that some feel towards confidential arbitrations. The ICC and the CAM-CCBC now publish on their websites the names of the arbitrators acting in their cases. The CAM-CCBC has recently established a taskforce to define guidelines for the publication of anonymised arbitration awards. Some institutions already publish anonymised summaries of some awards (CAM B3 and FGV).
The CVM (the Brazilian Securities Exchange Commission) has held public consultation hearings in 2021 and announced it will revise the rules for disclosure by public traded companies of facts related to confidential arbitrations that may be relevant and material to the market.