I. Arbitration in Brazil – more than just a hot topic
a. Legal framework
Arbitration has a longstanding history in Brazil. It can be traced back to the Constitution of the Brazilian Empire of 1824, which allowed parties to appoint arbitrators to decide in civil and criminal law cases brought forward in civil proceedings instead of a state court judge (article 160).
Taking a leap to the modern era, further important legislative milestones are the Brazilian Civil Code of 1916 (articles 1.037 onwards), the Brazilian Civil Procedure Codes of 1939 (articles 1.031 onwards) and of 1973 (articles 86, 267, 301, 475-N, inter alia), which also established arbitration as alternative mechanism of dispute resolution. Ultimately, and representing a major legislative step forward at the time, the Brazilian Arbitration Act of 1996 (“BAA”) set the stage for arbitration as we know it nowadays.
The BAA helped overcome major practical difficulties that prevented arbitration from becoming a true competition to state court jurisdiction in Brazil. However, there was also some criticism alleging that the BAA did not comply with the Brazilian constitution, as it would prevent parties from exercising their right to revert to Brazilian national courts. These discussions ended on 12 December 2001, with a landmark decision rendered by the Brazilian Supreme Court (Supremo Tribunal Federal, “STF”) on AgRg em Sentença Estrangeira n. 5206-7 (L.O. Baptista Advogados acted as counsel in this case). The STF confirmed the constitutionality of arbitration as provided under the BAA, and clarified that the parties could freely dispose of their patrimonial rights and waive their right to revert to national courts.
Another historic milestone regarding arbitration in Brazil was the ratification of the New York Convention on 23 July 2002, which resolved the concerns of foreign companies that international arbitration awards would not be enforceable in Brazil.
After nearly two decades since its entry into force, the BAA needed an update. New demands of the domestic and international markets, and an overhauling of the Brazilian judiciary system in 2005 set the tone for the upcoming changes. Thus, in 2015, Federal Act No. 13.129/2015 (“2015 Federal Act”) incorporated into the BAA several practices already recognized by the Brazilian jurisprudence, in particular:
Brazilian public administration can resort to arbitration when patrimonial rights are at stake (article 1, §1º of the BAA), which is certainly one of the most groundbreaking amendments, with numerous cases following on its basis.
• Arbitral Tribunals:
o May issue partial awards on disputes (article 23, §1º of the BAA);
o May issue arbitral letters (cartas arbitrais) to Brazilian state courts, requesting a third-party to perform certain acts (article 22-C of the BAA);
o Once constituted, have exclusive jurisdiction to issue interim measures (article 22-A and 22-B).
• Arbitration agreements provided in companies’ by-laws are binding for all shareholders (article 136 of the Federal Act No. 6.404/1976).
• The commencement of arbitration interrupts prescription (article 19, §2º of the BAA).
As a result of the BAA reform and other changes in the Brazilian legislation of 2015 (in particular the Civil Procedure Code and the Mediation Act), which provided for a very modern and flexible legal framework, Brazil acquired its position as one of the top arbitration markets worldwide.
b. Arbitral institutions
The Brazilian market is very “institutionalized”. Some of the most renowned institutional players that are very active in the market and provide for modern arbitration rules are for instance:
• International Chamber of Commerce (“ICC”). The ICC opened its first Latin American office in the city of São Paulo in 2017;
• Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (“CAM-CCBC”);
• Market Arbitration Chamber (“CAM-B3”);
• Business Mediation and Arbitration Chamber - Brazil (“CAMARB”);
• Chamber for Conciliation, Mediation and Arbitration CIESP-FIESP(“CIESP-FIESP”); and
• Fundação Getúlio Vargas Chamber of Conciliation and Arbitration (“FGV”).
These institutional players, together with the major Brazilian law firms specialized in arbitration, also contribute to a very lively arbitration scene in Brazil. They organize conferences on various topics of domestic and international relevance, as well as academic and social events for arbitration practitioners in Brazil. They further host online events and trainings, encourage publications and engage in an international exchange.
c. Some statistics
Numbers may also shed some light on how active the Brazilian arbitration market is, and the importance of arbitrations involving the State or State-owned entities.
According to the ICC dispute resolution statistics for 2019:
• Brazil ranks third in the list of countries with the most parties involved in ICC arbitrations, accounting for 35% of all parties in the Latin American and Caribbean region. Worldwide, out of the 2,498 parties involved in ICC cases filed in 2019, there were 133 Brazilian parties;
• Out of the 83 cases administered by the Brazilian office of the ICC since 2017, 26 cases involved 29 State entities;
• Brazil also ranks sixth in the list of countries selected as places of arbitration worldwide, further remaining the preferred seat in Latin America and the Caribbean region with 24 cases.
As per the CAM-CCBC annual report for 2019:
• CAM-CCBC administered 413 arbitrations in 2019, of which 41 proceedings involved Brazilian public entities;
• Also, in 2019 alone, 97 proceedings were initiated at CAM-CCBC.
Moreover, pursuant to the CAM-B3 statistics for 2019:
• CAM-B3 administered 78 arbitrations in 2019, of which 71 were seated in the city of São Paulo, 5 in the city of Rio de Janeiro and 2 in the city of Belo Horizonte;
• Furthermore, in 2019 alone, 27 proceedings were initiated at CAM-B3.
II. Current activity, trends and developments in arbitration in the year 2020
a. COVID-19 and how it has affected Brazilian arbitration practice so far
The global arbitration market was severely impacted by the outbreak of the COVID-19 pandemic in 2020. Brazilian arbitral institutions have reacted very quickly, and have issued comprehensive guidelines on remote proceedings (e.g. ICC, CAM-CCBC), adapting to the new reality. Virtual hearings and fully electronic proceedings rapidly became common practice in Brazil.
Moreover, contractual disruptions due to the pandemic led to a large number of disputes related to hardship, force majeure, and unforeseeable circumstances. A brief research in the Brazilian national court databases shows that parties have requested pre-arbitral interim measures based upon such line of argumentation, see for instance several decisions rendered by the Court of the State of São Paulo (Tribunal de Justiça de São Paulo).
b. Brazilian General Data Protection Law (Federal Act No. 13.709/2018, “LGPD”)
Another significant legislative change of 2020 in Brazil is the new LGPD which entered into effect on 18 September 2020 (with the exception of a few provisions regarding monetary penalties and fines (article 52), that will be applicable as from August 2021).
The LGPD is Brazil’s first law to provide a comprehensive framework regulating the use and processing of personal data. It was largely inspired by the European General Data Protection Regulation (“GDPR”). Just like the GDPR, the LGPD will have a massive impact both on the domestic and international arbitration market. Brazilian arbitration practitioners, arbitrators and institutional players qualify as “controllers and processors of personal data” under the LGPD (articles 7 and 11). As such, they are obliged to comply with the LGPD requirements for data protection and are subject to the applicable fines in case of compliance failures (article 52).
III. Challenges, prospects and opportunities in arbitration in 2021
Regardless of the COVID-19 crisis, the Brazilian arbitration market has remained very active. The increased usage of online tools in 2020 has enhanced the exchange among Brazilian and international practitioners, which may lead to an even greater internationalization of the Brazilian arbitration market.
We expect that the cities of São Paulo, Rio de Janeiro and Belo Horizonte will continue to develop as the largest hubs for arbitration in the country. Indeed, there are at least two important trends in the Brazilian market supporting the growth of these hubs:
• The use of arbitration by Brazilian public entities, in particular in relation to concession agreements and public-private partnerships, and
• Disputes arising out of contractual disruptions due to the COVID-19 pandemic,
both of which increase the number of arbitrations as such.
We further assume that the LGPD will lead to many controversial discussions in terms of a realistic and efficient compliance with it in Brazil-related arbitrations. There are still many open issues to be addressed by the national agency of data protection as foreseen in the LGPD, and it remains to be seen how strictly and severely fines will be imposed upon arbitration players.
In light of all of the above, while recent factual and legal changes have heavily impacted the arbitration market in Brazil, we do expect it to continue to flourish in 2021.