Arbitration in Brazil

Editor’s note: TozziniFreire Advogados’ Fernando Serec has featured in Chambers and Partners’ rankings since 2009, rising to a Band 1 position in the Arbitration table in 2015, where he has remained ever since. He is an undisputed driving force in arbitration in Brazil, having led some of the most important cases in the country. He also has experience in US and European courts. Serec is widely respected by peers and much admired by clients. He has co-authored the article below with partner Lucas Britto Mejias. TozziniFreire is among Brazil’s most respected full-service firms and stands out for both its practice and its core commitment to social responsibility. The firm has Band 1 practices in Competition/Antitrust and Compliance, and features highly in many other contentious and transactional ranking tables. Top companies are increasingly relying on arbitration in Brazil to solve their disputes because it is a fast option and it is equipped with expertise, although it still costly compared with the slower and less specialized judicial system. In the article below, the authors explain the main trends and developments regarding this practice in Brazil. The revision of agreements and interpretation of force majeure clauses due to the Covid situation have kept arbitration lawyers busy during the pandemic, while arbitration courts have rapidly adapted to the situation. “Thanks to the technology in place, these measures have proved efficient and hopefully will remain adopted at least in some cases after the pandemic is over. This will certainly contribute to greener arbitrations.”

Arbitration in Brazil: Overview and Trends 

Arbitration is a widely used dispute resolution mechanism for complex matters in Brazil. The legislation supporting arbitration proceedings in the country dates from 1996 (Federal Law No. 9,307/96), but it was only after the decision from our Supreme Court of Justice in 2001 confirming its constitutionality that arbitration spread through virtually all kinds of business.

Brazilian businesspeople seem to rely on arbitration, rather than litigation, for two main reasons: firstly, to save time and, secondly, because of the specialized knowledge of the arbitrators. In fact, arbitrations in Brazil tend to be concluded much sooner than judicial proceedings. While the former normally take from one-and-a-half to five years (for arbitrations in which the production of technical evidence is necessary), the latter normally take from five to as much as ten years. Also, although Brazilian judges tend to be experienced and have a good knowledge of the law, they normally are not focused on a certain area of specialty and decide all kinds of disputes, although the introduction of some dedicated corporate and bankruptcy courts in São Paulo means this has been changing.

The cost of arbitration, on the other hand, is the main factor weighing against its use in Brazil. Arbitration proceedings tend to be much more costly than litigation, making it unappealing in a wide range of cases.

Infrastructure and construction are still among the leading sectors that rely on arbitration for resolving disputes, but M&A and corporate disputes are also very commonly settled by arbitration. Disputes with public administration entities are increasingly shifting to arbitration.

Obviously, the Covid-19 pandemic is currently one of the hot topics in arbitrations in Brazil. Several disputes originated from or at least have some relation to the pandemic. The discussions are mostly related to revision of agreements and application of force majeure.

Also due to the pandemic, several measures have been implemented to make the continuation of proceedings feasible during the isolation period, such as making hearings exclusively virtual and communications exclusively electronic. Thanks to the technology in place, these measures have proved efficient and hopefully will remain adopted at least in some cases after the pandemic is over. This will certainly contribute to greener arbitrations.

Recent changes to the Brazilian legal system 

With the enactment of Federal Law No. 13,129/2015, which came into force in July 2015, the Brazilian Arbitration Act was modernized. The main changes were: (i) Arbitration letter: This is a specific procedure of cooperation in which an arbitral tribunal may request the aid of the judicial courts for acts that require enforcement; (ii) Interim reliefs: The new law confirms this possibility, establishing that an interim relief may be temporarily granted by the courts and should be reviewed by the arbitral tribunal as soon as its formation is completed; (iii) Possibility of partial arbitration awards: Federal Law No. 13,129/2015 also confirmed this possibility, which is commonly used for resolving preliminary issues (such as matters of jurisdiction) and for deciding claims that do not require a deep production of evidence; and (iv) Arbitration involving public entities: Federal Law 13,129/2015 confirms the possibility of arbitration for disputes involving public entities.

Similarly to Federal Law No. 13,129/2015, the new Brazilian Code of Civil Procedure (Federal Law No. 13,105/15), which was enacted in 2015 and came into force in 2016, also brought innovations in the arbitration field: (i) Confidentiality: Any court proceedings relating to an arbitration protected by confidentiality should also be treated as confidential; and (ii) Allegation of arbitration agreements before the courts: The existence of an arbitration agreement only prevents the courts from deciding a case if the matter is raised by the defendant in its defence. If no objection is raised, it is understood that the defendant waived its right to resort to arbitration and the court cannot refrain from deciding the case. Also, this new procedural law provides that the Brazilian courts should refrain from deciding a case whenever an arbitral tribunal recognizes its jurisdiction over the matter.

Finally, Brazil recently enacted a Decree (Decree 10,025/19) regulating the use of arbitration and other types of dispute resolution mechanism with the Federal Government. The decree provides that such arbitrations must be seated in Brazil, conducted in Portuguese and decided in accordance with Brazilian law. Also, it provides that the arbitrations will not be confidential and will preferably be administered by an accredited arbitration centre.

Brazilian arbitration centres 

The five most-used arbitration centres in Brazil are: the International Chamber of Commerce (ICC) (with headquarters in São Paulo); the Chamber of Commerce Brazil-Canada (CAM-CCBC); the Business Chamber of Arbitration (CAMARB); the AMCHAM Center for Arbitration and Mediation; and the Center of Mediation and Arbitration CIESP/FIESP. These five centres offer: (i) a qualified and professional staff with a good understanding of our arbitration system; (ii) modern procedural rules; and (iii) speed in the conduct of the proceedings.

It is worth mentioning that ICC and CAM-CCBC have specific rules for “expedited arbitrations”. In fact, the regulation provided by the latter is new, and came into force in February 2021. These rules aim at less time- and cost-consuming arbitrations in certain situations.

Brazilian courts are friendly to arbitration  

Brazilian courts are well recognized for being friendly to arbitration. The two main reasons for this are: (i) they respect the principle of Kompetenz-Kompetenz; and (ii) they tend to support arbitration clauses and the arbitral awards, by normally acting towards their enforcement and only annulling awards in very specific and extreme situations.

In fact, there are several decisions from our Superior Court of Justice ruling that the arbitrators have absolute priority over the courts for deciding on their jurisdiction. Also, according to the Superior Court of Justice, the Kompetenz-Kompetenz principle should only be disregarded in very exceptional situations, in which it is absolutely clear, on a prima facie analysis, that the arbitration clause is nonexistent, invalid or void.

On the flip side, and taking into account the framework of our Arbitration Act, there are several decisions from our courts ruling that only the procedural violations expressly set out in Section 32 of the Brazilian Arbitration Act justify the annulment of an award. Basically, these violations involve: (i) issues with the arbitration agreement; (ii) issues with one or more arbitrators appointed to the case; (iii) dishonesty/corruption; (iv) disrespect to the right to be heard; and (v) the formal requirements of the arbitration award.

Consequently, a review on the merits of an award is not authorized in accordance with Brazilian law, as repeatedly decided by our courts.