Have the Brazilian Courts Contributed to Granting Legal Certainty to Arbitration?
Vânia Wongtschowski Kleiman and Marília Canto Gusso – both partners at Wongtschowski Kleiman Advogados, as well as fellows of the Chartered Institute of Arbitrators (FCIARB) – analyse whether recent decisions in the Brazilian courts have burnished or diminished the reputation of arbitration.
Vânia Wongtschowski Kleiman
Marília Canto Gusso
Introduction
Based on pacta sunt servanda and private autonomy principles, parties to a certain relationship can opt to submit the resolution of a certain dispute to arbitration. According to Section 3 of Law No 9.307/1996 (the “Arbitration Act”), this option is expressed through an arbitration agreement. One of the main effects of the arbitration agreement is the derogation of the jurisdiction of the courts to decide on the dispute. Nonetheless, courts remain competent to act in cases involving injunctive relief, enforcement of arbitral awards, and to issue decisions on arbitral award annulment claims.
In the light of this limitation, the role of the courts when deciding on annulment claims is particularly relevant to the reinforcement of arbitration, with the aim of granting legal certainty to the parties opting for this dispute resolution method. The use of annulment claims to serve as an appeal is extremely harmful and must be disputed. On the other hand, the maintenance of arbitral awards issued in violation of legal requirements and principles, also jeopardises the institution of arbitration.
In view of this scenario, the position of the Brazilian courts with regard to arbitral award annulment claims has been carefully considered – particularly the relevance of the issue and the impact of having Brazil as the seat of arbitration – with the aim of answering the question: have the Brazilian courts contributed to granting legal certainty to arbitration?
As such, this analysis has focused on decisions issued over the past two years by the courts of the states of São Paulo, Rio de Janeiro and Minas Gerais, where the majority of arbitrations in Brazil are concentrated, as well as by the Superior Court of Justice (SCJ), which unifies Brazilian precedents referring to non-constitutional matters.
Analysis
Under Sections 32 and 33 of the Arbitration Act, the annulment of an arbitral award may be requested if:
- the arbitration agreement is null;
- the award is issued by someone who should not be an arbitrator;
- the award does not meet the requirements of Section 26 of the Arbitration Act, namely that it should include –
- a report with the names of the parties and a summary of the dispute;
- the grounds of the decision with due analysis of factual and legal issues, including, as the case may be, a statement that the award is made in equity;
- the decision by which the arbitrators will resolve questions presented before them, and the stipulation of a deadline to comply with the decision, as the case may be;
- the date and place where the award is rendered; and
- the signature(s) of the arbitrator(s);
4. the award is issued outside the scope of the arbitration convention;
5. the award is issued following malpractice, bribery or corruption;
6. the issue of the award is untimely; and/or
7. the principles of Section 21-2 of the Arbitration Act have not been complied with, that is –
- the principles of due process of law;
- equal treatment of the parties;
- the impartiality of the arbitrator; and
- freedom of decision.
In general, the courts have tended to reject requests for annulment of arbitral awards, except in some extraordinary situations in which the parties’ allegations clearly fall under legal hypotheses. Even though the decisions are issued on a case-by-case basis, the SCJ has set a precedent, followed by the state courts, that when controlling the validity of arbitral awards, courts must be limited to strictly formal aspects. The courts are proscribed from assessing the merits of the decision issued by the arbitrator.
In cases where the arbitral award was declared null, Sections 32-IV and 32-VIII of the Arbitration Act were applied, in the light of non-compliance with the procedure previously stipulated by the parties and with the boundaries of the arbitration agreement. Requests based on subsection I (allegation of nullity of the arbitration agreement) were mostly rejected, and the arbitral award was affirmed.
Claims based on the alleged denial of a fair opportunity to be heard in the arbitral procedure were dismissed. The majority understanding was that courts are not allowed to review issues decided by the arbitral tribunal, and that arbitrators are the recipients of evidence, thus having the jurisdiction to make a determination.
Annulment claims based on subsection II – referring to the alleged breach of the duty of disclosure by the arbitrator – were also identified. This issue is quite complex and deserves a paper specifically devoted to the matter. However, the analysis supporting this study allows for the conclusion that courts tend to analyse the peculiarities of the case to determine whether:
- there was a breach of the duty of disclosure; and
- said breach could affect the independence and impartiality of the decision maker.
Conclusion
It is evident that having arbitral awards controlled by the courts is beneficial and essential to arbitration per se. Nonetheless, said control must be balanced and aligned with the best practices in arbitration.
From the analysis of the most recent decisions issued by the courts and presented here, it is possible to determine there has been a trend to affirm arbitral awards. The acknowledgement of an alleged nullity has occurred only in exceptional cases, regarding formal aspects of the decision and of the facts concerning said allegation, with no assessment of the merits decided by the arbitrators.
In general, it can therefore be affirmed that the Brazilian courts have been supporting arbitration and by so doing, have offered legal certainty to those resorting to it as a dispute resolution method.
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