Brazil became independent from Portugal in 1822. Its first Constitution, enacted in 1824, already set forth that parties to a civil dispute could submit it to arbitrators (Article 160).
Successive codifications had specific sections to regulate the arbitration agreements and proceedings, such as the Civil Code of 1916, the Code of Civil Procedure of 1939 and the Code of Civil Procedure of 1973. However, commercial arbitration never gained real traction during the 19th and 20th centuries, mostly because pursuant to then-existing rules (1) the parties had little to no room to adjust statutory procedural rules to the specificities of the dispute and (2) the arbitral award had to be later submitted to a court of law for ratification.
Those codifications are no longer in force.
Arbitration became popular following the enactment of Law No. 9,307, dated 23 September 1996 (BAA).2 The BAA was enacted in the context of the opening of local economy to foreign investment in the 1990s. It does not require that domestic awards be ratified by local courts of law so they are immediately enforceable, and although it mandates that foreign awards be ratified in court it does not contemplate judicial review on their merits.
Controversies about the role of the courts continued, though, and only ended after the Supreme Court entered an opinion in 2001 affirming the constitutionality of arbitration.3
Brazil has since seen a steady growth in the number, complexity and value of arbitration proceedings and is now widely considered an arbitration-friendly jurisdiction.
That reputation is well deserved.
First, over the course of the past 15 years Brazilian appellate courts – especially the Superior Court of Justice (STJ), which is the highest court for matters of interpretation and application of the BAA – have repeatedly safeguarded the enforceability of arbitration agreements and proceedings against interference from the judiciary.
On top of that, some lower courts and appellate courts have concentrated commercial arbitration matters, thereby increasing the quality and uniformity of the judicial interpretation of the BAA. In the state of São Paulo, for instance, two chambers of the state Court of Appeals as well as two lower courts in the city of São Paulo are exclusively in charge of matters involving business law (including arbitration).
Second, the top local arbitral institutions are reliable and user-friendly. The following six institutions handle the bulk of domestic commercial arbitration work:
- the Chamber of Commercial Arbitration (Camarb), with its main offices in the city of Belo Horizonte;
- Chamber of Arbitration of the Market (CAM), with its main offices in the city of São Paulo);4
- the Chamber of Conciliation, Mediation and Arbitration of the Union of Industries of the State of São Paulo (CIESP/FIESP), with its main offices in the city of São Paulo;
- the Chamber of Mediation and Arbitration of the Getúlio Vargas Foundation (FGV), with its main offices in the city of Rio de Janeiro;
- the Centre of Arbitration and Mediation of the American Chamber of Commerce (Amcham), with its main offices in the city of São Paulo; and
- the Centre of Arbitration and Mediation of the Brazil-Canada Chamber of Commerce (CAM-CCBC), with its main offices in the city of São Paulo.
A report issued in December 2017 by a legal think tank of Brazilian firms known as the CESA Study on the status of disputes that were ongoing in 2016 (the CESA Study), shows that those institutions essentially handle domestic disputes, which on average conclude within two years.5
Third, the number of practitioners and researchers has been on the rise, including in the public sector. Familiarity with the main aspects of arbitration has increased thanks to postgraduate courses, academic papers, conferences and associations like the Brazilian Arbitration Committee (CBAr).
Fourth, legislation passed after the BAA has also strengthened it. For example, a new Civil Procedure Code was enacted in 2015 (Law No. 13,105, dated 16 March 2015 (CPC)) and it prevents courts of law from interfering with a party's decision to refer disputes to arbitration.
Some numbers help illustrate the growth and current status of arbitration in Brazil:
- the International Chamber of Commerce (ICC) has recently announced that in 2017 Brazil was the seventh-largest jurisdiction in terms of number of new cases and the fourth in terms of number of parties involved in disputes administered by the ICC International Court of Arbitration;6
- those six domestic institutions listed above had 128 new matters in 2010, and that number increased steadily over time to 249 in 2016, for a total of 1,292 new matters over that seven-year span; the aggregate amount in dispute increased exponentially, from 2.8 billion reais in 2010 to 24.2 billion reais in 2016, for a total of 62.5 billion reais in the period.7 According to leading local newspaper O Globo, 333 new disputes involving an aggregate amount of 23.6 billion reais were administered by those six institutions in 2017 alone;8 and
- the CAM-CCBC, which is the largest local institution in terms of number and aggregate value of disputes, had its highest number of new cases ever (141) in 2017, up from 98 in 2016 (the previous record was 112 new cases, in 2015) – albeit the aggregate value involved dropped to 11.9 billion reais in 2017 from 15.6 billion reais in 2016.9
ii Applicable rules
There is no meaningful statutory distinction between domestic and foreign arbitration. The BAA and other rules such as the CPC, the 1923 Geneva Protocol,10 the 1958 New York Convention11 and the 1975 Panama Convention12 equally apply to both, partly as a result of the very ratification of those treaties and the equitable treatment granted to nationals and foreigners thereunder.
There are limits to the arbitrability of disputes under the BAA, from the perspective of both personal and material scope of arbitration agreements.
As to personal scope, Article 1 of the BAA sets forth that all individuals and entities who are capable of performing civil acts may submit disputes to arbitration. All entities subject to the public law regime, whether the government itself or any of its businesses, bodies and agencies (collectively, the 'public law entities'), can have disputes arbitrated, pursuant to the 2015 amendment to the BAA.13
As to material scope, Article 1 of the BAA sets forth that economic claims that the parties are allowed to assign, sell, waive or settle may be submitted to arbitration. That category encompasses nearly all civil and commercial claims that could stem from business arrangements between private parties.
The 'economic and assignable nature' of the claims held by or against a public law entity may be controversial at times, though, considering that they all involve public interest to some extent. Courts and tribunals will be required to define the limits of objective arbitrability. The current trend is favourable to arbitration. Law No. 13,448, dated 5 June 2017, regulates the extension and re-bidding of federal contracts involving railways, roads and airports, and expressly sets forth that disputes related to (1) recalculation of the consideration owed by the parties (correction of economic or financial imbalances in the contract), (2) damages stemming from termination or assignment of the contract and (3) breach of contractual duties by either party may be arbitrated.14 That is also the prevailing understanding of scholars, judges and lawyers gathered at the First Meeting on Out-of-Court Prevention and Resolution of Disputes (the Meeting).15
Pursuant to Article 4 of the BAA, the arbitration agreement must be in writing, even though the underlying legal relationship is not subject to the same requirement.16 If the arbitration agreement is inserted in a standard-form contract or any other sort of contract of adhesion (e.g., a franchise agreement), then the adhering party must also expressly consent to arbitration, whether by signing a separate document or by initialling the specific arbitration clause. The rule applicable to consumers is even stricter: they may voluntarily, but may not be forced to, engage in arbitration.17
A specific issue involving contracts of adhesion is the inclusion of arbitration clauses in the by-laws of Brazilian corporations, and whether or not shareholders must expressly consent thereto. On top of amending the BAA, Law No. 13,129/2015 also amended the Brazilian Corporations Act (Law No. 6,404, dated 15 December 1976), which now sets forth that (1) if the inclusion of an arbitration clause is approved at a shareholders' meeting, then all shareholders will be bound thereby, but (2) any dissenting shareholder will have the right to withdraw from the corporation within 30 days following publication of the minutes of the meeting and then have its shares redeemed by the corporation in cash (the redemption right).18 That is a sensible compromise between the majority principle that permeates the law of corporations and the principle of consent that permeates arbitration law.
Parties may enter into an arbitration agreement either before any dispute has arisen (in the form of an arbitration clause) or after, either in or out of court (in the form of an arbitration undertaking).
Upon agreeing on an arbitration clause, parties are free to choose whether to elect in advance a specific arbitral institution or its rules of arbitration (institutional arbitration), and whether to regulate other aspects of the dispute (e.g., the number of and mechanism to appoint the members of the tribunal, and where it will be seated) – the existence, validity and enforceability of the arbitration clause do not depend on such election. If that election has been made, the arbitration clause is deemed to be 'full'; conversely, if the parties have simply agreed to arbitrate their disputes without mention of arbitrators or existing arbitral institutions, this is called an 'empty' clause. If a party bound by an 'empty' clause refuses to engage in arbitration, then the party willing to commence arbitration may sue to compel the respondent to execute an arbitration undertaking; if it prevails, the court award will serve as the arbitration undertaking and the court will have the power to lay out the applicable procedural rules and even appoint a sole arbitrator.19 Obviously, parties should endeavour to agree 'full' clauses to insulate them from court interference.
Parties are generally free to choose whether the dispute will be decided at law or in equity,20 and in the former case what rules will be applied (e.g., statute, legal principles, international trade rules), as long as public policy and boni mores are respected,21 with the proviso that disputes involving public law entities must always be at law and not in equity.22
The autonomy of the arbitration agreement as a standalone and severable contract, the validity of which is not contingent upon the validity of the underlying legal relationship, is expressly affirmed in Article 8 of the BAA. As a direct consequence of such autonomy and severability, the sole Paragraph of Article 8 enshrines the Kompetenz-Kompetenz principle, setting forth that the tribunal is vested with the jurisdiction to decide on the existence, validity and enforceability of the arbitration agreement and of the contract in which the arbitration clause is inserted. Accordingly, pursuant to Article 485, item VII, of the CPC, the court must dismiss a lawsuit without prejudice not only if it acknowledges the existence of an arbitration agreement, but also if the arbitral tribunal has already affirmed its own jurisdiction over the dispute.
The STJ has historically interpreted the Kompetenz-Kompetenz principle in the sense that the courts may only review the validity and enforceability of the arbitration agreement after the award has been entered. However, in 2016 the STJ entered an opinion according to which flagrant or prima facie invalidity (such as lack of specific consent in standard-form contracts) allows the judiciary to void the arbitration agreement regardless of the status of the arbitration proceedings.23
Articles 13–18 of the BAA regulate the appointment, replacement and qualifications of the arbitrators. As long as an individual is capable of performing civil acts and is trusted by the parties, he or she may be appointed as an arbitrator.24 Brazilian citizenship, proficiency in Portuguese and a degree from a Brazilian law school are not statutory requirements, but the parties can agree them and in most disputes governed by Brazilian law it is advisable to have at least one Brazilian legal practitioner as a member of the tribunal. Local institutions usually have a pre-approved list of arbitrators (save for the Amcham), but Article 13, Paragraph 4 of the BAA allows the parties to agree the appointment of outside professionals.25
Arbitrators must be impartial, independent, competent, diligent and discreet.26 Pursuant to Article 14 of the BAA, they are subject to the same rules about recusal applicable to judges under Articles 144 and 145 of the CPC, such as (1) being a close relative, close friend or enemy of either party or any counsel therefor, (2) having either party as a client of his or her law firm (or of a close relative's law firm), (3) being a shareholder, director or officer of a company involved in the dispute, (4) receiving gifts from parties with vested interests in the dispute, helping fund the dispute or providing advice to either party about the dispute, and (5) being (or having a close relative who is) debtor or creditor to either party. They are also required to disclose any fact that could create reasonable doubt about their impartiality and independence. 27
The arbitration is deemed instituted as of the date on which all arbitrators have (or the sole arbitrator has) accepted the appointment. That is also the moment at which the statute of limitations will be tolled, with effects of the tolling retroactive as of the date of the request for arbitration.28
The respondent must raise jurisdictional objections and any challenges to the appointment of an arbitrator or to the validity or enforceability of the arbitration agreement on the first opportunity granted to respondent to react on the records after all arbitrators have (or the sole arbitrator has) accepted the appointment.29
Insofar as the parties have not stipulated the applicable procedural rules or have not referred to the rules of arbitration of a given institution, the arbitral tribunal may adjust the proceedings as it deems fit, provided that the principles of adversarial process, fair and equitable treatment of the parties, impartiality of the tribunal and tribunal's freedom to reach its conclusions are all observed.30 On those grounds, the tribunal is free to order the production of any evidence it needs, whether or not requested by the parties, in the order and manner that it deems reasonable 31
The BAA does not set forth that the proceedings must be confidential, but the rules of arbitration of the main local and foreign institutions do, which means that in practice confidentiality is the standard. The exception under the BAA is arbitration involving public law entities, case in which the principle of publicity applies.32 Additionally, pursuant to securities regulations, publicly traded corporations are required to disclose to the market the commencement of arbitration proceedings that may materially affect the corporation.33 There is no statute or court case law on disclosure of third-party funding.34
Still on confidentiality, while court disputes must be public as a rule,35 Article 189, item IV of the CPC contains an express carve-out provision for disputes involving arbitration if there is evidence that such arbitration is confidential. In those cases, the court files must be sealed, thereby also preserving confidentiality.36
The arbitral award must (1) be in written form, (2) be signed by all members of the tribunal, (3) contain a summary of the parties' arguments, the tribunal's reasoning, the decision on each relief sought (including, if applicable, a term for voluntary compliance with the award), and the date and venue where it has been entered, (4) rule on the allocation of the costs and expenses, and (5) be delivered to the parties either by mail or any other suitable form of communication with return receipt.37 The tribunal is allowed to enter partial awards.38
Upon entering the award, the tribunal completes its mission and exhausts its jurisdiction. The award may not be reviewed or appealed. Notwithstanding, parties have a five-day term as of receipt of the award to file a request for clarification seeking (1) the correction of any clerical mistake, (2) the elimination of any obscurity, doubt or contradiction in the language or (3) the analysis of any relevant argument omitted from the original award.39
iii Interaction with the judiciary: interim measures, enforcement, annulment
There are no courts that have jurisdiction only over lawsuits involving arbitration. A concerted effort of the judiciary in 2015 caused each state capital in the country to have no less than two lower civil or commercial courts specialise in and concentrate those lawsuits. The State Court of Appeals of São Paulo also has two chambers specialised in business disputes, including arbitration. Lawsuits involving a state or city public law entity will be processed and ruled on by state treasury and public law courts. Lawsuits involving a federal public law entity will be processed and ruled on by federal courts.
Courts may be asked to (1) rule on requests for injunction and other interim measures before the tribunal has been formed, (2) enforce interim decisions and procedural orders entered by the tribunal, (3) enforce the arbitral award or (4) rule on a suit for annulment of the award.
Articles 22-A and 22-B of the BAA regulate interim relief. Before arbitration has been formally instituted (i.e., before all arbitrators have accepted their appointment), the request may be submitted to the judiciary initially, and the tribunal will later have the power to uphold, modify or quash the court ruling.40 After arbitration has been instituted, all requests must be submitted to the tribunal.
Should a party or third party fail to voluntarily comply with a procedural order in the context of domestic proceedings, the tribunal may issue a document called an arbitral letter to the competent court of law for cooperation. The court will enforce the order and perform actions as determined by the tribunal (e.g., forcing a witness to attend a hearing, or freezing a party's assets), and may not revisit the merits of the order.
As to the enforcement of awards, although the BAA applies equally to domestic and international arbitration, it does differentiate between domestic and foreign awards, and this has a direct impact on enforcement.
Pursuant to Article 34, sole Paragraph, of the BAA, an award will be deemed to be foreign if it has been entered abroad. The defining parameter of the nationality of the award is strictly the venue where it is entered.
A domestic award allows immediate enforcement exactly as if it were a court award, without need for court ratification.41 It will usually be enforceable before state courts, and it will be enforceable in federal courts if the dispute involves public law entities at the federal level. The respondent, whether a public law entity or not, will have very limited grounds to challenge enforcement. Essentially, the respondent may only argue that (1) service of process was not effected or was invalid, (2) either party has no standing to sue or be sued, as the case may be, (3) the enforcement court lacks jurisdiction, (4) the underlying obligation may not be enforced by its nature or characteristics (e.g., a pending condition that has not been implemented yet), and (5) the obligation no longer exists as a result of payment, novation, set-off, settlement or expiration of the statute of limitations.42
As to a foreign award, the party must initially file a lawsuit before the STJ for ratification.43 The issue is regulated primarily by applicable treaties and the BAA, with the CPC applying in subsidiary fashion.44 The initial pleading must be accompanied by certified copies and Portuguese translations of the arbitration agreement and the award.45 There is an exhaustive list of potential grounds for denial of a request for ratification, among which: (1) the arbitration agreement is invalid; (2) the due process clause was breached; (3) the proceedings did not unfold in conformity with the arbitration agreement; (4) the award did not reflect the tribunal's mission under the arbitration agreement or the terms of reference; (5) the matter could not have been submitted to arbitration pursuant to Brazilian law (i.e., arbitrability); and (6) the award violated Brazilian public policy.46 This latter proviso is especially important, because it might give the respondent some wiggle room to effectively challenge the merits of the award on the grounds that it was not consistent with Brazilian law and values. The STJ has the power to ratify the award only in part if it deems applicable.47 A foreign award ratified by the STJ must be enforced before the federal courts.48
Within 90 days as of receipt of formal correspondence containing the award (or a decision on the request for clarification thereof), the defeated party may file a suit to set aside the award. There is an exhaustive list of arguments that may be raised, among which:
- the arbitration agreement is invalid;
- the award was entered by an individual who could not have acted as the arbitrator;
- the award did not reflect the tribunal's mission under the arbitration agreement or the terms of reference;
- the outcome of the dispute was affected by corruption or blackmail; and
- the principles of adversarial process, fair and equitable treatment of the parties, impartiality of the tribunal and tribunal's freedom to reach its conclusions were violated.49
Additionally, a party may sue to have a supplementary award be entered on the grounds that the tribunal failed to decide on every relief sought by the parties.50
As a rule, foreign claimants to domestic court proceedings must post collaterals to cover court costs and attorney's fees that may be incurred if the respondent prevails. In practice, the amount to be collateralised could be as high as 25 per cent of the aggregate value of the claim. This requirement is not applicable if it is dispensed with by an applicable treaty, and in the context of enforcement proceedings.51
II THE YEAR IN REVIEW
On the legislative front, two federal statutes passed last year extended the scope of arbitration.
As mentioned above, Law No. 13,448/2017 is yet another law that allows federal public law entities to submit their disputes to arbitration, this time in connection with contracts in the railway, road and airport sectors, following the 2015 rules applicable to ports (Decree No. 8,465/2015). Considering that there is a heated debate over which types of claims may be arbitrated by public law entities in general, both pieces of legislation, albeit limited in scope, might be interpreted in an extensive manner to bring more clarity and certainty to the issue. This could incentivise the use of arbitration by the public administration at large.52
Law No. 13,467, dated 13 July 2017, amended the Codification of Labour and Employment Laws (Decree-Law No. 5,452, dated 1 May 1943) to introduce novel Article 507-A, pursuant to which employment claims may now be referred to arbitration as long as the worker has commenced arbitration or has otherwise expressly consented thereto, and the worker's earnings exceed a certain threshold.53 The statutory permission to arbitrate employment claims is in itself a historic shift in policy,54 although its practical effects will depend on whether labour courts (which are notoriously biased in favour of workers) will enforce the new rule. At any rate, foreign companies can now fight to have their disputes against top local management personnel referred to arbitration.55
i Developments affecting international arbitration
From a business standpoint, the ICC officially inaugurated its new hearing centre in São Paulo in March 2018 and as of that month the local case management office established the year prior already administered nine disputes.56
From a legal standpoint, the STJ had to rule on 15 disputes over the ratification of foreign arbitral awards in 2017, which is the highest yearly total since the STJ was vested with such jurisdiction in January 2005. It ratified 14 of those awards (one of which partially).
The most consequential precedent is Ometto v. Abengoa – precisely the one in which the request for ratification was denied.57 Five Abengoa Bioenergy entities sought to ratify two US ICC awards the aggregate principal value of which equated to almost US$120 million. Respondents claimed that the chairman of the tribunal lacked impartiality because he had failed to disclose that the law firm at which he was a senior partner earned substantial fees from Abengoa while the arbitration was pending and assisted First Reserve in the acquisition of interests in the parent company of Abengoa, and they also claimed that such circumstance violated Brazilian public policy. The STJ entered a majority opinion finding in favour of respondents. The opinion has raised controversy, because (1) the work performed by the chairman's firm was unrelated to the dispute as it regarded investments in solar energy in the United States by Abengoa Solar entities, (2) the firm's client in that deal was in fact the US Department of Energy and not Abengoa Solar, who had to bear the fees pursuant to applicable regulations, (3) the STJ inferred that the chairman has an interest in the outcome of the dispute because his firm would indirectly benefit from its client First Reserve profiting from the victory of an Abengoa entity, (4) the chairman never personally acted as counsel for Abengoa, and (5) the STJ held that a conflict of interests would be configured even if the chairman was unaware of the firm's assistance to Abengoa. The key takeaway is that the STJ has adopted a very low bar in interpreting what facts must be disclosed by arbitrators and what may configure a case for recusal under the BAA and the general due process clause.
Additionally, the STJ twice decided whether foreign awards against a party undergoing business restructuring proceedings under Brazil's Business Insolvency Act (Law No. 11,101, dated 9 February 2005 (BIA)) may be ratified, considering that Article 6 of the BIA orders that all suits against debtor be stayed. It found in favour of each of the foreign creditors and ratified both a Swiss ICC award and an English LCIA award, on the grounds that only claims for monies against debtor may be stayed as a result of the restructuring proceedings, whereas the suit for ratification is not to be confused with the subsequent enforcement of the award.58
ii Arbitration developments in local courts
Petrobras v. ANP was one of the most relevant STJ opinions on arbitration in 2017.59 For context: (1) Petrobras is a publicly traded, federal government-controlled oil and gas company, whereas the ANP is the federal oil and gas agency; (2) the ANP had licensed some offshore oilfields located in the state of Espírito Santo to Petrobras in 1998 through a concession agreement containing an arbitration clause; (3) Espírito Santo was not a party to the agreement but earned a portion of the revenue it generated;60 (4) the ANP unilaterally resolved to consolidate all oilfields into one in 2014, resulting in an increase in the royalties payable by Petrobras to the ANP and Espírito Santo; (5) Petrobras initiated arbitration before the ICC against the ANP and obtained an injunction halting any changes to the concession agreement; (6) the ANP and Espírito Santo obtained a court injunction to stay the arbitration proceedings, and the conflict was eventually submitted by Petrobras to the STJ. The STJ had to determine whether the dispute falls into the material scope of the arbitration agreement, and whether jurisdiction is vested with local courts as a result of Espírito Santo not being a signatory to the arbitration agreement but being potentially affected by the arbitral award. It favoured arbitration in both respects. First, it deemed the claim assignable, hence arbitrable, on the grounds that the concession agreement itself is basically a contract under which the ANP temporarily transferred to a third party the rights to operate and profit from oilfields. Second, it recognised the tribunal's jurisdiction to determine whether it is necessary to have Espírito Santo join the arbitration, and Espírito Santo's right to join the proceedings to preserve its rights. The first finding will be valuable in limiting public law entities' ability to evade arbitration by arguing the existence of 'public interest' in the dispute. The second finding has the merit of ensuring the precedence of the Kompetenz-Kompetenz principle and the effectiveness of the arbitration clause between the ANP and Petrobras regardless of the intervention of Espírito Santo, but it is questionable whether Espírito Santo could be forced to join or be bound by the award if it does not, as it never consented to the arbitration clause explicitly or tacitly.
The STJ has been asked to interpret the applicability of and limits to the Kompetenz-Kompetenz principle under the BAA and has repeatedly aligned with the position that prevails in France, according to which the judiciary may only address the validity and enforceability of the arbitration agreement ex post.61 Kreditanstalt v. CGTEE is a significant precedent in that regard.62 CTGEE argued that the police attested the inauthenticity of the signature on the arbitration agreement, thereby rendering the consent to arbitrate inexistent. Reporting Justice Paulo de Tarso Sanseverino and Justice Nancy Andrighi (who had entered an opinion in 2016 allowing the judiciary to void the arbitration agreement ex ante under exceptional circumstances)63 deemed that a criminal issue, and therefore public interest, was involved and therefore the Kompetenz-Kompetenz principle could be relativised. The majority, however, took a conservative, pro-arbitration stance and found that allowing the judiciary to rule on the authenticity of the signature would equate to preventing the tribunal from ruling on the existence, validity and enforceability of the arbitration agreement, in violation of the BAA.
The State Court of Appeals of São Paulo entered an opinion on whether or not a shareholder, in buying shares, is deemed to have implicitly accepted the arbitration clause previously inserted in the by-laws of the company.64 The court affirmed that the acquisition of the shares implies consent to the by-laws as a whole, and that the arbitration clause is therefore binding upon all shareholders equally, even if the shares were acquired through a stockbroker.65
One very important precedent from the State Court of Appeals of Rio de Janeiro involved the construction of the Jirau power plan and the enforceability of an arbitral award during the suit for annulment filed by the defeated party.66 An arbitral award had been entered in favour of constructor Camargo Corrêa against the consortium in charge of the power plant. The consortium filed a suit for annulment and sought an injunction to stay the effects of the award, arguing that the tribunal had unduly denied requests for production of evidence and therefore had violated due process. The lower court granted the injunction but the appellate court reversed that ruling and allowed immediate enforcement of the award, thereby also favouring arbitration. The parties settled shortly thereafter.
iii Investor–state disputes
Brazil is not bound by any bilateral investment treaties and is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). As a result, the country is not involved in investor–state disputes as the term is customarily understood.
Notwithstanding this, under the 2015 amendments to the BAA, there is now a broad statutory permission for public law entities (including the federal government) to submit disputes of an economic and assignable nature to arbitration. Despite the lack of binding treaties, disputes between investors and the state may be resolved by ordinary international commercial arbitration.
III OUTLOOK AND CONCLUSIONS
Some ongoing proceedings will draw attention from the arbitral community, two of which can be highlighted.
One of them is a request for arbitration filed with the CAM by minority shareholders of Petrobras who seek damages against the company for the loss in share value resulting from corruption schemes within it. This is an interesting dispute because it purports to mimic the mechanics of a US-style class action, allowing additional shareholders to join as co-claimants. According to local media outlets, some of the largest local pension funds have joined. However, this mechanism is unprecedented in Brazil and its validation by the tribunal is uncertain.67 If the claim is allowed to proceed, similar proceedings may ensue against Petrobras itself and other corporations involved in corruption probes, such as Eletrobras and JBS, both of which have already been sued by investors in the United States.
The other one is the battle between Oi and its largest individual shareholder Bratel. This dispute will involve a discussion about how to reconcile the Kompetenz-Kompetenz principle and the court's jurisdiction over business restructuring proceedings. Oi is the leading fixed-line carrier in the country and made the largest-ever in-court restructuring filing under the BIA. The recovery plan was submitted by Oi's management and approved by creditors without any input from the shareholders, despite the fact that it contemplates a capital raise, a debt-for-equity swap and changes to the board of directors. On one hand, a court of law presides over the restructuring proceedings and found that shareholders may not oppose the approved plan. On the other, Bratel commenced emergency proceedings before the CAM pursuant to the arbitration clause in Oi's by-laws and was granted an injunction to prevent Oi from implementing the plan without prior shareholder approval. The matter has been referred to the STJ, which has entered an injunction in favour of Oi determining that all requests for interim relief must be addressed to the judiciary.
As for potential trends, a gradual increase in the number of disputes involving public law entities is expected in the short run, following the 2015 amendment to the BAA, Decree No. 8,465/2015 and Law No. 13,448/2017, and given the overall increasing familiarity of public officials with arbitration.68 Disputes over large infrastructure projects may arise, as well as other disputes caused by the ripple effect of Petrobras's current financial struggles on the oil and gas sector and throughout Petrobras's supply and demand chains.
The 2017 amendment to the Codification of Labour and Employment Laws was received with some enthusiasm and local institutions started preparing for a rise in the number of proceedings. However, it is unlikely that more than a handful of high-profile disputes will arise in the short term. Top executives have incentives to resort to the judiciary first, because labour courts are historically protective towards workers and may void the arbitration clauses regardless of recently enacted statute. Real growth in this field might still be a few years away and will depend on case law from higher courts, but it is worth keeping a close eye on this topic meanwhile.
All in all, it is clear that Brazil will continue to be a safe harbour for commercial arbitration and a key jurisdiction for international practitioners. There are no signs that the demand for work in domestic and cross-border disputes will slow down any time soon.
1 Angela Di Franco is the head and Rafael Zabaglia is a partner of the dispute resolution practice of Levy & Salomão Advogados.
2 The BAA was amended by Law No. 13,129, dated 26 May 2015. All references are to the BAA as amended. An English version of the BAA is available on http://cbar.org.br/site/en/brazilian-legislation/law-no-9-307-96-english/.
3 Pursuant to Article 5, item XXXV, of the Constitution, no statute may prevent the judiciary from ruling on any violations or threatened violations to a right. Upon ruling on an appeal in the context of request for ratification of foreign award (homologação de sentença estrangeira) No. 5,206, the Supreme Court found that the submission of disputes to arbitrators is not inconsistent with the Constitution. The precedent was especially important because a by-product was the validation of international commercial arbitration.
4 The CAM is affiliated with the São Paulo Securities, Futures and Options Exchange and specialises in matters involving capital markets.
5 See: 'Anuário da arbitragem no Brasil 2016', available on http://www.cesa.org.br/media/files/anuario_consolidado2016.pdf. The CESA Study includes data from the Camarb, CAM, Ciesp/Fiesp, Amcham and CAM-CCBC. The latter institution did not disclose some of the numbers, and the FGV did not participate at all. The CESA Study has found that: (1) almost all disputes were governed by Brazilian law (the CAM-CCBC did not report); (2) only 29.4 per cent of the parties to CAM proceedings were foreign, and that number was even lower among the other institutions (CIESP/FIESP at 17.4 per cent, CAM-CCBC at 15 per cent, Camarb at 6 per cent and Amcham at zero per cent); and (3) proceedings usually take 20 months to conclude (Amcham's took 25 months).
6 See: https://iccwbo.org/media-wall/news-speeches/icc-announces-2017-figures-confirming-global-reach-leading-position-complex-high-value-disputes/. Although there are no reliable statistics on the matter, the ICC is the leading foreign institution for international commercial arbitration involving Brazilian parties or contracts governed by Brazilian law.
7 See: LEMES, Selma. 'Arbitragem em números e valores', April 2017, available on http://selmalemes.adv.br/artigos/An%C3%A1lise-%20Pesquisa-%20Arbitragens%20Ns%20%20e%20Valores%20_2010%20a%202016_.pdf.
10 The 1923 Geneva Protocol (Protocol on Arbitration Clauses) entered into force pursuant to Decree No. 21,187, dated 22 March 1932.
11 The 1958 New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards) entered into force pursuant to Decree No. 4,311, dated 23 July 2002.
12 The 1975 Panama Convention (Inter-American Convention on International Commercial Arbitration) entered into force pursuant to Decree No. 1,902, dated 9 May 1996.
13 Article 1, Paragraph 1, of the BAA. The 2015 amendment to the BAA is important due its unqualified permission to all public law entities. Previously, engagement in arbitration was conditioned on the existence of specific legal permission (e.g., in the context of the concession of public utilities under Law No. 8,987, dated 13 February 1995, as amended by Law No. 11,196, dated 21 November 2005) or on precedents from the STJ.
14 Law No. 13,448/2017 is not the first legislation to that effect. As regards objective arbitrability, its content partially mirrors that of Decree No. 8,465, dated 8 June 2015, which regulates arbitration between the federal government and port operators.
15 Pursuant to Enunciation No. 13 of the Meeting, disputes involving breach of contractual duties by either party, correction of contractual imbalances and financial and economic covenants may be arbitrated.
The Meeting was an event held in August 2016 by the STJ and the Council of the Federal Judiciary ('Conselho da Justiça Federal') for academic discussion of momentous aspects of alternative dispute resolution methods. Enunciations were issued to summarise the understanding of the majority of the attendants, and became an important secondary authority.
16 Albeit Article 4 of the BAA refers solely to 'contracts' as the underlying relationships to which the arbitration agreement may relate, this should not be interpreted as a limitation. Pursuant to Article II.1 of the 1958 New York Convention, Brazil recognised arbitration as a dispute resolution mechanism 'in respect of a defined legal relationship, whether contractual or not'.
17 Article 51, item VII, of the Consumer Defence Code (Law No. 8,078, dated 11 September 1990).
18 There is a statutory carve-out that prohibits dissenting shareholders from exercising their redemption right if the corporation's shares are (or are intended to become) characterised by liquidity and dispersion on the market.
19 Articles 6 and 7 of the BAA.
20 According to the CESA Study, none of the ICC (as regards Brazil-related matters), Amcham, CAM, Camarb, CAM-CCBC and CIESP/FIESP administered disputes in equity in 2016.
21 Article 2 of the BAA.
22 Article 2, Paragraph 3, of the BAA. Pursuant to Enunciation 11 of the Meeting, public law entities can elect to have their disputes governed by international trade rules and by customary practices of the relevant sector.
23 Appeal No. 1,602,076-SP, Justice Nancy Andrighi, opinion dated 15 September 2016. That precedent has been echoed by state appellate courts in São Paulo (appeal No. 1119030-13.2017.8.26.0100, Justice Grava Brazil, opinion dated 10 April 2018; appeal No. 1066764-48.2014.8.26.0100, Justice Cesar Ciampolini, opinion dated 21 March 2018; appeal No. 1029021-94.2016.8.26.0405, Justice Hamid Bdine, opinion dated 6 March 2018) and Rio de Janeiro (appeal No. 0010204-74.2018.8.19.0000, Justice Luiz Fernando de Andrade Pinto, opinion dated 11 April 2018).
24 Article 13 of the BAA.
25 The CESA Study has interesting information on local tribunals (with the caveat that the CAM-CCBC did not report): (a) no foreign arbitrators were appointed, and (b) while the vast majority of the cases involved three-member tribunals, almost all awards were unanimous.
26 Article 13, Paragraph 6, of the BAA.
27 The IBA Guidelines on Conflicts of Interest in International Arbitration may also be applied in assessing whether an arbitrator is conflicted and must be recused.
28 Article 19 of the BAA.
29 Article 20 of the BAA. Per the CESA Study, challenges against the appointment of arbitrators were rare in 2016 and the success rate was low. With respect to the Amchan, CAM-CCBC, Camarb and CIESP/FIESP, there were nine challenges overall, just four of which were successful.
30 Article 21 of the BAA.
31 Article 22 of the BAA. The BAA has scarce provisions on evidence production, and references to the IBA Rules on the Taking of Evidence in International Arbitration have become more common among domestic tribunals (who might otherwise have to apply the CPC).
32 Article 2, Paragraph 3, of the BAA.
There is debate over how much publicity may be given to the existence, content and status of the proceedings in relation to the desired confidentiality of arbitration, and who should be responsible for such publicity. The prevailing understanding in the legal community is that publicity does not equate to unlimited public access to all copies of and information on the dispute; pursuant to Enunciation No. 4 of the Meeting the public law entity is responsible for complying with publicity duties and those duties may be mitigated pursuant to the law as the tribunal may deem applicable. Accordingly, the Camarb updated its rules of arbitration in September 2017 to include specific provisions on the matter; Chapter XII of the revised rules (1) sets forth that the Camarb must disclose solely the existence of, the identity of the parties to and the date of commencement of the proceedings, (2) continues to deny third-party access to hearings and submissions, and (3) sets forth that it is incumbent upon the public law entity to provide publicity as applicable. Other domestic institutions are expected to follow suit.
33 Article 2, sole Paragraph, item XXII, of Regulation No. 358, dated 3 January 2002, as amended by Regulation No. 590, dated 11 September 2017, issued by the Brazilian Securities Commission. In fact, under Regulation No. 358/2002 publicly traded corporations must disclose any material event that could affect an investment decision. Because there are no specific standards of materiality and disclosure, in practice public filings are usually limited to high-level information on the existence of a dispute, the parties thereto, and the advent of injunctions and awards.
34 The CAM-CCBC issued an administrative regulation in 2016 recommending, but not mandating, that parties disclose the existence of third-party funding and the identity of the funder.
35 Articles 5, item LX, and 93, item IX, of the Constitution and Article 189, caput, of the CPC.
36 The State Court of Appeals of São Paulo has twice ruled that confidentiality extends to the enforcement of the award (appeal No. 2131353-42.2017.8.26.0000, Justice Afonso Bráz, opinion dated 29 September 2017; appeal No. 2025056-45.2016.8.26.0000, Justice Hamid Bdine, opinion dated 15 Jnue 2016). State Justice Cesar Ciampolini ordered in January 2018 the partial unsealing of the court records of a dispute between Lactalis and Vigor over the acquisition of equity in Itambé by Lactalis (appeal No. 2000530-43.2018.8.26.0000), so that the confidentiality of parties' briefs and evidence produced be preserved but that all court decisions be made public, considering that the press has been publishing several accurate reports on the lower and appellate court rulings, thereby rendering the seal useless.
37 Articles 24, 26, 27 and 29 of the BAA.
38 Article 23, Paragraph 1, of the BAA. According to the CESA Study, partial awards were commonplace in ICC proceedings involving Brazil (140) but far scarcer when it comes to local institutions (13 in the aggregate of CIESP/FIESP, CAM, Camarb and Amcham).
39 Article 30 of the BAA.
40 The STJ has found that once the tribunal has been formed the jurisdiction of the court of law ceases immediately and the court files must be remitted to the tribunal (appeal No. 1,586,383-MG, Justice Maria Isabel Gallotti, opinion dated 5 December 2017). Among the largest domestic institutions, the CAM is the only one whose rules of arbitration provide for emergency proceedings – and even then the party may only request the appointment of an emergency arbitrator if the arbitration agreement contains specific reference thereto (Section 5.1 of the CAM rules). Per the CESA Study, the CAM administered just one such case in 2016.
41 Articles 18 and 31 of the BAA; Article 515, item VII, of the CPC.
42 Articles 525, Paragraph 1, 535 and 536, Paragraph 4, of the CPC.
43 Article 105, item I, sub-item (i), of the Constitution.
44 Article 36 of the BAA; Article 960, Paragraph 3, of the CPC. The Internal Rules ('Regimento Interno') of the STJ are also an important primary authority on the matter.
45 Article 37 of the BAA, in line with Article IV of the 1958 New York Convention.
46 Articles 38 and 39 of the BAA, in line with Article V of the 1958 New York Convention and Article V of the 1975 Panama Convention.
47 Article 961, Paragraph 2, of the CPC.
48 Article 109, item X, of the Constitution.
49 Articles 32 and 33 of the BAA. Pursuant to Article 33, Paragraph 3, those arguments may also be raised by the defeated party upon submitting its defence in the enforcement proceedings.
50 Article 33, Paragraph 4, of the BAA.
51 Article 83 of the CPC.
52 On a separate but related note, the Governor of Rio de Janeiro passed Decree No. 46,245, dated 19 February 2018, expressly allowing the state public law entities to agree arbitration in connection with any contracts in excess of 20 million reais, and some specific types of contracts regardless of value. This is a breakthrough regulation as far as states and cities are concerned. Provisions about publicity are especially noteworthy: (a) the arbitral institution may provide basic information on the dispute upon request, (b) the Office of the State Attorney must make all briefs, expert reports and decisions available upon request, provided that statutory confidentiality (e.g., trade secrets and sealed court files) must be preserved, and (c) hearings will be private.
53 The threshold is currently BRL11,291.60 per month.
54 For reference, upon enacting the BAA the President vetoed language that would have allowed executives to submit employment disputes to arbitration.
55 A few months earlier, an appellate labour court in the state of Rio de Janeiro had found that the arbitration agreement between local bank BTG Pactual and one of its top officers in connection with a non-compete covenant was valid (appeal No. 0011289-92.2013.5.01.0042, Justice Enoque Ribeiro dos Santos, opinion dated 11 April 2017).
56 See: http://www.iccbrasil.org/noticias/2018/3/20/new-hearing-center-icc-in-brazil/. São Paulo is one of just four venues with local ICC case management offices, along with New York, Hong Kong and Singapore.
57 Objection to foreign award No. 9,412-EX, Justice João Otávio de Noronha, opinion dated 19 April 2017.
58 Objection to foreign award No. 14,408-EX, Justice Luis Felipe Salomão, opinion dated 21 June 2017; objection to foreign award No. 12,781-EX, Justice João Otávio de Noronha, opinion dated 7 June 2017.
59 Conflict of jurisdictions ('conflito de competência') No. 139,519-RJ, Justice Maria Helena Costa, opinion dated 11 October 2017.
60 The Constitution has several provisions to the effect that oil and gas are strategic national resources and their exploration is subject to public interest, with part of the revenue being earmarked for the oil-producing states and cities (e.g., Articles 20 and 177).
61 Appeal No. 1,096,912-SP, Justice Luis Felipe Salomão, opinion dated 20 February 2018; appeal No. 975,050-MG, opinion dated 10 October 2017; objection to foreign award No. 12,781-EX, Justice João Otávio de Noronha, opinion dated 7 June 2017; appeal No. 1,239,319-SC, Justice Raul Araújo, opinion dated 14 March 2017; conflict of jurisdictions No. 146,939-PA, Justice Marco Aurélio Bellizze, opinion dated 23 November 2016. There are several other earlier precedents.
62 Appeal No. 1,550,260-RS, Justice Ricardo Villas Bôas Cueva, opinion dated 12 December 2017.
63 Appeal No. 1,602,076-SP, opinion dated 15 September 2016.
64 Appeal No. 1003528-36.2016.8.26.0011, Justice Francisco Loureiro, opinion dated 1 March 2018.
65 The opinion is in line with Enunciation No. 16 of the Meeting.
66 Appeal No. 0053131-89.2017.8.19.0000, Justice Cláudio Dell'Orto, opinion dated 27 September 2017; appeal No. 0017387-33.2017.8.19.0000, Justice Cláudio Dell'Orto, opinion dated 7 June 2017.
67 Standing to join the proceedings is also disputable. Pursuant to Articles 159 and 246 the Brazilian Corporations Act, the corporation and minority shareholders may pursue claims against the controlling shareholders and against directors and officers, but there is no permission for shareholders to pursue claims against the corporation.
68 According to the CESA Study, proceedings administered by the Camarb, CAM, Ciesp/Fiesp, Amcham and CAM-CCBC in 2016 involved 37 parties who qualify as public law entities, and an additional four parties were involved in ICC proceedings.