Brazil: Arbitration Law In Brazil

The importance of arbitration in today's international business and banking world can be noticed by the introduction of the arbitration in a large number of contracts involving a significant amounts of money. The reasons to choose this mechanism for dispute resolution is to avoid the slowness of national courts, the belief that private arbitrators can decide fairly and impartially, the lack of publicity (which is also a big advantage to international companies which are very concerned about their reputations) and flexibility and speed in the use of arbitration comparing to the procedures of public courts. Further, arbitration can lead to effective settlement negotiations, maintaining or trying to maintain the future business relationships.

In Brazil, the introduction of arbitration in national or international contracts is not common in view of the tendency to settle disputes by public courts. It is more common, however, to include a provision under which parties choose the jurisdiction ("forum") to decide disagreements arising from the contract.

On September, 23, 1996, the Law nr. 9,307, known as the new Brazilian Arbitration Law, was promulgated and it came into force on November 23, 1996. This Law brought important changes to the arbitration institute in Brazil, which will certainly increase the use of this kind of conflicts solution in our country.

Formerly, arbitration was ruled by articles 1,072 to 1,102 of the Brazilian Code of Civil Procedure and a few dispositions of the Civil Code, from article 1,037 to 1,048, which were not suitable and sufficient to regulate the arbitration in Brazil. In view of this, it was not extensively practiced as a mode of settling disputes and the parties of a contract prefer to submit their disputes to the courts instead of electing the arbitration procedure (even though arbitration is supposed to be faster and cheaper compared to court procedures).

The purpose of this article is to point out the relevant aspects of arbitration and the most important changes introduced by Law nr. 9,307.

1. Any eligible parties to a contract can submit to arbitration the disputes concerning defeasible equity rights. Disagreements regarding the state of person could not be solved by arbitration.

The rules of arbitration's procedure can be freely determined by the parties since the good morals and public order are respected. The parties may choose whether the arbitration will be administered at law or equity, the governing law or if specialized rules of an arbitration institution will be adopt.

2. The parties are free to determine the suitable arbitration procedure in accordance with their wishes and the nature of the dispute, to obtain from the arbitration the most of its supposed advantages, such as flexibility and speed.

3. Before the new Brazilian Arbitration Law, there was a distinction between the arbitration clause ("clausula compromissoria" or "clausula arbitral") and the arbitration commitment ("compromisso arbitral") itself. The first one was an agreement regarding future disputes, usually inserted in the contract, in which the parties undertake to submit the arising disagreements to arbitration.

The second one is the rules which will regulate the arbitration procedure referred to as an already existing dispute. So once the disagreement arises and there is a arbitration clause in the contract, the parties shall submit it to arbitration which will be regulated by the rules determined in the arbitration commitment. Before the new Law, arbitration clause was only considered as an affirmative covenant, or an obligation to do something, so in case of one party do not accept to submit the dispute to arbitration, the other one should have the right to claim for damages.

Now, it is important to note that "clausula arbitral" means a rennouncement of the jurisdiction of the courts and the arbitration commitment will regulate the arbitration procedures. The intention of the parties to introduce the arbitration into the contract shall prevail. The arbitration clause is independent from the contract where it is incorporated, so that the invalidity of the contract shall not necessarily render the commitment clause null or void.

4. Regarding adhesion contracts, the arbitration clause will only be valid if the adherent has the initiative to institute the arbitration or expressly agrees to its introduction, with the separate signature for this clause. Such disposition arose some discussions because in this kind of contract most of clauses are imposed to the adherent party and, evidently, do not reflect the composition of interests.

5. Arisen a dispute and whether the commencement of arbitration procedures is challenged by either party notwithstanding the existence of an arbitration clause to effect, the interested party can institute the arbitration, summoning the other party to enter into an arbitration commitment in which they will determine the procedures of the arbitration. In case the party do not accept to start the arbitration, the specific execution of the arbitration clause may be obtained by means of a judicial intervention, in order to sign the arbitration commitment.

6. Any able person who has the reliance of the parties can be an arbitrator, except for people who have relationships which characterize suspicion or impediment of judges, determined by the Brazilian Code of Civil Procedure. The choose of the arbitrator or the tribunal is made by the parties or by the procedure stipulated by them and the procedure of arbitration start with the appointment of the arbitrators.

7. The article 18 is the most discussed legal disposition of the new Law 9,307. The law considers the arbitrator a judge of law and fact and the pronounced decision can not be changed by a recourse. Many jurists consider such article unconstitutional because of the constitutional principles of the access to the Judiciary and the double degree of jurisdiction.

On the other hand, other jurists do not accept this understanding, based on article 32 which listed the cases an arbitral award is considered null, for example, when null arbitral agreement, decision pronounced by who was not able to be an arbitrator, handed down beyond the scope set out in the arbitration commitment, the decision fails to address the entire dispute referred to arbitration, disqualified due to violation of duty, concussion or corruption, the conditions set out in article 26 of the Law, which are the summary, basis of the decision, the decision and the date and place of the arbitration, are not included. A irregular procedure can annul an arbitral award but the decision itself can not be changed by a recourse to the Judiciary.

Pursuant to article 18 of Law nr. 9,307, it is no longer necessary to submit the arbitration award to the ratification of the competent trial court. The arbitration award has the same binding effects as a court decision on the parties and their successors and shall also be regarded as an enforceable instrument if vested in a condemnatory nature.

In the same way, a foreign arbitration award do not have to be ratified by the foreign court, but this document shall have the ratification of the Brazilian Federal Supreme Court to have legal effects in Brazil. For the purpose of recognizing and enforcing the foreign arbitration award, the provisions contained in articles 483 and 484 of the Code of Civil Procedure shall be respected.

The recognition or enforcement of foreign arbitration award can be denied when:

  • the parties to the arbitration agreement were incapacitated;
  • the arbitration agreement was invalid under the laws which the parties submitted themselves or in the absence of such indication, under the laws effective in the country where the arbitration award was handled down;
  • no notice was served on the defendant regarding the appointment of the arbitrator or the arbitration procedure, or that the due process of law was violated to de detriment of the defendant's right of full defense;
  • the arbitration award was handled down beyond the scope set forth in the arbitration commitment and the excessive portion could not be set aside dispute actually referred to arbitration;
  • the arbitration procedure was not in keeping with the arbitration commitment or the arbitration clause;
  • the arbitration award is still not binding on the parties has been rendered null and avoid or has been stayed by courts sitting in the where the arbitration award was handled down;
  • the subject matter of the dispute cannot be referred to arbitration under Brazilian law; and
  • the arbitration award goes against the Brazilian rules of public order.

This is an overview of the aspects of the new arbitration law that tries to update the Brazilian legislation in accordance with the international scene of globalization, which demands efficiency, speed and cost-effectiveness decisions to problems arisen by commercial relationships. There are, however, several adjustments to be done until arbitration becomes an efficient mode to solve disputes, without the intervention of the Judiciary in Brazil.

The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.

For more information please contact us.

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