Brazil: Amendments To The Brazilian Arbitration Law

Last Updated: 1 June 2015
Article by Gustavo Fernandes de Andrade and Roberto Figueiredo

Keywords: Brazil, arbitration,

The Brazilian Vice-President signed on 26 May 2014 the law amending the 1996 Brazilian Arbitration Law (Law No. 9.307/96). The amendments will enter into force 60 days after publication in the official gazette, occurred on 27 May 2015.

The 1996 Arbitration Law, resolutely progressive and arbitration friendly, was a crucial step for Brazil, placing it among the biggest arbitration players worldwide.

Rather than a wholesale change, the amendments allow some long standing practices to be consolidated. Formal changes were made merely to align the 1996 Arbitration Law with legislative changes occurred after 1996, such as the enforcement procedure of court decisions, also applicable to arbitral awards, which was modified in 2005; and the authority of the Superior Court of Justice to rule on the recognition of foreign arbitral awards, which belonged to the Federal Supreme Court before constitutional amendments of 2004. A number of changes were also made to correct inaccuracies contained in the original wording of the 1996 Arbitration Law, such as replacing "compromisso" with "convenção de arbitragem" in Article 32, and "decretação" with "declaração" in Article 33.

The amendments also attempt to settle controversial issues, such as the possibility to include arbitration clauses in by-laws of companies and to make the arbitration clause binding upon all shareholders. However, the amendments to the 1996 Brazilian Arbitration Law allowing the submission to arbitration of consumer and employment disputes were vetoed by the Brazilian Vice-President.

Despite its objective to modernize the 1996 Arbitration Law, the amendments lack clarity in some instances and introduce possibilities that will surely be challenging for arbitration practitioners.

Below, the thematically sorted key changes contained in the law:

Key change Signification
Public Entities One of the most controversial issues in the 1996 Arbitration Law was whether public entities were allowed to be party to arbitral proceedings. The amendments expressly allow public entities to use arbitration, should the dispute relate to disposable economic rights ("direitos patrimoniais disponíveis": economic rights that can be waived). Pursuant to the amendments, arbitration involving public entities shall always remain public.
Constitution of the arbitral tribunal With the amendments, parties may agree to avoid restrictions imposed by arbitration rules on the choice of arbitrators among those listed by the arbitration institution. The restriction on the choice of arbitrators is a recurrent practice in Brazil. For instance, the arbitration rules of the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAMCCBC), one of the main arbitration institutions in Brazil, prevent the parties from appointing arbitrators outside the list unless authorized by the president of CAM-CCBC. The rules also require the chairman of the arbitral tribunal to be a listed arbitrator.
Statute of Limitation The amendments introduce a rule concerning the statute of limitation, according to which the statute of limitation is interrupted by the institution of the arbitration, even if the arbitral tribunal eventually finds that it lacks jurisdiction. In accordance with the Arbitration Law, the arbitration is considered instituted once all arbitrators have accepted their appointment. Nevertheless, once the arbitration is instituted, the date of the request for arbitration determines the time in which the statute of limitation is interrupted.
Precautionary measures A new chapter dedicated to precautionary measures was introduced by the amendments, essentially consolidating the existing practice on the power of arbitrators to order precautionary measures and to review precautionary measures granted by courts before the constitution of the arbitral tribunal. The amendments allow the parties to seek precautionary measures from courts while the constitution of the arbitral tribunal is pending. After the arbitral tribunal is constituted, the parties may only request precautionary measures directly from the arbitrators. Precautionary measures granted by courts will remain in force provided that the institution of the arbitration is requested within 30 days of the date of enforcement of the court order. Once constituted, the arbitral tribunal will be empowered to uphold, modify or revoke precautionary measures granted by courts
Arbitral Letter ("Carta arbitral") The arbitral tribunal may communicate with courts through an arbitral letter ("carta arbitral"), which allows arbitrators to request adoption of enforcement measures directly from the courts, such as the deposition of uncooperative witnesses. The amendments align the 1996 Arbitration Law with the new Brazilian Code of Civil Procedure, which foresees that communications through "cartas arbitrais" will remain confidential as long as the parties have provided that the arbitration itself should be confidential.
Partial awards The amendments put an end to the controversy concerning the validity of partial awards. The amendments expressly state that arbitral tribunals may render final as well as partial awards. In addition, the amendments provide that the 90-day limit for applying for an award to be set aside is triggered by the notification of the award, regardless of being a partial or final award. As such, the amendments settle the controversy concerning the possibility of applying for a partial award to be set aside before the final award is rendered.
Arbitrator's power to decide on issues related to non-disposable rights The amendments revoke Article 25 of the 1996 Arbitration Law, which required arbitral tribunals to stay the proceedings and to refer to courts issues related to non-disposable rights ("direitos indisponíveis") upon which the decision of the arbitral tribunal is contingent. At first sight, the amendments aim at allowing arbitral tribunals to decide on the existence of non-disposable rights as an incidental or preliminary issue. However, to what extent is a decision on the existence of non-disposable rights consistent with the rule according to which parties may only submit to arbitration disputes concerning disposable rights? This is a matter which will certainly lead to controversial cases in which the jurisdiction of arbitral tribunals may be challenged because the dispute involves non-disposable rights.
Requests for clarification The amendments create a new rule pertaining to the time limit for filing requests for clarification of the arbitral award. Under the 1996 Arbitration Law, the parties had five days to request clarifications from the arbitral tribunal, differently from several arbitration rules, which provide for longer periods for requesting clarifications. Given that the 90-day deadline for applying to have an award vacated by a court was triggered by the decision on the request for clarification, requests for an award to be set aside could be considered time-barred by courts if the five-day deadline for clarification requests originally set forth in the 1996 Arbitration Law was not complied with. The amendments solve this problem by allowing the parties to freely determine the deadline for requests for clarification.

A problem remains, however, if under the arbitration rules the scope of the request for clarification is narrower than under the Arbitration Law. For instance, while the Arbitration Law allows the parties to request clarification in cases of material errors, obscurities, doubts and contradictions contained in the award, or if the arbitral tribunal fails to decide certain issues in the award, under the ICC Arbitration Rules the scope of such requests is limited to the correction of material errors and the interpretation of the award. The ICC Arbitration Rules do not set forth a deadline for the parties to request the arbitral tribunal to decide an issue that it failed to decide in the award. In this case, the parties would still have to follow the five day deadline in order to request the arbitral tribunal to clarify issues that were not decided in the award, in order to interrupt the 90-day time limit applicable to requests to set aside an award before the courts.

On the other hand, the amendments make clear that, in case the parties request the clarification of the award, the 90-day time limit for applying to court to vacate an award starts upon the decision on the request for clarification, irrespective of the decision of the arbitral tribunal. Under the 1996 Arbitration Law, it was not clear whether the request for clarification would only interrupt the 90 day deadline if the arbitral tribunal modified the award.
Annulment of Arbitral Awards and Supplementary Arbitral Awards The amendments introduce a new rule concerning the consequences of vacating an award. Under the 1996 Arbitration Law, the court would remit the case back to the original arbitral tribunal for a new award if the original award was vacated because it did not contain all statutory requirements (name of the parties, summary of the case, reasoning, ruling, time limit for compliance with the decision, date, place and signature); it was rendered outside the limits of the arbitration agreement; or it did not decide the whole dispute submitted to arbitration. In all other cases, the whole arbitration would be vacated. With the amendments, the decision on whether to vacate an award must decide whether he case should be remitted back to the original arbitral tribunal or not.

In addition, the amendments confer on the parties the possibility of going to courts to request the rendering of a supplementary arbitral award if the arbitral tribunal fails to decide every claim submitted to arbitration. Before the amendments, the 1996 Arbitration Law provided that the award could be vacated if the arbitral tribunal failed to decide the whole dispute and the case would be remitted back to the arbitral tribunal for a new award. With the amendments, awards are no longer subject to being set aside if the arbitral tribunal does not decide the whole dispute submitted to arbitration, leaving to the parties the option of requesting a supplementary arbitral award. It is not clear, however, whether the supplementary arbitral award would be rendered by the court or by an arbitral tribunal. The poor wording employed in the amendments could lead to both interpretations.
Corporate Disputes and Arbitration The amendments also modify the Brazilian Corporate Law in order to expressly allow arbitration clauses in by-laws of companies and to make the arbitration clause binding upon all shareholders, including those who voted against the insertion of the arbitration clause, granting them the right to exit the company.

The amendments aim at settling a long lasting battle among Brazilian arbitration practitioners. While some practitioners argued that arbitration clauses inserted in by-laws must be binding upon all shareholders, others advocated that the arbitration clause could not bind shareholders who did not expressly consent to arbitrate. The amendments, however, will certainly be subject to constitutional challenges because the right to access courts can only be restrained if the parties expressly consented to the arbitration clause.

Originally published May 2015

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Founded in 2001, Tauil & Chequer Advogados is a full service law firm with approximately 90 lawyers and offices in Rio de Janeiro, São Paulo and Vitória. T&C represents local and international businesses on their domestic and cross-border activities and offers clients the full range of legal services including: corporate and M&A; debt and equity capital markets; banking and finance; employment and benefits; environmental; intellectual property; litigation and dispute resolution; restructuring, bankruptcy and insolvency; tax; and real estate. The firm has a particularly strong and longstanding presence in the energy, oil and gas and infrastructure industries as well as with pension and investment funds. In December 2009, T&C entered into an agreement to operate in association with Mayer Brown LLP and become "Tauil & Chequer Advogados in association with Mayer Brown LLP."

© Copyright 2015. Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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