This article was previously published in the International Bar Association Legal Practice Division - March 2011.
The old and the new: a clear change in Culture
Brazil is a country in constant economic and social development, steadily participating in more and more international trade. As a result, arbitration has become an important tool with which to provide greater certainty and comfort about dispute resolution matters, particularly to foreign investors.
The Brazilian Arbitration Act1 (BAA) came into force 15 years ago. It was not until 2004, however, after challenges to its constitutionality were resolved by the Brazilian Federal Supreme Court (declaring the law constitutional), that Brazil saw the use of arbitration significantly increase.2
Over the past few years there has been marked change with respect to arbitration in Brazil's legal practice. Until recently, it was only the larger and foreign/multinational companies which chose ADR on a regular basis. Now, local Brazilian companies and smaller companies routinely choose arbitation or other ADR methods to resolve commercial disputes.
Arbitration and the judiciary: recent rulings are encouraging
The increasing use of arbitration in Brazil is evident in several recent decisions issued by the judiciary – decisions which address the central tenets of arbitration.
Application of the kompetenz-kompetenz principle.
The BAA states that the kompetenzkompetenz principle is to be followed in Brazil. Nevertheless, it remains at the centre of disputes and court decisions.
The Superior Court of Justice recently issued a decision which reinvigorated the debate about kompetenz-kompetenz and divided practitioners throughout the country.3 The Superior Court's decision concerned a circuit court's decision to grant an injunction against arbitration proceedings that had been requested by a party, even though the arbitral tribunal had already been formed. In response, the arbitral tribunal reaffirmed its jurisdiction and ordered that the injunction be revoked. One of the parties filed a petition to the Superior Court of Justice, and Justice Aldir Passarinho Júnior accepted the matter for review – stating that the Brazilian Federal Constitution provided the Superior Court of Justice with jurisdiction to adjudicate conflicts between courts and tribunals of any type whatsoever.
The merits of the underlying dispute have yet to be resolved as of the date of this article, but the Superior Court's decision to accept the case for review is noteworthy as the Court will have to address the arbitral tribunal's assertion that it had jurisdiction, and hence application of the kompetenz-kompetenz principle will be at the centre of any ruling.
Arbitration agreement executed prior to the enactment of the BAA
Recently, the Superior Court of Justice ruled that an arbitration clause is valid and binding, even where it is included in agreements that were executed prior to the enactment of the 1996 BAA.4 The Court reasoned that because arbitration is a procedural tool, its application is mandatory under Brazilian law, even if entered into prior to the BAA.
Government participation in arbitration
Agreements which include Brazilian Government entities as parties increasingly contain dispute resolution clauses that provide for mediation and/or arbitration. This is a significant development, as in years past Brazilian law – supported by judicial decisions and pronouncements by legal scholars – unequivocally provided that rights of the government were non-disputable and could not, therefore, be subject to arbitration. Recent legislation has provided for the shift in situations where the disputes are propertyrelated and therefore deemed 'disposable'.5
For example, in 2005 the law governing the concession of public services was amended to allow for the use of ADR (including arbitration) to resolve disputes concerning the agreements, provided that the ADR proceedings are held in Brazil, conducted in Portuguese, and governed by the BAA.6 Similarly, the law governing Public-Private Partnerships now expressly authorises the inclusion of arbitration clauses in partnership agreements, provided again that the seat of the arbitration is in Brazil, the language of the arbitration is Portuguese, and the arbitration is conducted pursuant to the BAA.7
The federal laws addressing heavily regulated industries have followed suit. The law setting forth the Brazilian policy on energy, which created the Brazilian National Agency of Petroleum (ANP), now permits ADR clauses, including those that provide for international arbitration, to be included in concession agreements.8 It also provides that the ANP itself may act as an arbitrator in conflicts between concessionaires.9 The legislation concerning energy free market trade goes even further and requires that arbitration clauses be included in the rules regarding resolution of conflicts between industry members.10 The law also authorises government-owned companies, governmentcontrolled companies, as well as their respective subsidiaries and affiliates, to accept arbitration clauses.11 The same is true for the Brazilian General Telecommunications Act.12
The acceptance of arbitration clauses in such agreements is well-timed, in view of the opportunities created by Brazil's increasing participation in international trade and of foreign investments in Brazil's economy. Notably, the need for investments in infrastructure, most evident by the enormous construction that will be undertaken in connection with the 2014 World Cup and the 2016 Olympic Games in Rio de Janeiro, represents both an opportunity as well as the ultimate test for the inclusion of arbitration clauses in public agreements.
Judicial intervention during the evidentiary stage – the Metrô case
Companhia do Metropolitano de São Paulo – Metrô is a leading case regarding judicial intervention in state arbitration. In this case, while the parties were still engaged in the discovery phase of the proceeding, a Brazilian Court granted a writ of mandamus to order that an engineering expert be allowed to provide evidence in the arbitration, despite the fact that the arbitral tribunal had, in its discretion, determined that the expert's evidence was unnecessary and denied the party's request to introduce expert evidence. The court's ruling was temporarily stayed by the Appellate Court of the State of São Paulo – a decision that received significant praise from the arbitral community.13 Nevertheless, the lower court re-established the injunction based on new grounds, and the Court of Appeals has yet to rule on this new decision. It remains to be seen what the final outcome will be, but the matter is being watched closely by arbitration practitioners.
The use of arbitration, both domestic and international, has grown exponentially in Brazil and has reached industries in which the practice was not previously utilised – the clearest example being agreements entered into with government entities.
Additionally, the judiciary has shown tremendous respect for the central and important concept of arbitration as a private contractual matter. Much is still to be done, but the progress achieved is noteworthy and is a development about which the Brazilian arbitration community can be proud, and in which the international arbitration community can trust.
1 Law No 9307/96.
2 SEC 5206-7, judgment from 10 October 1996 to 12 December 2001, decision published on 30 April 2004.
3 Conflict of Jurisdiction (cc) n. III230/DF, decision published 10 July 2010.
4 Resp 934771/SP, Fourth Panel, judged on 25 May 2010, published by the DJ on 9 June 2010.
5 See, for example, MS 11308/DF, Reporting Justice Luiz Fux, First Panel, judged on 9 April 2008, published by the DJ on 19 May 2008.
6 Law No 8987/95, Article 23-A.
7 Law No 11079/2004, Article 11, subsection III and Article 43, subsection X.
8 Law No 9478/97.
9 Article 27.
10 Law No 10848/2004.
11 Article 4, paragraphs 5 to 7.
12 Law No 9472/97 (article 93, subsection XV).
13 Interlocutory Appeal No 990.10.284191-0, Reporting Judge Franco Cocuzza.
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