Doing Business in Brazil

22. Arbitration in Brazil

07/03/18

The Brazilian Arbitration Law #9,307, enacted on September 23, 1996 (“Brazilian Arbitration Law”) had the purpose to set forth the rules and procedures related to the use of arbitration as a method of alternative dispute resolution in Brazil. The Brazilian Arbitration Law defines that a person legally competent or a legal entity may submit and solve any private issue, related to disposable and economically measurable rights by arbitration.

When enacted, Brazilian Arbitration Law aimed to avoid doubts related to the effectiveness of arbitration awards in Brazil. The referred law also complies with the Arbitration Model Law, which granted trustworthiness and credibility thereto, enabling the effective start of arbitration practice in Brazil.

In 2001, the Brazilian Supreme Court ruled in favor of the constitutionality of the Brazilian Arbitration Law, granting security for all contracting parties to agree on such dispute resolution method in their transactions.

Notwithstanding the advantages provided by Brazilian Arbitration Law, it did not address some important matters. Hence, the Brazilian Senate created in 2012 a group composed by arbitration experts, such as professors, arbitrators, lawyers, among others.

After several discussions and debates, on May 26, 2015, the Congress enacted Law #13,129 (“Arbitration Amendment Law”). The modifications defined therein had the scope of granting more safety to arbitration proceedings and authorizing expressly the use of arbitration in controversial fields such as conflicts with the public administration.

Indeed, the most important change in the law relates to the participation of the public administration in an arbitration procedure. The amendment authorized the entities of direct and indirect public administration to either execute an arbitration agreement and to effectively participate as a part of an arbitration procedure, being bound by its award.

The admission of public entities reflects decisions granted by Brazilian Superior Court that agreements entered into by such entities might be subject to arbitration, provided the purpose of the contract involves disposable rights and ends disputes by means of which public companies refused to submit their conflicts to arbitration procedures. Legal provisions do not permit that arbitration with a public party be decided by equity, however. Therefore, the arbitration shall apply only the law to resolve such cases.

This new provision also establishes that no arbitration with a public entity as a party can be confidential. This condition is in accordance with Federal Constitution that establishes the publicity as one of the governing principles of public administration.

Arbitration Amendment Law expressly sets forth that the establishment of the arbitral proceeding interrupts the limitation period, according to several court precedents. Therefore, even if arbitration ends by lack of jurisdiction, the parties have a new and full limitation period to file another claim.

Arbitration Amendment Law amends the current corporation law (Law #6,404), establishing that all shareholders of a company are bound to the arbitration clause if it is set forth in the company’s by-laws. This inclusion aims to terminate discussions on the binding effect of the arbitration clause to shareholders that did not approve the provision, regardless if they were initial shareholders or acquired their shares after the incorporation of the company. The amendment clarifies that any shareholder that disagrees with the inclusion of the arbitration clause has the right to withdraw from the company and receive the amount correspondent to his share in company.

Henceforth, with the inclusion of this provision, the shareholder that does not exercise the withdrawal right will be bound to the arbitration clause.

This new rule grants safety and, most important, validity and enforceability to all arbitration clauses included in the by-laws of any corporation. This provision may also apply to limited liability companies that establishes in its articles of association the subsidiary application of the corporation law. An increase in arbitration procedures related to corporate matters is expected in view of such amendment.

The Brazilian Stock Exchange (BM&FBOVESPA) issues general rules for listed companies. BM&FBOVESPA establishes to certain markets (classified in accordance with corporate governance principles) the compulsory use of arbitration to settle corporate disputes; otherwise, BM&FBOVESPA does not authorize the company going public in that segment. The recourse to arbitration is mandatory to the company, management and shareholders.

Arbitration Amendment Law also clarified the right of the parties to seek interim relief with judicial courts without prejudice to the arbitration procedure. Thus, the parties are entitled to pursue an interim measure before the beginning of the arbitration procedure, as a measure to protect a right or avoid any act that could jeopardize its right during the arbitration. The requesting party has the burden to begin arbitration within thirty days counted from the enforcement of the interim measure. The arbitral tribunal shall review the interim measure by either confirming, modifying or revoking it.

Another important matter disciplined by the amendment is the “arbitration letter”, which is a cooperation mechanism between the arbitral tribunal and the judicial court. The “arbitration letter” is a tool by means of which the arbitral tribunal can request the assistance of the judicial court in matters that demands an “act of force”, such as the enforcement of a provisional order issued during the arbitration.

Arbitration Amendment Law set forth that the arbitral tribunal can grant partial awards, as a matter of celerity, effectiveness and economy for the parties.

The amendment to the law provided that the parties and the arbitral tribunal might extend the term for the arbitral award, the request for clarification, among others.

With respect to the appointment of arbitrators, the parties have now the right to appoint arbitrators out of the list of the arbitration chambers. The chamber may control this choice of arbitrators regarding their capacity to participate and coordinate an arbitration procedure.

On 2017, an amendment to the Labor Laws established that certain conflicts between employees and employers be submitted to arbitration, provided that the compensation paid to the employees is above a defined level and the employee has either requested the inclusion of the arbitration clause or is in full agreement with it.

As aforementioned, Arbitration Amendment Law implemented several matters that are important to consolidate the arbitration procedure in Brazil, establishing a safer environment to increase the use of arbitration as an important mechanism of dispute resolutions. The modifications brought up by the Law #13,129 and by the amendments of the labor laws are of great importance to avoid any doubt that arbitration has jurisdiction powers to grant full and enforceable awards under Brazilian law.

 

 


Authors: Luis Augusto Roux Azevedo and Ettore Botteselli

 

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