The entry into force – on 26 December 2015 and on 17 March 2016 – of two innovative pieces of legislation, the Mediation Act and the New Civil Procedure Code, will usher in a new era for litigation in Brazil.
Introduction: Legal Relationships in a Litigious Society
The annual report released by the Brazilian National Council for Justice indicates that there were approximately 95,14 million lawsuits pending before Brazilian courts in 2013. For a population of 201 million, such lawsuits involving at least one plaintiff and one defendant would almost suffice to guarantee to each and every Brazilian individual his or her very own lawsuit. It is indisputable that Brazilian courts are at the heart of civil society. Parties file suit regularly, albeit reluctantly, as court sluggishness looms like a morass that every user would like to stay clear of. A short digression would help one understand the situation leading to these numbers as a snapshot of the Brazilian situation.
Despite its strong democratic tradition, Brazil underwent a period of dictatorship that ended in 1988 with the enactment of a Constitution enshrining a broad range of political and social rights. The number of lawsuits increased, in part thanks to the litigiousness of the Brazilian government, which stands out as the champion of litigation, for the sheer number of lawsuits involving the three levels of government and their respective agencies, state-owned enterprises and mixed economy companies.
Commentators argue that the Brazilian society demonstrates a preference for solutions to conflict that are neither negotiated nor construed by the parties, but that are rather imposed—in a top-down approach—by an adjudicator vested with the authority of the state. This tendency to prefer a solution that is imposed by a judge rather than worked out by the parties was labeled the “culture of the judgment.”[1] This proclivity toward court litigation is sometimes difficult to fathom insofar as the interest rate applicable to court claims can be as high as 1 percent per month, exceeding the return yielded by many investments in Brazil. Waiting for a court decision can hardly be perceived as a profitable wager.
Still, the legal reform initiatives were not rare. Empowering Brazilian litigants (including the state) to come to grips with their own disputes has been a constant policy choice noticeable in many statutes (I). At the apex of such initiatives now stand the provisions that promote alternative dispute resolution (ADR) mechanisms in the New Civil Procedure Code (“NCCP“), promulgated on 16 March 2015 and entering into force on 17 March 2016 (II), and the Mediation Act, promulgated on 26 June 2015 and which enters into force on 25 December 2015 (“Mediation Act“) (III).
I. Initiatives for legal reform
The promotion of ADR mechanisms has been in the legislative agenda for many years. This is thanks to the work of many magistrates, scholars and policy makers who planted the seed and nurtured the institute of ADR for many years (A) before their efforts were translated into statutes supporting mediation and ADR (B).
A. A long period of nurturing
The refurbishment of the Federal Civil Procedure Code in 1973 (Law 5,869 of 1973) was already a reaction to the perceived formality and sluggishness in the functioning of Brazilian courts. It began with a string of piecemeal legislative initiatives aiming to expedite the resolution of court disputes.
Many initiatives were adopted in order to reduce litigiousness and to foster negotiated forms of dispute resolution. In 1994, the Civil Procedure Code sponsored a new idea: a preliminary hearing in which the judge would attempt to conciliate the parties. If this attempt at amicable resolution proved fruitless, the judged was required to establish the disputed issues and to decide about the taking of evidence that would ensue. Therefore, this provision was not only aimed at obtaining settlements, but it also directed the organization during the phases of the procedure. Some scholars regret this opportunity for a more active and focused approach to case management,[2] but the trend for a “one size fits all” procedure was characteristic of the Brazilian parties’ penchant of leaving the resolution of their disputes to a court judgment.
In 1995, a law providing for a swifter management of small claims entered into force (Law 9.099 of 1995). A whole section was dedicated to conciliation and arbitration, but its articles were destined to go unheeded by litigants, counsel and adjudicators.
In 1996, the Brazilian Arbitration Act entered into force and its Article 21 also imposed on the arbitrators the duty to conciliate the parties at the commencement of the procedure,[3] with little results. The main effect of the 1996 Arbitration Act was that reliable dispute resolutions centers started to mushroom in the major Brazilian cities, helping change the dispute resolution paradigm. Many centers responded to the demand for services of mediation, as provided in the multi-tier clauses that were gradually transplanted to Brazil.
Although numerous, such legislative initiatives were insufficient to promote interest in mediation and ADR in general in Brazil. There was ample room for doubt, such as in what regard the protection of confidential information is released for settlement proposals, which invited the recent statutory intervention.
B. The tree starts to bear fruit
The movement towards conciliation and mediation in Brazil undeniably owes a great deal to a few scholars and their continued efforts toward raising awareness and capacity building in ADR. Among those scholars, Prof. Kazuo Watanabe, of-counsel at Trench, Rossi and Watanabe in cooperation with Baker & McKenzie, played a significant role both through his work as an appellate court judge in São Paulo and through the academic and legal work undertaken after his retirement from the bench.
But the bill regulating mediation in Brazil lingered for a long time in the files of Congress and only seems to have picked up momentum as late as in 2014, once the civil society and its representatives came to realize the predicament of Brazilian courts and started looking for alternatives.
At the same time, the Federation of Industries of the State of São Paulo launched the Agreement on Mediation (Pacto de Mediação) in November 2014 under the patronage of Watanabe. Through this agreement, more than 200 Brazilian companies and law firms pledged to mediate their disputes instead of pursuing litigation.
Against that background, the Brazilian congress was discussing the two bills that finally laid down the basis upon which mediation and ADR may become more accepted in Brazil, the New Code of Civil Procedure and the Mediation Act.
II. Conciliation and Mediation under the New Code of Civil Procedure
The NCCP (Law 13,105 of 2015) will enter into force on 17 March 2016. In many of its features, the NCCP asserts a strong policy favoring ADR as a means of cutting down the costs of litigation and in addition, empowering litigants and business players to resolve disputes amicably.
One of the most pervasive traits of this mediation in the NCCP is the provision that tribunals are to create their respect judicial centers for the consensual resolution of conflicts, with the aim of conciliating and mediating disputes. It includes a full set or regulations regarding the legal impediments and the standards of conduct applicable to the judicial conciliators and mediators.
Among these impediments, Article 167 of the NCCP provides that judicial mediators or conciliators cannot act as lawyers before the courts in which they function. It is expected that case law will narrow the scope of this impediment to apply only to those specific cases in which the conciliator or mediator did act. Yet, the solution is yet to be presented by Brazilian courts.
Although regarded as synonyms in international practice,[4] conciliation and mediation may differ in Brazilian legal tradition, to such an extent that the NCCP provides different situations in which each of those modalities should be used. According to the NCCP, conciliation should be attempted in cases where there was no previous relationship between the parties; whereas mediation should preferably be used in cases where there was a previous relationship between the litigants. Consistently with the Brazilian tradition, the new code also provides that the conciliator is expected to suggest solutions to actively promote a settlement, while the mediator “helps the parties understand the questions and interests in conflict, so that the parties themselves may, through the reestablishment of communication, find consensual and mutually beneficial solutions.”[5]
To grasp the importance of ADR in light of the new code, it suffices to observe that after a lawsuit is lodged within a certain court, the NCCP does not automatically require the defendant to present a statement of defense, but rather, will summon the parties to a conciliation or mediation hearing. It is only in the case this mandatory attempt of resolving the dispute amicably proves ineffective that the judge will require and disclose a time period within which a defendant may file a statement of defense.
In the wake of the promulgation of the new code, many tribunals are already taking measures in view of building ADR capacities, seeking authorization to compensate the professionals that will take up this role. Hence, it can be expected that conciliation and mediation may become widespread practices before Brazilian courts, both before and after the filing of lawsuits.
But if the NCCP regulates the intervention of ADR in lawsuits and before lawsuits, it did not comprise a full set of rules allowing such conciliations or mediations to take place. That absence was not fortuitous as the Mediation Act was already under discussion and tackled these exact points.
III. The New Framework for Conciliation and Mediation under the Mediation Act
The Mediation Act (Law 13,140 of 2015) will enter into force on 26 December 2015. It lays out a comprehensive framework in which parties can resort to ADR, either in connection with a lawsuit or not, as well as provides the grounds on which mediation can operate so as to entice private parties to reach out and resolve their disputes amicably (A), also making it possible to mediate disputes with the Brazilian public bodies and emanations from the government (B).
A. Basic principles and mediation between private parties
The first chapter of the Mediation Act lays out the basic principles of mediation practice. It regulates the conditions upon which one can serve as a mediator, both in court and in private practice.
The Mediation Act also presents the main features of a mediation proceeding. Upon the commencement of mediation, the parties may request that the judge suspend lawsuits eventually pending, without prejudice to the judge’s ability to render urgent or interim relief. It is paramount to mention that the commencement of a mediation procedure suspends the counting of the applicable statutes of limitations, allowing the parties to resort to mediation without relinquishing their rights.
On a rather controversial provision, however, Article 23 of the Mediation Act appears to enforce the time periods agreed upon by the parties to conduct mediation, suspending lawsuits or of arbitrations during that period. That appears to be the case with the now-widespread “cooling-off” provisions, whereby the parties undertake not to litigate during a certain period of time, which should be dedicated to attempt a negotiated settlement. Practice indicates that, although well intended, such cooling-off provisions may also become a hurdle in the case the settlement attempt is of no avail and one of the parties is keen on initiating litigation or arbitration.
Of course, the suspension mandated by this provision in not applicable in the event a party requires an urgent measure in order to prevent the dispute from becoming moot, but there are many other situations that do not warrant an urgent measure, but in which the insistence on a hopeless negotiation may prove uncomfortable or detrimental. This rule demands caution from the parties as they provide for mandatory cooling-off periods, to avoid freezing their alternatives for too long.
The Mediation Act also includes default features that may be applicable in the case the parties fail to specify their choices as regards the conduct of the mediation, such as the time span of the proceeding, the place of the mediation, the method for the appointment of the mediator and the collection of fees.
A sensitive point was well addressed in the Mediation Act, which now specifically provides that documents exchanged during the mediation are inadmissible as evidence in lawsuits or in arbitration.
B. Mediating disputes against the State
Chapter II of the Mediation Act deals with the “amicable resolution of conflicts involving public entities.” In a statute comprising three chapters, the dedication of an entire chapter to the amicable resolution of disputes involving public entities reveals the Brazilian legislator’s headstrong reliance on ADR in order to tackle the backlog of lawsuits involving not only the government, its agencies and private parties, but also to expedite the resolution of disputes between governmental agencies.
First, the Mediation Act conceives what may become a wide-ranging system of dispute resolution boards. Article 32 allows the Federal Union, the Brazilian States and the Federal District to set up chambers for conflict prevention and resolution under the auspices of their respective Advocate-General offices. While such centers are not instituted, the act expressly allows such public bodies to resort to private mediation. Such centers shall be authorized to: (i) resolve conflicts between entities of the public administration; (ii) evaluate the admissibility of requests for the amicable resolution of disputes; and (iii) to promote, when applicable, the execution of terms for the adjustment of conduct – a mechanism under Brazilian law that may prevent the application of penalties in the case the party pledges to cease the conduct and to make amendments.
Moreover, the Mediation Act provides a system for handling mass or repetitive disputes between private parties and the public administration. True innovation lies in Article 35 and the following, which is applicable to disputes between private parties and the public administration. It includes a legislative authorization for resolving the “legal disputes involving the direct public administration, its instrumentalities and public foundations through settlement by adhesion.”
Only certain disputes may be subject to the proceeding described in this section, as there must be either: (i) express authorization from the Advocate‑General of the Union, which shall be based on long-standing case law of the Supreme Federal Court; or (ii) on a legal opinion rendered by the Advocate‑General of the Union and approved by the President. In both cases, the acts calls for the passing of an administrative resolution providing the requirements and conditions upon which a certain class of disputes can be settled by the interested parties with the public administration. In fact, in order to safeguard the equality of treatment by the public administration, such authorizations shall be applicable to all identical cases, provided that the interested party, in a timely manner, files a request in which it adheres to the terms of the settlements authorized along theses lines.
The Mediation Act also provides for the use of ADR within the government itself. It also allows the Advocate‑General of the Union to mediate disputes between “public law bodies and entities that integrate the federal public administration” per Article 36. Article 37 also allows the entities from the Brazilian states, the Federal District, their agencies and public foundations, as well as state-owned enterprises and mixed economy companies to submit their disputes with the federal public administration to mediation, which will be conducted by the Advocate‑General of the Union. This provision will be applicable to disputes between the federal public administration and, for instance, state-owned companies (such as the Brazilian Post and Telegraph Office or the National Bank for Economic and Social Development, which operate as private entities in spite of being controlled by the federal government), or mixed-economy companies, whose shares are partially held by private parties, such as the Bank of Brazil or Petroleo Brasileiro S/A – Petrobras.
Inexorable as they may be, not even tax credits were forgotten in the Mediation Act, since the act includes authorization for the amicable resolution of disputes relating to federal taxes in accordance with Article 38 and providing that any reduction or write-off regarding tax credits depends upon a joint evaluation from the Advocate‑General of the Union and the Minister of Finance.
The new situation and l’embarras du choix
The new pieces of legislation may represent the dawn of the age of mediation in Brazil. Rather than simply transferring their disputes to an adjudicator, legislation is calling upon litigants to take the stage and to endeavor to find negotiated solutions that go beyond the automatic application of statutes and reach out for their greatest common interest.
The legislative rhetoric behind such initiatives corresponds mainly to the “transformation story” of mediation as told by Bush and Folger,[6] meaning that the legislative initiative do seem to call for change in the quality of conflict interaction between litigants and empower them to chose solutions. This can create spillover benefits for social exchanges in general. With these new acts, the necessary legislative devices are in place and one can only hope that disputing parties will incite counsel to take the most out of these opportunities instead of continuing with the ingrained habits of resorting to time‑consuming litigation every time and without exception. Yet, even the best of tools can produce bad results in inexpert hands.
Even if a few active and reliable arbitration and mediation centers do provide sophisticated conciliation and mediation services, the roster of qualified professionals in Brazil definitely falls short of the demand that the new statutes will give rise to.
Not only will more qualified mediators become necessary, but litigation counsel will also have to face the challenge of navigating through previously unchartered waters. The increased empowerment of the litigants will certainly intensify their responsibility for the outcome of their cases, inciting parties to retain lawyers that are capable of understanding and offering counsel in this new reality.
[1] WATANABE, Kazuo, “A Mentalidade e os Meios Alternativos de Solução de Conflitos no Brasil.” In GRINOVER, Ada Pellegrini; LAGRASTA Neto, Caetano; WATANABE, Kazuo (Orgs.). Mediação e Gerenciamento do processo: revolução na prestação jurisdicional. São Paulo: Atlas, 2007.
[2] WATANABE, Kazuo. Op. cit.
[3] Brazilian Arbitration Act, Law 9,307 of 1996, Art. 21: “Article 21 – The sole arbitrator or the arbitral tribunal shall comply with the procedure agreed upon by the parties in the arbitration agreement, which may refer to the rules of an arbitral institution or specialized entity, it being possible for the parties to empower the sole arbitrator or the arbitral tribunal to regulate the procedure. […] § 4 – The sole arbitrator or the arbitral tribunal shall, at the commencement of the procedure, try to conciliate the parties, applying, to the extent possible, Article 28 of this law” (Translation by the Brazilian Committee of Arbitration available at http://cbar.org.br/site/legislacao-nacional/lei-9-30796-em-ingles).
[4] BÜHRING-UHLE, Christian, “Arbitration and Mediation in International Business.” The Hague: Kluwer, 2006, p. 175.
[5] Law 13,105 of 2015, Art. 165, § 3.
[6] BUSH, Robert A. Baruch; FOLGER, Joseph P. The Promise of Mediation. San Francisco: Jossey-Bass, 2005.
