Facts of the Case
The São Paulo State Court of Appeals (“the Court”) annulled an arbitral award, by request of the claimant in the arbitration (an insurance company), on the grounds that the presiding arbitrator violated his duty of disclosure (Decision of the court in Portuguese available here).
The arbitration started in March 2015, and the award was issued on February 7, 2018. During the course of the arbitration, the respondent appointed the presiding arbitrator as co-arbitrator in another arbitration, related to a similar contract involving another insurance company. However, the arbitrator only disclosed such a fact after the issuance of the arbitral award. While the acceptance of the appointment took place on August 18, 2016, the arbitrator only informed the parties about it in the Procedural Order 33, dated March 5, 2018 i.e. more than 18 months afterwards.
The Reasoning and the Decision
According to the Brazilian Arbitration Act, someone may only act as an arbitrator if the parties involved in the dispute trust him/her.[1] In this regard, arbitrators have the duty to disclose any facts that may raise justifiable doubts as to their independence and impartiality.[2]
Based on these provisions, the Court highlighted that the disclosure of relevant events by an arbitrator directly influences whether the parties will be able to trust him/her and, therefore, whether he/she may act as an arbitrator. It further stressed that if any relevant event arises after the appointment, the arbitrator shall disclose it to the parties at the earliest opportunity. According to the Court, such a duty cannot be narrowly constructed. As such, any personal or professional information which may raise doubts[3] as to the impartiality of an arbitrator shall be immediately informed to the parties.
Interestingly, the Court compared judges’ duties of impartiality with arbitrators’ ones. It underlined that, on the one hand, judges are subject to limitations imposed by the constitution and by the law, such as the prohibition to act as counsel. On the other hand, arbitrators are not subject to these duties. Nevertheless, arbitrators shall comply with the duty of disclosure by being “absolutely transparent and disclose [relevant facts] not only before the acceptance of the appointment, but as soon as any new fact arises, even during the course of proceedings“.[4]
The court considered that the presiding arbitrator violated his duty of disclosure by not informing the parties about the appointment at the earliest opportunity. The Court therefore annulled the award.
This decision not only sets a high standard for independence and impartiality of arbitrators, but also stresses the relevance of arbitrator’s duty of disclosure. It is worth highlighting that in April, 2017 the Brazilian Superior Court of Justice used similar grounds to refuse recognition of an award issued in the USA. That case pertained to non-disclosure of conflict related to the arbitrator’s law firm (Abengoa Case).
[1] Article 13, Law 9.307 of 1996: Any capable person who has the confidence of the parties can be an arbitrator.
[2] Article 14 §1º, Law 9.307 of 1996: The persons appointed to act as arbitrators have the duty to reveal, before the acceptance of the function, any fact that denotes justified doubt as to their impartiality and independence.
[3] Please note that the court said “doubts”, and not “justifiable doubts”.
[4] São Paulo State Court of Appeals, Apelação Cível 1056400-47.2019.8.26.0100, p. 10-11.
