BRAZIL
Joaquim de Paiva Muniz, Frederico Bizarro Weingartner, Luis Henrique Borghi, Bruna Silveira, Katherina Ballestra, Maria Clara Barros Mota.
A. LEGISLATION AND RULES
A.1 Legislation
A.1.1 Amendment to bankruptcy and judicial recuperation law
On 24 December 2020, the Brazilian Bankruptcy Law was amended by Law 14.112, to make the process of bankruptcy and judicial recuperation (Brazilian equivalent to US Chapter 11) more efficient, in view of the final distress triggered by the COVID-19 pandemic.
The declaration of bankruptcy or the granting of judicial recuperation automatically stays certain types of lawsuits, such as execution lawsuits, for a period of 180 days, renewable on an exceptional basis for additional 180 days. However, the amendment to the Brazilian Bankruptcy Law made clear that the declaration of bankruptcy or the granting of judicial recuperation does not suspend arbitral proceedings, nor justifies the party bankrupt or under recuperation to deny enforceability of the arbitration clause (article. 6, section 9 of Brazilian Bankruptcy Law).
This provision is in line with Brazilian case law, which used to deny requests to suspend or avoid arbitral proceedings against bankrupt parties or under recuperation.[1] Nonetheless, the existence of express legal provision in this sense is welcome, since it grants more legal security, especially considering that the insolvent debtor sometimes claims its impecuniosity trying to bypass arbitral proceedings.
One of the most relevant points of the amendment to the Brazilian Bankruptcy Law is that it acknowledged the possibility in Brazil to recognize the effects of insolvency proceedings that are taking place abroad. The recognition of such proceedings however will not curb the creditor’s right to file arbitration in Brazil against the debtor to acknowledge or sentence the debtor to pay a certain credit (article 167-M, section 2 of the Brazilian Bankruptcy Law). This is another provision that grants legal security to arbitration, especially in cross-border transactions.
A.1.2 The Municipality of São Paulo regulated arbitration involving the direct and indirect municipal public administration
On 18 March 2020, the Municipality of São Paulo issued Law n. 17.324, which provided for, among others, the use of arbitration to resolve conflicts regarding disposable patrimonial rights involving the Direct and Indirect Public Municipal Administration. On 7 December 2020, the Municipality issued Municipal Decree n. 59.963 (“Decree”), to regulate the use of arbitration by the Direct and Indirect Public Municipal Administration.
The Decree provides that contracts entered into by the Direct and Indirect Public Municipal Administration may contain, in view of their specialty or value, arbitration clauses.
The arbitration will preferably be institutional but may be ad hoc if there is reasonable justification. The Municipality’s General Attorney Office is responsible for drafting the arbitration clauses, choosing the arbitration chamber, and appointing arbitrators. Furthermore, the Municipality General Attorney Office must represent the municipality in all stages of the arbitral proceedings. The attorney responsible for each arbitration is to be determined by the Attorney General of the Municipality.
A list of pre-approved arbitral institutions was established. The arbitration clause can provide that the claimant of a specific arbitration can choose the institution among the ones in the list.
The arbitral tribunal shall be composed in principle of three arbitrators, appointed in accordance with the rules of the applicable arbitral institution. In cases of lower value and/or complexity, the parties can go for a sole arbitrator. The language shall be Portuguese and all documents in a language other than Portuguese shall be translated. Brazilian law shall apply and judgments based on foreign law or equity are not be allowed.
The costs and expenses related to the arbitration procedure shall be anticipated by the private party, but the award can hold the losing party responsible, proportionally to the outcome of the case. The Decree however does not allow the successful party to be reimbursed for attorneys’ fees. However, the attorneys of the case are entitled to sucumbência, which is a success fee, varying from 10% to 20% of the economic benefit of the winning party, to be paid by the losing party to the attorneys of the winning party, over and above the value of the award which is paid to the winning party.
A.2 Institutions, rules and infrastructure
A.2.1 Measures for the COVID-19 pandemic
The COVID-19 crisis required everyone to adapt their routine to contain the spread of the virus. The arbitration institutions could not act differently: they also changed their operations, closing offices and focusing on conducting proceedings online. We summarize in the attached table how Brazilian institutions are working through these difficult times. The table also includes information on how different aspects of procedure are regulated by these institutions, such as the appointment of arbitrators, joinder, expedited proceedings.
A.2.2 Emergency arbitrators at CAM-CCBC
In November 2020, CAM-CCBC (Brazilian largest arbitration institution) issued Ruling 44/2020, establishing, for the first time, rules for an emergency arbitrator. Beforehand, amongst the most renowned Brazilian arbitral institutions, only the Brazilian Center of Mediation and Arbitration had emergency arbitration rules, which only applied to sports arbitration.
B. CASES
B.1 São Paulo State Court of Appeals annulled arbitral award due to violation of arbitrator’s duty to disclose
The São Paulo State Court of Appeals annulled an arbitral award, by request of the claimant of the arbitration (an insurance company), on the grounds that the presiding arbitrator violated its duty of disclosure.[2]
The arbitration started in March 2015, and the award was issued on 7 February 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 18 August 2016, the arbitrator only informed the parties about it on the Procedural Order 33, dated 5 March 2018, i.e., over 18 months afterward.
According to the Brazilian Arbitration Act, someone may only act as an arbitrator if the parties involved in the dispute trust him/her.[3] In this regard, arbitrators have the duty to disclose any facts that may raise justifiable doubts as to their independence and impartiality.[4]
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 them and, therefore, whether they 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[5] as to the impartiality of an arbitrator shall be immediately informed to the parties.
Interestingly, the court compared judges’ duties of impartiality with those of arbitrators’. 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.”[6]
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 an arbitrator’s duty of disclosure. It is worth highlighting that in October 2019, the Court of Appeals of the State of São Paulo suspended enforcement of an arbitral award because the presiding arbitrator failed to disclose that he had previously been appointed by one of the parties in another arbitration.[7] Moreover, in April 2017, the Brazilian Superior Court of Justice used similar grounds to refuse recognition of an award issued in the US. That case pertains to non-disclosure of conflict related to an arbitrator’s law firm.[8]
B.2 Brazilian Superior Court of Justice dismisses request to set aside an alleged ultra petita award
In a judgment on 6 October 2020, the Brazilian Superior Court of Justice refused to set aside an arbitral award on the grounds that the award was ultra petita.[9]
In the arbitral proceedings, the parties discussed the termination of the Agreement for the Purchase and Sales of Shares (“Agreement“). On the one hand, the claimant alleged the termination was unlawful. On the other, the respondent requested the tribunal to dismiss the claimant’s claims, declare that the termination of the Agreement was legitimate and, therefore, that the respondent was entitled to reimbursement of 70% of the amount the exclusivity fee of USD 20 million. The arbitral tribunal ruled in favor of the respondent, so that the termination was valid, and ordered the claimant to reimburse the respondent of USD 14 million.
The claimant filed a request to set the award aside based on the allegation it was ultra petita. Article 32, IV of the Brazilian Arbitration Act provides that an award shall be annulled, should the arbitral tribunal decide beyond the scope of the arbitration clause.[10] According to the claimant, the respondent only requested the tribunal to declare that the contractual termination was valid and to acknowledge its right of reimbursement – and not to order the claimant to reimburse USD 14 million.
The Brazilian Superior Court of Justice held that the arbitration proceedings aimed at discussing the contractual termination, which consequently includes ruling whether there was a duty to reimburse the exclusivity fee in light of the Agreement. In this scenario, the court did not set the award aside.
B.3 Brazilian Superior Court of Justice ruled in favor of tacit waiver of arbitration clause[11]
Transbarge Navegación SA (“Transbarge”) and Serviço de Navegação da Bacia do Prata SA(“Serviço de Navegação”) entered into a contract for the chartering of ships for the transport of iron ore. In 2015, Transbarge filed a collection lawsuit against Serviço de Navegação, related to the lack of payment of invoices issued under the contract.
In its answer, Serviço de Navegação presented a motion to dismiss arguing the lack of jurisdiction of the state court, as, according to the contract, the disputes should be settled by arbitration. The judge granted the motion and dismissed the case.
Transbarge filed an appeal against such decision, mainly arguing that on two previous occasions Serviço de Navegação had resorted to state courts to settle matters related to the contract, thus waiving the arbitration clause. The Court of Appeals of Mato Grosso do Sul denied Transbarge’s appeal, which was subject to appeal to the Brazilian Superior Court of Justice.
On 17 November 2020, the Brazilian Superior Court of Justice granted Transbarge’s appeal, overturning the Court of Appeal’s decision. According to the decision, the collection lawsuit should not be dismissed, as Serviço de Navegação could not rely on the arbitration clause that it had previously repudiated twice. The grounds for the decision is the parties’ duty to act in good faith, which encompasses the prohibition of contradictory behavior.
The Brazilian Superior Court of Justice also decided that, as to arbitration clauses, an express waiver is not required and the contradictory conduct of a party could be construed as a tacit waiver.
B.4 Brazilian Superior Court of Justice upheld the validity of an arbitration clause, although one of the parties did not sign it
In February 2020, the Brazilian Superior Court of Justice refused to set an award aside on the grounds that the arbitration clause was invalid.
In August 2011, two parties entered into a contract for the sale and purchase of sorghum bags. A broker participated in the transaction. Initially, parties foresaw under the contract that any disputes arising out of it would be solved by the Court of Justice of Costa Rica (Mato Grosso do Sul State, Brazil). Afterward, but on the same day, the seller sent a confirmation agreement to the buyer and the broker, which dealt with the same transaction as the contract, with an arbitration clause.
Whilst both the seller and the broker signed both the contract and the confirmation agreement, the Buyer did not sign the latter, which had the arbitration clause. However, the message by which the seller sent the confirmation agreement included a provision that if the buyer did not contest it in 24 hours, consent should be implied.
When a dispute between the parties arose, the buyer filed a Request for Arbitration. After the arbitral tribunal ruled in the buyer’s favor, the seller tried to stay the enforcement of the award [12], arguing that the arbitral tribunal lacked jurisdiction over the dispute, since the buyer did not sign the confirmation agreement, which had the arbitration clause.
The Brazilian Superior Court of Justice ruled that, even though the buyer did not sign the confirmation agreement, which had the arbitration clause, it was the one that initiated the arbitration. As such, there were no doubts left as to its consent to arbitrate. The court, therefore, upheld the arbitral award, based on the jurisdiction granted by the arbitration clause of the confirmation agreement.[13]
B.5 The Brazilian Superior Court of Justice allowed the re-examination of pre-arbitral court injunction by arbitral tribunal[14]
In 2017, two pharmaceutical companies entered into a share purchase agreement, subject to certain conditions. In 2018 a dispute arose as the parties could not agree on the fulfillment of such conditions. Before the arbitral tribunal was constituted, the buyer filed a pre-arbitration injunction before the São Paulo District Court. The court granted the injunction and ordered the seller to pay the attorney’s fees of the buyer’s lawyers (which is usual under Brazilian court litigation).
The seller filed an appeal against the decision, but the São Paulo State Court of Appeals declared it lacked jurisdiction to judge the appeal, and remitted the case files to the arbitral tribunal. Nonetheless, the São Paulo State Court of Appeals confirmed the court’s decision that ordered the seller to pay for the buyer’s attorney’s fees.
The arbitral tribunal, by turn, considered itself competent to decide on whether attorney’s fees were due. Given that both the arbitral tribunal and the São Paulo State Court of Appeals considered themselves to have jurisdiction to decide over the lawyer’s fees matter, a conflict of jurisdiction motion was filed before the Brazilian Superior Court of Justice.
The Superior Court of Justice unanimously recognized that an arbitral tribunal may review a decision rendered by a state court on a pre-arbitral injunction. It ruled that once the arbitral tribunal is constituted, the state court no longer has jurisdiction, and therefore, the arbitral tribunal had jurisdiction to re-examine any part of the judicial court’s decision. As the injunction’s decision issued by the state court was not final and could be reviewed by the arbitral tribunal, the Superior Court of Justice found that the arbitral tribunal had jurisdiction to decide the matter of the lawyer’s fees.
The position of the Superior Court of Justice reinforces the principle that the state court’s jurisdiction before the commencement of arbitration is only temporary and provisional.
[1] Brazilian Superior Court of Justice, case n. REsp 1.355.831/SP, third panel, Reporting Justice Nancy Andrighi, judged on March 19, 2013.
[2] São Paulo State Court of Appeals, Apelação Cível n. 1056400-47.2019.8.26.0100, judged on August 25, 2020.
[3] Article 13, Law 9.307 of 1996: Any capable person who has the confidence of the parties can be an arbitrator.
[4] 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.
[5] Please note that the court said “doubts”, and not “justifiable doubts”.
[6] São Paulo State Court of Appeals, Apelação Cível n. 1056400-47.2019.8.26.0100, judged on August 25, 2020., p. 10-11.
[7] For more information, see Court of Appeals of the State of São Paulo, case n. 2166470-26.2019.8.26.0000, judged on October 9, 2019, available at: https://www.globalarbitrationnews.com/baker-mckenzie-international-arbitration-yearbook-2019-2020-brazil/, accessed on February 02, 2021.
[8] Brazilian Superior Court of Justice, case n. SEC 9.412/US, special chamber, Reporting Justice Felix Fischer, Reporting Justice for the Decision João Otávio de Noronha, judged on April 04, 2017; the decision was further confirmed by the Supreme Court, case n. ARE 1.136.287, first panel, Reporting Justice Roberto Barroso, judged on May 30, 2019.
[9] Brazilian Superior Court of Justice, case n. REsp 1.735.538/SP, third panel, Reporting Justice Marco Aurélio Bellizze, judged on October 06, 2020.
[10] Article 32, IV, Law 9.307 of 1996: The award is null and void if: IV – is issued outside the limits of the arbitration clause.
[11] Brazilian Superior Court of Justice, case n. REsp 1.894.715/MS, third panel, Reporting Justice, Paulo de Tarso Sanseverino, judged on November 17, 2020.
[12] In a domestic arbitration in Brazil, the parties shall enforce the award after the arbitral tribunal issues it. The same system applies to domestic court decisions.
[13] Brazilian Superior Court of Justice, case n. REsp 1.818.982/MS, third panel, Reporting Justice Nancy Andrighi, judged on February 04, 2020.
[14] Brazilian Superior Court of Justice, case n. CC 165.678/SP, second section, Reporting Justice Maria Isabel Gallotti, judged on October 14, 2020.
