Brazil: changes enacted to Arbitration Law

For ChinaGoAbroad.com – May 2015

In 2013 a Brazilian Senate Special Commission completed its work on a draft revision to the country’s 1996 Arbitration Law as well as a Draft Law on Mediation. After sending the Arbitration Draft Law to the Lower House for consideration, Amendments were finally approved this month by the Congress and the Office of the President. They will take effect in 60 days' time. Paul Eric Mason1, an independent legal counsel, arbitrator and mediator based in Rio de Janeiro and Miami who has accompanied the work of the Commission and appeared before it to offer suggestions on the draft mediation law, summarizes and explains the main changes.

As many readers know, the Brazilian Arbitration Law 9.307/1996 celebrated its 18th anniversary last September. The law has generally worked quite well and has fulfilled two main objectives – providing a more speedy and specialized forum for commercial disputes, and attracting more foreign business and investment for Brazil. It has also had some other very beneficial effects such as making available a faster, more private arena for resolving Brazilian corporate shareholder disputes and making Brazil a global pioneer in this area of corporate law.

Just to have an idea of the growing influence of arbitration in Brazil, in 2008 – only six years after the constitutionality of the 1996 law was upheld in 2002 – Brazil became the fourth-ranked country in the world in number of arbitrations filed with the ICC. Research conducted by the Getúlio Vargas Foundation think tank in 2010 showed the amounts at stake in Brazilian arbitrations growing rapidly at a rate of 185 per cent, from 867 million Brazilian reais in 2008 to 2.4 billion reais just one year later. This research involved arbitrations conducted by companies, suppliers and consumers in five international chambers of commerce functioning in Brazil - three in São Paulo, one in Rio de Janeiro and one in the state of Minas Gerais, most probably in the state capital Belo Horizonte. These are the three main business cities in Brazil where most arbitrations are conducted.

While the 1996 law has been working well, a number of suggestions were made to improve and fine-tune it. Some of these are thematic, others more technical. In March 2013, a Special Commission of the Brazilian Senate was established to reformulate the 1996 law. This Commission had some 21 members, primarily lawyers from the Brazilian arbitration bar including one of the three main drafters of the original law, and was chaired by Justice Luis Felipe Salomão of the Brazilian Superior Court of Justice (STJ), the highest Brazilian court dealing with non-constitutional matters and the court of primary resort on arbitration issues. The Commission had six months to produce draft amendments to the1996 law.

The following are the main thematic changes embodied in the Amended Arbitration Law:

  • Brazilian governmental bodies are now explicitly authorized to engage in arbitration of disputes, while respecting the laws dealing with transparency and openness in public affairs. Even so, one must bear in mind that not all matters in the public sector are arbitrable, as they remain limited to the sphere of so-called “disposable rights” (freely transferable rights) as stated in the original 1996 Law.

Fortunately, the Senate rejected a proposed amendment by the Lower Chamber of Deputies which would have made arbitration involving the public administration subject to further vague, undefined “regulation”.

  • Arbitration is expressly provided for in corporate disputes. Shareholders may approve arbitration clauses in the corporate by-laws by a majority vote, giving minority shareholders the right to liquidate and be reimbursed for the value of their shares, with a few exceptions.

The Vice President’s office rejected portions of the Amended Law that would have permitted arbitration of adhesion contract, consumer and employment disputes under certain conditions. All employment disputes thus remain subject to the specialized Brazilian labor courts.

  • Parties may now opt to dispense with those arbitral institutional rules that restrict their choice of arbitrators to those on the institutions’ lists. This is one of the most controversial of the proposed changes, with opposition coming from some of the main Brazilian arbitral institutions, which assert a possible loss of institutional quality and an unconstitutional interference with the freedom of private arbitral entities to operate. Those supporting the change believe it is necessary to respect party autonomy in their choice of arbitrators, which is in line with international arbitration practice and rules of major international arbitral institutions.
  • Arbitrators are authorized to issue partial awards.
  • The parties and arbitrators by common agreement can extend the period prescribed by law in which the arbitral award must be issued (in the absence of agreement by the parties, the limit is currently six months under the 1996 law).
  • It is now explicitly provided that all foreign arbitral awards must be ratified by the STJ – and only the STJ – in order to have effect in Brazil.
  • Before an arbitration is instituted, the law authorizes parties to go to the courts in order to obtain protective or emergency measures. However, once the arbitration is instituted, it will be up to the arbitrators to maintain, modify or revoke these measures. And after the arbitration is instituted, the parties must go directly to the arbitral tribunal in order to request such measures.
  • The arbitral tribunal may issue a so-called “Arbitral Letter” requesting that the courts in the territory where the arbitration is seated help to ensure the requests of the tribunal are being carried out.

The statute of limitations (prescription period) in a litigation will be interrupted by the pleading of existence of an arbitration of that same dispute.

  • The Ministry of Education is encouraged to incentivize institutions of higher education to add the discipline of arbitration to their approved list of courses dealing with dispute resolution.
  • The National Council of the Judiciary and National Council of the Ministry of Justice are likewise encouraged to add material dealing with arbitration as a recognized method of dispute resolution to their candidate examinations for careers in the judiciary and Ministry of Justice.

1. Paul Eric Mason is an international business lawyer, arbitrator and mediator resident in Brazil and the U.S.A. As former Latin America Legal Director for Digital Equipment, Oracle and 3Com, he has over 35 years experience as a practitioner using negotiation, mediation and arbitration to resolve international business disputes. His full curriculum can be found at www.paulemason.info

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