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A. LEGISLATION AND RULES

A.1       Legislation

A.1.1. Brazilian Judiciary regulates arbitral letters for communications between arbitrators and judicial courts

On 29 September 2021, the Brazilian Justice Counsel (the institution supervising Judiciary Power) issued a regulation on arbitral letters, which are the instruments foreseen in the Brazilian Arbitration Act and the Brazilian Code of Civil Procedure for communications between arbitral tribunals and judicial courts. Although arbitrators are equivalent to judges, they do not have powers to issue certain coercive orders, such as to freeze bank accounts, seize assets or compel a witness to appear in a hearing. For such coercive measures, the arbitrator has to request judicial court assistance, which is effected through the remittance of such an “arbitral letter” from the arbitrators to the judge.

Such regulation requires any arbitral letter to be issued by an arbitrator to contain all of the following:

  • Identification of the arbitrator or members of the tribunal issuing the letter.
  • Indication of the court of the Judiciary to which the letter is addressed.
  • Description of the order for which the arbitrators seek enforcement through the letter.
  • Reference number of the arbitration and, in case of institutional proceeding, the name of the arbitral institution.
  • The name of the parties.

The arbitrators shall attach to the arbitral letter all of the following:

  • The agreement to arbitrate.
  • Proof that they were vested in the office and have powers to issue the decision.
  • A full copy of the party’s pleading and the decision which is requested to be enforced.
  • If confidentiality is requested, proof of the confidentiality covenant.

In the case where the arbitration is confidential, the files of the arbitral letter shall be conducted “in camera”, without being available to the public.

Although this regulation did not implement any radical change in the legal framework of the arbitral letter, it is important to provide further legal certainty and to foster its use. The arbitral letter is a very valuable tool to give efficiency to the arbitration, as the tribunal is able to quickly obtain court assistance to enforce its decision, thereby making Brazil an even more friendly seat for arbitral proceedings.

A.1.2. New Brazilian Bid and Public Contracts Act fosters the use of arbitration.

Brazilian Law 14.133 was published on 1 April 2021, introducing a new regime for private parties to bid and enter into contracts with Brazilian state-controlled entities. Among other issues, the new Brazilian “Public Contracts Act” allows the adoption of arbitration, mediation and dispute boards.

The new Public Contracts Act acknowledged that state-controlled entities can submit disputes to arbitration, provided that such disputes deal with “disposable pecuniary rights”. This is in line with the current wording of the Brazilian Arbitration Act. The Brazilian Public Contract Act however goes further and cites examples of issues that can be resolved through arbitration, including:

  • Review of the terms and conditions of public contracts to re-establish its original economic balance.
  • Whether or not a given party breached a contractual provision.
  • Damages due to the private party.

The arbitration shall be governed by law, not being allowed judgment in equity. Information about the arbitration shall be available to the public. The new Brazilian Public Contracts Act allows amendment of existing contracts with state-controlled entities to include arbitration clauses.

The procedure to choose arbitrators, arbitral institutions and members of dispute boards shall have a technical basis, be transparent and equally treat the parties. Transparency does not mean that the public entity shall explain in detail the reason behind its choices – which might reveal its strategy – but rather that the public entity shall present brief justifications.

In summary, the new Public Contracts Law did not bring news for arbitration, but it is welcome as it consolidates the possibility to submit disputes with state entities to arbitral proceedings. The main new feature is the express admission of dispute boards with state-owned companies. Some local authorities, such as the city of São Paulo, have already been using dispute boards for major projects, but this was the first time federal legislation expressly mentions this dispute resolution system.

A.1.3. Ordinance no. 21 of the Office of the General Counsel for the Federal Government

On 26 July 2021, the Office of the General Counsel for the Federal Government enacted Ordinance no. 21 regulating the registration of arbitral institutions to qualify to manage arbitrations involving the Brazilian Union or entities of the Federal Public Administration as well as concessionaires of federal public services. The main requirements are the following:

  • Regular operation as an arbitration institution, in Brazil or abroad, for at least three years
  • Good standing, competence and experience in the conduction of arbitral proceedings.
  • Provision of arbitration rules in Portuguese.
  • Commitment to enable the publicity of arbitral proceedings involving the public administration, according to Brazilian law.
  • Commitment to enable the conduction of arbitral proceedings in Brazil if the parties so wish.
  • Commitment to make space available for hearings and other procedural acts in Brazil.
  • In the case where the arbitrators’ fees are charged by hourly rate, commitment to prove a detailed report of the functions performed.

A.2       Institutions, rules and infrastructure

A.2.1. Expedited arbitration and Emergency Arbitrator at CAM-CCBC.

The Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC), which is the largest Brazilian arbitration institution, enacted two resolutions implementing significant developments: Resolution 44/2020 on emergency arbitrators and Resolution 46/2021 on the expedited procedure.

A.2.1.1  Emergency Arbitrator

According to Resolution 44/2020, the emergency arbitrator is available to parties subject to arbitration agreements entered into after 25 November 2020 on an “opt-out” basis (i.e., applicable unless the parties jointly agree otherwise). For arbitration agreements entered into before 25 November 2020, the emergency arbitrator is an “opt-in” (the parties should jointly choose it).

The request shall be addressed to the president of CAM-CCBC, who shall assess whether such procedure is applicable and, if it is, shall appoint the emergency arbitrator, who, within 2 days, shall present a statement of independence and availability. Then the parties will have 2 days to challenge the emergency arbitrator if it is the case.

In principle, the emergency arbitrator will have 15 days to issue the decision, counted from the presentation of a statement of independence. The emergency arbitrator will have wide discretion to conduct the procedure, provided that the principles of full defense and equal treatment of the parties are observed. A hearing could be conducted through telephone or video conference.

The decision of the emergency arbitrator shall be in writing and contain the reasoning. The emergency arbitrator cannot act as an arbitrator in the same arbitral proceeding.

In principle, the emergency arbitrator proceeding will cost BRL 75,000 (approximately USD 16,000) for the emergency arbitrator’s fees and BRL 20,000 (approximately USD 4,000) for CAM-CCBC’s fees. The parties shall also advance BRL 5,000 (approximately USD 1,000) to cover costs. CAM-CCBC can increase or reduce the fees in view of the nature and complexity of the work.

A.2.1.2  Expedited Procedure

Resolution 46/2021 established an expedited procedure applicable to CAM-CCBC’s arbitrations based on arbitral agreements entered into before January 2021 and whose value at stake is lower than BRL 3 million (approximately USD 635,000).

Unless otherwise agreed by the parties, the expedited procedure will be conducted by a sole arbitrator, who could limit the number and size of submissions, as well as decide on documents only. Hearings will be preferably held remotely.

The arbitral award shall be issued within 10 months, counted from the signature of the terms of reference until the closing of the proceedings. The arbitral award shall be issued within 30 days from the closing of the proceedings, extendable for additional 30 days.

The expedited procedure will be subject to cheaper CAM-CCBC’s and arbitrator’s fees, which can be verified here.

B. CASES

B.1. Brazilian Superior Court confirms 90-day limitation period to request annulment of an arbitral award

On 9 August 021, the Brazilian Superior Court of Justice (STJ)[1] rendered a decision regarding the time limit to request the annulment of arbitral awards with a seat in Brazil.

Under article 33, paragraph 2 of the Brazilian Arbitration Act, a party has a 90-day term to bring a judicial lawsuit to set aside an arbitral award. Such term shall be counted from the date such party is notified of the arbitral award. If there is a request for clarification, correction or interpretation of the arbitral award, the deadline shall count from the notification of the decision of such request.

The claimant can go to the judicial court in Brazil to enforce rights under the arbitral award and seize assets of the respondent, in a procedure named “judicial execution” (execução de título judicial). The respondent however has some defenses to the judicial execution, none of which enables the review of the arbitral award:

  • Defective service
  • Lack of standing
  • Non-enforceability of the award
  • Incorrect seizure or mistaken valuation of assets
  • Excessive amount claimed
  • Incompetence of the judicial venue of the execution
  • Any fact after the award that modifies or terminates the obligation set forth therein, such as payment, novation, offset, settlement or elapsing of the limitation period for execution[2].

Nonetheless, sometimes respondents also raise in their defense to the judicial execution one of the causes for setting aside the arbitral award, which are spelled out in article 32 of the Brazilian Arbitration Act. There is express legal authorization in article 33, paragraph 3 of the Brazilian Arbitration Act to do so if such defense is raised within the 90-day term during which the arbitral award can be annulled. However, it used to be controversial whether respondents could also request the annulment of the arbitral award afterward in their defense to a judicial execution.

The STJ, which is the highest court for non-constitutional matters, gave a negative answer to this question. According to STJ, the possibility of raising the causes for annulment as a defense of a judicial execution, rather than as a separate lawsuit, is a matter of convenience. Therefore, if a respondent has 90 days to bring a lawsuit to request the annulment of an arbitral award, it shall have the same term to bring this argument as a defense. In the case where the defense is filed later, the respondent can no longer raise the cause of annulment.

This is an important step to provide legal certainty to arbitral awards with a seat in Brazil. Claimants sometimes wait 90 days to bring the judicial execution of the arbitral award, if the respondents do not voluntarily pay, to ensure that the award can no longer be challenged by the reasons contemplated in the Brazilian Arbitration Act.

B.2. – STJ validated the use of expert witness in arbitration in lieu of court-appointed expert, which is the usual manner in judicial courts to produce technical evidence

On 11 May 2021, the STJ[3] decided that the fact that a technical issue was decided without the production of court-appointed expert evidence, using only party-appointed expert witnesses, did not go against the principles of due process and full defense.

In judicial litigation, technical evidence is usually produced as follows:

  • The judge appoints an independent court expert.
  • The parties present queries to the court-appointed expert to answer and appoint their own experts (“assistant experts“) to assist the court-appointed expert.
  • The court-appointed expert issues an opinion on the technical issues together with answers to the questions
  • The parties’ assistant experts issue their respective opinions on the technical issues and comment on the opinion and answers of the court-appointed expert.
  • The court-appointed expert and the assistant experts are heard in a hearing, being subject to cross-examination.

In this case at hand, the arbitrators decided to adopt instead the mechanism of experts witnesses brought by the parties, which presented reports and testified in a hearing, without the appointment of a court expert. The losing parties later requested the annulment of the arbitral award based on the allegation that the arbitral tribunal violated its right of full defense by not appointing an independent court expert and by relying on the opinion of the other party’s expert.

The STJ ruled that arbitrators are not bound by the Brazilian Civil Procedure Code, including the production of technical evidence. Accordingly, the arbitral tribunal has broad discretion to define the appropriate mechanism for clarifying technical doubts. In the present case, the arbitral tribunal considered that the opinions and deposition of the expert witnesses sufficed and that a court-appointed expert would not be necessary. According to the STJ, the tribunal respected the parties’ right to full defense by allowing one expert to comment on the other expert’s opinion, as well as by enabling cross-examination at the hearing.

This is an important precedent to establish the arbitral tribunal’s power to freely decide on the production of evidence, regardless of whether the traditional methods foreseen in the Code of Civil Procedure are not followed.

B.3. São Paulo State Court of Appeals respected discretionary powers granted to the institution under the arbitration rules chosen by the parties.

In June 2021, the São Paulo State Court of Appeals (TJSP)[4] rejected a request to set aside a decision rendered by the Chairperson of CAM-B3 (the arbitration chamber of the São Paulo Stock Exchange), which denied the consolidation of two arbitration proceedings filed against the mining company Vale S.A. (“Vale“). The aforementioned TJSP decision acknowledged that discretionary powers granted to the institution under the applicable rules shall be respected.

In July 2019, Vale’s minorities shareholders brought an arbitration against the company claiming payment of damages due to allegedly Vale’s misinformation regarding the real conditions of its dams, including the dams of Mariana and Brumadinho, both of which collapsed respectively in 2015 and 2019, not only causing significant environmental and social damages but also subjecting Vale to the payment of indemnification exceeding billions of US Dollars. According to Claimants, the misleading information on the state of its dams would have led them to bad investment decisions, giving rise to damages. In parallel, the Brazilian Institute of Corporate Activism and Governance, a non-profit association that represents a large number of market investors, started another arbitration proceeding against Vale based on similar facts and arguments.

Vale filed a motion to consolidate both proceedings before the Chairman of CAM-B3, alleging that the proceedings have the same facts, cause of action and claims. CAM-B3 denied the request under the argument that, even though both proceedings have the same Respondent (Vale) and similar cause of actions and claims, there are relevant circumstances that would not favor consolidation. For instance, there were procedural issues in both the arbitration filed by the minorities shareholders (which is known in Brazil as “class arbitration”) and the arbitration filed by the association (e.g., whether the association would have standing to sue), which would make it recommendable to judge them separately. Vale filed a lawsuit before São Paulo State Courts to annul the CAM-B3 decision’s against consolidation, which was denied. Vale appealed and the TJSP rejected its appeal, denying the request to consolidate the proceedings.

The TJSP found that the CAM-B3’s decision should be respected, once, according to the rules, CAM-B3 had certain discretion to order or deny consolidation. This was a relevant precedent in the sense that the parties are bound by the arbitration rules they choose and, in principle, the judicial courts cannot review the merits of administrative decisions of arbitral institutions, as long as the applicable rules are followed.

B.4. São Paulo State Court of Appeals decisions rejecting requests for confidentiality in lawsuits to enforce and to set aside arbitral awards.

The TJSP has recently issued two decisions[5], rejecting a request for confidentiality in lawsuits involving arbitration proceedings.

Article 189, IV, of the 2015 Brazilian Civil Code of Procedure expressly stipulates that any judicial proceeding related to an arbitration matter shall be conducted in chambers, even when such judicial proceeding is only filed to enforce a decision of the arbitral tribunal[6].

In both cases, the Court of Appeals decided to reject the confidentiality request by alleging that article 189, IV, of the Brazilian Civil Code of Procedure is unconstitutional, given that the Brazilian Federal Constitution provides in its articles 5, LX, and 93, IX, for the publicity of all judicial acts, except when the defense of privacy or the social interest requires it to be confidential.

Such decisions were highly controversial. Other Chambers of the TJSP and the Court of Appeals of the other States of Brazil usually apply article 189, IV, of the Brazilian Civil Code of Procedure and declare that judicial proceedings arising from confidential arbitrations shall be conducted in chambers[7]. Moreover, the Supreme Federal Court, which is the Brazilian entity responsible for deciding the constitutionality of legal provisions, has not yet issued any decision on this issue.

Those decisions from TJSP on confidentiality are controversial. Articles 5, LX, and 93, IX of the Brazilian Constitution allow judicial proceedings to be conducted in chambers, as long as the following both apply:

  • There is a justification based on the defense of privacy and/or social interest.
  • Such confidentiality is provided for in ordinary law.

The 2015 Brazilian Civil Code of Procedure made this choice, because arbitrations often deal with sensitive issues, which are worth not being disclosed to the public, in case, for some reason, one of the parties needs the aid of the judicial courts.

 [1] Brazilian Superior Court of Justice, 3th Chamber, case no. REsp 1900136, reporting justice Nancy Andrighi, judged on April 6, 2021.

[2] Article 525, first paragraph, of Brazilian Civil Procedure Code.

[3] Brazilian Superior Court of Justice, 3rd Chamber, case no. RESP 1.903.359, reporting justice Marco Aurelio Bellizze, judged on May 11, 2021.

[4] São Paulo State Court of Appeals, 1st Chamber of Business Law, case no. apelação Cível 1031861-80.2020.8.26.0100, reporting judge Cesar Ciampolini, judged on June 30, 2021.

[5] TJSP, 1st Chamber of Corporate Law, lawsuit no. 2263639-76.2020.8.26.0000, Reporting Justice Cesar Ciampolini, judged on March 2, 2021; and TJSP, 1st Chamber of Corporate Law, lawsuit no. 2043842-64.2021.8.26.0000, Reporting Justice Cesar Ciampolini, judged on May 19, 2021.

[6] Please note that partner Joaquim de Paiva Muniz, who is one of the authors of this article, was part of the group which proposed the wording of such provision in the Code of Civil Procedure of 2015.

[7] TJSP, 33rd Chamber of Private Law, lawsuit no. 2071707-62.2021.8.26.0000, Reporting Justice Ana Lucia Romanhole Martucci, judged on September 13, 2021; Minas Gerais’ State Court of Appeals, 6th Civil Chamber, lawsuit no.1.0024.16.058253-2/001, Reporting Justice Edilson Olímpio Fernandes, judged on September 27, 2016; Parana’s State Court of Appeals, 17th Civil Chamber, lawsuit no. 0016215-03.2018.8.16.0001, Reporting Justice Naor Ribeiro de Macedo Neto, judged on October 6, 2021; TJSP, 32nd Chamber of Private Law, lawsuit no. 2065068-28.2021.8.26.0000, Reporting Justice Luis Fernando Nishi, judged on February 17, 2022; TJSP, 1st Chamber of Corporate Law, lawsuit no. 2122048-29.2020.8.26.0000, Reporting Justice Alexandre Lazzarini, judged on October 29, 2020.

Author

Joaquim de Paiva Muniz is a partner and head of the arbitration team in Trench Rossi Watanabe. Joaquim has an LL.M. from the University of Chicago and is the chair of the Arbitration Commission of the Rio de Janeiro Bar (OAB/RJ) and coordinator of arbitration courses of the Rio de Janeiro Bar, including a lato sensu graduate course. Joaquim is an officer of the Brazilian Arbitration and Mediation Center, which is the largest of its kind in Rio de Janeiro, as well as an author of many books, including the Arbitration Law of Brazil: Practice and Procedure (Juris Publishing, 2nd Edition 2015) and Curso Básico de Direito Arbitral (Juruá, 4rd Edition 2017). Joaquim can be reached at [email protected]

Author

Luis Henrique Prates da Fonseca Borghi is a partner at Trench Rossi & Watanabe Advoagos in São Paulo. Luis Henrique is a member of the Litigation and Arbitration practice group, with focus on disputes arising out of commercial contracts, corporate conflicts, torts, product liability, bankruptcy and proceedings regarding recognition and enforcement of foreign awards. Luis Henrique also has a wide breadth of experience in domestic and international arbitration involving construction claims, post-contractual M&A and other commercial disputes, as well as in mediation procedures. Luis Henrique has an LL.M. from the University of Pennsylvania and has also experience in US-style litigation. Luis Henrique can be reached at [email protected]

Author

Bruna Alcino M. Silveira is an associate in the arbitration team at Trench, Rossi e Watanabe Advogados, São Paulo. Bruna has a Bachelor of Laws from the Universidade Presbiteriana Mackenzie.

Author

Katherina Kuramoti Ballesta is an associate in the dispute resolution team at Trench, Rossi e Watanabe Advogados, São Paulo. She integrates the Dispute Resolution practice group, with focus on commercial litigation and arbitration. Katherina has a wide breadth of experience in the pre-litigation, judicial proceedings, national and international arbitration, involving corporate and contractual matters, in the regulatory sector, as well as in oil and gas industry. Katherina can be reached at [email protected]

Author

Frederico Bizarro Weingartner is an associate at Trench, Rossi e Watanabe Advogados in Porto Alegre, Brazil. Frederico represents clients in domestic and international arbitration proceedings, with a focus on construction disputes under ICC, CAM-CCBC, CAMARB, FGV Rules. He also represents clients in civil and commercial matters before national courts. Frederico won the first prize in the VII Prof. Albert H. Kritzer for his research on the CISG. Frederico Weingartner can be reached at [email protected]

Author

Patricia Roberto is a junior associate in the arbitration team at Trench, Rossi e Watanabe Advogados, São Paulo. Patricia is registered at the São Paulo Bar and has a Bachelor of Laws from Universidade Presbiteriana Mackenzie. Patrícia can be reached at [email protected]