A. LEGISLATION AND RULES
A.1 CAM-CCBC enacts new rules on corporate arbitrations
CAM-CCBC, which is the largest Brazilian arbitral institution, issued on 26 April 2023, specific rules on “corporate arbitrations.”[1]
The new CAM-CCBC rules were enacted in a context where arbitration is the preferredvenue for resolving corporate disputes in Brazil, but it is triggering several complex problems due to the need for uniform decisions for all stakeholders. Several issues haunt corporate arbitrations, such as (i) parallel litigation and (ii) the production of legal effects on stakeholders who were not the original parties to the proceeding. The new rules try to tackle those issues by providing notice to the legal entity and their respective shareholders, partners or associates, as the case may be, that may join the proceeding. Depending on the case, parallel arbitrations could be consolidated into a single one.
Although the new rules represent an improvement over the previous ones, they are no panacea, especially considering the hurdles of having to appoint arbitrators and handle proceedings in cases involving a great number of parties and stakeholders. Along those lines, depending on peculiarities such as the stage of the proceeding, who the parties are and the exact relief sought, it may not be possible to consolidate many corporate arbitrations into one, so the risk of parallel litigation with conflicting decisions nonetheless remains.
On this same issue, a bill (PL 2,925) was presented in 2023, with support from the federal government, to better regulate and foster corporate arbitrations for listed companies following some recent scandals of corporate fraud. The bill was being subject to adjustments at the time of this writing, which is the reason why it will not be addressed here.
A.2 New arbitration provision for disputes on the Brazilian market for power purchase agreements
The purchase and sale of electric power within the Brazilian system is effected through a chamber named “Câmara de Comercialização de Energia Elétrica – CCEE” (Electric Power Commercialization Chamber), which has a “convention for commercialization of electric power” (“Convention”) setting forth some mandatory terms and conditions for power purchase agreements. The Convention includes an arbitration provision.
For many years, disputes before the CCEE had to be resolved via arbitration before the FGV Arbitration Chamber, located in Rio de Janeiro. On 14 February 2023, the Brazilian Electric Power Agency (ANEEL) approved a new arbitration provision applicable to the Convention (“Arbitration Provision”), in force as of 1 March 2023, with the following changes on arbitration:
Freedom to choose arbitral institution: Parties will be able to choose the arbitral institution to administrate the arbitration among those previously “approved” by the CCEE. In other words, FGV no longer has a monopoly on these arbitrations. It is expected that players will soon be able to choose the traditional Brazilian institutions, such as CAM-CCBC, CBMA and CAMARB, and hopefully international institutions such as the ICC.
Disputes not subject to arbitration: The Arbitral Provision clarified that it does not apply to bilateral agreements on the sale of electric power, which have no bearing on the CCEE. Moreover, the Arbitration Provision will not apply to disputes between players of the CCEE market and ANEEL. In addition, the CCEE will be able to commence lawsuits directly before judicial courts to collect amounts due and unpaid, including penalties.
Applicable law and language: Brazilian law shall apply to the arbitrations, which shall be conducted in Portuguese.
Arbitral tribunal: Unless the parties agree otherwise, there shall be an arbitral tribunal composed of three arbitrators.
Seat: If the CCEE is a party to the arbitration, the seat shall be the city of São Paulo.
Venue for court relief in aid of arbitration: The courts of the city of São Paulo will be competent to judge court injunctions prior to or in aid of the arbitration if the CCEE is supposed to be a party to the relevant arbitral proceeding.
Collaterals: The arbitrators will have the power to request collaterals and other guarantees from the respondent if the outcome could affect other players in the market.
Compilation of decisions: The “approved” arbitral institutions shall keep a publicly available compilation of the arbitral decisions regarding the CCEE, redacted to the extent possible so as not to breach confidentiality if it is the case.
The new Arbitration Provision has been welcomed in the market since it will allow the parties to have a broader choice of arbitral institutions. The Arbitration Provision will be in force as from its publication in the official gazette, which has not yet occurred.
A.3 Legal framework of guarantees authorizes notaries to be arbitrators
On 30 October 2023, Law 14,711 was enacted to update the legal framework on guarantees for secured transactions. Among other provisions, it included in the notaries’ rules a new Article 7-A to allow notaries to act as mediators and arbitrators. Although there was no previous prohibition, this change aims to foster the provision of extrajudicial resolution services by notary offices. In a vast country such as Brazil, in which almost all cities have at least one notary office and where several deals such as real estate transactions require public deeds, the notaries can play a key role in the popularization of ADRs, especially in connection with small claims.
B. CASES
B.1 The price of a public service can be fixed through arbitration
In the Sanessol case,[2] the Brazilian Superior Court of Justice (the highest court for non-constitutional matters) has decided that the price of a public service can be fixed through arbitration.
Sanessol, which is a private provider rendering water and sewage services to the public, brought an arbitration against the city of Mirassol, state of São Paulo, to raise the price of the services provided there. The claim was based on a right to price increase granted under Brazilian administrative law if supervening facts make the relationship economically unbalanced. The arbitral tribunal eventually determined that the price in Mirassol should be increased by 17.96%. Following the arbitral tribunal’s decision, Mirassol’s regulatory agency for public services (ASAE) issued a ruling prohibiting the price increase. ASAE refused to abide by the arbitral award because it had not been a party to the arbitral proceeding and is the sole competent body to authorize an increase in the price of public services in that city. Sanessol then filed a lawsuit to set aside ASAE’s ruling and enforce the arbitral award, which was denied both in the first and second levels.
However, the Brazilian Superior Court of Justice (STJ) eventually overruled the lower-level decisions and granted an injunction to allow Sanessol to increase the price. According to the STJ, the agreement for the concession of water and sewage services between Sanessol and the city of Mirassol provided for arbitration as the dispute resolution mechanism, so arbitration was indeed the competent venue to resolve any issue on the price of such services. Moreover, the STJ understood that the fact that ASAE was not a party to the arbitral proceeding did not matter because ASAE approved the concession agreement between Sanessol and Mirassol with the arbitral clause, which should be tantamount to ASAE’s authorization of the arbitral venue.
This is an important precedent because the 2015 reform to the Brazilian Arbitration Act made clear that state entities could resolve disputes through arbitral proceedings, and since then, most contracts involving delegation to private parties of public services, such as water and sewage services, contain an arbitration clause. Therefore, it is relevant to build a strong case law in favor of the possibility to discuss in arbitration a wide range of issues, including the price of the services.
B.2 A member of an arbitral tribunal cannot refuse to vote on the quantum of a claim, even if such arbitrator has previously decided that the claim is meritless
On 24 May 2023, the São Paulo State Court of Appeal set an arbitral award aside for considering that a co-arbitrator failed to vote in the decision of one of the claims and thereby violated the parties’ fundamental right to access to justice.[3]
The claimants and the respondents entered into three contracts for, among others, the purchase and sale of spaces for the broadcast of the claimants’ advertising media on the respondents’ radio and TV. The claimants filed for arbitration: (i) claiming that the respondents unlawfully terminated the contracts; and (ii) seeking damages for loss of profits because of a drop in the sales that followed the respondents’ failure to advertise the claimants’ products on their media. The respondents, meanwhile, filed a counterclaim requesting payments for the advertisement they did publicize in their channels.
The dispute was submitted to a three-arbitrator tribunal, which decided on a partial arbitral award that the respondents unlawfully terminated the contracts, partially granting the claimants’ claim for loss of profits but ordering the claimants to pay the respondents for their advertising services. However, the decision on the loss of profits was not unanimous. While the presiding arbitrator and one co-arbitrator (first co-arbitrator) shared the prevailing position, the other co-arbitrator (second co-arbitrator) understood that the claimants failed to prove the necessary correlation required between their losses (drop in sales) and the respondents’ unlawful termination of the contract.
The final arbitral award dealt with the amount of damages. The presiding arbitrator decided that the respondents should pay the claimants damages for lost profits in the amount estimated by the expert. The first co-arbitrator found that damages for loss of profits were due but not in the amount suggested by the expert, deeming that a new expert opinion considering certain economics aspects was necessary.
The second co-arbitrator reaffirmed its opinion that no loss of profits was due to the claimants and refused to vote on the quantum due. The final award reads:
“[…]The co-arbitrator […] was defeated at this point, reiterating his understanding (already expressed in § 173 of the Partial Arbitral Award) that the necessary causality between the failure to supply the media and the alleged frustration of expected profits was not demonstrated. In his view, therefore, no damages are due to the Claimants by way of lost profits.”[4]
The arbitral tribunal then ruled that the presiding arbitrator’s opinion should prevail based on Article 24, § 1° of the Brazilian Arbitration Act, which reads: “§ 1 When there are many arbitrators, the award will be made by majority vote. If there is no majority agreement, the vote of the president of the arbitral tribunal shall prevail.”[5] Likewise, the applicable arbitration rules provide that: “15.2. The award shall be made by majority vote, each arbitrator having one vote. In the absence of a majority agreement, the vote of the President of the Arbitral Tribunal shall prevail.”[6]
Despite being successful , the claimants challenged the final arbitral award before the São Paulo Court, claiming the invalidity of the tie-breaking vote the president cast. They argued that a tie-breaking vote is possible only when both co-arbitrators voted but had divergent opinions. The claimants contended that the second co-arbitrator refrained from voting on the amount of damages due, which would go against the “non liquet” procedural principle, according to which the tribunal cannot refrain from deciding the merits of an admissible case, regardless of the reason.
The judge of the São Paulo Court denied the claimant’s request and upheld the validity of the award. Following this, the claimants filed an appeal before the São Paulo State Court of Appeals, which set the arbitral award aside. The Court held that the presiding arbitrator could not have relied on Article 24, § 1° of the Brazilian Arbitration Act because the second co-arbitrator’s abstention is a case of non liquet, which violates a party’s right to access to justice, a fundamental right under the Brazilian Constitution, and therefore the Brazilian public order.[7]
The São Paulo State Court of Appeals found that the fact that the second co-arbitrator did not agree that the damages were due did not allow him to abstain from deciding the issue of the final arbitral award, namely the amount of damages due. A party’s right to access to justice presumes that all those who are responsible for judging take a position on all the matters they are judging, even if they disagree with a previous issue.
The ruling was grounded on Article 32, VIII of the Brazilian Arbitration Act, which provides that the arbitral award is invalid if it violates the principles safeguarded by Article 21, § 2° of the Brazilian Arbitration Act. These principles include the right to be heard and the right to equal treatment. The São Paulo State Court of Appeals considered that these principles include the right to access to justice in the meaning of Article 5°, XXXV of the Constitution, although it is not expressly mentioned. As such, arbitrators — like judges — have the duty to ensure parties’ right to access to justice when deciding a case and may not refrain from taking a position on a matter put before them.
Since the São Paulo State Court of Appeals considered that the second co-arbitrator failed to vote on the amount of damages due, and if he did the outcome could have been different, the final arbitral award should be annulled and the issue submitted again to the arbitral tribunal. This decision is still subject to appeal before the Superior Tribunal of Justice, which can review it. In another case, the Superior Tribunal of Justice ruled that an arbitral award issued by two members of the arbitral tribunal should be confirmed, provided that the co-arbitrator who failed to vote was properly notified of the proceedings.[8] As such, this highly interesting issue has not yet been settled under Brazilian case law.
B.3 Except for urgent matters, judicial courts have no jurisdiction to process early production of evidence proceedings when the contract is subject to arbitration
Brazilian procedural law provides a tool for a party to obtain evidence in aid of court proceedings or arbitration, known as early production of evidence (produção antecipada de provas). Until 2015, such procedural tool aimed at anticipating the production of evidence when there was a risk of losing the opportunity or that the production of such evidence would become impractical or impossible. In other words, urgency was a requirement for having the production granted.
The Brazilian Code of Civil Procedure, enacted in 2015, has broadened the scope of the early production of evidence, authorizing the parties to also seek it in two circumstances where the urgency requirement is not present: (i) when “the evidence to be produced is capable of facilitating a settlement or other appropriate means of conflict resolution”; or (ii) “prior knowledge of the facts may justify or avoid the filing of an action” (Article 381, II and III, respectively).
Following these changes, there was a lot of controversy among courts and scholars on whether a party to an agreement containing an arbitration provision could go to a judicial court seeking an order for early production of evidence when there is no urgency but one of the other requirements mentioned above is met. This controversy mostly arises from the fact that in the early production of evidence, there is no discussion or analysis of the merits of the potential claim to be filed, but only the production of evidence (e.g., production of a document, taking of a witness deposition, production of an expert report) in anticipation of a dispute, which may or may not be filed in the future.
Brazilian scholars have different views on the matter. Some argue that a party could obtain the evidence before the courts without the need for urgency, even if there is an arbitration clause in the relevant contract. Others sustain that a party could go to court to produce evidence only in specific situations, such as when early production of evidence will allow the plaintiff to define the scope of the potential arbitration. Finally, for others, the commitment of the parties to resolve any and all disputes in arbitration irrevocably attracts the arbitral jurisdiction for any circumstance, with urgency being the only exception authorizing a party to go to court per Article 22-A of the Brazilian Arbitration Act, to seek a judicial order for urgent matters before the arbitration is instituted.
There were decisions in state courts authorizing the early production of evidence before the courts in specific situations, even when there was no urgency. However, the Superior Court of Justice held in 2023 that, except in case of urgency, any and all claims in connection with the right to produce evidence related to a contract subject to an arbitral clause must be sought through arbitration (Renova Energia S.A. v. Blue Moon Fundo de Investimento Multimercado, Special Appeal no. 2.023.615/SP, Reporting Justice Marco Aurélio Bellizze, 3rd Chamber, judgment session held on 14 March 2023).
Adopting a pro-arbitration approach, the justices found that once the parties have agreed to arbitrate a potential dispute, the Arbitral Tribunal has jurisdiction to analyze and solve any and all disputes arising out of or in connection with the contractual relationship, including when the party only seeks to produce a piece of evidence. Therefore, the courts would have jurisdiction only for urgent matters, such as in cases where the Arbitral Tribunal can not be constituted in time.
B.4 Once the arbitral tribunal has been constituted, the production of evidence shall be decided in the arbitration rather than before judicial courts
Another case the STJ judged in 2023 involving both early production of evidence and arbitration refers to the dispute regarding the sale of Kabum (a Brazilian e-commerce platform) to Magazine Luiza (one of the largest Brazilian retailers). Some former officers of Kabum filed before judicial courts an early production of evidence to get the footage of Kabum’s security system of 27 February 2023, to make proof as to who the individuals present at certain meetings between Kabum’s and Magazine Luiza’s principals were. Later, such officers filed an arbitration before CAM-CCBC, and the respondents objected to the concurrent early production of evidence that hadn’t been finally settled yet at the judicial courts.
The 2nd chamber of the STJ ruled that once the arbitral tribunal has been constituted, it shall resolve all procedural and merits issues, including the ones regarding the production of evidence.[9] Reporting Justice Moura Ribeiro clarified that if arbitration is the competent venue to judge the merits, the early production of evidence at a judicial court shall only be available before the vesting of the arbitral tribunal, which has the ultimate jurisdiction to rule on evidentiary issues. In other words, there shall be no division of jurisdictional powers between the judicial courts and the arbitral tribunal, and once the latter is constituted, the former shall cease to have jurisdiction.
B.5 Insurance companies are subject to arbitration clauses in contracts covered by insurance policies
The 4th Chamber of the STJ decided that the insurance company’s prior knowledge of the existence of an arbitration clause in a contract covered by an insurance policy triggers the insurance company’s obligation to abide by the arbitral venue.[10]
In the case at hand, an insurance company was hired by the city of Medellín to cover the risks of maritime transport between the ports of Santos (Brazil) and Barranquilla (Colombia) of parts for the construction of a power plant. The insured cargo was damaged while en route. The insurance company paid the indemnification to Medellín and exercised its right of recourse against the transportation company, filing a court lawsuit in Brazil. However, the transportation agreement had an arbitral provision, and the respondent raised the lack of jurisdiction of the Brazilian court, a defense that was denied at first level court but later accepted at the court of appeals and the STJ.
According to the STJ, since the insurance company was aware of the arbitration clause inserted in the transportation agreement, it assumed the risk of litigating in the arbitral venue. That is to say, the arbitral jurisdiction was part of the risk of the insurance relationship. Consequently, the insurance company became bound by the arbitral clause agreed between the insured party and the transportation company.
This is a relevant decision because of the controversy in Brazilas to whether the insurance company and the respondents are bound by arbitral clauses inserted in the original agreement, in case the insurance company pays the indemnification and steps up in the rights of the insured party (subrrogation). This is sensitive in Brazil because according to Article 5th, item XXXV of the Federal Constitution, the parties have the right to litigate in court unless they waive it. Therefore, the courts try to interpret any waiver of court jurisdiction in a restrict manner. In the present case, the insurance company’s knowledge of the arbitration clause and acceptance to contract the insurance anyway was deemed to be acceptance of the arbitral venue. Nonetheless, this is a fact-specific outcome.
[1] The New Rules.
“Corporate arbitrations” is defined as arbitrations in which: (i) the arbitral award can affect not only the parties but also, on one hand, a corporation, limited company or association, and on the other hand, its respective shareholders, partners or members (as the case may be) and/or their respective administrators (the so-called Affected Parties); and (ii) given the legal nature of the dispute, the decision shall be uniform for all Affected Parties.
CAM-CCBC provided the following examples of corporate arbitration subject to those rules: (i) the invalidity of a resolution of a shareholders’, partners’ or associates’ meeting or of a meeting of any management board; (ii) the total or partial termination of a corporation, limited company or association, or the exclusion of a shareholder, partner or associate (as the case may be); (iii) responsibility of the controlling shareholder or partner, or of the manager vis-à-vis the legal entity and its other shareholders, partners or associates (as the case may be); or (iv) responsibility of a shareholder, partner or associate for abuse of voting rights.
In the case of an arbitration that meets the conditions above, the president of CAM-CCBC shall order the claimant to notify all Affected Parties, granting them the opportunity: (i) to join the claimant’s side; (ii) to join the respondent’s side; or (iii) not to be a party. The notice shall contain: (i) the request for arbitration; (ii) indication of the parties; (iii) values, assets or rights involved; and (iv) the relief sought. The Affected Party willing to formally join the claimant’s or the respondent’s side will also assume responsibility for costs and fees accordingly, together with the other claimants or respondents. In the case of listed corporations, the Affected Parties shall be notified according to the rules of the Brazilian Securities and Exchange Commission (CVM). In the case of other types of legal entities, the notice to the Affected Parties shall be effected in the same manner the shareholder, partner or associate, as the case may be, would be notified of a shareholders’, partners’ or associates’ meeting. Regardless of whether or not the Affected Parties choose to become a party, all of them shall be bound by the arbitration. The Affected Party that decides not to join the arbitration as a party can request a link with access to all documents to be filed until the end of the proceeding, being bound by any confidentiality covenant applicable to the parties.
The Affected Party can decide to join the arbitration as a party at any moment afterwards, but it shall be then bound by any previous acts, including the appointment of arbitrators, if it has already occurred.
In the case of filing of a new claim in connection with a “corporate arbitration,” the president of CAM-CCBC shall suspend the proceeding and order whoever brought such claim to perform a new notice to the Affected Parties. If the new claim is brought between the confirmation of the arbitral tribunal and the signature of the terms of reference, the president of CAM-CCBC has discretion to order the replacement of the existing arbitral tribunal. The consolidation of a corporate arbitration with other existing or new “corporate arbitration” shall take place according to CAM-CCBC rules.
[2] Brazilian Superior Court of Justice, Appeal on the motion for clarification on the Special Appeal No. 1.905.505/SP, Reporting Justice Franscisco Falcão, judged on 27 September 2023.
[3] TJSP, 2nd Chamber of Corporate Law, appeal No. 1094661-81.2019.8.26.0100, Reporting Justice Cesar Ciampolini, judged on 24 May 2023.
[4] Translated by the authors.
[5] Article 24, § 1° of the Brazilian Arbitration Act. Translated by the authors.
[6] Article 15.2 CMA Arbitration Rules. Translated by the authors.
[7] See Article 5°, XXXV of the Brazilian Constitution (available here). Translated by the authors.
[8] STJ, REsp 904813-PR, Reporting Justice Nancy Andrighi, judged on 20 October 2011.
[9] Brazilian Superior Court of Justice, 2nd Chamber, Conflict of Jurisdiction No. 197.434/SP, Reporting Justice Moura Ribeiro, judged on 9 August 2023.
[10] Brazilian Superior Court of Justice, 4th Chamber, Special Appeal No. 1.988.894/SP, Reporting Justice Isabel Galloti, judged on 25 April 2023.
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