THE AUTHOR:
Giovanna Martins de Santana, Lawyer at Eliana Baraldi Advogados
As explained in Part I, this two-part series of articles recount the discussions in the latest international arbitration conference in Latin America, hosted by the ICC on March 7th, 2024 at the Hotel Unique in São Paulo, the 12th Brazilian Arbitration Day.
Following Ms. Salomon’s enlightening panel, speakers were invited to talk about “ADR and Arbitration in Evolution”. Moderated by Marie Isabelle Delleur (Clifford Chance), the panelists Raphael Lang (ICC Brazil), Fernanda Barjud (Ambev, at the time), Flávio Bianchi (Brazilian Federal Prosecutor), and Paula Linhares Karam (Petrobras) delved into ADR and how important it is to equip companies and State entities with the necessary tools to navigate conflicts effectively. The panel focused on three main “tools” for alternative dispute resolution.
The First Tool: Negotiation and Conflict Prevention
According to the speakers, the first tool encompasses the measures adopted to negotiate positions and prevent conflicts within their respective organizations.
Concerning the Brazilian private sector, Ms. Barjud’s opinion is that, in the field of corporate operations, negotiation and contract management are indispensable tools for preventing potential disputes. At Ambev, a leading beverage company, these practices have been implemented in order to avoid resorting to litigation and arbitration.
Recognizing the substantial costs associated with legal battles, the company has realigned its priorities, acknowledging that litigation not only drains financial resources but also detracts from crucial operational endeavors. To address this challenge, Ambev implemented innovative strategies, such as embedding legal representatives within the engineering department. This integration facilitated the swift identification and resolution of potential disputes during project execution, mitigating the risk of prolonged legal discussions. By proactively managing contracts and foreseeing potential areas of contention, the company shifted its emphasis from preparing for litigation to actively preventing it.
This shift in approach yielded tangible results, with Ambev’s legal department experiencing a six-year hiatus from litigation. This success prompted the adoption of a new organizational model, where the legal department becomes a “business partner”. Under this framework, legal professionals work with internal and external stakeholders from the outset, ensuring legal considerations are integrated with project planning and execution.
In the realm of Public Administration, Mr. Bianchi stressed that negotiating with counterparts and resolving disputes to prevent litigation is very challenging. Public Administration entities, particularly in Brazil, are bound by an extensive set of rules. From mandatory hearings to rigid oversight and internal affairs procedures, the bureaucratic landscape poses additional hurdles for Public Administration entities seeking to engage in such preventive measures.
Recognizing the constraints of conventional litigation and arbitration, stakeholders within Public Administration are increasingly adopting a collaborative approach to conflict resolution. Informal negotiations and consensual settlements are gaining momentum as viable alternatives to contentious legal disputes. However, it is acknowledged even within this approach that the complete elimination of disputes is unrealistic.
Nevertheless, governmental regulatory agencies are creating their own mechanisms of dispute resolution. For instance, the National Land Transport Agency (ANTT) has pioneered the development of novel legal mechanisms aimed at providing both managers and concessionaires with a structured framework for resolving specific cases in a mutually beneficial manner. While these initiatives are still in their early days, they reflect a broader shift in mindset within the Public Administration: one that prioritizes cooperation over confrontation.
This consensual approach, however, is so challenging that even auditory bodies, such as the Federal Court of Auditors (TCU), are taking on the role of mediator. Their aim is to facilitate dialogue and cultivate resolutions.
Turning to Petrobras, Ms. Karam explained that, amidst the tumultuous economic landscape of 2014, the company found itself embroiled in a surge of legal disputes. This surge caused a serious concern within the company – the urgent need to mitigate litigation risks. In response, a specialized risk management department emerged, collaborating closely with the legal team to conduct comprehensive risk analyses.
Being a joint capital company, in which the federal government holds the majority of its capital, Petrobras must comply with differentiated legislation in the areas of personnel, finance and auditing. In Brazil, Petrobras must follow a stricter compliance process, one as rigid as those applicable to Public Administration entities, which demand the company to follow certain principles and standards applicable to state companies. Therefore, for Petrobras to negotiate settlements, it is crucial that the company proves the tangible benefits of such agreements. In this scenario, and according to Ms. Karam, internal approval processes had to be implemented, underscoring the significance of presenting concrete evidence to support any recommendation for settlement. This evidence-based approach became a cornerstone of Petrobras’ negotiation strategy, guiding managerial decisions and facilitating smoother pathways to resolution.
With robust support from internal departments, Petrobras began to cultivate a corporate culture that prioritized amicable resolutions over legal battles. This cultural shift proved instrumental in reducing litigiousness and fostering a more harmonious working environment.
Negotiating with both private and public entities presented its own set of challenges. Agreements with the public administration were full of legal complexities and procedural obstacles, necessitating careful navigation of bureaucratic red tapes. Petrobras faces both challenges such as the state’s accountability and the private interests of its investors in the trade market.
The Second Tool: Mediation
In Brazil, mediation is still not widespread. According to Mr. Lang, statistics from the ICC show that mediation tends to be more favored by European parties.
An interesting observation comes from a report released by the arbitration commission “Facilitating Settlement in International Arbitration” last year. The report offers suggestions on how to facilitate settlement between parties during arbitration. One notable suggestion is to incorporate mediation or negotiation windows at crucial moments of the proceedings. This inclusion aims to prevent parties from shying away from negotiation processes, out of fear of appearing weak. Such windows could be scheduled to occur after hearings or during the evidentiary phase when reaching an agreement becomes more feasible. The report also emphasizes the importance of the Arbitral Tribunal in encouraging parties to settle. Additionally, it mentions the concept of preliminary views, which is common in Germany, where the Arbitral Tribunal can offer its preliminary opinion on the case at a certain stage, which would be very challenging in the Brazilian context where the Arbitral Tribunal is not allowed, or at least not used to, provide preliminary views on the case for which it was constituted to rule on.
In the realm of public entities, the utilization of mediation is extremely rare. There seems to be a significant absence of a cultural inclination toward employing this tool. Instead, the public administration has taken steps to establish its own protocols and procedures. When disputes arise between various public entities, an internal chamber within the administration can be created to address these issues. The Brazilian Federal Attorneys’s Office created the Chamber for Mediation and Conciliation in the Public Administration. While there have been instances of successful resolutions, data show that, at a federal level, among 1323 mediation proceedings filed before the aforementioned Chamber since 2012, only 240 were solved, a success rate that, while not particularly high, falls within the expected range.
It appears that the public administration is gradually cultivating this tool internally as a primary approach. According to Mr. Bianchi, the main impediment to its wider adoption appears to be the lack of institutional maturity. As these mechanisms continue to evolve, they are expected to be more utilized in the future.
As to Petrobras, there are only few examples of successful mediation. However, within the company, it can become a very powerful tool to not damage its commercial relations. It is quite common for Petrobras to have a single contractor serving multiple sectors, emphasizing the importance of maintaining a constant and close relationship to encourage amicable resolution before disputes escalate, maintaining all the sector’s relations undamaged.
According to Ms. Karam, however, parties find themselves unable to reach an agreement independently, arriving at negotiations feeling emotionally worn and reluctant to compromise. This is where the role of an experienced mediator becomes crucial. Their ability to employ tailored strategies for each case can disarm parties and shift them away from adversarial positions, representing a notable departure from our prevailing litigious culture. In some instances, the mediator has played a crucial role in facilitating agreements that Petrobras previously deemed unattainable due to strained relationships.
Success in mediation often relies on two key factors: the mediator’s expertise, as they meticulously analyze different strategies to determine their effectiveness, and the attitudes of the involved parties.
As to Ambev, over the past decade, institutional mediation has seen minimal use. A recent internal event about dispute prevention shed light on the underutilization of mediation by the company due to the impression that the proceedings are inefficient because of the energy invested in pre-dispute processes. Therefore, Ambev’s focus lies in identifying and addressing potential sources of conflict before they reach a critical point.
It’s crucial to understand that mediation isn’t about proving a point but rather about finding mutually beneficial solutions. As this mindset gains traction, there’s a promising trajectory for the expansion of mediation in Latin America.
The Third Tool: Dispute Boards
At the ICC, there is a lack of feedback regarding the utilization of Dispute Boards (DB), permanent or provisory panels set up to accompany the performance of a contract. However, there’s been a noticeable increase in interest, evidenced by the numerous inquiries received on the subject. Recently, the public sector has issued several decrees related to DB. In this regard, the ANTT initiated a public consultation on DB, signaling a proactive approach to prevent disputes and mitigate the risk of project delays.
For the public administration, Dispute Boards have emerged as valuable instruments. This growing recognition underscores the importance of Dispute Boards in mitigating contract disputes and ensuring smoother project execution within the construction sector.
Petrobras also embarked on a pilot project involving a DB, and the feedback received was extremely positive. Despite lacking empirical data for a robust conclusion on the effectiveness of DB in the pilot project, an engineer that worked on this project expressed satisfaction with the outcomes, which entailed managing a complex contract with multiple suppliers without resorting to arbitration. In this project, there was no contract suspensions and the cash flow was preserved while avoiding any litigation.
One notable benefit of using DB is the preservation of relationships with suppliers and the resolution of dispute as soon as they arise, avoiding cumulative demands to be sought through arbitration or litigation. The timing of the DB’s procedure is closely aligned with the occurrence of disputes during the execution of the contract, making it easier to involve individuals from the business sector in finding solutions. Additionally, when it comes to cash flow allocated to the execution of a particular contract, it’s important to remember that it belongs to the company as a whole, not just the legal department. Therefore, it’s essential for all departments to collaborate effectively in solving any dispute and, therefore, allocating the company’s money efficiently.
This approach also ensures that disputes are addressed from both technical and legal standpoints, emphasizing the importance of a disciplined contractual management. Although the experience with DB is still limited, there is optimism about its potential and the need for further exploration in future projects.
Conclusion
The conference shed light on various aspects of alternative dispute resolution methods within the speakers’ respective organizations and the broader context of legal proceedings. The panelists also highlighted that legal education poses a concern, as it predominantly emphasizes the use of traditional litigation methods. This observation signals a pressing need for a paradigm shift towards more collaborative approaches within law schools, particularly in the Brazilian context.
During the discussion, the topic of cost comparison between different tools arose. The panelists emphasized the challenge encountered by public administration in accurately assessing the costs of litigation, highlighting the need to clearly demonstrate the benefits of settlements for both the administration and taxpayers.
Concerning the ICC, the institution is dedicated to enhancing service delivery through user engagement, especially in streamlining conflict resolution with minimal disruption.
ABOUT THE AUTHOR:
Giovanna Martins de Santana is a Brazilian qualified lawyer with more than 10 years of experience in litigation and arbitration. She had been appointed as Secretary of Arbitral Tribunals for the past 5 years. She is also the General Secretary of the Center for Conciliation and Mediation of the Argentinian-Brazilian Chamber of Commerce in São Paulo. She will earn her master’s degree at the University of São Paulo by the end of 2024.
