THE AUTHORS:
Felipe Ribeiro Frois, Partner at Dourado & Cambraia Advogados
Antônio Augusto A. de Andrade, Associate at Dourado & Cambraia Advogados
Arbitration is a success in Brazil. Since the adoption of the Brazilian Arbitration Act in 1996 (Law No. 9.307/1996), this method of dispute settlement has been firmly established and is now used in the broadest range of issues, including those concerning labor law, corporate conflicts, and the construction industry, for example.
However, the Brazilian Chamber of Deputies has been debating Law Project No. 3.293/2021, often known as the “Anti-Arbitration Law Project” (or “Anti-Arbitration LP”), to counter this movement. The stated goal of this legislative proposal was to “improve the duty of disclosure, establish the disclosure of information after the arbitration procedure has concluded, and the publicity of annulment actions”.
In principle, this legislative proposal would alter some articles and add new rules to the Brazilian Arbitration Act to control the composition of the arbitral panel, how the arbitrators should carry out their duty of disclosure, and how the arbitral procedures would be made public.
As expected, this legislative bill has been the subject of great concern by the arbitration community in Brazil since instead of improving the arbitration institute, the “Anti-Arbitration LP” ends up contributing to compromising the foundations of the institute, such as the private autonomy and self-regulation of the parties regarding the procedure.
This becomes evident when analyzing the proposed changes regarding the choice of members of arbitral tribunals. International legislation and market practices have been dedicated to improving such mechanisms for choosing arbitrators to preserve, on the one hand, the independence and impartiality of the judges and, on the other, the autonomy of the parties to choose the tribunal members.
Nevertheless, the “Anti-Arbitration LP” ends up going against the best international practices by proposing the inclusion of three legal provisions that may directly interfere with the right of the parties to choose their arbitrators freely:
- The professional selected to serve as an arbitrator may not serve concurrently as the sole arbitrator, co-arbitrator, or president of the arbitral tribunal in more than ten arbitrations proceedings;
- Regardless of the role that each professional performs, there cannot be a total or partial identity between the members of two arbitral tribunals that are now in session; and
- Members of an arbitration chamber’s secretariat or executive board are not permitted to serve as arbitrators in any proceedings handled by that institution.
The “Anti-Arbitration LP” also suggests changing Article 13 of the Brazilian Arbitration Act to require the professional chosen to serve as an arbitrator to be “available” to perform the role.
A purported “delay” in arbitration proceedings, which would result from arbitrators acting in many cases at once, is used as justification for the bill’s proposed changes. However, the legal proposal did not include any empirical data to support this claim. In addition to providing no evidence to support this assertion, the “Anti-Arbitration LP” also appears to ignore the reality that disputes handled through arbitration can involve complicated issues that necessitate drawn-out procedural schedules and time-consuming evidence production.
The legislative proposal also appears to ignore the obvious reality that the arbitrator and the parties are the only ones able to determine whether the expert who has been nominated is available to participate in the arbitration. Only the arbitrator himself or herself can decide if there is adequate time available for a fresh procedure.
From the standpoint of litigators, it is more than reasonable to assume that the arbitrator will be a seasoned professional used to the role and ready to examine the specifics of the dispute. Given this, it is easy to conclude that specialists with such abilities are known in the industry and are logically selected to serve in several arbitral tribunals.
The measure appears to neglect the arbitration process’s complexity in favor of modifications that will hurt rather than benefit the numerous parties involved in the dispute, including arbitrators, attorneys, and particularly the parties who rely on this form of dispute resolution to settle their disputes.
This becomes even more apparent when looking at the proposed changes to the arbitrator’s duty of disclosure, one of the most crucial guidelines to follow while establishing the arbitral tribunal. While current Brazilian legislation requires that an arbitrator must report any information that could give rise to “justified doubt” about his objectivity and independence, the “Anti-Arbitration LP” attempts to alter this by suggesting a “minimum doubt” threshold.
In this regard, the deputy in charge of the bill’s justification claims that the proposed revisions aim to “optimize the duty of disclosure” and that the parties should be informed of the arbitrator’s availability “automatically.” The revisions would also purportedly aim to decrease the frequency of annulment actions based on the arbitrator’s breach of the obligation of disclosure, as stated in the legislative project’s reasoning.
The legislative bill’s suggestion to replace the “justified doubt” standard with “minimal doubt” does not, however, appear to be the best way to address the current controversy surrounding the topic because it will eventually raise more queries like: What is the distinction between a “justifiable” and “minimal” doubt? Which facts fit into one category but not the other? What information must be revealed under the new requirement that wasn’t necessary under the previous criterion? The measure does not address these questions.
The law appears to ignore that over the past few decades, arbitration specialists, academics, arbitration chambers, institutions of higher learning, and the market have evolved several benchmarks and guidelines to determine what the arbitrator must tell or not. For instance, the IBA Guidelines on Conflicts of Interest, which govern both the challenges submitted by parties and the disclosures made by the arbitrators appointed, are extensively used.
Despite not being legally obligatory, these clauses have influenced Brazilian practice in arbitration and in cases where the Judiciary investigates potential breaches of the duty of transparency by arbitrators.
For instance, the judgment handed down by the Superior Court of Justice (Superior Tribunal de Justiça) in the “Abengoa Case” confirming a foreign arbitral award became a paradigm. The Superior Court of Justice ruled in this case that the arbitrator must disclose “any circumstances likely to reasonably cast doubt on its impartiality and independence” and that a breach of this duty implies a violation of the public order, which prevents Brazil from recognizing the decision made in a foreign country.
As can be seen, the modification proposed by the bill would ignore the entire course of Brazilian regulation of the subject. It would only increase confusion and legal uncertainty rather than resolve the current controversies over the responsibility to disclose. Once more, parties who rely on arbitration to settle their disputes would suffer the more significant loss.
The parliamentary measure also suggests three changes to the way arbitral procedures are publicized. The first relates to the requirement that the action for annulment of the arbitral award be processed publicly, i.e., without being shielded by the legal system’s confidentiality, as is customary in cases involving arbitration. The legislative proposal also suggests that the chamber in charge of overseeing the process make the makeup of the arbitral panel and the sum at issue publicly available. An article outlining the requirement to publish the complete text of arbitral awards is also included.
The legislative bill’s justification for the requirement that actions seeking the annulment of arbitration awards proceed without the secrecy of justice claims that such publicity will act as a “disincentive” to the filing of annulment actions because crucial details like the merits of the dispute and the amounts at stake would be made public and would not be attractive to the parties.
Additionally, it is claimed that making arbitral judgments public seeks to “create a true jurisprudence,” which might “increase legal certainty and cohesion of decisions”, lowering the possibility of “different courts deciding identical claims in diametrically opposed directions”.
The confidentiality of the arbitration process is not provided for by the Brazilian Arbitration Act. Although the rules of the major chambers in the nation, including CAM-CCBC and CAM B3, offer the possibility of a confidential process.
It is not difficult to understand the origins of such provisions given the issues discussed, such as high-value contracts and transactions protected by business secrets, market agents prefer to resolve their disputes without disclosing publicly the facts related to the controversy. Hence, the proposal to publish the arbitral awards in its integrality violates this interest and may harm the business environment in Brazil.
In Brazil, specific business sectors and arbitration courts have made some attempts to address this problem. For instance, a new wording for the arbitration clause to be used by energy trading companies was recently approved by the Electric Energy Trading Chamber (“Câmara De Comercialização de Energia Elétrica” or CCEE), the body responsible for regulating the contracts for the purchase and sale of electricity in Brazil. The new arbitration provision states that the institution handling the arbitration procedures shall post a summary of the arbitral tribunal’s ruling on its website.
In a similar sense, the Market Arbitration Chamber (CAM-B3), which administers arbitrations involving the main publicly held companies listed on the stock exchange operating in Brazil, also provides in its rules regarding the publication of summaries of decisions rendered by arbitral tribunals.
This sectorized solution, adapted to the peculiarities of the market agents and the interests involved, seems more appropriate than the imposition of unlimited disclosure of arbitral awards proposed by the “Anti-Arbitration Law”.
In fact, the public interest related to an arbitration involving the State is not the same in cases involving private companies, for example. When a dispute involves the Public Administration, publicity is a constitutional obligation, imposing the divulgation of the proceeding and its decisions. On the other hand, in strictly private disputes, such as in contractual matters or involving closed companies, the public interest is highly decreased, and there is no reason to publish the arbitral awards.
We cannot end this brief article without reflecting on the abovementioned issues. First, the criticisms of the legislative bill made previously cannot be interpreted as unrealistic praise of the Brazilian Arbitration Act, nor is it intended to defend an unrestricted perfection of legislation, as if it were something sacred and unquestionable.
Like all human works, especially those deeply conditioned by the limitations of their time, such as legislation, the Brazilian Arbitration Act is not perfect. Many points in the current legislation deserve to be discussed, analyzed, and, if necessary, reformed so that the arbitration procedure continues to serve its purpose of resolving conflicts effectively and quickly.
However, such important changes cannot occur suddenly or be imposed without justification. On the contrary: civil society must be called upon to discuss the proposed changes and, if necessary, harshly criticize the solutions presented.
As in arbitration, democracy also demands constant debate and contradiction, as this is the only way to advance towards improvements. The discussions held regarding the “Anti-Arbitration Law Project” can, and should, allow the enhancement of the arbitration practice in the country and allow the people involved with the subject to seek constant improvements so that the parties can resolve their disputes and defend their rights with more efficiency each time. The legislative bill, unfortunately, does not go in that direction.
ABOUT THE AUTHORS
Felipe Ribeiro Frois is a Partner at Dourado & Cambraia Advogados. Currently pursuing a Master’s in Procedural Law at the Law School of the University of São Paulo. Member of the Special Arbitration Committee of the OAB/SP.
Antônio Augusto Alves de Andrade is a Lawyer at Dourado & Cambraia Advogados. He got his Bachelor’s in law from the Federal University of Minas Gerais (UFMG).
