This article was featured in Jus Mundi‘s 2024 Arbitration Year in Review, in collaboration with VYAPs, a yearly collection of articles from jurisdictions all around the globe updating you on arbitration-related developments from the previous year.
THE AUTHORS:
Luiza de Sousa Braz, Master of Law, University of São Paulo and Associate at Lefosse Advogados
Maria Luiza Mayr Maia, Master’s Candidate at State University of Rio de Janeiro and Lawyer at Bermudes Advogados
Rafaella Farias Pereira, Master of Law at Queen Mary University of London and Associate at DLA Piper Weiss-Tessbach
In 2024, arbitration remained one of the most widely used dispute resolution methods in Brazil, further solidifying its role through a series of significant judicial decisions. To illustrate some of the key discussions that took place in Brazilian courts over the past year, we have selected three rulings that had a notable impact on our practice. The first case addresses the applicability of the Code of Civil Procedure to arbitration, the second case examines the statute of limitations in arbitral disputes, and the third case discusses jurisdiction over requests to set aside arbitral awards.
Non-Application of the Brazilian Code of Civil Procedure to Arbitral Proceedings
In 2024, one of the most significant arbitration-related decisions in Brazil was rendered by the Superior Court of Justice (“STJ”) in Citic Construções do Brasil v. Usimec Soluções em Engenharia, Judgment No. 1851324, 21 August 2024 addressing the subsidiary application of the Brazilian Code of Civil Procedure (Law No. 13.129/2015) to arbitration.
The case originated from a request to annul an arbitral award involving two Brazilian parties before the Rio Grande do Sul appellate court. The losing party in the arbitration alleged procedural nullity, arguing that the testimony of Chinese national witnesses had been translated by the counterparty’s legal representative instead of a sworn translator during the evidentiary hearing. In its view, the opposing party’s legal representative did not meet the standard of independence and impartiality applicable to translators, as set forth by the Code of Civil Procedure.
The Rio Grande do Sul appellate court originally ruled in favor of the appellant, setting aside the arbitral award. The court held that the Brazilian Code of Civil Procedure rules should automatically apply to matters not expressly regulated by the Brazilian Arbitration Act (Law No. 9.307/1996), including rules on the independence and impartiality of translators. The court reasoned that, since the parties had chosen Brazilian law as the governing law of the dispute, this choice should be interpreted broadly as to encompass both substantive and procedural aspects.
In a landmark decision, the STJ overturned this ruling, categorically holding that “the arbitrator is in no way bound by the procedure established in the Code of Civil Procedure, as there is no legal provision mandating its application, not even on a subsidiary basis, to arbitration”. Contrary to the lower court’s position — and more aligned with prevailing arbitral practice —, the STJ distinguished the substantive law governing the merits of the dispute and the rules governing the arbitration proceeding. As such, the STJ emphasized that arbitrations are primarily governed by the parties’ agreement, the rules of the chosen arbitral institution, and the arbitrators’ procedural determinations.
With regards to the evidentiary phase, the STJ underscored that arbitrators enjoy broad discretion in conducting evidentiary proceedings, provided that due process is observed. Consequently, in the absence of an express agreement between the parties, the rules of the Brazilian Code of Civil Procedure cannot be presumed to apply. According to this decision, imposing such rules would contradict the fundamental nature of arbitration as an alternative dispute resolution mechanism distinct from judicial proceedings.
After analyzing the specifics of the case, the STJ found that the procedural arrangement concerning witness testimony had been explicitly agreed upon by the parties and significantly diverged from the framework set forth in the Code of Civil Procedure. First, counsel were permitted to assist in drafting witness statements and in preparing for the hearing, which, in the Court’s words, would be “unthinkable” in judicial proceedings. Furthermore, since the parties bore the costs of translation for their respective witnesses, they necessarily had to establish a contractual relationship with the translator before the hearing, which, by its nature, would not conform to judicial standards of independence and impartiality. And, finally, before allowing the party’s legal representative to act as a translator, the arbitral tribunal had consulted both parties, who expressly agreed to the arrangement and did not object to the content of the translation either during the arbitration or in subsequent judicial proceedings.
Ultimately, this ruling provides a clear and emphatic acknowledgment by the Superior Court of Justice that, unless explicitly chosen by the parties, the Code of Civil Procedure does not apply to arbitration. By upholding party autonomy and reinforcing the distinction between arbitration and judicial proceedings, the STJ enhances legal certainty while preserving the efficiency and flexibility that make arbitration a preferred dispute resolution mechanism. In our view, this decision marks another important step in solidifying Brazil’s pro-arbitration judicial framework, aligning the country with international best practices.
Arbitration and the Brazilian Statute of Limitations: New Hypothesis of Suspension
The STJ also handed down, at the end of 2024, a decision in which it ruled that the commencement of an arbitral proceeding, even before the enactment of Law No. 13.129/2015, entails sufficient grounds for the suspension of the applicable limitation period.
According to the decision rendered in Clinica Brasil Ltda. and others v. Andre Luiz Vasconcelos Borges and others, Judgment of the Superior Court of Justice of Brazil No. 1981715, 17 September 2024, the STJ decided that the rule established by the Brazilian Code of Civil Procedure (in particular in its Article 19, paragraph 2) on the effect of arbitration on the limitation periods should be generally applicable to all arbitration proceedings, including those that were already underway before 2015.
The rationale adopted by the STJ was that once an arbitral award has the same effects as a judicial decision, the commencement of an arbitral proceeding should also be considered equivalent to the commencement of litigation via a judicial proceeding for all legal purposes. As such, a party’s decision to commence arbitration, as is the case with judicial proceedings, also represents an unequivocal initiative that they are seeking protection for their rights through one of the means available to them, even without state intervention. The condition of inertia is, therefore, excluded.
This decision has several implications for arbitration in Brazil, including:
- Legal Certainty and Predictability. The decision enhances legal certainty and predictability for parties opting for arbitration in Brazil. By confirming that the filing for an arbitral proceeding allows for the suspension of the applicable limitation period, the STJ has removed an ancient ambiguity in Brazilian law, ensuring that parties can rely on arbitration without fearing the loss of their rights due to the legal statute of limitations.
- Alignment with International Standards. The decision aligns Brazilian arbitration practices with international standards, where the suspension of limitation periods by arbitration is a common principle. This alignment enhances Brazil’s attractiveness as a venue for international arbitration, potentially increasing its role in global dispute resolution.
- Impact on Ongoing and Future Case. For ongoing and future cases, this decision provides a clear precedent. Parties involved in arbitration can now be assured that their rights are protected from the statute of limitation, even if their proceedings began before 2015. This retrospective application ensures fairness and consistency across cases.
Consequently, the STJ’s decision in REsp 1.981.715-GO marks a pivotal moment for arbitration in Brazil. In this decision, the STJ has provided much-needed clarity and consistency in the legal framework. This ruling not only encourages the use of arbitration but also aligns Brazilian practices with international standards, enhancing the country’s reputation in the global arbitration community. As a result, parties can now engage in arbitration with greater confidence, knowing that their rights are safeguarded throughout the process.
Key Ruling on the Relevance of the Seat of the Arbitration
In June 2024, a significant ruling in CONDUTO v. SINOPEC and TAG, Decision of the State Tribunal of Rio de Janeiro, 11 June 2024, brought clarity to the criteria for determining the nationality of arbitral awards under Brazilian law and its implications for the jurisdiction of lower courts in setting aside foreign arbitral awards. This decision has important ramifications for international arbitration practices in Brazil.
The case centered on whether a specific arbitral award should be classified as domestic or foreign, a distinction that would directly affect which court has jurisdiction to annul or enforce the award. The appellant argued that the award should be considered domestic because the arbitrators were Brazilian, and the procedural activities had taken place in Brazil. In contrast, the appellees contended that the award was foreign, as the arbitration was administered by the London Court of International Arbitration (LCIA) under the UNCITRAL Rules and was seated in London, England, as per the parties’ choice in the arbitration agreement.
The appellate court upheld the lower court’s decision, ruling that the award was indeed foreign. This ruling highlights the critical role of the arbitration seat and the governing rules in determining the nationality of an award and the corresponding jurisdictional authority of the courts of the seat of the arbitration. By affirming the primacy of the arbitration seat, the decision strengthens Brazil’s alignment with global arbitration practices and provides greater predictability for parties engaged in cross-border disputes.
The court also emphasized that, under the Brazilian Arbitration Act, a foreign arbitral award must first undergo a recognition process before any party can seek to set it aside. Indeed, the Brazilian Arbitration Act mandates that foreign awards be recognized by the STJ before they can be enforced in the country. The court also referenced the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New York Convention”), reinforcing Brazil’s commitment to international arbitration standards.
For legal practitioners and businesses interested in international arbitration, this case underscores the importance of understanding the nuances involved in the choice of seat of the arbitration, taking into account the law of the place where parties will likely seek enforcement of a potential award. It also serves as a reminder that careful consideration of the arbitration seat, governing rules and the arbitration rules of the place where enforcement is sought, is essential when crafting legal strategies for arbitration. We expect updates on this case to be covered in the upcoming issues, as it reached the STJ at the end of 2024 under REsp 2.179.098-RJ.
ABOUT THE AUTHORS
Luiza de Sousa Braz has a Master’s degree from the University of São Paulo and is a junior Associate at Lefosse Advogados. She practices both domestic and international arbitration and is a member of BRVYAP’s Executive Committee.
Maria Luiza Mayr Maia is a Master’s student at the State University of Rio de Janeiro and a lawyer at Bermudes Advogados. She practices both domestic and international arbitration, with a focus on commercial and corporate disputes, and is a member of BRVYAP’s Executive Committee.
Rafaella Farias Pereira is a Brazilian and French law-trained and Brazilian-qualified lawyer. She currently focuses on commercial and corporate disputes, and practices domestic and international arbitration with DLA Piper Weiss-Tessbach in Austria. Rafaella completed her LL.M in Comparative and International Dispute Resolution at the Queen Mary University of London, and her postgraduate degree in Contract Law at FGV Law SP. She is a member of BRVYAP’s Executive Committee.
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