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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Introduction
1. Brazil is slowly ridding itself of its conservatism with respect to arbitration. Nearly five years ago, the country adopted a new piece of legislation1 which set out to modernize Brazilian law and enhance Brazil's reputation as an important place of arbitration. The reform process has been marked by a resistance to international harmonization, at least inasmuch as it could lead to a significant transformation of Brazilian law.
2. Controversies arose over whether or not the Law was in conformity with the Constitution. They related in particular to the ways of initiating arbitration provided in articles 6 and 7 of the Law, which allow the specific performance of a 'blank' arbitration clause. 2 Some Brazilian lawyers considered that an arbitration clause is neither valid nor binding where the subject of the dispute has not yet been established. 3 Furthermore, the exclusion of judicial monitoring with regard to the merits was deemed a violation of article 5, XXXV, of the Constitution. 4 Nevertheless, after a long debate lasting more than three years the justices of Brazil's Supreme Constitutional Court5 held by an absolute majority that the Law is constitutional. 6 Arbitration specialists and all those interested in contract law and civil procedure will find this outcome worthy of note.
3. Mechanisms for internal and international dispute resolution are being developed in various sectors of the economy. 7 The number of arbitral proceedings held in Brazil or concerning Brazilian interests is increasing, although it is still lower than in other countries. 8[Page43:]
4. The arbitration system is evolving in Brazil (I): arbitration is becoming more and more independent; which is leading to practical changes (II): arbitration is evolving alongside the state judicial system, rather than being subordinate to it.
I. The arbitration system in Brazil
5. The principle of freedom of contract is fully upheld (A), and the intervention of the courts has been restricted (B).
A. The principle of freedom of contract
6. The principle of freedom of contract is reflected in Brazil's recognition of the autonomy of the arbitration clause. The legislature has broadened the scope of arbitration by liberalizing the formal requirements for arbitration agreements.
7. Following the example of the majority of legal systems, Brazilian law endorses the principle of the autonomy of the arbitration clause and the arbitral submission. This principle, already accepted long ago in Brazilian international law, 9 has been confirmed and extended to domestic law by the new Law. As an expression of the parties' intention when entering into a contract, the arbitration agreement cannot be called into question by the parties unless they agree otherwise. The arbitrators' application of the procedure chosen by the parties is justified by the fact that their power derives from the insertion of an arbitration clause into the contract in which the parties have expressed their intent to remove the dispute from the jurisdiction of state courts. 10
8. What is singular about the Supreme Court ruling mentioned above11 is the fact that the judges link their assertion of the autonomy of the arbitration clause to the contract. They repudiated the earlier formalism in the interpretation of arbitration agreements, which always required an arbitral submission to be signed, by taking the view that such restatement is no longer necessary when an arbitration clause provides for recourse to a specific arbitration institution and to its rules, in accordance with article 5 of the Law.
9. By way of a concession to international practice, Brazilian courts appear highly favorable to the idea that the terms of reference, within the meaning of most wellknown sets of arbitration rules, are equivalent to an arbitral submission. 12 The terms of reference clarify what is not specified in the arbitration clause and replace the arbitral submission. They are signed by the parties and the arbitration tribunal, or by the latter alone should the parties refuse to sign, and define the arbitration procedure. If any elements are missing from the arbitration clause, the court reserves the power to define or complete the arbitral submission, which becomes necessary if the arbitration clause is pathological13 or refers to arbitration rules that are incomplete. If either party objects to the initiation of arbitration proceedings, and, when adopting [Page44:] the arbitration clause, the parties have neither named any arbitration rules nor themselves drawn up any rules to govern the arbitration, the arbitral submission may possibly be replaced by a court ruling. 14 This solution, which might have appeared questionable, was held by the Supreme Court in the aforementioned decision to be constitutional.
10. It is interesting to note that, according to articles 6 and 7 of the Law, a party that refuses to sign an arbitral submission may be summoned before the court to do so. Also, when the contract or the rules of the arbitration institution do not specify the rules that are to govern the arbitration, it is up to the court to select them.
11. The Law nevertheless markedly reduces the risk of intervention by the courts and has put an end to their monitoring of the efficacy of the arbitration clause and the validity of the contract, by endorsing in its Article 8 the principle of KompetenzKompetenz.
12. Through numerous cases the courts contribute to the harmonization process that continues after the work of the legislature. For example, a trial court, 15 in applying the terms of a contract without ruling on the merits, assumed that the parties intended to resort to arbitration with respect to the precontract or the preliminary contract, since it had been stipulated that disputes arising from the main or the final contract should be submitted to arbitration. This intention was deemed to be binding not only on the parties concerned, but also on the court that interpreted it. In the case in point, the arbitration clause referred to ICC.
13. In another case, 16 the São Paulo Court of Appeal overruled a judgment from a trial court without ruling on the merits, authorizing the initiation of international arbitration proceedings, owing to an arbitration clause in a contract, and rejecting the objections of one of the parties, which would have preferred a domestic arbitration with the chairman of the arbitral tribunal being appointed by a Brazilian court.
14. A decision by the Federal District Appeal Court17 upheld a judgement that had confirmed the validity of an arbitration clause in a service contract. In the case in question, the claimant had asked the court to draw up an arbitral submission pursuant to article 7 of the Law. 18 The court confined itself to appointing a sole arbitrator to establish the facts and two deputies. The court interpreted the conditions laid down by article 10 of the Law, 19 which deals with the appointment of the main arbitrators and the deputies and with the place and subject matter of the arbitration. [Page45:]
15. An award made in Brazil has the force of res judicata and is enforceable even when the establishment of the facts and the oral proceedings have taken place abroad.
16. Before the enactment of the Law, a significant portion of judicial activity was devoted to delaying litigation actions against arbitral decisions. Article 33 of the new Law20 is aimed at substantially modifying earlier legislation in order to reduce the number of appeals and delaying tactics. 21 In particular, an appeal for setting aside an arbitral award is subject to certain statutory conditions, which are stipulated in article 32, I to VIII, of the Law, and has no suspensive effect. 22
B. Restrictions on court intervention
17. Whereas in the past there was considerable emphasis on judicial intervention and control in the arbitration procedure, the Law changed the focus to a supportive role of the courts in relation to arbitral procedures and decisions.
18. Pursuant to article 5, XXXV, of the Constitution, 23 trial courts retain in a supporting role a residual power to monitor awards and intervene, which is strictly limited by the Law. Article 22, § 4, of the Law24 allows appropriate interim or protective measures to be taken that have an inter partes effect. 25 An arbitrator in difficulty may apply to the court to seek its support and to enforce arbitral decisions. 26 Nevertheless, there is a tendency for actual power to reside more and more with the arbitrator, in keeping with international practice. 27
19. What are the respective powers of arbitrators and courts in this respect, and in what circumstances should they order interim measures? These are hotly debated issues. 28
20. For the record, under Brazilian rules of civil procedure interim measures are ordered by courts prior to or during proceedings through an interlocutory order, and are open to appeal - through what is known as an Agravo de Instrumento - which is different from an appeal against a ruling on the merits. 29 Such an order does not [Page46:] remove the case from the jurisdiction of the court, nor does it have the force of res judicata. Furthermore, under Brazilian law parties' requests for court-ordered interim measures are subject to the main judicial proceedings being filed within the following thirty days. The courts have allowed arbitration to be initiated in the place of principal proceedings, which raises the question of the effects of the arbitration on the protective measure previously ordered by the court.
21. The statutory language alone cannot provide all the answers to certain questions, including, in particular, that of determining whether the court or the arbitral tribunal has jurisdiction to make or modify certain decisions pertaining to protective measures before a judgement or during arbitration proceedings. 30 Such questions presuppose that practical considerations based, in particular, on the arbitrators' experience and talent are taken into account. Moreover, a notable cultural development is the courts' greater readiness to accept the jurisdiction and powers of arbitrators, despite custom and statutory language that would lead one to expect the opposite tendency.
22. No foreign arbitral award may be enforced in Brazil unless the Supreme Court has issued an enforcement order (exequatur) for that purpose. However, official approval from the country of origin - an additional condition imposed by earlier legislation - is no longer required. 31 In the case Resil Indústria e Comércio v. M.B.V. Commercial, 32 the court, applying the new legislation, ordered that an arbitral award made in Spain against a Brazilian company in favor of a Swiss company be enforced in Brazil, without requiring the official approval of the Spanish courts.
23. According to Article 38 of the Law, an application for an exequatur is to be rejected if the parties lack capacity; if the agreement is deemed to be void under the applicable law or the law of the place of arbitration; if the adversarial system has not been adhered to; or if the award violates the arbitral submission agreement or is not enforceable in the country in which it was drafted and executed.
II. Arbitration practice in Brazil
24. The Law defines the areas (B) in which persons, including public-sector entities (A), can resort to arbitration.
A. The public sector
25. A notable innovation is that the subjective basis for the validity of an arbitration agreement makes it possible to extend arbitration to sectors that had previously been the sole preserve of state courts. It implicitly allows public-sector entities, including the State, to engage in arbitration.
26. Following the examples of Swiss and Belgian law, as well as other recent foreign statutes on arbitration, the Law sets out the general principle that 'any person who has [Page47:] the capacity to enter into a contract' is fit to engage in arbitration with respect to disputes relating to alienable property rights. Thus in 1996 the legislature lifted the prohibition on public-sector corporations' engaging in arbitration. It was induced to do this by the new management criteria in the public sector - for example, the opening up of the public sector to economic competition and market laws, and the introduction of management based in particular on performance and competitiveness.
Publicsector concessions
27. Law no. 8666 of 21 June 1993 on invitation and bidding for government contracts states that the courts of the place where the government department has its headquarters shall have jurisdiction over all disputes that relate to contractual matters, except for those that originated abroad and concern the acquisition of property by means of foreign loans. 33 The Court of Claims of the Federal Republic of Brazil holds that, in accordance with the general principles of public law, internal government contracts may not give rise to arbitration unless there is statutory provision to the contrary. 34
28. Article 23, XV, of law no. 8987 of 13 February 1995 on publicsector concessions and public works and article 43, X, of law no. 9478 of 6 August 1997 on national energy policy and activities connected to the oil monopoly authorize enterprises to negotiate settlements and resort to arbitration.
Power
29. The sale and purchase of electricity (PPA (Power Puchase Agreement)) and transactions effected on the wholesale electricalpower market (MAE (Mercado Atacadista de Energia)) are open to arbitration. Public and quasipublic corporations in this market are managed autonomously and may resort to arbitration in accordance with law no. 9648/98: arbitration rules for the MAE are in the process of being adopted.
Telecommunications
30. In the telecommunications sector, arbitration clauses, which the National Telecommunications Authority includes in contracts granting concessions to provide fixedlink telephone services, are covered by special regulations. Arbitral tribunals follow special procedural rules, apply the law chosen by the parties, and enforce awards.
Gas and oil
31. The legislation on contracts granting concessions to explore for oil and gas lays down that the parties must first attempt conciliation, pursuant to articles 23, XV, of law no. 8987/95 and 43, X, of law no. 9478/97 on national oil policy.
32. The above-mentioned law on oil and gas stipulates that contracts granting concessions to explore for, develop and produce oil and natural gas, concluded between the National Petroleum Authority and firms, must include a clause which stipulates the rules for the solution of disputes arising out of such contracts and their performance, including reference to conciliation and international arbitration.
Financial sector
33. Finally, companies listed on the new São Paulo stock market, Bovespa, are subject to corporate governance rules that provide for arbitration proceedings. 35[Page48:]
34. Brazilian administrative law allows the Federal Republic to resort to arbitration proceedings whenever they are authorized by special laws or international treaties. For example, arbitration within the Mercosul community is provided for by the Brasília Accords of 17 December 1991, amended by the Ouro Preto Accords of 17 December 1994, on the resolution of disputes between member states or between a state and a private individual. Following preliminary conciliation, Mercosul's Trade Commission establishes the facts and the CommonMarket Group rules on appeal. 36
35. Moreover, the courts have recognized the validity of an arbitration clause which the Federal Republic and the Central Bank included in international-financing contracts when the Brazilian debt was being rescheduled, in spite of the objections made at the time by the Brazilian Bar.
B. Publicpolicy restrictions
36. Following the example of the Swiss legislature, Brazilian law firmed up the understanding that only alienable rights could be subject to arbitration. Issues arising under business and property law, including labor law disputes, whether they be commercial, civil or a mixture of the two, may be submitted to arbitration. 37 Therefore, an arbitration clause in an employment contract is valid. However, article 1 of the Law excludes disputes relating to inalienable property rights. 38
37. According to article 4, § 2, of the Law, the parties to a boilerplate contract that contains an arbitration clause must expressly confirm that they agree to the terms of the arbitration proceedings at their commencement, and failure so to do will render the clause void, pursuant to article 51, VII of law no. 8078 of 11 September 1990 on consumer protection. The application of the aforesaid article 51 is nevertheless a delicate matter: in the face of differing opinions, 39 writers advocate that the willful insertion of an arbitration clause does not change the nature of the boilerplate contract. 40
Conclusion
38. Overall, Brazilian law has improved and Brazilian courts are continuing to liberalize and modernize it. 41 The courts are bringing Brazilian arbitration more and more into line with international practice so as to bring to completion the harmonization begun by the Law. This policy confounds the early pessimism that the effects of the new law would be limited, and testifies to a constructive ferment in which myths are gradually being consigned to the past. Perhaps this is a case of the legal application of the economic notion of 'creative destruction' with respect to the judicial and administrative authorities' longstanding prejudices against arbitration. It is a victory for modernity due, in great measure, to the opening of our borders, and one that could be crowned by Brazil becoming a party to the New York Convention.
1 Law no. 9307 of 27 September 1996, referred to hereinafter as 'the Law'. An unofficial French translation of the Law by João Bosco Lee was published in [1997] Revue de l'arbitrage 297 and an English translation, also unofficial, by Keith S. Rosenn in (2000) 31:2 Inter-American Law Review at 239. This Law replaced previous legislation, under which a party's failure to carry out its obligation to submit to arbitration in accordance with the arbitration clause simply gave rise to damages. Also, the decision of the arbitrators had to be approved by a court, which no longer applies under the new Law.
2 Specific performance is the procedure by which a court rules on the contents of an arbitral submission agreement and appoints an arbitrator irrespective of a new agreement by the recalcitrant party having accepted the 'blank' arbitration clause.
3 E.g. the vote of Minister Sepúlveda Pertence in the proceedings for approving the foreign award 52067 of 8 May 1997, see Cláudio Vianna de Lima, Curso de Introdução à Arbitragem, Rio de Janeiro, Lumen Juris, 1999 at 335.
4 See Arnoldo Wald & Patrick Schellenberg, 'L'efficacité de la clause compromissoire au Brésil (la nouvelle loi à l'épreuve de la jurisprudence)' [2000] Rev. arb. 429.
5 Eleven members comprise a plenary sitting of the Supremo Tribunal Federal. Of these, eight have already voted, following Minister Néri da Silveira's request on 3 May 2001 that deliberations be adjourned to take a vote. Ministers Sepúlveda Pertence and Sidney Sanches held articles 6, 7, 41 and 42 of the Law to be unconstitutional. Ministers Nelson Jobim, Ilmar Galvão, Ellen Gracie, Maurício Corrêa, Marco Aurélio and Celso de Mello, on the other hand, decided the Law was in conformity with the Constitution. Ministers Moreira Alves, Carlos Velloso and Néri da Silveira have yet to vote. Although a final decision has not yet been rendered, the decision of the majority has already been carried by six votes.
6 See (2001) 11 Revista de Direito Bancário (RDB) 361.
7 There are arbitration institutions in Brazil such as the Arbitration Center of the Brazil/Canada Chamber of Commerce, which received two requests between 1979 and 1996, whereas 30 arbitrations have been initiated since 1996, and the Mediation and Arbitration Chamber of the São Paulo Federation of Industries, which has administered 12 cases. The Arbitral Council of the State of São Paulo deals with minor matters concerning private law and has resolved 5,470 disputes. In 90% of cases, the awards have been performed spontaneously.
8 The cases referred to ICC during 1999 included 26 Brazilian parties, five Brazilian arbitrators and Brazil was chosen as the place of arbitration in a single case ('1999 Statistical Report' (2000) 11:1 ICC ICArb. Bull. 4). In 2000, there were ten Brazilian parties, eight Brazilian arbitrators and one case in which the place of arbitration was in Brazil ('2000 Statistical Report' (2001) 12:1 ICC ICArb. Bull. 5).
9 Tribunal Superior de Justiça, Resp 616-RJ, Diário da Justiça da União (13 August 1990), Minister Gueiros.
10 Article 3 of the Law.
11 See supra § 1.
12 See the vote of Minister Jobim in the Supreme Court's above-mentioned decision on the constitutionality of the Arbitration Law, (2001 11 RDB 361; cf. Fouchard, Gaillard, Goldman, On International Commercial Arbitration, edited by E. Gaillard & J. Savage (Kluwer Law International, 1999) para. 1236.
13 'The expression "pathological clause" was first used in 1974 by Frédéric Eisemann, then honorary Secretary General of the ICC. It denotes arbitration agreements, and particularly arbitration clauses, which contain a defect or defects liable to disrupt the smooth progress of the arbitration.' (Fouchard, Gaillard, Goldman, op. cit. supra note 12, para. 484.)
14 Article 7 of the Law.
15 40th first instance civil chamber, São Paulo, 16 April 2001 (no. 000.00.631007-9), Diário Oficial do Estado de São Paulo - Poder Judiciário (20 April 2001).
16 Tribunal de Justiça de São Paulo, 5th private law chamber, 16 September 1999, appeal (Agravo de Instrumento) no. 124.217-4/0, reporting judge Des. Rodrigues de Carvalho, revising judges Des. Silveira Neto and Marco César, Diário Oficial do Estado de São Paulo - Poder Judiciário (13 October 1999). Although in this case an appeal with no suspensive effect was introduced before the supreme court that rules finally on matters unrelated to the Constitution, the arbitration continues.
17 Tribunal de Justiça do Distrito Federal, 3rd civil section, 5 March 2001, case no. 1999.01.1.083360-3, reporting judges Des. Vasquez Resende and Wellington Medeiros, Diário da Justiça do Distrito Federal (6 June 2001).
18 Article 7 of the Law states: 'If an arbitration clause exists and there is resistance to the institution of arbitration, the interested party may request service on the other party to appear in court for the purpose of enforcing the agreement, with the judge setting a special hearing for this purpose. 1. The plaintiff shall indicate with precision the purpose of the arbitration, backing up his request with the document containing the arbitration clause. 2. When the parties appear at the hearing, the judge shall first attempt to conciliate the dispute. If unsuccessful, the judge shall try to induce the parties to enter into an arbitral submission by mutual accord. 3. If the parties do not agree on the terms of the submission, the judge, after hearing the defendant, shall decide as to its contents at the hearing itself or in a period of ten days, respecting the provisions of the arbitration clause and taking into account the provisions of Articles 10 & 21, § 2 of this Law. 4. If the arbitration clause says nothing about the selection of arbitrators, the judge shall be responsible for ruling in this regard after hearing the parties. The judge may nominate a sole arbitrator for resolution of the dispute. 5. The plaintiff's absence, without a good and just reason, at the hearing designated for the signing of the arbitral submission implies the extinction of the proceeding without judgment on the merits. 6. If the defendant fails to appear at the hearing, the judge, after hearing the plaintiff, shall rule with respect to the contents of the submission and shall nominate a sole arbitrator. 7. The judgment granting the request shall be regarded as the arbitral submission.' (The English translation of this article and those appearing hereafter is that published in the Inter-American Law Review, see supra note 1.)
19 Article 10 of the Law states: 'The arbitral submission must contain: I - the name, profession, civil status and domicile of the parties; II - the name, profession, and domicile of the arbitrator or arbitrators, or if the case, the identification of the entity to which the parties have delegated selection of the arbitrators; III - the subject matter that will be the purpose of the arbitration; and IV - the place where the arbitral "judgment" shall be rendered.'
20 Article 33 of the Law states: 'An interested party shall plead to the competent court to decree the nullity of the arbitral judgment in cases provided for by law. 1. The complaint for decreeing the nullity of the arbitral judgment shall follow common procedures provided for in the Code of Civil Procedure and should be filed within a period of up to ninety days after receipt of notification of the arbitral "judgment" or its amendment. 2. The judgment that grants the request shall: I - decree the nullity of the arbitral "judgment", in the cases provided for in Article 32 subparagraphs I, II, VI, VII and VIII; II - shall determine that the arbitrator or the arbitral tribunal render a new award in other circumstances. 3. If there has been judicial execution, decreeing the nullity of the arbitral "judgment" may also be argued through the action of embargo of the debtor in conformity with Articles 741 et seq. of the Code of Civil Procedure.'
21 Up until 1994 there were few arbitrations in Brazil, apart from a handful of international cases. Besides, the rare decisions that were rendered were challenged at the approval stage and set aside by the courts. The difficulties encountered by arbitration prior to the new Law are well illustrated by the case Heirs of Henrique Lage et al. v. Federal Government (extraordinary appeal no. 52.181), in which the Supreme Court did not render its final judgment on the validity of an arbitral award made in 1948 until 1973! See (1974) 68 Revista Trimestrial de Jurisprudência do Supremo Tribunal Federal 382.
22 Article 32 of the Law states: 'The arbitral judgment is null if: I - the submission was null; II - it was issued by someone who could not be an arbitrator; III - it does not contain the requirements of Article 26 of this Law; IV - it is rendered outside the limits of the arbitration agreement; V - it does not decide the dispute submitted to arbitration; VI - it is proven that it was rendered by prevarication, graft or passive corruption; VII - it is rendered outside of the period, respecting the provision of Article 12(III) of this Law; or VIII - the principles dealt with in Article 21, section 2 of this Law were disrespected.'
23 Article 5, XXXV, of the Constitution guarantees that: 'the law cannot withhold from assessment by the courts any lesion or threat of violation of a right'.
24 Article 22, § 4, of the Law states: 'Except for the provision of § 2, if there is a need for coercive or provisional measures, the arbitrators may request them from the court that would originally be competent to judge the cause.'
25 See J. E. Carreira Alvim, Tratado Geral da Arbitragem Interno (Belo Horizonte: Mandamentos, 2000) at 394.
26 See Carlos Alberto Carmona, 'Das Boas Relações Entre os Juízes et os Árbitros' (1997) 51 Revista do Advogado 17.
27 See Fouchard, Gaillard, Goldman, op. cit. supra note 12, para. 1306.
28 In support of arbitral jurisdiction, see Carlos Alberto Carmona, op. cit. supra note 25; Carlos Augusto da Silva Lobo & Raphael de Moura Rangel Ney, 'A Revogação da Medida Judicial pelo Juizo Arbitral' (2001) 12 RDB 357.
29 Code of Civil Procedure, articles 522-529.
30 See Carlos Augusto da Silva Lobo & Raphael de Moura Rangel Ney, op. cit. supra note 27.
31 Article 35 of the Law.
32 Supremo Tribunal Federal, Agravo Regimental (an appeal against an individual decision by one of the judges brought before a section or the plenary assembly) against the foreign award 5206-7, Spain, the parties being M.B.V. Commercial and Export Management Establishment and Resil Indústria e Comércio Ldta.; see Cláudio Vianna de Lima, op. cit. supra note 3 at 335.
33 Article 55, § 2, of law no. 8666 of 21 June 1993.
34 Article 2 of statutory order no. 1960 of 23 September 1982 authorizes the Brazilian national treasury to engage in arbitration whenever international contracts are involved.
35 The creation of the Bovespa Arbitration Chamber was part of an ongoing reform of the law relating to companies and financial markets in Brazil.
36 See Luiz Olavo Baptista & Marie José Gomes, 'Le règlement des différends dans le Mercosur' (2000) IBLJ/RDAI 197.
37 The Brazilian Arbitration Association and the Arbitration Council of the State of São Paulo have arbitration chambers specialized in labor law. 600 cases have been referred to the first-mentioned since January 2001.
38 It should be noted, furthermore, that article 39, II, of the Law states that no exequatur will be granted if an award goes against national public policy.
39 In support of the application of article 51, VII, of law no. 8078/90, see João Carlos Pestana de Aguiar Silva, 'Arbitragem' (2000) 776 Revista dos Tribunais (RT) 736; contra, Luiz Cezar Ramos Pereira, 'A Realidade da Arbitragem Brasileira' (2001) 11 RDB 381.
40 See Álvaro Villaça de Azevedo, 'Arbitragem' (1998) 753 RT 11.
41 See Pedro A. Batista Martins, 'O Poder Judiciário e a Arbitragem. Quatro Anos de Lei 9.307/96 (I)' (2000) 9 RDB 317.