The coming of age of arbitration in Brazil

Some anniversaries are happy, some are sad, and all can be a pretext to reflect on the past and the future. For those who like arbitration and anniversaries, 2021 is an alibi as good as any: it has been 25 years since the Brazilian Arbitration Act was enacted (a silver jubilee, for those who like the corny side of anniversaries too), and 20 years since the Supreme Court affirmed its constitutionality.

Few would object that these were the turning points for commercial arbitration to gain traction in Brazil. The country is now a safe harbor and a regional hub. It suffices to note that São Paulo is among a handful of cities around the globe where the International Chamber of Commerce has an office prepared to administer arbitration proceedings.

Popularity has grown thanks to the conjunction of three main factors: (a) Brazil is (in)famous for everlasting court proceedings, which might take literally decades to conclude; (b) some legal practitioners (very competently) created a community that foments the interest in arbitration among law students and advertises the superiority of arbitration over court proceedings; and (c) when conflicts arose, Brazilian courts entered pro-arbitration decisions.

Those factors help explain some of the current pains of growth of arbitration in Brazil.

Take the length of the proceedings as an example. Sure, arbitration does not drag for decades, but these days it is not unusual to see proceedings take three or four years until final conclusion. This is certainly not what clients have in mind when they are willing to pay more for faster resolution of their disputes.

Sometimes, delays result from excessive workload on the part of arbitrators; sometimes, they result from poor case management, with tribunals thinking twice before denying impromptu submissions or production of unnecessary evidence. Clearer rules on what backlog of cases is acceptable and when tribunals are allowed to deny parties’ initiatives may be in order. Arbitration is supposed to be more efficient than litigation; at times, efficiency may only be attained if parties surrender some freedom and flexibility. Not at all an easy balance.

Another issue regards how the Judiciary views arbitration. Some practitioners are alarmed every time a court of law enters a decision seen as “arbitration-unfriendly” – as if the very notion of arbitration was in jeopardy. For instance, a perceived surge in the number of awards being set aside is a hot topic within the arbitration community right now.

Those practitioners should not need to feel so insecure. The Superior Court of Justice and the state courts of São Paulo and Rio de Janeiro have entered numerous opinions safeguarding arbitration in different contexts. However, this does not mean that the Judiciary should be expected to always stay out of the way. Opinions deemed “arbitration-unfriendly” are relatively few and usually address very serious allegations of breach of procedural due process, arbitrators’ failure to disclose relevant facts that may affect their impartiality, and flaws that render awards unenforceable in practice. Arbitration is just the means, not the end; the primary role of courts of law – and arbitral tribunals – is to ensure that the law is observed.

Pain is not all there is in this process. There are many opportunities to expand the use of arbitration beyond strictly commercial disputes.

At this point, we are still just scratching the surface of employment arbitration, arbitration against the government and its entities, and the controversial (and wrongly called) “class” arbitration in securities law. These are all recent fields, and although there is no reliable data given the confidentiality of proceedings, the number of pending arbitration proceedings is just a very tiny fraction of the respective court proceedings. (Confidentiality, by the way, seems be under scrutiny in some of those new fields.)

There is room to dare. Unlike many countries, Brazil still is not a party to treaties that provide the framework for investment arbitration. Additionally, initiatives to allow arbitration in tax disputes are underwhelming; the fact that the government may not waive or settle taxes amicably is usually seen as a hurdle to arbitration, but that can be overcome with constitutional and legal reform – a positive side effect of which would be to reduce the enormous backlog of tax disputes in the Judiciary.

Great progress has been made, and shortcomings have been few. If this is any indication for the future, those who like arbitration and anniversaries will not be going anywhere anytime soon.