By: Deborah Slattery-Pereira, Senior Staffer

Brazil enacted the Brazilian Arbitration Act (“BAA”) in 1996, adopting the United Nations Commission on Trade Law (“UNCITRAL”) Model Law. Brazilian courts played an active role in supporting arbitration proceedings and recognizing arbitration as a constitutional alternative dispute resolution mechanism. Now, the issues of arbitrators’ duty to disclose and increased transparency in arbitral proceedings face new legislative and judicial scrutiny by the Brazilian Congress and Supreme Court.

Brazil has emerged as one of the most important venues for arbitration in Latin America, with case numbers resembling those of the United States. For instance, the International Chamber of Commerce (“ICC”) International Court of Arbitration, between 2017 and 2022, managed about 200 cases in their São Paulo Office. Therefore, any proposed changes to Brazilian arbitration practice can have significant implications.

Arbitration agreements must be in writing, must identify the parties and the procedure for arbitrators’ appointment or, if applicable, the institution overseeing the arbitration, and must identify the subject matter and the seat of the arbitration. According to the BAA, arbitration agreements cover only property rights. In exceptional circumstances, courts have extended arbitration agreements to non-signatories. More specifically, in a multi-contract scenario, the main contract’s arbitration clause will apply to its ancillaries.

According to Article 13(6) of the BAA, arbitrators have a legal duty to act with impartiality and independence. They must disclose facts that raise a conflict of interest if those facts create justifiable doubts regarding arbitrators’ impartiality or lack of independence. Arbitrators must comply with public policy rules, such as fair and equal treatment between parties and due process of law. Parties can challenge arbitrators’ nomination if they have a previous relationship with one of the parties or a connection with the subject matter of the arbitration.

In Pothole, the Superior Court of Justice enforced an arbitral award from a foreign jurisdiction and refrained from reevaluating the alleged partiality of a tribunal’s member. The Court held the arbitral institution decided the partiality issue and found no evidence of irregularities. Conversely, in ASA Bioenergy, the Court denied enforcement of a foreign judgement award based on a violation of public policy – i.e., due process of law. The chairman of the arbitral tribunal was a senior partner in a law firm that represented one of the parties in other unrelated cases. The Court held the non-disclosure of said information by the arbitrator showed their lack of independence and objectively created a conflict of interest.

Arbitrators’ duty to disclose and the transparency of proceedings remain hot topics in the Brazilian arbitration community, as elsewhere. For instance, the ICC International Court of Arbitration recently began offering free access to arbitral awards and case documents, related to dispute resolution content on Brazilian states and state entities. Additionally, the Brazilian Securities and Exchange Commission passed Resolution n. 80/2022, settling market standards for disclosure of arbitral proceedings for public-listed companies. In summary, the confidentiality requirement imposed by arbitration agreements and/or arbitration institution rules does not exempt these companies from disclosing basic information as the following: (a) the parties’ names; (b) the company/shareholder’s assets or amounts involved in the dispute; (c) the main facts of the case; and (d) the claims or requests for relief. 

Moreover, the Brazilian Bill Proposal n. 3.293/2021 aims to amend the BAA, proposing: (i) the creation of a broader duty to disclose any circumstances that question arbitrators’ independence or impartiality; (ii) limiting the panels an arbitrator can sit on at the same time; (iii) prohibiting members of an arbitral institution board to serve as arbitrators in cases at said institution; and (iv) creating a public database of arbitration proceedings, stating the name of the arbitrators, the amount in dispute, the award rendered, and any challenge to the award.

The Proposal faces criticism from the arbitral community, who argue it violates parties’ freedom to define their arbitration agreement, to choose their arbitrators, and the confidentiality of the proceedings. The proposed changes differ from the international standards and might reduce the use of arbitration in Brazil, as well as limit the adoption of the country as a seat for international arbitrations. Conversely, a few practitioners defended the Proposal, stating it allows new professionals to enter the arbitration market and promotes competition and diversity, while also giving more publicity to the proceedings and reducing processing time.

In March 2023, the Political Party “União do Brasil” presented a complaint to the Supreme Court, challenging Article 14 of the BAA, alleging it does not properly regulate arbitrators’ duty to disclose and that self-regulation has not been sufficient. The complaint seeks to establish: (i) arbitrators’ duty to disclose any information requested by the parties; (ii) that parties do not have a duty to investigate potential conflicts; (iii) that the failure to disclose information is itself a ground for challenging arbitrators’ nomination, regardless of actual partiality or bias; (iv) and that parties may challenge arbitrators’ independence and impartiality at any moment, during the proceeding or in court. In a nutshell, the fact that a party chooses arbitrators does not make them advocates of the said party; therefore, any party should be able to remove arbitrators when, for any reason, they cannot offer a minimum guarantee of impartiality or independence.

Although these matters draw attention to legitimate concerns in arbitration, the Proposal and the complaint alarmed the arbitral community, who fears harm to Brazil’s reputation as an arbitration-friendly country.

Deborah Slattery-Pereira

Arbitration institutions and Bar associations have filed amicus curiae briefs opposing the relief requested. The main critiques are: (i) the legal criterion of justifiable doubts already permits an objective analysis of what information the arbitrators reasonably need to disclose to the parties; (ii) the statutory rules of civil procedure on impediment and suspicion of judges already resolve procedural issues related to the impartiality and independence of arbitrators; (iii) the parties’ challenge to the arbitrators’ nomination, or any attempt to annul or deny enforcement of an award, must have temporal limitations and waivers.

These matters have yet to be decided. Currently, the Proposal is in the House of Representatives. The House Representative Speaker stated the Proposal might only go further after a broader discussion involving all interested parties. If approved, the Proposal goes to the Federal Senate, and then to the President for signature. The Supreme Court will render a final decision in the complaint.

Although these matters draw attention to legitimate concerns in arbitration, the Proposal and the complaint alarmed the arbitral community, who fears harm to Brazil’s reputation as an arbitration-friendly country. More specifically, both the Proposal and the complaint affect parties’ freedom to define the terms of the arbitration agreement, to choose the arbitrators, and the confidentiality and transparency of the arbitration proceedings. The Proposal and the complaint have not received much civil society support. Consequentially, practitioners and arbitration institutions are more attacking than properly discussing the new rules. With this in mind, it remains to be seen what the next chapter for the judiciary and legislative branches in regulating arbitration proceedings will look like.