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2012 has been particularly good for the practice of commercial arbitration in Brazil. The increase of investment in infrastructure due to the 2014 Soccer World Cup and the 2016 Olympic Games, as well as the new bulk of incentives planned by the Brazilian government for the private sector to invest in concessions for ports, railways, airports and roads,1 provides great expectations for 2013.
In 2012 we saw:
- the passing of new legislation extending the possibility of introducing arbitration clauses in defence contracts under the auspices of the Brazilian Public Private Partnership Law;
- the passing of a Court Resolution settling the Brazilian Superior Court of Justice’s (STJ) position on the binding effects of arbitration clauses introduced in contracts executed before the Brazilian Arbitration Law entered into effect; and
- the entering into effect of the new arbitration rules of the Arbitration and Mediation Centre of the Brazil-Canada Chamber of Commerce (CCBC), the oldest and busiest arbitration institution in the country.
On a less positive note, a panel of three Justices of the São Paulo Court of Appeals has, by majority vote and with a very interesting dissenting opinion by Justice Lazzarini, stayed an arbitration under the rules of the Insurance and Reinsurance Arbitration Society (ARIAS), in London. The decision has had some repercussion within the international arbitration community. In this chapter we will show that the outcome of the decision is not as bad as it has been pictured by some. The case gained notoriety in Brazil and abroad as the Jirau’s Dam case, since the dispute arises out of the discussion of the liability of the insurance companies hired to indemnify losses and damages suffered by construction contractors facing losses with riots and strikes that occurred in the construction of the dam for the hydroelectric plant of Jirau, in the Amazon.
We conclude our chapter with the news that Senator Renan Calheiros has filed a request for the creation of a commission of scholars to discuss a new arbitration bill. The commission will be chaired by STJ Justice Luis Felipe Salomão and will, in a period of 180 days, conduct public hearings for the collection and assembly of suggestions for a reform to the current Brazilian Arbitration Law. We also discuss possible new trends in the practice of arbitration in Brazil as some commercial and infrastructure contracts related to the 2016 Olympic Games have included in their texts a dispute resolution clause submitting future claims to the Court of Arbitration for Sports (CAS).
2012 so far
Federal Law No. 12.598/2012, Arbitration in Defense Contracts
Federal Law No. 12.598/2012, enacted on 22 March 2012, authorised the use of the public-private partnership regime for the development of goods and systems of military defence. The public-private partnership institute, established by Federal Law 11.079/2004, is considered a partnership between the public authorities and the private sector, with the goal of planning, financing, building and operating projects of infrastructure normally provided by the government through regular public contracts, such as public concessions.2
The Brazilian legislation expressly authorises the use of arbitration for public-private partnership contracts,3 provided that the arbitration has its seat in Brazil and Portuguese as the governing language.
The expansion on the use of arbitration for matters involving the public administration is a tendency in Brazil.4 A few examples can be quoted in this sense, such as:
- the law on the concession and permission of public services (Law 8.987/1995), which considers the arbitration clause as an essential clause of the concession contract;
- the Petroleum Law (Law No. 9.478/1997), which authorises the use of arbitration for contracts involving concession for the exploitation of oil; and
- the law that regulates the organisation of telecommunication services (Law No. 9.472/1997), which authorises disputes involving interconnecting networks to be resolved by arbitration.
Hence, the authorisation for the use of arbitration regarding contracts involving military defence comes to reinforce a tendency already in force in Brazil.5
Court Resolution No. 485
On 28 June 2012, the Superior Court of Justice enacted Court Resolution No. 485,6 which establishes that ‘the Brazilian Arbitration Law is applicable to contracts that have an arbitration agreement, even if the contract was entered into before the law took effect.’
Court Resolution No. 485 settles the dispute on the effects of the Brazilian Arbitration Law (BAL) to contracts entered into before its enactment. The effects of the law have been much debated by the case law and scholars’ opinions.7 Some scholars argued that only the procedural provisions of the BAL would be immediately applicable.8 On the other hand, the Superior Court of Justice had already issued contradictory judgments supporting the applicability of the BAL for contracts entered into before the law took effect,9 as well as denying the applicability of the BAL for such contracts.10
Court Resolution No. 485 consolidates the position that the Brazilian Arbitration Law is applicable to all arbitration clauses inserted into contracts executed before the enactment of such act in 1996. The direct consequence of such resolution is more predictability to the arbitration users on the courts’ interpretation of the law.
New CCBC Arbitration Rules 2012
The reflection of the consolidation of the practice of arbitration is that arbitration centres all over the world have been modifying their rules in order to adapt to the recent trends in arbitration. This has been seen nationally and internationally.
The China International Economic and Trade Arbitration Commission (CIETAC) enacted new rules that entered into force in March 2012. The International Court of Arbitration of the International Chamber of Commerce (ICC), by its turn, also enacted new rules that took effect in January 2012.
Following the example of these international institutions, the CCBC enacted new rules that entered into force in January 2012 (CBBC 2012). These rules broadened the duty of disclosure of the arbitrator in comparison to the previous rules. The CBBC 2012 rules now also have an express provision authorising arbitrators to grant partial awards, formalising a practice that had long been accepted and adopted by the majority of arbitrators in Brazil.
The granting of interim measures is also more detailed in the new text. New article 8.1 provides that the Arbitral Tribunal can determine interim, coercive11 and anticipatory measures.12 Allowing the arbitral tribunal to grant all sorts of interim measures is in perfect alignment with the current jurisprudence of the STJ.13
Finally it is worth mentioning that the CCBC 2012 rules establish a new method for calculating the arbitrators’ fees and costs of the arbitration. According to the new rules, the arbitrators’ fees are not based only on the hours worked by the arbitrator, but for disputes above 7,500,001 reais the calculation is done by a combination of a fixed value and a percentage of the value in dispute.14
The relevance of the new arbitration rules enacted by the CCBC can be easily explained by the statistics relating to arbitral cases filed in the past three years before that institution: in 2010, 48 cases were started; in 2011, that number increased to 63 cases; and by August 2012 there were already 43 cases ongoing.15 The CCBC is the busiest arbitration centre in Brazil and the new rules currently in place are a relevant step to attract more cases to the centre, mostly those of international nature.
The Jirau’s Dam case
On 19 April 2012, a panel of three Justices of the São Paulo Court of Appeals issued a judgment by majority vote and with a declaration of dissenting vote by Justice Alexandre Lazzarini, staying insurance companies from entertaining an arbitration in London before the ARIAS. This anti-arbitration judgment has been seen by many as a setback in the practice of arbitration in Brazil.
The facts of the case are as follows: in 2011, a workers’ riot on the worksite of the Jirau’s Dam caused serious delays and significant material damages to the construction of a hydroelectric plant at the Madeira River in the Amazon. The civil contractors called upon insurance companies to indemnify their losses. The insurance companies contracted by the consortium responsible for the building of the plant refused to pay for the damages, claiming that the workers’ riots had political grounds and therefore were not covered by the insurance policy.
A dispute between the civil contractors and the insurance companies started in order to define who would be responsible for paying for the damages suffered. The insurance companies started an arbitration in London, before ARIAS, while the contractors filed for a judicial claim in Brazil.
The civil contractors further filed a request for interim measures for the stay of the arbitration in London. The construction companies argued that the insurance contract, entered into in Brazil, did not provide for an arbitration agreement. They also claimed that only the insurance policy had an arbitration agreement, which, in turn, was null, void, inoperative or incapable of being performed under the provisions of paragraph 2 to article 4 of the Brazilian Arbitration Law.
Paragraph 2 to article 4 of the Brazilian Arbitration Law provides that, in adhesion contracts,16 the arbitration agreements have to be properly flagged and highlighted in order to avoid any possible misinterpretation or wrongful inducement of the adhering party. In other words, the adhering party has to express clear consent to arbitrate otherwise the clause may be found null and void.
Another argument presented by the construction companies was that the ARIAS had been founded by the insurance companies, which would lead to a biased decision.
In December 2011, the insurance companies filed a claim before the English judiciary, the Queen’s Bench Division, requesting an anti-suit injunction preventing the construction companies from taking any actions before the Brazilian judiciary. The Queen’s Bench Division granted the insurances companies’ request ordering the Brazilian contractor to immediately cease their actions in Brazil at the risk of imprisonment. Cooke J, from the Queen’s Bench Division, held that, in this case, the proper law of the arbitration agreement was English Law, and therefore that the restrictions imposed by the Brazilian law for arbitration agreements inserted in adhesion contracts did not apply to this case. The English Court of Appeals agreed with Cooke J in that the arbitration agreement was governed by English Law.17 The Brazilian construction companies did not follow the English judge’s order.
The São Paulo Court of Appeals, by its turn, granted an interim relief in favour of the construction companies, affirming jurisdiction to hear the dispute and ordering the insurance companies to stay the arbitral proceedings in London. On 19 April 2012, the São Paulo Court of Appeals imposed a fine of 400,000 reais per day, in the event the insurance companies insisted not to comply with the order.
The São Paulo Court of Appeals followed the argument put forward by the construction companies affirming that the insurance contract had the nature of an adhesion contract and that, therefore, the arbitration agreement was null and void. The court also mentioned article 44 of the Susep Directive 256/2004, which expressly determines that arbitration clauses inserted on insurance contracts must be written in bold type, contain the signature of the insured on a separate document or on the arbitration clause, and contain the information that the arbitration agreement was voluntarily agreed by the insured.
In light of the purported illegality of the arbitration clause, the São Paulo Court of Appeals determined that, in cases in which it is evident that the arbitration agreement is null and void, the judiciary has power to determine whether the arbitration agreement is valid. According to the court, such situation would justify an exception to the Kompetenz-Kompetenz principle, since the arbitration award would eventually be annulled by the Brazilian judiciary. The São Paulo Court of Appeals further ordered the insurance companies to drop the arbitral proceeding before the ARIAS, in London immediately.
As mentioned before, however, the decision of the São Paulo Court of Appeals was granted by a majority vote. Justice Alexandre Lazzarini issued a very well-reasoned and sound dissenting vote where he pondered that the insurance contracts in debate were no ordinary consumer related insurance contracts. For Justice Lazzarini, the complex nature of the civil works in Jirau, and thus the complex nature of the insurance policies retained, singled out these contracts from the general standard nature of adhesion contracts applied to insurance policies.
For Lazzarini, the complex nature of the insurance contracts assures that the arbitral tribunal be constituted under the rules of ARIAS to decide on its jurisdiction and under the auspices of the Kompetenz-Kompetenz principle, and without the interference of either the Brazilian or English Judiciary.
The decision mentioned above is of high importance for understand in which line the case law in Brazil will consolidate regarding two themes: the requirements for an arbitration clause inserted in an insurance policy to be valid; and the interpretation of the Kompetenz-Kompetenz principle in Brazil.
The first issue relates to whether an insurance policy, irrespective of the complexity of the underlying transaction it insures, may automatically be considered an adhesion contract, and what the requirements must be for including an arbitration clause on such contract.
We share Justice Lazzarini’s view that in this case the insurance contract cannot be considered as an adhesion contract. The contractual relationship in question was balanced, having both parties negotiate the terms and conditions of the insurance policy.
The second relevant issue dealt by the court relates to the interpretation of the Kompetenz-Kompetenz principle. In our opinion, the judgment as rendered by the São Paulo Court of Appeals constitutes not only a violation to the principle but an infringement to section 20 of the Brazilian Arbitration Act, which expressly forbids parallel interference of local courts in international arbitrations.18
What to expect in 2013
A New Arbitration Law
On 29 August 2012, the Brazilian Senate created a special commission for the reform of the Brazilian Arbitration Law. Senator Renan Calheiros, responsible for filing the request for the creation of the special commission, grounded his plea on the argument that arbitration has reached a massive success in Brazil and that the current statute, now in its 16th year of existence, must be updated. According to Senator Calheiros, most of the success of arbitration is due to the massive waive of foreign direct investment received by the country in the last decades.
STJ Justice Felipe Salomão will chair the special commission, the goal of which is to adapt the text of the law to the international business environment.
The current statutes were drafted in the early 1990s under the coordination of scholars Pedro Batista Martins, Selma Lemes and Carlos Alberto Carmona and were highly influenced by the Model Law, the New York Convention and the Spanish Arbitration Act of 1988. In many ways the authors of the bill that later became Law 9307/96 admit that the ‘ideal text’ had to make room for the ‘possible text’ to be published.
Although the ideal of a new statute is very welcome by practitioners in general, it is important for the international business and the arbitration community in particular to keep an open eye on how the discussions of the new text evolve.
One thing, however, that can be said from the outset, is that the senate chose a very competent person to chair the committee.
Arbitration and sports infrastructure
With the proximity of the 2014 Soccer World Cup and the 2016 Olympic Games, the need for investment in sports infrastructure is continuously increasing.
One potential trend emerging in our daily practice is the inclusion of arbitration clauses submitting disputes to the Court of Arbitration for Sports (CAS) on contracts regarding sports infrastructure.
The CAS is an arbitration chamber specialised in sports-related disputes, and authorised to pronounce binding decisions on the adjudication of conflicts related to sports organisations.19 The CAS deals with disputes directly or indirectly linked to sport, which can be of either a commercial or disciplinary nature.20 The most common commercial disputes submitted to the CAS are related to corporate sponsorship, merchandising, agency contracts and transfers of professional sports players between teams.21
Therefore, the execution of contracts related to sports infrastructure with a CAS arbitration clause can be considered a new trend. One reflection of this is that the CAS has never issued any award related to disputes concerning contracts providing for the outsourcing of IT services related to the Games, construction of arenas or commercial contracts for the rendering of services related to the events.
There is no prohibition in accordance with the 2012 CAS code in submitting disputes related to infrastructure or commercial-related issues to the CAS, as long as the contract is somehow linked to sports-related issues.
In 2012 we again saw a steady increase in the use of commercial arbitration as an alternative means to solving complex international and domestic disputes in Brazil. There is no doubt that, for some time now, arbitration has been embraced as the main alternative for solving complex commercial and infrastructure disputes in Brazil or related to Brazilian parties.
The Brazilian Judiciary has been playing a very important role in supporting the use of arbitration in the country, and decisions such as the Jirau’s Dam case should be construed as just an indication that there is still some room for improvement in terms of solving issues related to the arbitrability of disputes in the country or on a cross-border basis. This is no different in any arbitration-friendly jurisdiction.
2013 will be a very promising year as congress and the civil society in general are being instigated to sit together and work out a new bill improving the text of the arbitration law already in place. There are plenty of reasons to be optimistic about arbitration in Brazil in the next 12 months.
- Folha de São Paulo. ‘Pacote do governo para concessões de rodovias e ferrovias soma R$ 133 BI.’ Available at www1.folha.uol.com.br/mercado/1137602-pacote-do-governo-para-concessoes-de-rodovias-e-ferrovias-soma-r-133-bi.shtml, accessed 31 August 2012, last visited on 4 September 2012.
- OLIVEIRA, Gustavo Henrique Justino. A arbitragem e as parcerias público-privadas. Revista de arbitragem e mediação. Ano 4, 2007. p33.
- Article 11, Federal Law 11.079/04 - The convocation instrument shall contain the draft of the contract, the express submission of the bid to this law and shall observe, where appropriate, the 3rd and 4th of article 15, the articles 18, 19 and 21 of the Law 8.987, of February 13, 1995, and can also provide: (…) III - the use of private mechanisms of dispute resolution, including arbitration, to conducted in Brazil, in Portuguese, under the terms of Law No. 9.307/1996, to resolve any dispute arising or in connection with the contract.
- MARTINS, Pedro A Batista Arbitragem e atração de investimentos no Brasil. Vol. 32, January 2012, p103.
- Court Resolution No. 485 - the Brazilian Arbitration Law applies to contracts that have an arbitration agreement, even if the contract was entered into before the law took effect. Reporting judge Cesar Asfor Rocha, em 28/6/2012 - precedents of the court Resolution: REsp 712566/RJ, REsp 791260/RS, REsp 934771/SP, SEC 349/JP, SEC 831/FR and SEC 894/UY.
- Valor Econômico, 20 August 2012.
- STJ REsp 934.771, Rep Judge Luis Felipe Salomão, j. 6 September 2010.
- STJ REsp 238.174, Rep Judge Antônio de Pádua Ribeiro.j. 16 June 2003.
- Coercive measures still depend on the assistance of the Judiciary to be enforced.
- Article 8.1 A menos que tenha sido convencionado de outra forma pelas partes, o Tribunal Arbitral poderá determinar medidas cautelares, coercitivas e antecipatórias, que poderão, a critério do Tribunal, ser subordinadas à apresentação de garantias pela parte solicitante.
- STJ REsp 129.7974, Rep Justice Nancy Andrighi, j. 29 September 2011.
- www.ccbc.org.br/arbitragem.asp?subcategoria=tabela%20de%20custos, accessed on 31/08/2012, last visited on 4 September 2012.
- Information provided by the CCBC Secretariat.
- Contacts under which the adhering party has no latitude whatsoever for any kind of negotiation, having only the possibility of agreeing to its terms or refusing to sign it.
- The Resolver, the quarterly magazine of the Chartered Institute of Arbitrators, August 2012, p11.
- STJ MC 178.868. Justice Paulo de Tarso Sanseverino, j. 29 June 2011.
- www.tas-cas.org/history, accessed on 31 August 2012, last visited on 4 September 2012.
- Article R 27 of the CAS Code 2012 edition and www.tas-cas.org/en/20questions.asp/4-3-217-1010-4-1-1/5-0-1010-13-0-0/, accessed on 31 August 2012, last visited on 4 September 2012.
- Blackshaw, Ian S, Sport, Mediation and Arbitration. T M Asser Instituut, Institute for Private and Public International Law, International Commercial Arbitration and European Law, 2009, p171.