With the 10th largest economy in the world, Brazil today represents about half of South America in population, territory, and economy. Brazil is rich in agricultural, mineral and industrial resources. Its 160 million people represent a substantial market opportunity for United States exporters. In 2003, Brazil produced more than $11 billion in goods and services.
Dispute arbitration is increasingly accepted in Brazil. A recent survey conducted by the National Board of Arbitration and Mediation Institutes (Conselho Nacional das Instituições de Mediação e Arbitragem) calculated that between 1999 and 2003, Brazilian cases resolved through arbitration increased by 29.25 percent.
Brazil’s arbitration system achieved international recognition and legitimacy after subscribing to the New York Convention in July 2002. Prior to that signing, the Brazilian Supreme Court refused to recognize decisions rendered abroad which had not previously been submitted for recognition before Brazilian courts. Upon signing to the Convention, this outdated system was abolished. Now, foreign arbitrators’ decisions are recognized in Brazil by Federal Supreme Court confirmation. The Supreme Court will only recognize those foreign arbitration decisions which, if brought in Brazil, would be subject arbitration under Brazilian law. Arbitration decisions brought for recognition before Brazil’s Federal Supreme Court will not be recognized where the decisions conflict with Brazilian public policy.
Compared to litigation through the judicial system, dispute arbitration in Brazil can be advantageous to all parties involved. In arbitration, both parties assent in advance to accept the arbitrator’s final ruling. Further, while judicial judgments are public record, arbitration decisions and awards are disclosed only to the parties involved. Compared to judicial dispute resolution in Brazil, arbitration is more time-efficient and cost-effective. Because arbitrators are typically experts in the particular field involved in the dispute they are called upon to arbitrate, the parties to arbitrated decisions readily accept arbitrators’ decisions as just and fair.
As an institution, arbitration has existed in Brazil since the 1980s. However, since enactment of Brazil’s 1996 Arbitration Law, arbitration is increasingly perceived in Brazil as an acceptable dispute resolution alternative.
The 1996 Arbitration Law renounced the need for judicial ratification of arbitration decisions in Brazil. The pre-1996 requirement of court ratification of arbitrated judgments caused delays as well as legal and economic uncertainty in Brazil. Now, the legal certainty and efficiency of arbitration in Brazil makes it the best option for international investors seeking to resolve disputes in Brazil.
Ignorance of the specifics of Brazil’s Arbitration Law can trip the unwary. For example, Article 38 of the Arbitration Law specifies certain circumstances in which the recognition and enforcement of a foreign arbitrated decision can be denied. The parties involved should always bear in mind that the Brazilian Supreme Court will hold international treaties as valid in the internal legal system.
A recent decision issued by the Supreme Court of the State of São Paulo recognizing a foreign award confirmed that the Brazilian Arbitration system assures:
The security ensured by this decision undoubtedly promotes international investment in Brazil’s economy. Through arbitration, investors and entrepreneurs may expedite dispute resolution, avoiding the judicial system. These recent changes to Brazil’s arbitration laws have made Brazil more hospitable to investors and have reassured international investors that they may confidently conduct business in Brazil.
Further reason for optimism arises from a June 2004 ruling in a dispute between two energy power companies, Companhia Paranaense de Energia, a public entity and UEG Araucária, a private entity. The decision awarded UEG Araucária the right to utilize arbitration rather than the judicial system to resolve an existing conflict. In this case, Companhia Paranaense de Energia argued that arbitration clauses in contracts between public and private entities are unenforceable, claiming that arbitration rules cannot constitutionally be applied to public entities. The court accepted the private entity’s argument, finding that arbitration assures equal protection to public as well as private entities.
Brazilian authorities have been vocal in their support of governmental cooperation with private entities involved in the development of infrastructure in Brazil. The government is encouraging private sector investment in Brazilian infrastructure, such as freeways, airports, energy plants, and hospitals.
Brazil’s government is debating the approval of partnerships or other entities whereby public entities can join in partnership with private investors. It is anticipated that, as soon as the government passes legislation approving new forms of public and private partnership, the government will consider and enact laws governing the use of arbitration clauses in contracts between public and private entities. International arbitration experts have opined that Brazil’s historical restrictions on enforceability of arbitration clauses in contracts between public and private sector entities are archaic and outmoded. The progressive approach recommended by such experts would make arbitration freely available to settle disputes in Brazil, irrespective of the public nature of any particular party to the arbitration.
The reasoning of such authorities is widely respected in international jurisprudence: in order to preserve equality between the parties, once a public entity ventures out to involve itself in commerce, all contractual restrictions and opportunities typically applied to private entities should likewise be extended to public entities. According to recent news accounts from Brazil, governmental officials have acknowledged Brazil’s desire for increased private investment, and have promised to modernize Brazilian laws which have historically imposed unequal treatment of private entities vs. public agencies.
Because more of our clients are participating in international business transactions–including in Brazil–we are making our clients more aware of the international dispute resolution mechanisms available worldwide. The acceptance of modern arbitration laws in Brazil, the recognition of the value of arbitration given by Brazil’s Supreme Court, and the likelihood that the Brazilian Senate will open the way for new forms of public and private partnership, all promise to enhance Brazil’s capacity to accommodate foreign investors.
For more information regarding Brazilian arbitration, please contact Gabriel Sanchez at (801) 328-3600 or by e-mail at csanchez@kmclaw.com. Kirton & McConkie acknowledges the assistance of native Brazilian Karina Ribeiro, one of the firm’s international project clerks, in preparing this article.