June 23, 2015

The Brazilian Arbitration Act 2015 – what’s changed?

Arbitration analysis: Felipe Sperandio, associate at Clyde & Co, analyses the key changes introduced by Brazil's Arbitration Act 2015 (the 2015 Act) and assesses the revised Act's impact both at home and abroad.

As discussed further below, the 2015 Act, which comes into force on 27 July 2015, has four notable characteristics. The 2015 Act:

  • reflects the pro-arbitration jurisprudence developed by the Brazilian Superior Court of Justice over the past decade
  • includes articles that state explicitly what has been the best arbitration practice in Brazil
  • polishes a few rough edges of the Brazilian Arbitration Act 1996 (1996 Act), and
  • expressly authorizes the Brazilian Government to enter into arbitration agreements

Note: the 2015 Act is a new piece of federal legislation that alters the 1996 Act. It was approved by the Bra-zilian Congress and by the President of Brazil, and it should not be seen as a statutory instrument, such as it might be in the UK.

What is the background to this legislative change?

The Brazilian Congress pushed for a revised Arbitration Act back in 2013. According to the Senate, which is the legislative upper-house, Brazil needs to promote alternative dispute resolution mechanisms to unclog its national courts.

In April 2013, the Senate created a Commission to draft an arbitration bill, which was comprised by re-nowned academics and practitioners. Luis Felipe Salomão, who is a Justice of the Superior Court of Justice, chaired the Commission.

In October 2013, the Commission submitted the bill to the Congress. The bill went back and forth between the House of Representatives (lower-house) and the Senate, and it was finally sanctioned by the President on 27 May 2015.

There is no substantial departure from the 1996 Act. Instead, the Commission made a conscious effort to preserve the essence and structure of 1996 Act, which has been tested by the courts and has been ap-proved by users for the past 18 years. The final product is not a new arbitration Act, but rather a refined arbi-tration Act, which will come into force on 27 July 2015.

What the key changes introduced under the 2015 Act?

Art 1, para 1--Public Administration and arbitration

Art 1, para 1 expressly provides that either the direct or indirect Public Administration may submit its disputes to arbitration. Arbitration involving the Public Administration must be decided based on law (not ex aequo et bono). It will also be subject to the principle of publicity, as any other act involving the Public Administration (art 37, caput, of the Brazilian Federal Constitution).

The distinction between direct Public Administration and indirect Public Administration is not straightforward under Brazilian Administrative Law, and cannot be properly addressed in a couple of paragraphs, but it is important to highlight that the Superior Court of Justice's jurisprudence decided that the indirect Public Ad-ministration may arbitrate its disputes (Fn 1). The National Oil and Gas Agency, for example, is part of the indirect Public Administration.

By establishing that the direct Public Administration may also arbitrate its disputes, the 2015 Act represents a big leap forward. More importantly, art 1, para 1 now expressly allows the Brazilian Government to enter into arbitration agreements.

Brazil is neither signatory of the ICSID Convention nor has ratified any Bilateral Investment Treaty (BIT). Therefore, if the Brazilian Government (in fact) consents to arbitrate its disputes in the future, this would be a paradigm shift. By consenting to arbitrate with foreign entities, the Brazilian Government may encourage the international flow of investment into the country. The 2015 Act, therefore, may slightly offset the lack of guarantees that would be provided had Brazil ratified the ICSID Convention, ECT or BITs.

Finally, it is worth noting that arbitrable disputes, whether involving the Public Administration, private compa-nies, or individuals must cover 'freely transferable patrimonial rights' (aka disposable rights), ie rights of commercial, economic or financial nature.

To read the full article, please download the PDF by clicking the below link.