I. Introduction
The Brazilian National Congress has been quite active in the past few months with respect to dispute resolution. We have a brand new legal framework for litigation (the new Civil Procedure Code), for arbitration (amendments to the Brazilian Arbitration Act), and for mediation (the new Mediation Act). This article written exclusively for Transnational Notes focuses on the recent developments brought by the amended Arbitration Act and the new Mediation Act.
II. What’s new on arbitration?
For almost 20 years, the Brazilian Arbitration Act (Law 9,307/1996) has played an important role in establishing Brazil as an arbitration-friendly jurisdiction and supporting the ever-increasing growth in the use of arbitration throughout the country. On May 26th, Law 13,129/2015[1] introduced the first amendments to the 1996 Arbitration Act, which are in force as of July 27th.
While the structure and achievements of Law 9,307/1996 were preserved, further improvements came into play: (i) the new legislation consolidates case law on several issues, e.g. allowing the issuance of partial awards[2] and establishing that the limitation period is interrupted upon the institution of arbitral proceedings;[3] and (ii) it also introduces new features, such as the “arbitral letter”, an official instrument for communication between state courts and arbitral tribunals, by which arbitrators may request judicial authorities to perform certain acts within their jurisdiction.[4] In a nutshell, the legal framework for arbitration in Brazil is now strengthened and the country takes some important steps forward in protecting investors who seek a secure and credible alternative to litigation.
In that regard, one of the most relevant amendments relates to the provisions dealing with the use of arbitration by state entities. The new law swept away any doubts that could still exist on the arbitrability of those disputes: its provisions expressly allow the public administration to take part in arbitral proceedings provided that the dispute relates to patrimonial negotiable rights.[5] This prevents state entities from evading arbitration if they have contractually agreed to arbitrate. In such proceedings, arbitrators must decide based on the law and observe the publicity inherent to public acts.[6] Although Brazilian courts, including the Superior Court of Justice, had already confirmed that state entities could be bound by arbitration agreements, the enactment of these new provisions put a decisive end on any residual debate of whether Brazilian legislation authorized state entities to resort to arbitration.
Law 13,129/2015 also introduced new provisions in the Brazilian Corporations’ Act (Law 6,404/1976), improving the use of arbitration in corporate disputes. The main purpose was to clarify whether the inclusion of an arbitral clause in the company’s bylaws was also binding on dissenting shareholders. This issue had raised controversial debates among scholars. This discussion is now dismissed by the new amendments: the insertion of an arbitration clause in the company’s bylaws is binding on all shareholders if approved by at least half of the voting shares.[7] Nevertheless, the new Law also introduced a threshold to balance the interests and rights of shareholders, assuring that dissenting shareholders have the right of withdrawal upon reimbursement of the market value of their shares.[8]
The interaction between arbitral tribunals and state courts was also improved by the amendments to the Brazilian Arbitration Act. Some provisions were included to consolidate the case law on provisional and interim measures. They confirmed that, if the arbitral tribunal has not yet been constituted, parties may resort to state courts for pre-arbitral interim measures.[9] Once the arbitral tribunal is constituted, however, the arbitrators decide whether they will maintain, modify or revoke the measures granted by state judges.[10]
III. What’s new on mediation?
On 26 June 2015, Law 13,140/2015[11] (the Mediation Act) was enacted to introduce a legal framework for mediation in Brazil. It establishes that any conflict related to negotiable rights or non-negotiable rights that allows for certain transactions[12] may be subjected to mediation. If an agreement is reached, such agreement may be subject to direct judicial enforcement.[13] The Mediation Act also regulates the general principles guiding the mediation process – such as the impartiality of the mediator, equality between the parties, party autonomy, confidentiality,[14] good faith, among others;[15] determines the functions and duties of the mediators, as their duty to disclose any facts or circumstances that could call into question their impartiality;[16] and provides general rules for the mediation proceedings.[17]
Two types of mediation are regulated by Law 13,140/2015: the judicial and extrajudicial mediation. Judicial mediation occurs in state courts either (i) right after the filing of the statement of claim;[18] or (ii) anytime during judicial proceedings, in which case the parties should request the judge to suspend the proceedings.[19] In judicial mediation, the court indicates the mediators.[20] Additionally, the mediators must have been graduated in a higher educational program and trained by an institution recognized by state courts.[21] The parties, on the other hand, must be represented by lawyers or public defenders.[22] The judicial mediation must be concluded within 60 (sixty) days of its first session and, if successful, the state judge can ratify the parties’ agreement if so requested by them.[23]
With respect to the extrajudicial mediation, parties could initiate proceedings (i) if there is a contractual provision mandating mediation; or (ii) if the parties so agree[24] – e.g. during arbitral proceedings.[25] The mediator can be anyone who has the parties’ trust.[26] The party who wishes to initiate the mediation must notify the counterparty of its intention and of the date and venue for their first session.[27] There is also a new provision dealing with escalation clauses: if there is a mediation clause determining that parties could only initiate arbitral or judicial proceedings after a specific period of time or after the implementation of a certain condition, arbitrators and judges must suspend the proceedings until such condition is fulfilled.[28]
The Mediation Act has also provisions allowing state entities to resort to non-judicial dispute resolution mechanisms.[29] These provisions are mostly drawn from the positive experience of the Federal Attorney General’s Office (AGU) with the use of mediation between state entities.
IV. Conclusion
The amended Arbitration Act and the Mediation Act mark the beginning of a new chapter for dispute resolution in Brazil, giving more credibility and security to non-judicial mechanisms. Companies and investors have reasons to celebrate the strengthening of alternatives to litigation and will certainly benefit from a more effective dispute resolution environment.
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Rafael F. Alves
LL.M. New York University, Arthur T. Vanderbilt Scholar – Class of ’10. Master of Laws, University of São Paulo. Senior Associate at L.O. Baptista Schmidt Valois Miranda Ferreira Agel Advogados. Director of the Brazilian Arbitration Committee.
Laura Gouvêa de França Pereira
Associate at L.O. Baptista Schmidt Valois Miranda Ferreira Agel Advogados. Former President of the Brazilian Association of Arbitration Students (ABEArb). Bachelor of Laws (LL.B.) degree from University of São Paulo.
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[1] Available here: http://www.planalto.gov.br/ccivil_03/_Ato2015-2018/2015/Lei/L13129.htm
[2] Law 9,307/1996, Article 23, §1, as amended by Law 13,129/2015.
[3] Law 9,307/1996, Article 19, §2, as amended by Law 13,129/2015.
[4] Law 9,307/1996, Article 22-C, as amended by Law 13,129/2015.
[5] Law 9,307/1996, Article 1, §1, as amended by Law 13,129/2015.
[6] Law 9,307/1996, Article 1, §3, as amended by Law 13,129/2015.
[7] Law 6,404/1976, Article 136-A, caput, as amended by Law 13,129/2015.
[8] The right of withdrawal is only subject to two exceptions set forth in Law 6,404/1976, Article 136-A, §2, as amended by Law 13,129/2015.
[9] Law 9,307/1996, Article 22-A, as amended by Law 13,129/2015.
[10] Law 9,307/1996, Article 22-B, caput, as amended by Law 13,129/2015.
[11] Available here: http://www.planalto.gov.br/ccivil_03/_Ato2015-2018/2015/Lei/L13140.htm.
[12] Law 13,140/2015, Article 3.
[13] Law 13,140/2015, Article 20, sole paragraph.
[14] Law 13,140/2015, Articles 30 to 31.
[15] Law 13,140/2015, Article 2.
[16] Law 13,140/2015, Articles 4 to 8.
[17] Law 13,140/2015, Articles 14 to 20.
[18] Law 13,140/2015, Article 27.
[19] Law 13,140/2015, Article 16.
[20] Law 13,140/2015, Article 25.
[21] Law 13,140/2015, Article 11.
[22] Law 13,140/2015, Article 16.
[23] Law 13,140/2015, Article 28.
[24] Law 13,140/2015, Articles 21 and 22.
[25] Law 13,140/2015, Article 16.
[26] Law 13,140/2015, Article 9.
[27] Law 13,140/2015, Article 21.
[28] Law 13,140/2015, Article 23.
[29] See Chapter II of Law 13,140/2015.