Brazilian precedents and arbitration
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Ivan Nunes Ferreira
Nunes Ferreira, Vianna Araújo, Cramer, Duarte Advogados, Rio de Janeiro
ivan@nfvacd.adv.br
Alessandra Slerca
Nunes Ferreira, Vianna Araújo, Cramer, Duarte Advogados, Rio de Janeiro
alessandraslerca@nfvacd.adv.br
Carlos Nunes Ferreira
Nunes Ferreira, Vianna Araújo, Cramer, Duarte Advogados, Rio de Janeiro
carlosnf@nfvacd.adv.br
New Brazilian Code of Civil Procedure: judicial precedents to a tropical tune?
The system of precedents was introduced in Brazil very recently by the New Code of Civil Procedure (Law No 13.105 of March 16, 2015, ‘NCPC’). As set out below, this new system has numerous peculiarities in Brazilian Law. Its Article 927, for example, states that the judges and courts in Brazil will observe: past decisions from the Federal Supreme Court in constitutional matters; the binding decisions of the Federal Supreme Court; the past decisions by the Superior Court of Justice (Brazil’s court of standardization of federal matters); and decisions of highest tier state courts.[1]
The first paragraph of Article 927 states that, when applying precedents, judges and courts will observe Articles 10 and 489 of the NCPC. Article 10 states that the opportunity to point out the necessary application of a precedent shall always be granted to the parties. Article 489, in its first paragraph, demands that the judge who applies, or not, the precedent give full reasoning to back such decision.
In view of the above-mentioned articles, any decision that merely transcribes articles of the law or adopts vague concepts of law and does not explain the similarities between the precedent and the case at hand, is considered inadmissible.[2]
This system of precedents in Brazilian law differs from those of common law jurisdictions. Precedent under common law is based on a series of decisions in similar cases (stare decisis) whereas, in Brazil, the specific types of judicial decisions that are supposed to be considered binding precedent are all enlisted in Article 927 of the NCPC.[3] Therefore, we may state that the Brazilian precedent is already born as a precedent.
Despite Brazil’s recent strong inspiration from common law jurisdictions in the goal of reaching a more standardized and stable case law[4], actually, the NCPC did not actually transform Brazil’s civil law to reflect common law jurisdictions.The Brazilian precedent was influenced, to some extent, by the precedent of common law jurisdictions but it does not mean an absorption of the common law concept of precedent in Brazil. Therefore, in the Brazilian legal system, the main sources of law are still the codes, being, in no way, replaced by judicial precedent. The latter was introduced only as a complementary tool, aiming to guarantee more predictability to Court decisions nation-wide.
Arbitration under Brazilian law and judicial precedent as a source of material law
Despite its approval in 1996, the Brazilian Arbitration Act (‘BAA’) was only enforceable as of the beginning of this century, due to a prolonged legal dispute regarding its constitutionality in the Federal Supreme Court.[5]
The BAA has created a procedural system apart from the judicial system of Civil Procedure. However, the general principles of the latter still can be applied to domestic arbitration.
Nevertheless, the provisions of the NCPC are not applicable to domestic arbitration, or to arbitration under Brazilian law, which is subject only (in procedural matters) to the procedural rules chosen by the parties, whether they are rules set forth by arbitral institutions or the rules created by the parties in ad hoc arbitrations.
On the other hand, when parties elect Brazilian law as being applicable to the dispute, all the country’s sources of material law must be applied when resolving the specific dispute.
Until recent years, there was an ongoing legal debate regarding the extent to which case law was a relevant source of material law. In the opinion of some, the only sources of law in civil law jurisdictions are the statutes and custom.
Based on this, case law and general principles would not be considered binding sources of law. They would be categorised as secondary sources of law. Presently, however, with the approval of the NCPC and its new model of precedents, some precedents has become a clear sources of material law given its binding force upon judges and courts nationwide.
The current model of the Brazilian precedent system has roots in Brazil’s Federal Constitution of 1988 (‘CF/1988’), as per the Constitutional Amendment No 45 of 2004.
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Article 102, Paragraph 2,[6] states that the decisions by the Federal Supreme Court dealing with constitutionality of laws would be binding not only to Brazil’s judiciary system, but also to the Public Administration in federal, state and district level.
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Article 103-A of the CF/88[7]states that the Federal Supreme Court can elaborate binding precedent regarding validity and interpretation of laws when there are opposing views amongst different sections of the judiciary system and the Public Administration.
In sum, the new system of precedents in Brazil creates binding outcome based on case law which also integrates its existing material laws.
Inobservance of judicial precedent by the Arbitral Tribunal: grounds for annulment?
There is, to date, a growing debate amongst Brazilian scholars regarding the meaning of the phrase ‘shall observe’, included in Article 927 of the NCPC – and the binding powers of the types of decisions enlisted in that article (ref. footnote No1).
Some scholars argue that all of the items of Article 927 of the NCPC represent binding precedents, others, in their turn, understand that only the decisions mentioned in items I and II possess binding force, as they would originate from a constitutional provision. A third school of academia argues that only the decisions portrayed in items I, II and III would constitute binding precedents, since, if such precedents are contradicted, a Reclamação[8] can be addressed by the interested party to the Federal Supreme Court (Article 988, Items III and IV, NCPC).[9]
In arbitration, if the parties have chosen Brazilian law as the law applicable to the dispute, the BAA, as mentioned above, is clear in determining that the arbitral procedure will be governed by the rules of the arbitral institution appointed by the parties beforehand or, in ad hoc arbitrations, by the procedural rules chosen by the parties themselves (Article 5[10] of the BAA).
In light of the rules recently implemented by NCPC, the following questions arise when Brazilian law is chosen as applicable to the merits of the case:
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could an arbitral award that does not follow a precedent considered binding by Brazilian civil procedural law be annulled in state courts?
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if the arbitral tribunal does not explicitly analyse the applicability of a precedent brought by one of the parties (whether binding or persuasive in nature), and does not state, in its award, the reasons for following or disregarding that precedent, would the arbitral award be subject to annulment?
The BAA, in its Article 32, establishes that an arbitral award may be considered null and void solely for the following reasons:
‘I - the arbitration agreement is null;
II – it was rendered by an individual who could not have served as an arbitrator;
III – it does not comply with the requirements of Article 26 of this Law;[11]
IV – it has exceeded the limits of the arbitration agreement;
V – (Revoked)
VI – it has been proved that it was rendered through misfeasance, extortion or corruption;
VII – it is rendered after the time limit has expired, in compliance with Article 12, Item III of this Law; and
VIII – the principles set forth by Article 21, Paragraph 2 of this Law[12] were violated.’
In our view, the disregard of a precedent in material law, even if considered binding by Brazilian rules of civil procedure, does not cause the arbitral award to be null and void and, therefore, should not be accepted by state court as a reason to vacate such award.
The fact that the dismissal of a binding precedent is not cited by the BAA as one of the instances in which the arbitral award may be considered null represents, simply, a question of legislative politics and preference. In the same way that the legislator responsible for drafting the BAA did not include the ‘clear violation of a legal provision’ as one of the reasons for annulment of the arbitral award (which was included, for example, in the Action for Relief from Judgment, concerning judicial decisions[13]),neither was the violation of precedents, binding or persuasive, included.
It is interesting to note that the legislator had the opportunity, if it had so wished, to include the violation of binding precedents as basis for the annulment of arbitral awards, when drafting the BAA (1996), and later on, after the NCPC (2015), when the system of precedents was created.
On the other hand, Article 32 of BAA states that the arbitral award is null and void if it does not contain the elements listed in Article 26 of that Act, which, in its turn, demands, inter alia, that the awards be properly and adequately reasoned, with due analysis of the matters of fact and law brought by the parties.
Therefore, if the parties, or if one of the parties, in their arguments referred to a judicial precedent and if such precedent has not even been analyzed by the arbitral tribunal, we can conclude that the arbitral award may not possess the necessary reasoning. The standards of what is considered reasonable and adequate reasoning by the Brazilian legal system can be clearly observed in the requirements of Article 489 of the NCPC (ref. footnote No 3).
Considering the peculiarities of Brazilian law, as seen above, it appears that even if an arbitral tribunal does not follow and apply a judicial precedent, the arbitral award will not be subject to annulment, as long as the arbitral tribunal explicitly informs its reasons for not applying the precedent, regardless of whether it is binding or persuasive. It is crucial, however, for the arbitral tribunal to comply with the requirements of proper and adequate reasoning for the arbitral award, as stated in Article 26, Item 2 of BAA (ref. footnote No 9).
Regarding the validity of the award under Brazilian law, the arbitral tribunal can disagree and diverge from a judicial precedent (binding or not) and decide the matter differently. However, in no case can the Arbitral Tribunal simply ignore the precedent brought forth in the party’s arguments, as precedents now constitute a source of material law in Brazil.
Lastly, if the Arbitral Tribunal wishes to apply, in their judgment, a rule set forth in a judicial precedent that has not been brought up or discussed by the parties, the Arbitral Tribunal must give the parties the opportunity to be heard on the application of such precedent, as demanded by the principle of audi alteram partem (Article 21, Paragraph 2, BAA and Article 10, NCPC, ref. footnote No 10).
Accordingly, judicial precedents have become an important source of law in Brazil and the arbitral tribunals must consider those in their rulings. However, given the provisions of the Brazilian Arbitration Act, the non-observance of these precedents does not constitute grounds for setting aside an arbitral award.
[1]Article 927, NCPC: ‘Judges and courts shall observe:
I –The decisions of the Federal Supreme Court, about the constitutionality of a certain law.
II –binding precedents from the Federal Supreme Courts.
III –bench decisions in the incident of presumption of competence or of the resolution of multiple claims on the same point of law or in the decision of multiple claims on the same point of law to the Federal Supreme Court and to the Superior Court of Justice;
IV – binding precedents of the Federal Supreme Court on constitutional matters and of Superior Court of Justice on infra-constitutional matters;
V – the guidelines of the full bench or of the special body to which they are bound.’
[2]Article 489, NCPC, paragraph 1: ‘The reasons are not considered to have been given in any judicial ruling, be it an interlocutory decision, a judgment or a decision of the bench if;
I –is limited to quoting or paraphrasing an act of law, without explaining its connection with the case at hand or with the issue decided;
II –employs indeterminate legal concepts, without explaining the concrete reason for their applicability;
III –states reasons that could serve to support any decision;
IV –does not confront all the arguments put forward in the proceedings capable of, in theory, annulling the conclusion adopted by the judge;
V –limits itself to making reference to precedents without identifying the determining grounds nor demonstrating that the case at hand fits that reasoning;
VI –fails to observe precedent, case law or precedent raised by the party, without showing the existence of distinction between the said precedent the matter adjudged or that said understanding had been overturned.’
[4]Article 926, NCPC: ‘The courts must standardize their case law and keep it stable, intact and consistent.’
[5]The constitutionality of the Arbitration Act was debated since its issuance on 23 September 1996. However, its constitutionality was finally admitted after the ruling of the Federal Supreme Court, by its full bench, on 12 December 2001, in a lawsuit aiming to enforce an international arbitral award, initiated in 1995 (Agr. Regimental nº 5206-8/246).
[6]Article102, Paragraph 2, CF/1988: ‘Final decisions on merits, pronounced by the Federal Supreme Court, in direct actions of unconstitutionality and declaratory actions of constitutionality shall have force against all, as well as a binding effect, as regards the other bodies of the Judicial Power and the governmental entities and entities owned by the Federal Government, in the federal, state, and local levels.’
[7]Article,103-A, CF/1988: “ Article 103-A. The Federal Supreme Court may, ex officio or upon request, upon decision of two thirds of its members, and following reiterated judicial decisions on constitutional matter, issue a summula (restatement of case law) which, as from publication in the Article 103-B, paragraph, shall have a binding effect upon the lower bodies of the Judicial Power and the direct and indirect public administration, in the federal, state, and local levels, and which may also be reviewed or revoked, as set forth in law.’
[8]A Reclamação is an independent claim, with constitutional status, that aims to preserve the jurisdiction of courts and to guarantee the authority of their decisions. Commonly, the Complaint is used to challenge and rulings in a specific case that do not abide by decisions of courts that it should be subject to. Therefore, the Reclamação should be filed directly before the court whose decision is allegedly being disrespected or whose jurisdiction is being usurped, and such court will be responsible for ruling the claim. The NCPC provides that a Reclamação can be filled to guarantee the authority of the precedents set out in items I, II and III of Article 927, NCPC (ref. footnote no. 1).
[9]Article 988, items III and IV, NCPC: ‘An interested party or the Public Prosecutor’s Office may file a reclamação: (…)
III – guarantee compliance with a binding precedent and with a decision of the Federal Supreme Court in concentrated control of constitutionality;
IV – guarantee compliance with a bench decision rendered in the resolution of the incident of multiple claims on the same point of law or in the incident of presumption of competence.’
[10]Article 5, BAA: ‘If the parties, in their arbitration clause, make reference to the rules of a particular arbitral institution or specialised entity, the arbitration shall commence and be conducted in accordance with such rules. The parties may also establish, in the arbitration clause or in a separate document, the procedure for the commencement of arbitral proceedings.’
[11]Article 26, BAA: ‘The arbitral award must contain:
I: a report including the names of the parties and a summary of the dispute;
II: the grounds and reasoning of the decision, through which the factual and legal issues should be analyzed, including an explicit statements to whether the arbitrators ruled by equity;
III: the dispositive, in which the arbitrators shall resolve the issues presented before them, and establish a time limit for the compliance with the decision, as the case may be; and
IV: the date and place in which the award was rendered.’
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