INTERNATIONAL ARBITRATION 1/3LY
MARKET COMMENTARY 39
THIRD-PARTY FUNDING IN BRAZIL
The rise of Third-Party Funding (“TPF”) in international arbitration in the western world is now of interest to those in other jurisdictions. In this article, we put the spotlight on Brazil to explore the laws to determine whether TPF is permissible. ARBITRATION IN BRAZIL The statistics released by the main Brazilian Arbitration Centres show a consistent increase in the number of new arbitration proceedings. For the past five years, the numbers of new cases and the values in disputes have more than doubled. CAM-CCBC indicates an annual growth rate of 20%. The ICC has recently reported that Brazilian parties are the third largest users of arbitration, behind US and Canada; accounting for 41% of the Latin American proceedings. The ICC also ranks São Paulo as the eighth most frequent jurisdiction chosen as a seat, and Portuguese as the fifth most popular language used in arbitration proceedings. In Brazil, arbitration is booming. It is the chosen method for dispute resolution in the majority of large contracts. It is more efficient considering the average duration of court proceedings; combined with the fact that arbitrators are specialists on the matters in disputes. Brazil is a signatory to the 1958 New York Convention and the Brazilian Superior Court of Justice (STJ) supports arbitration (as of today, the STJ has only set aside 14 awards). In addition, the New Brazilian Civil Procedure Code - which will be in force next March, includes arbitration among its core rules (article 3, paragraph 1). It provides that the Court will refrain from analysing the merits of the dispute when facing an arbitration agreement or when the arbitral tribunal recognised its jurisdiction (Article 485, VII).
BY PETER HIRST, CO-CHAIR OF THE GLOBAL ARBITRATION GROUP AND JOAN CAVALIERI FERNANDES, ADVOGADA AT CLYDE & CO LLP
THE ECONOMIC CRISIS AND “CAR WASH OPERATION” – AN INCREASE OF DISPUTES AND LACK OF LIQUIDITY
Brazil is facing its worst economic crisis in the past 20 years, aggravated by the ‘Car Wash Operation’, a Federal Police investigation into major Brazilian state-owned companies, Petrobras and Eletrobras, regarding construction projects and politicians. This is leading to renegotiation, breaches, defaults and termination of contracts, consequentially, increasing the number of disputes. In addition, the economic crisis brings with it insolvent parties lacking funds to bear the costs of arbitration proceedings; i.e. the filling, management, legal and expert fees, among others. Similarly, some solvent companies choose to fund other activities or are simply not taking the risks and avoiding the impact of contingency and legal fees on their financial statements. Whether due to lack of liquidity or because of a commercial reason, these parties are not pursuing their claims. As result, the rise on the number of parties failing to pay for costs or requesting (i) to negotiate the payment of the arbitration costs, and /or (ii) to suspend the proceedings has been observed.
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