Ciarb intervenes in Supreme Court matter in Brazil concerning arbitrators’ duty to disclose

Introduction

In June 2023, the Chartered Institute of Arbitrators (Ciarb) and its Brazil Branch submitted to Brazil’s Supreme Court an application to intervene and an amicus brief in ADPF 1050, a constitutional matter concerning arbitrators’ duty to disclose.  

The resolution of this matter holds significant importance for the proper functioning and development of arbitration in Brazil. Its outcome may have a direct impact on numerous past, present, and future arbitral awards, and related judicial proceedings. Indirectly, it could influence the behaviour of parties and arbitrators in arbitration proceedings. As Brazil has adopted a monistic arbitration law, this case could have ramifications not only for Brazilian-seated arbitrations but also for foreign awards seeking recognition and enforcement in Brazil.

Background of the dispute

Since March 2023, a matter concerning arbitrators’ duty to disclose is pending before Brazil’s Supreme Court. The application for constitutional remedy (ADPF 1050) seeks a constitutional interpretation by the Court of Article 14 of the Brazilian Arbitration Act. The provision mirrors standards of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, the IBA Guidelines on Conflicts of Interest in International Arbitration (“IBA Guidelines”) and other national laws and states that arbitrators should disclose “any fact that gives rise to justifiable doubts about their impartiality and independence”.

Issues raised in the application and amicus brief include:

• the extent of the duty to disclose;
• the effects of any breach of the duty to disclose;
• the exhaustivity of the statutory rules of civil procedure on impediment and suspicion of judges to resolve issues related to impartiality and independence of arbitrators;
• the use of the IBA Guidelines to resolve issues related to the duty to disclose; and
• the appropriate moment to challenge arbitrators’ independence and impartiality.

Several Brazilian national industry groups have filed requests to intervene as amici curiae in this case to help achieve the right outcome for the Brazilian arbitration community. Ciarb has joined the cohort of prospective interveners to bring an essential international perspective to the case, shedding light on international practice and internationally acceptable legal standards, all falling within due process of law.

Ciarb’s intervention

Ciarb’s intervention in ADPF 1050 is grounded in its purpose ‘to promote and facilitate worldwide the determination of disputes by all forms of private dispute resolution other than resolution by the court (collectively called “private dispute resolution”)[1].

Acknowledging that the Brazilian Arbitration Act is in line with international standards, Ciarb points to the risk of Brazil falling behind on its position in the global arbitration market if the country’s laws or judicial bodies deviate from internationally acceptable legal standards. Specifically, Ciarb contributes on the following points:

• Concerning the extent of the duty to disclose, Ciarb explains that the Brazilian legal criterion of justifiable doubts is objective and concerns facts that, from the perspective of a reasonable third party, would give rise to justifiable doubts about arbitrators’ impartiality and independence. Ciarb also flags that international best practices emphasize that parties have a duty to act in good faith and may be required to investigate conflicts, especially when it comes to public or easily accessible information. The circumstances concerning the nature of and the control over the underlying information are relevant. Thus, whether there is an exclusive duty to disclose on the arbitrator or the parties have a duty to investigate is entirely fact-dependent.
• Concerning the effects of the failure to disclose, Ciarb highlights that arbitrators’ duty to disclose and their duty to be and remain impartial and independent have different functions and follow different legal standards. A failure to disclose may in some circumstances be a factor in determining justifiable doubts as to arbitrators’ impartiality and independence, but it does not automatically amount to grounds for removal of the arbitrator or annulment of the award. Ciarb pointed this out when it intervened in Halliburton Company v. Chubb Bermuda Insurance Ltd [2020] UKSC 48 - whether a failure to disclose would give rise to justifiable doubts as to an arbitrator’s impartiality or independence is entirely fact-dependent.
• Concerning the exhaustivity of the statutory rules of civil procedure on impediment and suspicion of judges to resolve issues related to impartiality and independence of arbitrators, Ciarb shows that Brazilian law is consistent with international practice and admits, and even provides for, the application of international standards. The statutory rules applicable to judges do not always apply to arbitrators and, where they are applicable, they are not exhaustive. In any case, the resolution of matters concerning an arbitrator’s impartiality and independence is fact-dependent.
• Concerning the application of the IBA Guidelines, Ciarb explains their soft law nature and how their use by arbitral tribunals and judicial bodies has become international practice, even though their application is mandatory only if the parties agree to use them or if the applicable law requires it. Ciarb also shows that national laws and regulations in some of the jurisdictions it covers have explicitly incorporated the IBA Guidelines or, as in the case of Brazil, have provided generally for the application of internationally acceptable standards. The IBA Guidelines reflect best practices and whether their application is mandatory is fact-dependent.
• Concerning the appropriate moment to challenge an arbitrator’s impartiality or independence, Ciarb explains that a party’s challenge with the purpose to remove the arbitrator, or to annul or deny recognition to an award they issued, may be subject to temporal limitations and waivers. That is the case under Brazilian law, which is consistent with good faith and procedural loyalty duties in jurisdictions worldwide. Ciarb also shows that public policy may be an exception to the limitations in question and that a finding of public policy violations is entirely fact-dependent.

The records of ADPF 1050 can be found here and an English version of Ciarb’s application and amicus brief is available here.

Authors: Cesar Pereira C.Arb FCIArb, Luísa Quintao ACIArb and Leonardo Souza-McMurtrie ACIArb.

[1] Ciarb Royal Charter and Bye-laws, 15 February 2023.