Brazil had around 77 million active lawsuits in 2021 (27.7 million of which were filed in 2021 alone) and an estimated 1.3 million practicing lawyers (a lawyer-to-citizen ratio of 1/164). The financial cost of handling such a large caseload is astronomic, with a total expenditure of around BRL 104 billion (approximately USD 20 billion) for 2021, including salaries, expenses with infrastructure and other auxiliary services.

The result is a court system that, while producing high-quality results for the most part, is often marred by a deadlocking backlog, burdening judges, counsel, and parties with an average duration of 30 months for first-instance rulings, plus an estimated 7 to 18 months for rulings on appeals; not to mention a staggering 62-month wait for the final satisfaction of enforcement proceedings.

It is thus unsurprising that Brazil has often been seen as a jurisdiction that would greatly benefit from methods of alternative dispute resolution; and it is likewise unsurprising that contemporary Alternative Dispute Resolution (ADR) has greatly developed in the past few years.

We highlight “contemporary ADR” because, unbeknownst to many, arbitration and a form of pre-trial conciliation have existed in Brazil since its colonial days, by means of the Ordenações Filipinas, a quasi-code that regulated civil law and other procedural matters in Portugal and its territories as of 1603.

Despite this early inception into our legal system, the boom of Brazilian ADR came at a much later date, by means of two pieces of legislation: Federal Law 9.307/1996 (the Brazilian Arbitration Act) and Federal Law 13.140/2015 (the Brazilian Mediation Act). Starting with the former, the Brazilian Arbitration Act represented the de facto creation of the arbitration scene in Brazil. Although the institute already existed in the country for several centuries, an arbitral award under the previous legislation – i.e., the Ordinações Filipinas, the later Brazilian Commercial Code and the Brazilian 1973 Code of Civil Procedure – only became enforceable after it was confirmed by a court of competent jurisdiction.

The grounds for confirmation, in turn, were as broad as the scope of the dispute that had been submitted to arbitration; and, in a nutshell, before the enactment of the Brazilian Arbitration Act, Brazilian arbitration simply served as a pre-court procedure.

This all changed with the Brazilian Arbitration Act, whereby arbitral awards were granted the same legal status as final court awards – and, as such, could be immediately enforced upon non-compliance by the responding party. The Brazilian Arbitration Act also disallowed parties from appealing the merits of the dispute to courts and, instead, established a novel procedure to judicially annul arbitral awards under very strict and limited grounds – very similar, in fact, to the grounds established under Article V of the 1958 New York Convention.

To be sure, this was not the full extent of the changes brought forth by the Brazilian Arbitration Act, but these were the fundamental features that allowed arbitration to flourish and become an effective means of dispute resolution in Brazil.

This was further bolstered in 2015, due to the enactment of: (i) Federal Law 13.105/2015 (the New Brazilian Code of Civil Procedure); (ii) the Brazilian Mediation Act; and (iii) Federal Law 13.129/2015, which amended the Brazilian Arbitration Act.

The New Brazilian Code of Civil Procedure reaffirmed the accomplishments of the Brazilian Arbitration Act and embedded pre-trial conciliation into the fabric of every single lawsuit filed in Brazil. As such, respondents to lawsuits filed as of the enactment of the Code of Civil Procedure were no longer summoned to rebut a claimant’s statement of claim, but rather summoned to participate in a pre-trial conciliation hearing.

The Brazilian Mediation Act, in turn, furnished a robust set of rules for mediation procedures. The first of its kind, the Mediation Act filled a gap that had been previously left to arbitral and mediation institutions, all of which have their sets of mediation rules. Among other key provisions, the Mediation Act established the underlying principles of mediation, the confidentiality of mediation proceedings and the general rules governing mediation and settlement between private parties and government entities.

The latter was also reflected in the amendment to the Brazilian Arbitration Act, whereby government entities were expressly allowed to submit to arbitration when resolving their commercial disputes with private parties. Although arbitration with government entities had already existed in Brazil by that point, this amendment to the Brazilian Arbitration Act provided tremendous legal certainty on the matter – especially important when considering that Brazil has not and likely will not submit to any investor-state arbitration agreements for the foreseeable future.

Other changes to the Brazilian Arbitration Act were the codification of consolidated arbitral practice – such as parties’ ability to alter and derogate from provisions of their elected institution’s rules and the arbitral tribunal’s ability to render partial awards – and a clear regulation of parties’ ability to seek pre-arbitral interim relief before Brazilian courts.

These pieces of legislation comprise the backbone of Brazilian ADR, which has been thoroughly endorsed by the generally arbitration-friendly approach adopted by Brazilian courts. To be sure, there will always be exceptions and disputes that are captured by underlying political interests, but overall, Brazilian courts adopt a very extensive iteration of the kompetenz-kompetenz principle and will generally enforce arbitration agreements, defer to the chronological predominance of the arbitrators’ decisions, and only annul arbitral awards under the very strict grounds of the Brazilian Arbitration Act.

Very recently, however, a bill was introduced into the Brazilian House of Representatives that sought to amend the Brazilian Arbitration Act once again – but this time, for the worse. This is Draft Legislation 3.293/2021, a proposed amendment that sought to (i) revoke the internationally-adopted “justifiable doubt” standard for the purposes of challenging arbitrators and replace it with a novel “minimum doubt” standard; (ii) forbid arbitrators from acting on more than 10 cases at once; (iii) forbid arbitrators acting on the same case from acting jointly, as arbitrators, on a different case; and (iv) impose the disclosure of information and materials related to ongoing arbitral proceedings.

This proposed amendment was not well received by the Brazilian arbitral community, which vehemently opposed the Draft Legislation as not only unwarranted and undue regulatory restraints upon parties’ freedom and arbitrators’ ability to work, but also as an assault upon Brazilian arbitration itself.

And indeed, the facts are against the Draft Legislation, as the current legal framework has transformed Brazilian arbitration into a great success case.

In 2021, 1,047 arbitral proceedings were reported to be ongoing in Brazil, 322 of which were newly filed procedures, representing an additional BRL 55 billion (approximately USD 11 billion) in claim value. Likewise, in 2021, 18.41 months was the average reported duration of arbitral proceedings, a stark contrast to the lengthy court proceedings that can be expected in Brazil.

In a nutshell, although Brazilian arbitration accounts for just a fraction of all disputes in the country, it is undeniable that it handles high-value disputes at extremely reasonable speeds – a notion that, in fact, has made Brazilian arbitration quite attractive to investors via third-party funding arrangements.

Our best hope for 2023 is that the Draft Legislation is duly archived and forgotten, so that the Brazilian ADR community is allowed to continue to thrive without undue regulatory interferences.

About the author: Napoleão Casado Filho is a professor of Arbitration and International Commercial Law at the Pontifical Catholic University of São Paulo and University Center of Joao Pessoa. He is managing partner at Clasen, Caribé & Casado Filho Sociedade de Advogados and is a skilled Counsel in international and national arbitration proceedings and in litigation on national courts.

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