02 Oct 2019
One of the paradoxes of modern time is the arbitrability of state contracts. Brazil has taken one step forward to accept arbitration in public contracts in specific sectors. On 20 September 2019, the President of Brazil issued Decree No. 10.025 (“Decree”). This Decree provides for arbitration within the port, road, rail, waterway and airport sectors to settle disputes between the Union or the entities of the federal public administration, and concessionaires, permit holders and port operators (“Contractors”). Briefly, I describe the most salient features of this Decree.
According to this decree, “available property rights” (direitos patrimoniais disponíveis) disputes may be subject to arbitration. These matters include: (i) issues related to the economic-financial balance of contracts; (ii) the calculation of indemnities arising from the termination or transfer of the partnership agreement; and (iii) the breach of contractual obligations including liquidated damages.
2. General Rules for Arbitration
The Decree provides certain general rules applicable to these arbitrations: (i) the arbitral tribunal shall apply Brazilian law; (ii) arbitration shall be carried out in Brazil and in Portuguese; (iii) information related to the arbitral proceedings shall be public except for the protection of trade secrets; (iv) arbitrations shall be carried out before an arbitral institution previously approved by the Federal Attorney’s Office. Ad hoc arbitration will be accepted when it is duly justified.
3. Arbitral Institutions
The Federal Attorney’s Office will approve arbitral institution that (i) are operating as such at least for three years; (ii) are highly reputed in conducting arbitral proceedings for their experience and capabilities; (iii) have their own arbitral rules translated into Portuguese.
4. Arbitation Clauses
The Federal Public Administration will previously assess the benefits and pitfalls of entering into arbitration agreements in the case at issue. Arbitration will be preferred when the disputes are based on technical issues; (ii) the length of litigation could cause damages to the quality of the public services or the infrastructure’s operation or could inhibit investment considered as priorities.
The arbitral proceedings must observe the following: (i) the respondent shall have at least sixty days to answer the request for arbitration; (ii) to issue the final award, arbitrators have twenty-four months from the terms of reference’s date. This time may be extended only once.
The Contractors shall advance the costs of the arbitral institution and the arbitrators’ fees, and when applicable, these costs shall be reimbursed in accordance with the final resolution in the arbitral proceeding. The costs of experts will be borne by each party.
Arbitrators must comply with the following: (i) to have civil capacity; (ii) to know the subject-matter of the dispute; and (iii) to be free from conflicts of interests set forth in laws or international standards.
8. Representation and Experts
The Federal Attorney’s Office will represent the Union and the legal entities of the Public Federal Administration. Also, this Office can request expert opinions to the public officers in the arbitrations.
This Decree represents a good step in the infrastructure field in managing commercial risks especially for investors willing to invest in Brazil. Even though the Decree sets some requirements as having the seat of arbitration in Brazil and to conduct the proceedings before an approved arbitral institution, these requirements are not burdensome or do not seem to compromise the legitimacy of the arbitration. However, requesting the Contractors to advance costs may become an issue for not affluent companies. Time and experience using the provisions of this Decree will be needed to assess the full benefits of its operational features in practice.
Orlando Federico Cabrera Colorado FCIArb