by Camillo Giamundo and Gabriela Soeltl

2021 can certainly be considered a challenging year for arbitration as an alternative means of dispute resolution. From time to time, we came across news of arbitral awards being annulled by the Judiciary, which in recent years has raised a red flag about a possible crisis of the institution.

For some experts, the observation that arbitration is undergoing a reassessment in the Brazilian legal system was confirmed in the middle of this year, when Arbipedia released a report showing that 19% of the arbitral awards challenged in the Judiciary were annulled. The survey also revealed an increase in the number of decisions in annulment actions at the appellate level over the last two years; that is, in 2019 and 2020, the number of appellate judgments was almost 90% higher than the average for the three previous years.

As soon as it was released, the study divided opinion among professionals in the field, who took at least two positions: (i) the percentage is insignificant, especially considering that annulment actions are provided for in Federal Law 9,307/1996 and are therefore part of the arbitration system, which cannot be mistaken for an attempt to weaken the institution; and (ii) the 19% figure is unacceptable because, under the legal rule, arbitral awards are immune from review by the Judiciary.

Taking a global perspective, the survey did not detail the reasons why, for example, the merits of the arbitral award are revisited by the Judiciary, or which grounds for annulment were most often invoked by litigants. Even so, although provided for in Federal Law 9,307/1996 and necessary for the legitimacy of the system, judicial review of the validity of an arbitral award must be limited to the list in art. 32 of that statute, which sets out the clear circumstances in which an arbitral award is null.

The main concern regarding the annulment actions provided for in Federal Law 9,307/1996 is the indiscriminate use of their purpose, with the aim of using the Judiciary as an appellate instance. In this case, where mere dissatisfaction is the driver of the procedural interest, the exceptional role of the Judiciary in strengthening the institution itself cannot be rethought.

The legislative choice is that arbitral awards must be respected by the Judiciary, with annulment possible only within the limits established by art. 32 and the principles provided for in art. 21, §2, of the Arbitration Law. In the latter case, the violated principle must be properly characterized in legal terms, preventing indeterminate/abstract concepts that are so fluid in the legal system from bringing about the annulment of a duly reasoned award and, worse, from replacing the arbitral tribunal’s sovereignty to apply the law in the specific case.

From this perspective, actions to annul arbitral awards must be rethought in terms of defending the institution not only by arbitrators and parties, but also by the Judiciary itself, whose role should be limited and within the bounds provided by law, failing which it would contribute to seriously discrediting arbitration, especially with regard to the legal certainty of the arbitration system, which may be assessed on other grounds.

This is because arbitration is a well-established system worldwide and represents an efficient dispute resolution mechanism. When the Judiciary fails to fulfill its role and intervenes in the merits of a decision without any indication of an aberration or non-compliance with the law, it contributes to weakening the institution, casting doubt on its legal validity, as well as on confidence in the Brazilian arbitration system, with repercussions beyond the litigating parties.

Moreover, it opens the door for the dispute, previously resolved by the mechanism chosen by the parties, to be fueled by a culture of litigation. Here, the role of parties, lawyers, arbitrators and judges regarding the limits of an action to annul an arbitral award must also be highlighted. There must be a real commitment to, and awareness of, the fact that once arbitration has been chosen, there is no appeal to the Judiciary, and the annulment action is an exception to be used only in the specific cases provided for by the legislator.

In this sense, ensuring that the annulment action is treated as an exception is also a way of protecting the parties’ autonomy in deciding that the dispute will be submitted to arbitration rather than to the Judiciary. Intervention by the Judiciary beyond what the law provides, becoming a real outlet for claims seeking to re-argue unfavorable decisions issued by the arbitral tribunal, eliminates this autonomy, taking away the right to have a given dispute resolved by the most convenient mechanism.

The research carried out by Arbipedia, showing that 19% of the arbitral awards challenged in the Brazilian Judiciary were actually annulled, reveals a high rate of interference with the institution of arbitration.

By comparison, the English courts recently released a report showing that in 2018 and 2019, 73 cases challenging arbitration proceedings on grounds of illegality or irregularity were decided, and the claims were upheld in only three of them (4%).

This is not to say that any illegality committed in arbitration cannot be reviewed by the Judiciary. Quite the opposite: the annulment action is the route designed precisely for that purpose and as a guarantee. However, there is certainly a considerable share, within this high percentage, of annulled decisions that amount to a genuine review of the merits disguised as alleged illegality or non-compliance with the principles of the institution.

It is precisely on this point that awareness of and compliance with the legally established limits for its use are proposed, failing which dysfunctions in its objectives will arise. This is a commitment that must also be ensured by the Judiciary, guaranteeing that the parties’ autonomy, confidence in the arbitration process and the legal certainty of the entire arbitration system are respected by all the actors involved (parties, arbitrators and judges), with a view to fulfilling the purposes of arbitration, as well as its effective functioning as an alternative to lawsuits.

It is hoped that, in the coming years, arbitration will grow stronger and the percentages of awards annulled by the Judiciary will faithfully reflect, and be limited to, cases actually tainted by illegality.