Liability for payment of costs in arbitration proceedings involving the Public Administration

Bruna Bejjani Marques^[1]

Sofia Martins Coelho^[2]

SUMMARY

The main objective of this text is to gain a better understanding of the burden of paying costs in arbitration proceedings involving the Public Administration. The subject goes through the principles that guide the actions of public entities, as well as the foundations of the arbitration institute. In this sense, it discusses the responsibility for bearing the costs and expenses in arbitrations, especially considering the budgetary consequences when this burden falls, or should fall, on the public entity.

Keywords: arbitration; procedural costs; Public Administration.

1 ARBITRATION INVOLVING THE PUBLIC ADMINISTRATION

Arbitration is an optional method to state jurisdiction for resolving disputes over available property rights^[3]. In this institute, the dispute between people capable of contracting is settled by an impartial third party elected by the parties: the arbitrator^[4].

Arbitration proceedings involving the Public Administration as a party were introduced by Law Nº. 13.129 of 2015, which amended the Arbitration Law (Law Nº. 9.307 of 1996), making it expressly possible for public entities to use the institute to settle disputes relating to available property rights.

In this sense, it is important to note that the actions of the Public Administration, which includes its participation in arbitrations, are guided by various principles, as evidenced in the main section of art. 37 of the Federal Constitution^[5]. Based on the interpretation of these principles, it is understood that public entities, unlike private individuals, must necessarily observe certain budgetary guidelines.

In this context, the question arises as to the responsibility for paying costs in arbitrations with the Public Administration^[6]. If, on the one hand, the public entity is fully entitled to be a party to arbitration proceedings, on the other, it must comply with budgetary planning, which implies an apparent obstacle to its action.

Budget planning in public entities has some singularities of its own, due to bureaucracy and state’s regulations, where all expenses must be allocated sometimes with yearly advance, thus there is a complexity in provisioning expenses for arbitration costs prior to the initiation of the procedure. If this situation cannot be made flexible, it could prevent public entities from participating in arbitration proceedings.

2 PAYMENT OF COSTS IN ARBITRATION PROCEEDINGS

        The way in which costs are paid in arbitration proceedings can generally be agreed between the parties. In other words, they can freely agree which party will be responsible for bearing the costs, but when necessary, the cost of the procedure can be allocated from the provisions of the arbitral award.

By example, the CAM/CCBC Rules provide, in its Administrative Resolution 09/2014 (Interpretation and Application of the CAM/CCBC Rules on Arbitrations Involving the Public Administration), for the possibility of the private party being responsible for the initial and/or advance payment of the charges and fees due, as well as the advance payment of the fees due to the arbitrators. This is without prejudice to any subsequent reimbursement by the Public Administration^[7].

        In this sense, when one of the parties to an arbitral proceeding is a public entity, the costs are, as a rule, the burden of the contracted party, who must advance them to the chamber responsible and, in cases where it is decided by the final arbitral body, they will be refunded^[8]. In this situation, the amount will be refunded to the private party by means of the issuance of writs of payment or requests for small sums^[9].   

        However, the doctrine understands that when the burden of anticipating costs falls exclusively on the private party, some obstacles become evident, which can even create room for abuse of power by the state.

        This is because this provision does not necessarily reflect the best functioning of the procedure and isonomy between the parties^[10], since it would be entirely possible for the Public Administration to also be responsible for disbursing the amounts necessary for the progress of the case. This is the conclusion reached by Carmona, 2016^[11]:

If the state really wants to get involved in arbitration – and I believe that it cannot fail to do so, otherwise it will alienate important partners, partners who may not be interested in taking part in tenders or concessions if there is no guarantee that disputes will be resolved quickly and efficiently – it will have to find the appropriate mechanisms within the rules of administrative law to set aside some money in the budget to cover the cost of litigation. What’s more, the administrator must understand that the choice of arbitration entails a greater investment than that envisaged for the state process.

        In view of these provisions, it is clear that in order to satisfy both the principles of arbitration and the Public Administration, it is necessary for the latter to allocate specific funds for the purpose of defraying the costs of the arbitration procedure, and it is necessary for these expenses to be provided for, albeit in a general way, in the scope of the contract or the contracting public entity^[12].

Therefore, given the economic and planning limitations, it is understood that the responsibility for bearing the costs in arbitration proceedings involving public entities could be relaxed in order to promote the efficiency of arbitration, a principle that is already characteristic of the institute, as well as promoting greater equality between the parties.

CONCLUSION 

With the growth of Arbitration in Brazil, there has been a need to comply with specific requirements for the inclusion of Public Administration as a party in arbitration proceedings. Among the aspects that deserve special attention, the burden of paying costs stands out.

Although parties are allowed to agree on who will be responsible for bearing the initial costs, Decree No. 10.025/2019, for example, provides specific cases where the contractor has the duty to advance them to the arbitration chamber. However, in this context, attention must be simultaneously paid to the principles inherent to Public Administration and to the institute of Arbitration in order to meet efficiency and promote greater equality between the parties. This is because, when verifying the possibility of public administration bearing the costs in arbitration proceedings, while respecting the limits of budget planning, it reveals an opportunity to ensure greater parity between parties in the arbitration procedure.

REFERENCES

BRAZIL. Decree No. 10.025, of September 20, 2019. Provides for arbitration to settle disputes involving the federal public administration. Brasília, DF. Available at: https://www.planalto.gov.br/ccivil_03/_Ato2019-2022/2019/Decreto/D10025.htm. Accessed on 20 Oct 2024.

BRAZIL. Law No. 9.307, of September 23, 1996. Provides for arbitration. Brasília, DF. Available at: http://www.planalto.gov.br/ccivil_03/leis/l9307.htm. Accessed on: 15 Oct 2024.

BRAZIL. Law no. 13.129 of May 26, 2015. Amends Law No. 9.307, of September 23, 1996, and Law No. 6.404, of December 15, 1976. Brasília, DF. Available at: http://www.planalto.gov.br/ccivil_03/_ato2015- 2018/2015/lei/l13129.htm. Accessed on: 15 Oct 2024.

Cahali, Francisco José. Arbitration Course. São Paulo, Thomson Reuters Brazil, 2018. E-book)

CAM/CCBC. Administrative Resolution 09/2014, October 20, 2014. Interpretation and application of the CAM/CCBC Rules. Arbitrations involving the Brazilian Public Administration.

Carmona, Carlos Alberto. Arbitragem e processo: um comentário à lei n. 9.307/96. São Paulo: Atlas, 2009.

Cunha, Leonardo Carneiro da. The Public Treasury in Court. Rio de Janeiro: Forense, 2020. 17. Ed, p. 909.

Junqueira, André Rodrigues; Oliveira, Mariana Beatriz Tadeu de; Santos, Michelle Manaia. Dispute resolution clause in public-private partnership contracts: case studies and drafting proposal. In: Public-private partnerships. Mastrobuono, Cristina Margarete Wagner; and Fragata, Mariângela Sarubbo (org.). São Paulo: Imprensa Oficial do Estado de São Paulo, 2014, p. 341).

Oliveira, Gustavo Justino de. Specificities of the arbitration process involving the Public Administration. São Paulo: Tomo Direito Administrativo e Constitucional, Issue 1, April 2017.

SALLES, Carlos Alberto de. Arbitration in the resolution of contractual disputes involving the Public Administration. São Paulo, 2010.

 

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