Arbitration Confidentiality in Brazil

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Arbitration Confidentiality in Brazil:

Recent Decisions of the São Paulo State Court of Appeals Pose a Doubt To Parties’ Choices

 

Jessica Scott Banfield[1] and Eduardo Machado Tortorella[2]

 

There are several reasons why parties opt into arbitration, but one in particular draws great attention: confidentiality. According to a survey conducted in 1992 by the London Court of International Arbitration (LCIA) and the London Business School[3], confidentiality was considered one of the main benefits of arbitration and remains as one of the most demanded advantages of arbitral proceedings.

Although not expressly recognized in the Brazilian Arbitration Act (LdA), a large portion of scholarship, supported by international arbitration case law, has understood that, regardless of the generic duty of discretion of the arbitral tribunal mentioned in article 13, § 6 of the LdA, confidentiality is implied in arbitration by nature, and may vary in intensity and form according to the will of the parties[4]. In this sense, it can be broad and encompass all aspects of the arbitral proceeding, or it may be limited to certain documents and information, or even in relation to the performance of specified persons. In general, it will be opted into by the parties, either through the adoption of the rules of arbitration institutions[5] or through contractual clauses agreed upon by the Parties.

Even though confidentiality is considered to be one of the greatest benefits of arbitration[6], it is not homogeneously adopted at a global level, and also has different limiting factors. For example, in Brazil, the Brazilian Civil Procedure Code (BCPC), in its article 189, establishes a general rule for publicity in all lawsuits filed before state courts. This article also lists the few exceptions to the general rule, in which the casefiles must be held as confidential, such as when the lawsuits involve arbitration (article 189, IV).

A discussion as to the rigidness of this rule on confidentiality, however, has been under debate in lower courts of São Paulo since 2018. The first case in which this issue was considered regarded case nº 1058693-24.2018.8.26.0100. The lawsuit was filed for the taking of evidence before commencement of the main proceedings and since the contract had an arbitral clause, both parties requested that the matter be considered confidential by the state court. The judge indicated at that time that the mere existence of an arbitration or a confidentiality clause in the contract did not automatically impose confidentiality over preparatory judicial measures. In that sense, the court found that article 189 of the BCPC did not expressly impose confidentiality under these circumstances. This understanding has repeated itself in lower courts, and further developed into discussions regarding the constitutionality of article 189, since it restricts the general rule for publicity[7].

Over the last couple years, two decisions were rendered on the matter by the São Paulo State Court of Appeals, elevating the level of the discussion and drawing extra attention to this matter.

On March 31, 2020, a decision was rendered by the 1st Business Chamber of the São Paulo State Court of Appeals regarding the confidentiality of an enforcement procedure of an arbitral award. The lower court had previously indicated that, although the lawsuit was related to an arbitral proceeding, the provision of article 189, IV, of the BCPC was not applicable since it in fact violated the general rule for publicity foreseen in article 5, LX and 93, IX of the Brazilian Federal Constitution. According to the judge, the only constitutional exemption to the rule would be when the dispute involved intimate matters or those of social interest. When of the judgement of the Interlocutory Appeal nº 2008533-16.2020.8.26.0000, the Rapporteur Judge maintained the denial of the request for confidentiality, indicating that article 189 of the BCPC must be interpreted in a restrictive manner and applied only in truly extraordinary cases as an exception to the general and constitutional rule of publicity. Hence, since article 189 of the BCPC does not expressly refer to enforcement procedures of arbitral awards, the circumstances could not be considered exceptional.

Almost one year later, on March 2nd, 2021, the same chamber and Rapporteur Judge of the São Paulo State Court of Appeals rendered another decision on the issue. This time, however, the reasoning behind the denial of confidentiality changed slightly. In the judgement of Interlocutory Appeal nº 2263639-76.2020.8.26.0000, filed against a lower court’s decision that denied confidentiality to a proceeding for the annulment of an arbitral award, the Rapporteur Judge highlighted once again the restrictive interpretation that must be given to article 189 of the BCPC. However, the conclusion was not the lack of reference to annulment proceedings in that provision. Instead, referring to the appealed decision, the court found that article 189 was harmful to the Brazilian judicial system, since it violated constitutional provisions on publicity. In applying the exception of article 189, IV, information symmetry would be hindered, since only those involved in the case would be able to take note of the conclusions and decisions rendered, impairing the greater social interest of certainty and predictability in state court decisions. In other words, in granting confidentiality to lawsuits involving arbitration, the Brazilian legal system would be unable to promote fair information between its users and consolidate caselaw on the issue. To that end the Rapporteur Judge even created a parallel between publicity and a quote by Justice Louis Brandeis from the American Supreme Court, which states that “sunlight is said to be the best of disinfectants”.

The recent decisions of the 1st Business Chamber of the São Paulo State Court of Appeals innovate on an issue that until recently was not under discussion and pose a threat to what several businesses hold as a certainty and advantage when opting for arbitration. In fact, up to 2018, there was no doubt that confidentiality and arbitration had a friendly relationship and that they go hand in hand even in state courts, whether for the protection of commercial, industrial or professional secrets, or for the protection of information and documents that cannot be widely disclosed.

It is of no surprise that said decisions caught the attention of the arbitral and civil procedure community. In August 2021, the Federal Justice Council (CNJ) published an official opinion stating that if the confidentiality of the arbitral proceeding is proven, then court proceedings related to that arbitration should also be kept under secrecy, in accordance with article 189, IV, of the BCPC[8]. Later, in September 2021, the CNJ issued a directive on judicial cooperation regarding arbitration matters (Directive nº 421 of September 29, 2021[9]) and its article 4 establishes that “Provided that the confidentiality of the arbitration procedure is proven, requests for judicial cooperation between arbitral tribunals and judicial state entities must observe the secrecy of justice, as provided for in article 189, IV, of the Code of Civil Procedure, and in article 22-C, sole paragraph, of the Arbitration Act[10].

These most recent developments demonstrate how confidentiality is a relevant concern when opting into arbitration, specially bearing in mind the lack of consensus in the judicial community.

[1] Lawyer at Souto Correa Advogados.

[2] Master in International Trade Law, graduated from the Università Degli Studi Di Torino. Lawyer at Lobo De Rizzo Advogados.

[3] LEE, João Bosco. O princípio da confidencialidade na Arbitragem Comercial Internacional. In: VALENÇA FILHO, Clávio de Melo e LEE, João Bosco. Estudos de Arbitragem. Curitiba: Juruá, 2008. p. 286.

[4] SALLES, Carlos Alberto de. Arbitragem em contratos administrativos. Rio de Janeiro: Forense, 2011, pp. 54-55 (free translation from Portuguese): “Confidentiality can have varying degrees and also varying extents, depending on the will of the parties. It may concern the very existence of the arbitration, its outcome, documents or specified information and acts in relation to certain persons, situations, entities or institutions. In general, however, this attribute is generically related to arbitral proceedings.”

In the same sense: BAPTISTA, Luiz Olavo. Arbitragem comercial e internacional. São Paulo: Lex Editora, 2011, p. 178; ou CAHALI, Francisco José. Curso de Arbitragem. São Paulo: Editora Revista dos Tribunais, 2011, p. 220.

[5] See Article 14 of the CAM-CCBC Arbitration Rules, avaliable at https://ccbc.org.br/cam-ccbc-centro-arbitragem-mediacao/en/arbitration/arbitration-rules-2012/.

[6] ARROYO, Diego P. Fernández. Los Dilemas del Estado frente al Arbitraje Comercial Internacional. In: Revista Brasileira de Arbitragem, ed. nº 05. São Paulo: Editora Síntese e Comitê Brasileiro de Arbitragem. 2005. pp. 122-123.

[7] In this sense see, for example, the decisions rendered on June 10, 2020, in Case Files nº 1039147-12.2020.8.26.0100 and June 24, 2020, in Case Files nº 1047292-94.2019.8.26.0002.

[8] II Jornada Prevenção e solução extrajudicial de litígios: Enunciados Aprovados. – Brasília: Conselho da Justiça Federal, Centro de Estudos Judiciários, 2021. p. 12: “ENUNCIADO 99 da “O art. 189, IV, do Código de Processo Civil é constitucional, devendo o juiz decretar segredo de justiça em processos judiciais que versem sobre arbitragem, desde que a confidencialidade estipulada na arbitragem seja comprovada perante o juízo”.

[9] Available at: CNJ. Directive 421/2021 on guidelines and procedures on national judicial cooperation in arbitration matters.

https://juslaboris.tst.jus.br/bitstream/handle/20.500.12178/192672/2021_res0421_cnj.pdf?sequence=1&isAllowed=y

[10] Free translation from Portuguese: “Art. 4º Desde que a confidencialidade do procedimento arbitral seja comprovada, os pedidos de cooperação judiciária entre juízos arbitrais e órgãos do Poder Judiciário deverão observar o segredo de justiça, na forma prevista no artigo 189, IV, do Código de Processo Civil, e no artigo 22-C, parágrafo único, da Lei de Arbitragem.”

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