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Ana Paula Lages
Fialho Salles Advogados, Belo Horizonte
anapaula.lages@fialhosalles.com.br

Arbitration is a well-established dispute resolution method in Brazil. According to the 2019 ICC Dispute Resolution Statistics, Brazil ranks third in the top-ten list of countries with most the parties involved in ICC arbitrations. Brazil also ranked sixth overall and remained the preferred seat within Latin America and the Caribbean with 24 cases.

Internally, the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada released their annual statistics informing that the Center reached in 2019 the historic number of 1,078 arbitration proceedings administered in accordance with its Rules and one procedure in accordance with the UNCITRAL Arbitration Rules.

Notwithstanding the continuous growth of international and domestic arbitration markets in Brazil, the Brazilian legal system does have some peculiarities that often represents a challenge for foreign arbitrators and counsel. 

One of these peculiarities is the method for awarding costs and attorney fees.

The Brazilian Civil Procedure Code[1] dictates that costs should be allocated in the final award to the losing party, regulating extensively the parameters in which attorney’s fees should be awarded, based on the economic gain obtained.

The courts must consider the due professional care in the conduct of the proceeding; the place where the service was provided; the nature and relevance of the matter; the services provided by the lawyer and the time required for such services.

The Law only allows attorneys’ fees between a minimum of ten and a maximum of twenty percent on the amount awarded, or on the economic benefit obtained or, if it is not possible to measure it, on the updated value of the claim.

That considered, we may affirm that the Brazilian system, as a civil-law jurisdiction, is based on the ‘loser pays’ principle, different from the American rule of each party paying its own costs[2]. 

However, the Civil Procedure Code is not automatically applicable to arbitrations proceedings, considering those to be regulated by Law No 9,307 of 1996 (‘Brazilian Arbitration Act’). Arbitration is governed by the Brazilian Arbitration Act, as an autonomous system, not directly associated to the Civil Procedure rules.

Though, internally, the Civil Procedure Code provisions are not applied to arbitration, there is no doubt that its general principles apply[3].

By its turn, the Brazilian Arbitration Act is vague in reference to awarding costs, merely stating that arbitral award shall regulate the parties' responsibility for the costs and expenses of the proceedings. It makes no express reference to attorney fees.

The rules of the most important Brazilian arbitration centres are also not precise on how to allocate attorney fees, nor on which principles arbitrators should observe to render their final award on costs and fees.

Due to such absence in both legal and administrative regulations, the local doctrine is not unanimous on the matter of awarding for the reimbursement of the integrality of legal fees or for a percentage of the economic gains obtained in favour of the lawyers of the wining party. Nor on the possibility of cumulating both, considering that the first has the nature of indemnification for the wining party and the latter is granted directly to its lawyers, as remuneration.

Brazilian Courts usually defer to what the parties had established in the arbitration agreement or in the Terms of Reference[4].

A very recent decision by the Appeal Court of Rio de Janeiro has considered the failure to observe the limits for awarding costs and fees set by the Parties in the arbitration agreement a ground for annulment[5].

Given the lack of clear parameters in the law and in the arbitration rules regarding these issues, the task of establishing criteria for the treatment of costs and attorney fees can be quite challenging. Even more to common law practitioners, used to standard procedures on the matter.

Considering that most arbitral awards are confidential, there are not detailed statistics on how the majority of arbitrators address these topics in practice. Nonetheless, it is important to emphasise that, under the Brazilian practice, there is a clear difference between the reimbursement of contractual attorneys' fees and defeated party's fees owed to the opposing lawyer.

In that scenario, it is strongly advisable to draft the arbitration agreement – or, at least, the Terms of Reference – setting out a priori such criteria, avoiding, thus, unpredictability.

The criteria will be up to the parties, who will jointly be responsible for designing the best model for the material case. The parties may simply refer to the rules laid down in the Civil Procedure Code, transposing them to the arbitration proceedings; or they may define heavier or milder standards; or state that each party shall bear its own costs; or even predetermine a fixed amount.

Indeed, in arbitration, parties agree to a contractual dispute resolution method to facilitate their business relationship and to be cost and time efficient in case of litigation. Awarding arbitration costs and legal fees cannot be an obstacle to that goal, and the correct allocation of costs may represent an instrument to promote the intended efficiency.    

In conclusion, when arbitrating in Brazil, the flexibility granted by arbitration should be used in the construction of the arbitration agreement, as permitted by the Brazilian Arbitration Act and the Brazilian courts, to promote a fair allocation of costs and, in consequence, time and cost efficiency in the arbitration proceedings.   

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