Mining Arbitration in Brazil

Author: Marina Bertucci Ferreira*

Introduction

Mining is critical for the global economy. Minerals are key materials for most industrial and consumer products. Moreover, in the era of energy transition, mining assumes a pivotal role by providing “transition minerals” like lithium, nickel, and cobalt, which are essential for manufacturing electric batteries. In Brazil, the sector represents around 4% of the GDP and boasts a trade balance surplus of US$ 24.9 billion in 2022.

However, mining is not without its challenges. It is also a risky, capital-intensive activity subject to uncertainty. Considerable investments in mining projects are often required long before production starts, during exploration, development, and ramping-up periods. These investments are typically made by means of complex long-term royalty, streaming, or offtake agreements, which are sometimes valid during the entire life of mine.

Moreover, mining operations have relevant environmental and community impacts. Mining companies need mining permits, environmental permits, and “social licenses.” It goes without saying that mining is highly impacted by state regulation.

Once a mine begins its operations, its life often spans decades, during which economic, political, and local regulatory landscapes can undergo significant transformations. It comes as no surprise that disputes surrounding mining projects are virtually inevitable. These disputes are intricate and industry-specific and may encompass issues related to community rights (particularly those of indigenous peoples), environmental concerns, mineral resource nationalization or expropriation, or breaches of financing agreements—including pricing, supply, force majeure, or shipping matters.[1]

In light of these complexities, this blog post aims to shed light on the potential advantages of utilizing arbitration as a means of resolving mining sector disputes, by providing a brief overview of the Brazilian legal framework for arbitration and its alignment with internationally accepted arbitration principles.

Brazilian Arbitration Framework

Brazil has not ratified any bilateral or multilateral investment treaties. Treaties executed in the 1990s were never ratified by the Brazilian Congress, which considered that they could lead to international disputes and could limit the government’s ability to change policies and regulations. In this context, Brazil chose to rely exclusively on domestic legislation to protect investments.

For this reason, there is no investor-state arbitration involving Brazil, whether in the mining sector or any other industry. The Brazilian Agreements on Cooperation and Facilitation of Investments (CFIAs), seen as an alternative to BITs, although providing for arbitration as a dispute resolution method, only admit state-state arbitration. Still, commercial arbitration is available and has been increasingly being sought by investors doing business in Brazil, including mining companies.

The Brazilian Arbitration Act (“BAA”), enacted in 1996 and amended in 2015, governs both international and domestic arbitration.[2] Other relevant sources of Brazilian law for arbitration are (i) the Brazilian Civil Procedure Code (“CPC”)[3] and (ii) Decree No. 4,311/2002,[4] which introduced the New York Convention into the Brazilian legal order.

BAA was drafted based on the UNCITRAL model law and contributed significantly to the growth of arbitration in Brazil. Some of BAA’s main features are described below.

BAA (Article 1) provides for a broad definition of arbitrability, stating that parties may agree to arbitrate freely transferable rights [direitos patrimoniais disponíveis]. Additionally, only persons capable of entering into contracts can agree on arbitration, and the agreement must be in writing (BAA, Article 4).

Although arbitration is still more common between private parties, disputes with public administration entities are increasingly shifting to arbitration after the authorization granted by the 2015 amendment to BAA (Article 1 §1).

Article 8 of BAA recognizes the severability of the arbitral agreement, which remains valid even if the underlying contract is deemed invalid or unenforceable. It also embraces the Kompetenz-Kompetenz doctrine, stating that the arbitral tribunal has the power to rule on its own jurisdiction, ex officio, or challenged by any of the parties. Brazilian courts generally understand that local courts will only have jurisdiction in case of prima facie lack of arbitral jurisdiction.

According to BAA, before accepting an appointment, prospective arbitrators must disclose any circumstances that could give rise to “justifiable doubts” about their independence or impartiality (BAA, Article 14 §1).

BAA empowers arbitral tribunals to grant interim emergency measures before the commencement of arbitration proceedings. The effectiveness of the interim measure ceases if the interested party does not request the institution of arbitration in thirty days. Once the arbitration is instituted, arbitrators should decide whether to maintain, modify, or revoke the interim measure granted by courts.

Finally, BAA sets forth limited grounds for the review of arbitral awards. A party may seek to set aside an award only in specific situations, such as when there is evidence of a breach of due process or corruption affecting the award (BAA, Article 32). The grounds for annulment are narrow, in line with the pro-enforcement approach of the law, which aims to respect the finality of arbitral awards.

Proposed Amendments to BAA

A bill introduced in 2021 at the Brazilian House of Representatives has caused turmoil in the Brazilian arbitration community for its proposed changes to BAA. The bill proposes changes to the criterion for disclosure to be followed by arbitrators so that any “minimal doubt” on the arbitrator’s independence or impartiality must be disclosed, modifying the current “justifiable doubt” standard.

The proposed legislation also limits the number of cases an arbitrator can examine per year to ten. Furthermore, the bill envisions that all legal actions seeking the annulment of arbitral awards should be made accessible to the public, in contrast to the current rule prescribed in the CPC, which mandates confidentiality for such proceedings.

The bill is currently in the committee phase. If it passes the House, the bill still needs to be considered by the Senate before it is signed into law. In the event these changes pass Congress and become effective, they could create legal uncertainty and discourage parties from arbitrating their cases in Brazil, choosing seats in other countries.

Growth of Arbitration and Advantages to Mining Disputes

BAA has proven to be a robust and arbitration-friendly legal framework, providing parties with a reliable mechanism for resolving disputes efficiently and effectively. By embracing the principles of arbitrability, severability, and competence-competence while providing interim measures, the law has fostered a favorable environment for arbitration in Brazil.

The limited grounds for review of arbitral awards further reinforce the finality and enforceability of awards, making Brazil an attractive jurisdiction for both domestic and international arbitration.

Data from ICC[5] show that the selection of Brazil as an arbitral seat by parties has consistently increased since the enactment of the BAA in 1996, going from zero cases in 1995 to 24 cases in 2019, totaling 265 cases in the period. Recent data also show that São Paulo is a rising seat for mining arbitration in Latin America.

Arbitration offers a faster and more efficient process, in contrast with the court system, which is subject to delays in resolving disputes. Parties can select their arbitrators, set the timetable for proceedings, and benefit from a streamlined process tailored to the complexity of mining-related disputes. This efficiency is particularly advantageous for companies seeking prompt resolutions to ensure minimal disruption to their mining operations.

While selecting arbitrators, mining companies can access professionals who understand the technical details of the sector. This specialized knowledge equips them to make decisions that account for the unique challenges and complexities of mining-related disputes.

Furthermore, as a party to the New York Convention, Brazil is obligated to streamline the recognition and enforcement of arbitral awards on an international scale. This commitment means that mining companies involved in cross-border disputes can expect their awards to be recognized and enforced in over 160 countries that are party to the Convention, ensuring the efficacy of their legal remedies.

Conclusion

Arbitration in Brazil offers companies a reliable and efficient mechanism for dispute resolution and has become increasingly popular in the Brazilian mining industry.

With its specialized expertise, confidentiality safeguards, cross-border enforceability, and the empowerment of party autonomy, arbitration can prove to be a strategic and effective decision for mining companies in Brazil. It enables them to protect their interests and uphold operational efficiency in a high-stake, ever-changing environment.

* Marina Bertucci Ferreira has recently completed her LL.M. in Global Business Law at Columbia University. She is a senior associate at the mining and government relations practices of Pinheiro Neto Advogados in Brasília, Brazil, and provides legal advice to national and foreign clients in connection to the mining industry, including regulatory affairs, mining policies, mergers and acquisitions, and financing.

[1] Simon Greenberg and Karolina Rozycka, “Arbitration under Long-Term Mining Offtake Contracts and Royalty Arrangements,” in The Guide to Mining Arbitrations, Second Edition, Global Arbitration Review (2021).

[2] Federal Law No. 9307 of 1999.

[3] Article 189, IV, of Federal Law No. 13105 of 2015.

[4] Decree No. 4311 of 2002.

[5] See B. Born, G. (2021). International Arbitration: Law and Practice (3rd ed.). Wolters Kluwer, page 142.