The Brazilian Superior Court of Justice (STJ) has recently set forth guidelines for the annulment of arbitral awards, aligning Brazil with international arbitration best practices.
In a case where a physician sought to annul an arbitration he lost against a healthcare company, the STJ emphasized that mere omissions by the arbitrator in complying withhis duty of disclosure are insufficient to annul an arbitral award unless such omissions concretely compromise the tribunal’s impartiality and the parties’ trust in the arbitration process.
A key tool for ensuring impartiality in arbitration is the duty of disclosure, which requires arbitrators to disclose any facts that may represent conflicts of interest or raise reasonable doubts about their independence in the dispute.
In the case at hand, the physician sought to annul the arbitral award, arguing that one of the arbitrators failed to disclose information that could indicate bias. The physician argued that inaccuracies and omissions during the disclosure process should automatically result in the annulment of the award. However, the argument concerning the failure in disclosure was only raised after the arbitration was lost on the merits.
The appeal’s rapporteur dismissed the argument that mere omission by the arbitrator necessarily indicated a lack of impartiality. The ruling highlighted that an omission only compromises the award if it is relevant to demonstrate bias in the judgment and a breach of independence. Another Justice on the panel stressed that an arbitral award could only be annulled with solid and irrefutable evidence of the arbitrator’s bias. A failure in the duty of disclosure alone would not lead to annulment because it does not inherently compromise the arbitrator’s impartiality in resolving the dispute. The undisclosed fact should be sufficiently relevant to prove a breach of independence tolead to an annulment.
The STJ’s stance aligns with the International Bar Association’s Guidelines on Conflicts of Interest in International Arbitration, which emphasize that non-disclosure of certain facts does not automatically result in a conflict of interest or the arbitrator’s disqualification. In practice, this ruling encourages a balance between the disclosure of facts that could concretely raise reasonable doubts about impartiality and the disproportionate scrutiny of arbitrators’ past activities, known as “overdisclosure.”
Subjective assessments by the parties should not compromise the legal certainty of arbitration, creating the possibility that irrelevant facts could serve as basis for the losing party to prevent the enforcement of an award. The STJ has established a fundamental milestone for arbitration in Brazil by rejecting the notion of the duty of disclosure as an end in itself. Disclosure is a mechanism for controlling impartiality, but a failure to comply with it does not waive the need to prove that the newly discovered fact objectively represents a breach of independence.
It is critical that a losing party in arbitration suddenly takes an interest in investigating the professional history of an arbitrator only within the 90-day period allowed by Brazilian law for setting aside an award. In such situations, it would be evident that the investigative interest of the party only arises after the unfavorable award. On the other hand, if the fact was already known by the party, the duty of acting in good faith should not allow it to be held as a card up the sleeve in the event of an adverse award.
Brazil’s leading position in arbitration must be preserved, and the recent STJ decision helps strengthen the legal certainty that parties seek when opting for arbitration.
