Arbitration and the public sector – the Brazilian Case (by Nikolai Sosa Rebelo)

On October 11^th of 2014, the great Journal “The Economist” published an article about the arbitration game in the “Investor-state dispute settlement”[*]. The article has a critical tone about the use of the method to settle disputes between big corporations and the governments. Mostly, the criticism focused on the advantages that corporations have over the Government. According to the publication, the problems are the lack of publicity of the procedures and the fact that the use of arbitration has not achieve the effect of increasing investments in the countries.

I do not agree with this article. There is no reason to cast doubt on arbitration as a fair method of dispute resolution. The advantages are tested and confirmed on many cases. The article states, “the secretive nature of the arbitration process and the lack of any requirement to consider precedent allows plenty of scope for creative adjudications”. Nonetheless, this critic is unfounded. Companies use arbitration to settle dispute between each other, and they trust in the capacity of the arbitrators to decide the most complex deals. There is no distinction when they negotiate with Governments and with other companies. If the arbitration were “creative” and unpredictable, why would companies use the method in their commercial practices with other companies? If the arbitration were a way to get unfair advantages over a particular Country, the investors would prefer this ADR only when contracting with the Government, don’t you think?

They used the example of Brazil, however they surely know that the investment is declining in this country and the lack of reliance in the government is the reason why. Even Brazilian investors are decreasing their investments, fearing the risks of interventions. Moreover, the Brazilian Judiciary is partly guilty, because, even though the precedents are publicly disclosed, the decisions are unpredictable and you never know if your contract will be respected. Arbitration is one aspect of that picture; there are many factors that determine the level of foreign investment in a particular country, but the trust in the legal institutions is one of the big ones. Arbitration creates the trust between the parties, since you know exactly how the things will role in the case of dispute or a change in the political circumstances.

Finally, even though the Brazilian Government has not signed those investment arbitration treaties, this does not mean that there is no arbitration practice by the Public Sector. The public concession's law authorize the arbitration as a method of ADR in public contracts. Also, the Public-Private Partnerships'-PPP Law authorizes arbitration in those partnerships. If the “secretive nature” is the problem in public contracts, the Constitution of Brazil created a principle of law of public disclosure of Government activity. Therefore, if the government is involved in an arbitration, then the procedure must be publicly available.

[*] http://www.economist.com/news/finance-and-economics/21623756-governments-are-souring-treaties-protect-foreign-investors-arbitration