President of the Brazilian Center of Mediation and Arbitration (CBMA), Gustavo Schmidt, spoke to Leaders League Brasil about recent developments at CBMA, the second anniversary of the New Civil Procedural Code and trends occurring in the constantly evolving sphere of Brazilian arbitration.
Leader League. When was the Brazilian Center of Mediation and Arbitration (CBMA) established and what is the story behind the institution?
Gustavo Schmidt. When the Supreme Court of Brazil confirmed the constitutionality of Arbitration in Brazil, three representative institutions of the Brazilian economy came together to form CBMA. The Commercial Association of Rio de Janeiro, FIRJAN (The Federation of Industries of the State of Rio de Janeiro) and CNseg (The National Confederation of Insurance, Private Life and Social Pension, Supplementary Health and Capitalization). These entities united to create a leading arbitration, mediation and extrajudicial solutions center. This is how CBMA was born in 2002.
It was striking, for example, that the main arbitration chambers were in São Paulo but that Brazil’s leading arbitration lawyers were in Rio de Janeiro: Marcelo Ferro, Sérgio Bermudes, José Antonio Fichtner, one of the country’s leading arbitrators, Pedro Baptista Martins … and these people are still based here. So Rio is a natural location for arbitration and has everything required to be a national, continental and global player in this field.
Which major initiatives have you introduced since becoming president of CBMA in late 2014?
One of our most successful initiatives has been the division of CBMA vice-presidencies by industry sector rather than by practice area. By doing this, we quickly realised that for certain sectors of the economy – such as real estate and franchising – arbitration costs are much too high. Guided by international best practices, we introduced the practice of ‘expedited arbitration’ which can drastically reduce the cost of certain proceedings. For example, the total cost of an arbitration involving approximately R$500,000 at CBMA today, via expedited arbitration, is R$20,000. This is a cost which makes sense as, if you take your case to the judiciary, you will spend approximately the same amount.
When, our vice-president for sports, the late Vitor Butruce, held a meeting with authorities from the Brazilian Football Federation (CBF) a historic development took place. In Brazilian football and sports disputes generally, parties are always entitled to a final appeal before the Court of Arbitration in Sport (CAS) in Switzerland. Football cases automatically went to CAS as FIFA regulations state that unless a local arbitration court with the required independence and impartiality is elected by the local federation, appeals will be directed to CAS.
One can obviously imagine the costs of an arbitration in Switzerland as one needs a Brazilian lawyer, a Swiss lawyer, to cover logistical expenses, the cost of the arbitration itself … Not only did these excessive costs render many appeals unfeasible, they simply did not make sense where cases exclusively involved Brazilian parties. Following our meeting, the CBF was thrilled by the prospect of nationalising arbitration proceedings and CBMA was swiftly elected as the final appellate court for football in Brazil. Soon after, the Brazilian Basketball Federation (CBB) followed suit and went a step further - its statute now states that all conflicts involving Brazilian basketball will be resolved at CBMA.
Both achievements – bringing expedited arbitration to the local market and the shift of Brazilian football arbitrations from Switzerland to Rio – were born from the creation of industry sector vice-presidencies which are in constant interaction with representatives of the regional and national economy.
CBMA recently held a congress celebrating the second anniversary of the New Civil Procedural Code. What has the New CPC meant for Brazil?
Since the new code of 2015 came into effect, Brazilian civil procedure has changed significantly. The new code broke with several paradigms by proposing a less belligerent and more harmonious model of dispute resolution.
Brazil has reached the landmark of over 100 million ongoing cases within its courts for a reason. Historically, there has been an institutional stimulus for resolution via judicial avenues which has led to several generations of litigation-oriented practitioners. Every lawyer from my generation, upon finishing law school, knew how to file a lawsuit and to appeal, on the other hand, no attorney from that generation left law school knowing how to negotiate, mediate or find well-balanced solutions.
The very first act of the new code is the scheduling of a mediation or conciliation audience between parties. It is a paradigmatic shift and a clear message passed down from legislators to litigious parties: ‘Let’s find more consensus.’ Although the Brazilian judiciary previously showed great resistance to extrajudicial solutions, when faced with the reality of our courts, it changed its mind and began to advocate for a less belligerent culture.
This dramatic change is now perceptible within our judiciary, our legal culture and even in our legal educational system in which arbitration, mediation and alternative dispute resolution courses are appearing for the very first time.
In an increasingly competitive market, how does CBMA stand out from other arbitration chambers?
I cannot see competition occurring between arbitrations chambers due to the vacuum which exists in the market. There is a gap which is yet to be filled, so even if all arbitration chambers grow simultaneously, there is room for each of them to expand at a very high rate. For example, if this gap had been filled, arbitration chambers would not have been able to cope with the demand for arbitration services, so for now, there isn’t the need for competition amongst these organizations. So much so that I make a point of inviting presidents and major figures from other chambers to participate in our most important events and they do likewise.
Over the last 12 months which trends and developments have appeared in the Brazilian arbitration sphere?
In the next few years, I predict a growth in arbitrations against the state. There has been a growing acceptance in the legal sector that the Brazilian judiciary cannot single-handedly resolve all our problems and, as the public sector is the single largest litigator in the country, it is also the most affected party.
The poor functioning of our judicial system frightens national and international investors which has led to arbitration increasingly being recognised as an attractive alternative. Arbitration eliminates the risk of lengthy judicial proceedings which routinely last between 10 to 15 years in Brazil, creates greater legal safety and renders the public sector more accountable for its actions due to the speed with which sentences are delivered.
Although the reformed Arbitration Law of 2015 allows for the use of arbitration by the public sector, it is a recent development, which means its potential users – heads of executive government, prosecutors, lawyers – still need convincing. Its dissemination will be a gradual process and has everything to do with the cultural change currently ongoing within our legal system.
The benefits for the public sector are clear. If cases are resolved swiftly, governments become more accountable and greater legal safety becomes the norm – investors will feel more comfortable doing business with the state. So the more we expose this reality to its potential users, the more they will understand that it is worth it.