A new rule was issued on September 20, 2019 (Decree No. 10.025) allowing disputes in the road, railroad, water and air transportation industries which involve the federal government, its related entities, concessionaires and other public service providers to be resolved through arbitration.
With the new rule, dispute resolution is expected to become more efficient and faster in these cases. For that purpose, the decree determines that the arbitration must take no longer than two years, renewable for additional two years. This means that disputes will be resolved in a significantly shorter period of time, if compared to the endless lawsuits that usually involve the federal government and its concessionaires. Although advantageous, however, this may cause some concern as such disputes are typically very complex from a technical perspective and tend to demand more time than only two years.
Nonetheless, the fact that arbitration is a more agile and specialized procedure can make concessions more attractive for investors – especially foreign investors – in the future. In addition, the decree provides for confidentiality in arbitrations, settling an important point of concern for cases involving the government. The procedures under the decree are to be public, except for matters involving industrial or commercial secret.
The new rule places on the private party alone the burden to pay the costs of the arbitration upfront. It also lists the matters that can be brought to arbitration, namely: restoration of the financial and economic balance of the contract; (ii) calculation of indemnity for termination or transfer of contract; and (iii) parties’ default under the contract, including the imposition and calculation of any relevant fines. Having such a list in place improves legal certainty in this type of arbitration as there will be no discussion on which matters can be brought to arbitration in cases involving the government.
The decree also demands that the general counsel to the federal government (local acronym AGU) be enrolled with arbitration chambers.
It remains to be seen whether the decree will actually bring the expected benefits. With respect to matters that need further explanation and regulation, it will take the effort of both the government and private parties to clear any doubts that will arise along the way. It is only with the effort of all those involved that legal certainty can be assured, attracting investments and bringing benefits for both the government and the private entity.
