In a significant ruling, the Court of Appeals of the State of São Paulo reversed a first-instance judgment and annulled an arbitral award, determining that one of the co-arbitrators had failed to disclose that he had previously served on another arbitral panel alongside an attorney representing the winning party. The court stated that under Brazilian law, the duty of disclosure for arbitrators is objective and continuous. Failure to disclose facts that could raise a reasonable doubt about an arbitrator’s impartiality and independence was found to be enough to invalidate the award, even in the absence of proof of actual bias.
This ruling is notable for arbitration professionals, as it comes at a time of increased attention on arbitrators’ disclosure obligations in Brazil, highlighting the importance of full transparency in arbitration proceedings.
The decision in <span class="news-text_italic-underline">Orion v Engie</span> has significant practical implications particularly regarding the duty of disclosure for arbitrators. The <span class="news-text_italic-underline">Brazilian Arbitration Act (Federal Law No 9,307/1996)</span> mandates that arbitrators disclose any facts that may create reasonable doubts about their impartiality and independence. In this case, the court reaffirmed that arbitrators’ duty of disclosure is both objective and continuous. Even in the absence of actual bias, failure to disclose relevant facts can invalidate an arbitral award.
Brazilian courts have taken varying positions on what constitutes “justified doubts” regarding impartiality. Factors such as the availability of information, parties’ duty to cooperate and whether parties are required to independently investigate arbitrators contribute to this uncertainty. The <span class="news-text_italic-underline">Orion v Engie</span> case reinforces the need for clear and broad disclosures by arbitrators and reflects a growing trend among Brazilian courts to enforce these obligations more strictly. The court highlighted several key points in this case:
This ruling aligns with a prior decision in which the court annulled an arbitral award due to an undisclosed professional connection between the arbitrator and a party’s counsel. The court focused on the frequency and significance of the interactions and how the lack of disclosure interfered with the affected party’s right to make an informed decision.
The <span class="news-text_italic-underline">Orion v Engie</span> decision is especially significant amid ongoing debates and legislative efforts to clarify the duty of disclosure in Brazil. The Brazilian Supreme Federal Court is reviewing a constitutional suit on the matter and the Brazilian Congress is discussing a bill (Bill No 3,293/2021) that could modify the country’s Arbitration Law. The Brazilian Arbitration Committee (“<span class="news-text_medium">CBAr</span>”) has also issued guidelines on this topic.
Ultimately, <span class="news-text_italic-underline">Orion v Engie</span> adds another important layer to Brazil’s evolving case law on arbitrators’ duty of disclosure. Arbitration practitioners in Brazil should pay close attention to this case and its implications. However, it is essential to note that the decision is still under appeal to the Superior Court of Justice (“<span class="news-text_medium">STJ</span>”), which will have the final say on this matter.
The dispute between Engie and Orion arose from an arbitration administered by the FGV Mediation and Arbitration Chamber. Engie won the arbitration, with the arbitral tribunal issuing an award in Engie’s favour in March 2022.
After the arbitration concluded, Orion allegedly discovered that one of the co-arbitrators appointed by Engie had previously worked with one of Engie’s attorneys in another arbitral tribunal. This relationship, which the co-arbitrator had not disclosed, raised concerns for Orion. Specifically, Orion argued that the co-arbitrator had played a role in the appointment of Engie’s attorney as the president of the earlier tribunal.
As a result, Orion filed a lawsuit in the lower courts of the State of São Paulo, seeking to annul the arbitral award. Orion contended that the co-arbitrator’s failure to disclose this past relationship (i) prevented Orion from fully understanding and raising objections regarding the connection between the two professionals and (ii) created a breach of trust and justified doubt regarding the co-arbitrator’s impartiality and independence.
In its defence, Engie argued that: (i) under Brazilian law and the IBA Guidelines on Conflicts of Interest in International Arbitration, arbitrators were not required to disclose previous joint service with counsel for one of the parties; (ii) the prior arbitration had concluded before the Engie-Orion arbitration began; (iii) the situation did not create a justified doubt about the co-arbitrator’s impartiality; and (iv) the facts Orion discovered were publicly available even before the arbitration was initiated.
The lower court (first-instance judge) rejected Orion’s attempt to annul the arbitral award. The court ruled that: (i) the information Orion discovered was publicly available, so there was no obligation for the co-arbitrator to disclose it; (ii) the facts presented by Orion did not sufficiently raise justified doubts regarding the co-arbitrator’s impartiality and independence; and (iii) the situation fell under item 4.3.2 of the IBA Guidelines’ Green List, which exempts arbitrators from disclosing when they have previously served with a party's counsel in a different arbitration.
Orion appealed to the Court of Appeals of the State of São Paulo, which reversed the first-instance ruling. The appellate court pointed out inconsistencies in the co-arbitrator’s disclosures. Initially, the co-arbitrator denied any professional relationship with the attorney, but later acknowledged that both the attorney’s and co-arbitrator’s law firms had represented a common client in another arbitration.
The court disagreed with the first-instance judgment on the seriousness of the undisclosed facts. It ruled that the co-arbitrator had a duty to disclose his prior involvement in an arbitration with Engie’s counsel, as this information was pertinent and raised reasonable doubts about his impartiality. The court stressed that the duty to disclose lies with the arbitrators and while the parties have a duty to cooperate, they are not obligated to independently investigate the arbitrators. The court further noted that the arbitrator should have disclosed the facts so the parties could form their own conclusions about potential doubts regarding impartiality.
In addressing the claim that the facts were publicly available, the court clarified that the information was not public by nature and could only be accessed through specific research, such as searching the arbitral institution’s website.
The court concluded that the co-arbitrator’s failure to disclose this information was a breach of good faith and that this breach warranted the annulment of the arbitral award. Following this decision, Engie appealed to the Brazilian Superior Court of Justice (the highest court for non-constitutional matters) and successfully obtained a partial suspension of the annulment's effects. However, as of the publication of this article, the appeal is still pending.
The <span class="news-text_italic-underline">Orion v Engie</span> decision highlights the importance of arbitrators’ duty of disclosure in Brazil, reaffirming that failure to disclose relevant information, even without actual bias, can lead to the annulment of an arbitral award. The court mentioned that arbitrators must disclose facts that may raise reasonable doubts about their impartiality and independence, allowing the parties to make informed decisions. This ruling strengthens the enforcement of disclosure obligations in Brazilian arbitration, although the matter remains under review by the STJ, which could further shape the country's arbitration framework.
