Isabella Pozza is an author of this article.

Arbitration is  the preferred dispute resolution mechanism in today’s business environment, offering an efficient alternative to traditional courts through swift and cost-effective resolution of complex disputes. However, despite the many benefits associated with arbitration, it is important to acknowledge that it is not free from challenges. Over the past year, the São Paulo Court of Justice (TJSP)1 dealt with cases that resulted in the annulment of arbitral awards.

Lessons from São Paulo Court Decisions

In a highly controversial case, the court annulled a  BRL 9.9 million (approximately USD 1.6 million) award the pharmaceutical company Biogaran had obtained in arbitration in a dispute with the owners of the Brazilian laboratory Pharlab Indústria Farmacêutica at the Brazil-Canada Arbitration and Mediation Center (CAM-CCBC).2 The court decision was based on the finding that one of the arbitrators failed to disclose joining another arbitral institution, where she worked alongside an attorney representing Biogaran. This attorney, who had a prior professional relationship with the arbitrator, specifically nominated her for the Biogaran arbitration, raising doubts about her impartiality.

The court based its decision on “the failure to disclose a relevant fact compromises the arbitrator’s impartiality and independence” and that “the annulment of the arbitral award is justified by the violation of the duty of disclosure.”

Another award was annulled by the TJSP in September 2024 due to the presiding arbitrator’s failure to disclose his professional ties with one of the parties to the arbitration.3 It was reported that the presiding arbitrator of the proceeding in question regularly provided legal opinions to the opposing party’s law firm. The services rendered involved substantial amounts—one of these opinions, for example, resulted in payment of BRL 800,000 (approximately USD 140,000) to the arbitrator.

Arbitral awards are not frequently annulled. Courts typically avoid interfering with arbitral awards to preserve the independence and effectiveness of this conflict resolution method. However, when questions arise about the impartiality of arbitrators or the transparency of the process, the Judiciary can be called upon to uphold fundamental principles of justice.

In the cases cited, the failure to disclose relationship information about the arbitrators resulted in the annulment.

Impartiality vs. Independence

The distinction between impartiality and independence is often emphasized in IBA Guidelines on Conflicts of Interest in International Arbitration4, which set out best practices for arbitrators to disclose relationships that might affect their independence or the perception of their impartiality. In arbitration, impartiality means that an arbitrator stays fair and doesn’t favor one side over the other; they focus only on the facts and arguments presented. It ensures fairness in decision-making based solely on the merits of the case. Independence, on the other hand, is about not having any outside connections or relationships, like financial ties or friendships, that could make someone question the arbitrator’s ability to stay neutral. While impartiality is about their mindset, independence is more about their situation.  While an arbitrator can be independent (having no conflicts of interest) but still be biased in their reasoning, both qualities are essential for ensuring the integrity of arbitration.

In the TJSP cases, we see that the awards were annulled due to arbitrators’ failure to disclose relevant professional relationships, highlighting the distinction between independence and impartiality—while independence refers to the absence of external influences, impartiality concerns the arbitrator’s unbiased judgment, which was called into question by undisclosed ties with parties involved in the disputes.

The Duty of Disclosure and Impartiality

In a technical note issued in September 2022,5 the Brazilian Arbitration Committee (CBAr) addressed the scope and consequences of arbitrators’ failure to comply with the duty of disclosure in light of a case where the TJSP annulled an arbitral award on grounds of impartiality failure due to non-disclosure. Similar to the Biogaran case, the TJSP ruled that the arbitrator’s failure to disclose their appointment in another arbitration involving one of the parties undermined their impartiality, leading to the annulment of the award. For the court, “any and all information capable of raising doubts about the arbitrator’s impartiality” must be immediately disclosed.

Although it did not express an opinion on the specific case, CBAr highlighted that the duty of disclosure serves as a transparency mechanism and should not be confused with the duty of impartiality. A failure in the former does not automatically entail a violation of the latter. The Committee further added that annulment of an arbitral award should be based on concrete evidence of bias or compromised independence, rather than merely on failure to disclose irrelevant circumstances.

Protecting Your Arbitration Award

In StoneTurn’s experience, it is critical to conduct thorough due diligence during the arbitrator’s selection process to avoid possible annulments of the award. In fact, arguments have been made in the Brazilian courts that public or easily accessible facts, such as the composition of the court, do not need to be revealed by the arbitrators. If this understanding prevails, it becomes even more imperative for the parties to monitor professional affiliations of the arbitrators throughout the arbitration and even after the award is rendered.

Here’s how this due diligence can be conducted:

Before the arbitration:

• Review the arbitrator’s disclosures for completeness and relevance.
• Investigate any professional or personal connections with the parties involved.
• Examine the arbitrator’s history in prior arbitrations to identify potential patterns of bias.

During the arbitration:

• Monitor for any new disclosures or undisclosed relationships that might arise.
• Assess the arbitrator’s conduct and decisions for impartiality and adherence to procedural fairness.
• Monitor public or private professional activities that may conflict with the arbitrator’s role.

After the arbitration ends:

• Evaluate the post-award period for any developments that could call impartiality into question.
• Verify that the arbitrator adhered to all transparency requirements during the process.

This structured approach ensures a proactive stance and can be critical in ensuring that the award is recognized and upheld by courts. By leading with diligence, parties can help avoid unnecessary disruptions to the arbitration process, including rejections by the courts.

1 In Portuguese, Tribunal de Justiça de São Paulo.
2 Civil Appeal No. 1048975-61.2022.8.26.0100/TJSP.
3 Civil Appeal No. 1048975-61.2022.8.26.0100/TJSP.
4 https://www.ibanet.org/document?id=Guidelines-on-Conflicts-of-Interest-in-International-Arbitration-2024.
5 https://cbar.org.br/site/wp-content/uploads/2022/09/cbar-nota-tecnica-dever-de-revelacao-20220920-final-fal.pdf

If you have any questions or would like to discuss these topics please reach out to Snežana Gebauer.

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