This paper intends to provide useful information in order to assist those negotiating contracts in Brazil to decide whether to submit potential future disputes to arbitration or litigation. The elements affecting this decision normally relate to factors such as the enforceability of the decision, partiality and risk of corruption, expertise of judges/arbitrators, and familiarity of the parties with the procedure. This paper focuses on two other very relevant factors, namely the costs and the duration of the procedures.

The importance of cost and duration and their influence in the contracting parties’ choice between arbitration and litigation are somewhat self-evident. These two factors are also related to each other insofar as the longer the procedure, the more expensive it becomes. The costs incurred by the party will eventually reduce the value of the right being adjudicated to it. Even if the party later recovers part of these costs by virtue of the common rule in Brazil that places the economic burden of the procedures on the shoulders of the defeated party, this recovery is never in full. The duration of the procedure also directly affects the value of the right, especially in those situations where the party would be able to obtain other investments at a rate of return higher than the legal or contractual interest rate accrued on the disputed right.

For many years observers have made record of most Latin American countries’ reluctance to embrace arbitration as an effective means of dispute resolution. Even though the progress experienced by the region lately may not yet have changed the long-held foreign investors’ suspicion, it is indisputable that improvements have been made. In recent years with the opening of their countries’ economies, Latin America has sought to adopt dispute resolution mechanisms that might favor foreign investments. This effort has created a legal environment more favorable to arbitration, as foreign investors are usually reluctant in submitting the resolution of their disputes to national courts, and the local judiciary is seldom able to handle the ever-increasing complexity of business disputes. In following this tendency, Latin American countries started to both adhere to multilateral conventions on the recognition and enforcement of foreign arbitral awards and to review their domestic arbitration statutes. This renewed approach resulted in an increasing number of Latin American parties participating in international arbitration in the last decade, as well as in an increasing number of Latin American experts being appointed as arbitrators in the major arbitral tribunals around the world.

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