ENFORCEMENT OF AWARDS IN BRAZIL (Part II of VI)

II. THE 1996 BRAZILIAN ARBITRATION ACT AND ITS CONSTITUTIONALITY

It was in a scenario of an overwhelming number of cases that Brazil enacted, in 1996, the Arbitration Act n. 9.307,(LAB  in Portuguese)(8). The goal was to move many issues to the arbitration world reducing the workload ...

Brazil had ratified the Panama Convention  the year before to validate commercial settlements among the Inter-American States, therefore, it was a regional solution for commercial conflicts. The Panama Convention, states that a State signatory without its own national body of arbitration rules should be subject to the regulations of the Inter-American Convention on International Commercial Arbitration (9). Although arbitration has been present in Brazil since 1824, it was only in 1996 that this modern law was introduced, establishing a much more efficient arbitration procedure. The Brazilian Arbitration Act has been inspired by other legislation such as the UNCITRAL Model Law, the Spanish Arbitration Act, the New York Convention of 1958 and the Panama Convention of 1975.

However, the Brazilian Arbitration Act did not generate the expected boost to national and international arbitration at the beginning. The socio-economic and political situation of the country conspired against the use of arbitration as a way of dispute resolution and the process of implementing it was slower in Brazil compared to other developing countries. One very important Justice Minister, Sepulveda Pertence (10), then the president of the Supreme Federal Tribunal, resisted arbitration believing that  Section 7 of the Arbitration Act was unconstitutional. In his view, the language of this article was a violation of Section 5, item XXXV of the Brazilian Federal Constitution, which guarantees everyone the right of access to the State Courts. 

Some judges took the position that if an arbitration clause was not specific with regard to the details of arbitration, then the clause was not valid and arbitration could not be forced upon an unwilling party. This concept was based on the provisions of the 1916 Civil Code and the 1973 Civil Procedure Code, where “promises to contract” were not enforceable. In the absence of an agreement with all the details necessary for arbitration,  the clause was considered “empty” and therefore not enforceable.  However, a “Full” clause (11) , with all of the particulars of the arbitration, was enforceable.

However, these “empty and full clauses” can be understood and harmonized with the analysis of Chapter II - The Arbitration Agreement and its Effects, articles 3, 4, 5, 6 and 9 of the Brazilian Arbitration Act.  There Article 3 states: “The interested parties may submit the settlement of their disputes to an arbitral tribunal by virtue of an arbitration agreement, which may be in the form of either an arbitration clause or a submission to arbitration (“compromisso“). This concept of “compromisso” is from the Portuguese and means, literally, “submission agreement”, which is an agreement with all of the particulars of the arbitration clearly stated. So, this article sets forth two distinct ways to get to arbitration, one by an agreement that simply says that arbitration will be used to settle all disputes and also by a submission agreement that sets forth all of the terms of the arbitration. However, Article 4 of the 1996 Arbitration Act defines the arbitration clause as the agreement whereby contracting parties oblige themselves to settle through arbitration all disputes that may arise relating to the contract.

“Compromisso” according to article 9 of the Brazilian Arbitration Act is the agreement through which parties submit a dispute to arbitration. Article 5 says that if parties select the rules of an arbitral institution they are ready for arbitration. Articles 6 and 7 address the situation where parties agreed on arbitration and how to deal with the reluctant party where the arbitration clause is simply the agreement to arbitrate. Therefore, the Brazilian Arbitration Act of 1996 gives all the mechanisms for the arbitration in both events, in case of a empty clause simply requiring arbitration, or the complete clause but it was a huge interpretation issue at the beginning and to understand this painting help professionals to draw the right sketch to arbitration.

Between 1996 and  2001, Brazilian courts reached contradictory decisions based on conflicting  interpretation on the question of enforceability of pre-dispute arbitration agreements.  For example, Judges like Renato Sartorelli (12) from a Sao Paulo Higher Court held that a simple arbitration clause was insufficient to start an arbitration and did not prevent interested parties from referring the dispute to the court.   Another Higher Court Judge,  Edilson Fernandez (13) from Minas Gerais,  held that the simple existence of an arbitration clause was not an obstacle to access to the judicial courts. A Sao Paulo Higher Court, Judge Elliot Akel (14), also concluded that the arbitration clause could not stop the State and its jurisdictional machine from providing emergency protection.

The 1996 Brazilian Arbitration Act allows Court’s intervention and Courts to insure the parties autonomy choice to arbitrate and to provide means to insure arbitration procedures.  What was happening in Brazil during this period was that some Courts would disconsider the empty (simple) clause and accept the dispute under their jurisdiction while other Courts would attempt to convince the parties to agree to the method of arbitration and  if they could not agree, the Court would then write the submission agreement (compromisso) (15) for the parties setting all of the rules of arbitration and who would do the arbitration. Obviously having to get the court involved to settle these procedural roles mean additional costs and transactions, time and risks when the whole purpose of arbitration is exactly to keep the court and all its burdens out of the process. So, here the competence-competence approach  should come into play, allowing the arbitral tribunal to decide questions of jurisdiction and the issue of whether the arbitration agreement is valid.

In Celso Vargas vs. Brazil-Canada Chamber of Commerce (16)  the court decided that  arbitration should be held according to the rules of that Chamber, because it had the competence to start the arbitration procedures. In this case, one company filed for arbitration and the other, Celso Vargas, refused to sign an agreement to permit arbitration to go forward. The process continued  until an award was rendered against Celso Vargas. Then Celso Vargas brought a court action to prevent the enforcement of the award. The Court enforced the arbitration award on the ground that arbitration was called for in the contract agreement and Celso Vargas was on notice that the arbitration was going forward and refused to participate. Therefore, Celso Vargas was bound by the rules of Brazil-Canada Chamber of Commerce.

In Americel S/A v. Compushopping Informatica Ltda. ME(17), Americel refused to participate in arbitration in the face of a simple arbitration agreement. In response,  Compushopping brought a lawsuit under Article 7 of the Act and the court ordered the arbitration to go forward and nominated an arbitrator and two possible substitutes as per the arbitration clause.   This is a typical case when one of the contracting  parties had to go to the court to force the other party to attend the arbitration. In Brazil, the losing party, if a settlement is not reached, pays  the costs of the lawsuit but this system is far from perfect. Finally, the Supreme Federal Tribunal, in its session of December 12, 2001 (18), in a majority decision, found in favor of the constitutionality of all arbitration Acts. This decision ended the dispute by ruling that an arbitration clause is enforceable even if it simply states that the parties agree to resolve their issues via arbitration without any additional details as to where the arbitration will be held, what law will apply, etc.  Arbitration is to be followed if the parties agreed to it in their contract. 

Since this Superior Federal Tribunal decision on constitutionality, the courts have harmonized their views on enforcing arbitration clauses in international commercial contracts. In Banco Fontecidam S.A. v. Banque Nationale de Paris-Brasil S.A. (19), the court ruled differently from previous cases. Now the court ruled that Article 3 of the Arbitration Act brings a wider concept regarding arbitral convention. According to this ruling, this article not only enforces the arbitration commitment (compromisso)  but also protects the simple empty clause. Therefore, both of these clauses exclude the Judiciary’s power over the dispute,  except in a very limited number of nullity or annulment cases. The rule in articles 2 and 9 of the 1996 Brazilian Arbitration Act prevails over conflicts of laws as the parties are free to choose the law and the procedure they want in international contracts. In Total Energy, SNC and Outra v, Theory Invest Negocias Ltda (20) the court ruled that the parties were free to choose the rules of applicable law in the arbitration. However, if the parties do not provide for the applicable law in their agreement, Brazil's conflict-of-law rules will apply.

The 1996 Brazilian Arbitration Act allows patrimonial rights to be subject to arbitration as long as they are free and are not subject to claims of ownership by others. The Act excludes from the scope of arbitration issues regarding criminal, antitrust and patent matters. Although there is an inclination for not accepting non-signatories parties  to arbitral agreements there is a recent case that two companies survived the merger and were binding on the original arbitration agreement according to a Sao Paulo State Court.

(8) * Lei Brasileira de  Arbitragem n. 9.307 de 1996; 1996 Brazilian Arbitration Act n. 9.307 - LBA; In English: http://www.cbar.org.br/site_ing/brazilian_legislation/brazil_law_9.307_96.html

(9) Inter-American Convention on International Commercial Arbitration  (Panama Convention) http://www.sice.oas.org/dispute/comarb/iacac/iacac2e.asp

(10) 1988 Constitution of Brazil;
In English: http://www.en.wikipedia.org/wiki/Constitution_of_Brazil

(11) Gomm Ferreira, Mauricio; INTERNATIONAL COMMERCIAL ARBITRATION IN LATIN AMERICA: The Practitioner´s Conference on the Investment Climate and Increasing Use of International Commercial Arbitration in Latin America

March 12 - 2004, New York City - USA, ARBITRATION IN BRAZIL

http://www.camarb.com.br/areas/subareas_conteudo.aspx?subareano=47

(12)  Agravo de Instrumento n. 1.111.650-0 – 1º Tribunal de Alçada Civil de São Paulo, (26a Vara Civel, proc. N. 01-010.178-0) Appeal with review, No. 479.936; (see also: Lemes, Selma Ferreira; A Arbitragem e a Jurisprudência Paulista, march 2006, http://www.selmalemes.com.br/artigos/artigo_juri05.pdf)

 (13) Agravo de Instrumento n. 0273072-3, 3ª Câmara Cível, Rel. Edílson Fernandes, vu, j. 24.02.1999.

(14) Agravo de Instrumento n. 240.062-4, Rel. Elliot Akel, j. 27.08.2002

 (15)  “Compromisso”, the submitting agreement; In fact, it was the Superior Court of Justice which, long before the Arbitration Law was enacted, validated a foreign arbitral award based simply on the existence of an arbitration clause, at a time when the compromisso was the only instrument capable of setting aside the jurisdiction of the state courts. More recently, one of the Court’s members, Justice José Delgado, admitted that the only change he would make in the Arbitration Law would be precisely to give greater powers to the arbitrator and, specifically, the power to issue an enforcement order for the immediate compliance of his decision, without need for intervention by the judicial courts, including the power to impose a daily penalty for non-compliance.

 (16) June 3, 2002, Declaratory Action 000.01.004878-2, 16th Judicial Civil District Court of Sao Paulo, Judge Alexandre Alves Lazzarini.

(17) Americel S.A. v. Compushopping Informatica Ltda and others (2003), DJ 26 May 2003, p. 00360, 3003, STJ Resp. n. 450881. March 5, 2001, Civil Appeal 1999. 01.1.083360-3-3a. Civil Panel of the Superior Court of Distrito Federal-Des, Lucio Resende-Presidente. Des. Vasquez Cruxn-Relator.

 (18) COELHO, Daniel. O Processo de Homologação da Sentença Arbitral Estrangeira no Superior Tribunal de Justiça. Rio de Janeiro: UERJ, 2006. Monografia apresentada ao Mestrado da Universidade do Estado do Rio de Janeiro   

(19) April 16, 2001, Lawsuit No. 000. 00.631007-9-40a, Vara Civel do Foro Central da Comarca de Sao Paulo, Judge Cecilia Pinheiro da Fonseca.

 (20) Total Energy vs. Theory, http://www.allbusiness.com/legal/mediation/1044437-1.html