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Brazilian court decision shows support for arbitration by restating kompetenz-kompetenz principle on objections to arbitration agreements
Practical Law UK Legal Update Case Report 8-507-1291 (Approx. 3 pages)
Brazilian court decision shows support for arbitration by restating kompetenz-kompetenz principle on objections to arbitration agreements
by Practical Law
| Published on 04 Aug 2011 • Brazil |
Eduardo Damião Gonçalves (Partner), Flavia Foz Mange (Associate), and Débora Auler de Almeida Prado (Associate), Mattos Filho Advogados
In a unanimous decision rendered on 30 June 2011, the Court of Appeals of the State of Rio Grande do Sul (TJRS) restated the negative effect of arbitration agreements. In doing so, the TJRS reaffirmed a first instance decision, dismissing the claimant's action for payment due by the respondent for services rendered under agency agreements' regardless of alleged defects in the arbitration agreement. The TJRS' decision confirms the kompetenz-kompetenz principle.
Background
Law No. 9,307/96, the Brazilian Arbitration Act 1996 (BAA), contains the following relevant provisions:
- Article 1 provides that persons capable of entering into contracts may settle through arbitration disputes related to negotiable patrimonial rights.
- Article 4(2) states that, as regards adhesion contracts, the arbitration agreement shall only be binding if the adherent party takes the initiative to file a request for arbitration or expressly agrees to its institution, by writing in a separate addendum to the contract or by having the arbitration agreement in bold letters with an exclusive signature for this agreement.
- Article 8 provides that the arbitrator must determine, ex officio or at the parties' request, whether the arbitration agreement is non-existent, invalid or ineffective.
Article 267, VII, of the Brazilian Code of Civil Procedure (Law No. 5.869/73), as amended by the BAA, provides that an action concerning a dispute which is subject to an arbitration agreement shall be inadmissible.
Facts
Newtec Assesoria Técnica em Seguros Ltda (claimant), in breach of an arbitration agreement, filed a lawsuit before the first instance Court of Porto Alegre for payment due by Unibanco (respondent) of an amount for services rendered under agency agreements. The court dismissed the claimant's action on the ground of violation of the arbitration agreement, based on Article 267, VII, of the Code of Civil Procedure.
The claimant then filed an appeal against the decision, arguing that the arbitration agreement was not binding on the parties, since it was included within an adhesion contract without the claimant's express consent.
Decision
The TJRS upheld the first instance decision and stated that:
- The claimant's allegations concerning the non-binding effect of the arbitration agreement were to be held and tried before the arbitral tribunal.
- The arbitral tribunal must have the first say when it comes to objections on the binding character of the arbitration agreement.
- The state courts are only able to examine or re-examine such allegations after the arbitral tribunal has issued a decision on such matters, and only if one of the parties files an annulment lawsuit against the arbitral award.
Comment
The recognition of the binding effect of the arbitration agreement and of the arbitrator's first say in matters concerning the validity of the arbitration agreement, regardless of allegations of the pathological character of that agreement, demonstrates the Brazilian courts' support for arbitration and the importance of the kompetenz-kompetenz principle. It is interesting to note that the state judges applied the principle correctly, understanding that they only have the power to hear such objections on the validity of the clause at a later stage, if one party tries to set aside the arbitration award upon the filing of an annulment lawsuit, thus restating the modern kompetenz-kompetenz principle.
Following the trend of arbitration-friendly decisions by Brazilian Superior Courts, more and more Courts of Appeal from different states in Brazil are applying the same principles and respecting the BAA.