The Brazilian Arbitration Act was enacted more than two decades ago and had its constitutionality declared incidentally by the Brazilian Supreme Court in the context of an appeal arising from a proceeding of ratification of a foreign court decision.(1) The constitutionality of the Arbitration Act was analysed with respect to the constitutional guarantee of non-obviation of judicial jurisdiction. The conclusion was that the Federal Constitution ensures access to the justice system, but at the same time also ensures the right to settle disputes by other mechanisms.
Even though the discussion concerning the constitutionality of the Arbitration Act has already been fully overcome, the Rio de Janeiro Court of Appeals, at the end of 2020, decided to review the issue of non-obviation of judicial jurisdiction to deny the enforceability of an arbitration clause due to the supervenience of a decree of bankruptcy of one of the contracting parties.(2)
The lawsuit was a contractual review lawsuit involving a request for damages filed jointly by Stiebler Arquitetura e Incorporações Ltda and two specific purpose societies. The agreement between the parties contained an arbitration agreement; the defendants raised such agreement as a preliminary challenge to the lawsuit. The judge granted the request to dismiss the lawsuit, holding that the dispute should be settled by an arbitral tribunal.
However, after Stiebler's bankruptcy decree, the judicial trustee requested that the bankruptcy court should be considered to be the only court to rule on issues involving the bankrupt company. Stiebler, for its part, also argued in its appeal that a company under a bankruptcy regime, which means subject to the Brazilian Reorganisation and Bankruptcy Act,(3) cannot be a party in arbitration proceedings, claiming that this would be a breach of the guarantee of non-obviation of judicial jurisdiction.
In addition to analysing other issues that fall beyond the scope of this article, the Rio de Janeiro Court of Appeals – more specifically, the Third Civil Chamber of the Rio de Janeiro Court of Appeals – considered that the arbitration clause could not have unrestricted application and its analysis should consider the high costs that would be borne by the insolvency estate and by the creditors.
Thus, considering that the insolvency estate could not pay for the costs of an arbitration proceeding, the Court held that the right to access the judicial jurisdiction should be protected and the dispute should remain within the judicial court. This decision was subject to a motion for clarification that was dismissed by the Rio de Janeiro Court of Appeals. Following this, an appeal to the Superior Court of Justice was filed by one of the parties to discuss whether the arbitration clause remained valid.(4) The appeal was received by the Superior Court in September 2021 and is pending trial.
The decision rendered by the Rio de Janeiro Court of Appeals represents a step backwards from the well-established case law on this issue. In fact, the Superior Court itself had already rendered strategic decisions regarding the use of arbitration in Brazil and the arbitrability of disputes involving companies going through insolvency proceedings. An example is a decision rendered by Minister Nancy Andrighi in 2008,(5) which decided on a matter of arbitrability involving a company in out-of- court liquidation. This matter involved ABC Health Services Hospital and Interclinical Health Plan SA, and the minister rapporteur considered that the arbitration clause remained valid, as it had been concluded before the decree of liquidation.
Another example is Targa v Cremer, judged by the Rio de Janeiro Court of Appeals in July 2014.(6) Targa turned to the judicial court to request the suspension of an arbitration proceeding, claiming that the issues under discussion involved a matter that could not be subject to arbitration because the company was under a reorganisation proceeding. The Court ruled that since the discussion was substantially contractual, there were no grounds to discuss the lack of arbitral jurisdiction.
Such cases are not isolated and are in line with legislative developments on the subject. First, the II Commercial Law Seminar of the Council of Federal Justice, held in 2015, approved the following statement:
if there is arbitration agreement, if one of the parties has been declared bankrupt: . . . the judicial trustee cannot refuse the effectiveness of the arbitration clause, given its autonomy in relation to the contract.
Although this statement had no binding force, it reinforced the interpretation given by scholars regarding the matter.
With the enactment of Law No. 14,112/20, the Brazilian Judicial Reorganisation and Bankruptcy Act was amended to expressly provide as follows:
the commencement of judicial reorganization proceeding, or the decree of bankruptcy does not authorise the judicial trustee to refuse the enforcement of the arbitration agreement, not preventing or suspending the beginning of the arbitration proceedings.(7)
This means that the judgment of the Third Civil Chamber of the Rio de Janeiro Court of Appeals, which rejected the enforceability of the arbitration clause, disregarded all recent case law developments and even legislative changes on the matter.
If the precedent of the Third Civil Chamber of the Rio de Janeiro Court of Appeal is not reviewed – which is apparently a remote hypothesis – such interpretation will bring legal uncertainty to arbitration agreements and imply a real setback in relation to the institute.
There are still problems regarding the compatibility between arbitration and insolvency; however, provided that the matter under discussion is considered arbitrable under the Brazilian Arbitration Act, the state and the arbitral jurisdictions can and must live harmoniously. It is expected that when the appeal is judged by the Superior Court, it will maintain its position regarding the binding effect of the arbitration clause, which will be aligned with the legislative developments on the matter.
For further information on this topic please contact Renata Oliveira or Nathalia Cristina Mello Vargas at Machado Meyer Advogados by telephone (+55 11 3150 7000) or email ([email protected] or [email protected]). The Machado Meyer Advogados website can be accessed at www.machadomeyer.com.
(1) Case No. 5,206, judged in 2001.
(2) Case record No. 0018212-97.2015.8.19.0209.
(5) Precautionary Measure No. 14,295/SP.
(6) Case record No. 0016509-16.2014.8.19.0000.