10 Traps To Avoid In Drafting Arbitration Agreements*

Introduction

Arbitration in Brazil is regulated by Law No. 8,307, of September 23, 1996 (the Brazilian Arbitration Act), which applies to all arbitral proceedings with their seat in the Brazilian territory, and it is based on the UNCITRAL Model Law and on the Spanish Arbitration Law of 1988. Furthermore, Brazil ratified and introduced, without reservations or declarations, the New York Convention into its legal system through Legislative Decree No. 52, of April 25, 2002, and it is party to several multilateral treaties on international commercial arbitration, such as (i) the Geneva Protocol on Arbitration Clauses of 1923; (ii) the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards of 1979 (the Montevideo Convention); (iii) the Inter-American Convention on International Commercial Arbitration of 1975 (the Panama Convention); (iv) the Protocol of Las Leñas of 1992; and (v) the MERCOSUR Agreement on International Commercial Arbitration of 1998.

A significant number of arbitration institutions or centers have been created or have gained reputable prestige in Brazil and abroad, such as the Arbitration and Mediation Center of the Chamber of Commerce Brazil-Canada (CCCB), the São Paulo Chamber for Mediation and Arbitration (FIESP/CIESP), the Conciliation and Arbitration Chamber of the Fundação Getúlio Vargas (FGV), the Corporate Chamber of Commerce in Brazil (CAMARB), the Arbitration and Mediation Center of the American Chamber of Commerce in São Paulo (AMCHAM), the Mediation and Arbitration Center of the Portuguese Chamber of Commerce in Brazil and the Market Arbitration Center (Câmara de Arbitragem do Mercado – CAM) instituted by the Brazilian Exchange (BM&FBOVESPA).

Use of institutional international arbitration is more common in Brazil than ad hoc international arbitration. If and when the parties choose ad hoc arbitration in Brazil, they will usually follow the UNCITRAL rules.

An arbitration agreement must fulfill certain requirements to be valid and enforceable under Brazilian law. We will now discuss ten traps that should be avoided in drafting arbitration agreements which might adversely affect their validity and enforceability in Brazil.

Trap No 1 – Is the Issue Arbitrable?

The first trap is to avoid the inclusion of a matter that cannot be arbitrated in the arbitration agreement. Some types of disputes are deemed to be non-arbitrable in Brazil.

The Brazilian Arbitration Act expressly provides that parties must have full legal capacity in order to arbitrate a dispute and the subject matter must be pecuniary patrimonial and negotiable rights (direitos disponíveis), i.e. rights over which the parties may negotiate.

Most commercial matters may be arbitrated, including many when the government or government-controlled entity is one of the parties.

Certain matters, however, may not be arbitrated even if the parties with full legal capacity were agree to arbitrate them, such as family matters, certain public law matters, and possibly individual employment-related matters, according to a recent precedent of the Brazilian Superior Labor Court.

Furthermore, an arbitration clause is only valid and effective in a consumer contract or an adhesion contract, in the following cases: (i) when the consumer of the adhering party initiates the arbitration; (ii) if the provision is in boldface; or (iii) when the arbitration clause is established in a separate signed document. In essence, in all these cases, the arbitration agreement is only deemed valid and enforceable if the weakest party (the consumer of the adhering party) wishes to resolve the dispute through arbitration.

If, during the course of the arbitral proceedings, a dispute arises concerning rights over which a party may not dispose, and once convinced that the final decision may depend thereon...