Arbitrability under the new Brazilian arbitration act: a real change?

Leonardo V. P. de Oliveira

ABSTRACT

Since the enactment of the 1996 Arbitration Act, the arbitrability of disputes in Brazil followed the general rule in which disputes involving disposable patrimonial rights could be submitted to arbitration. In 2015, the Brazilian legislative enacted an Act amending some of the rules of the 1996 Act. The general approach to arbitrability did not change but there was an attempt to introduce provisions to the act regarding the arbitrability of disputes concerning consumer law, labour law, corporate matters, and the participation of the state or state-owned companies in arbitration. The first two efforts failed and the last two prospered. This article explores if the changes made to arbitrability by the new Act were actually necessary in face of the existing doctrinal and jurisprudential understanding of arbitrability of disputes in Brazil. It argues that the general approach to arbitrability already addressed the innovations brought by the new statute. As a result, it asserts that the changes in the law were not a novelty as the approach to arbitrability of disputes in Brazil was already settled by the 1996 Act as well as the case law.

1. INTRODUCTION

On 27 May 2015, a legislative Act was published in the Brazilian federal official gazette amending the 1996 Arbitration Act by repealing some of its provisions and bringing new rules into force. The 2015 Act was introduced to the Brazilian Senate in 2013 by Senator Renan Calheiros. In his justification, Senator Calheiros asserted that despite the growth in the practice of arbitration in Brazil, there was a need to improve the current legislation to synchronize it with the continuous Brazilian participation in the international scenario.As a result, he emphasized the need to modify a few aspects of the law. The new statute will come into force on 27 July 2015 and among its important modifications it establishes that statutory limitations will be suspended by the commencement of arbitration; it regulates the possibility of seeking injunctions in court to be ratified by the arbitral tribunal once it has been formed;6and it creates an arbitral letter which will be a document used by the arbitral tribunal to communicate with the respective court in order for the latter to enforce a decision made by the arbitrator or the arbitral tribunal.7 The new statute also changed one provision regarding arbitrability of disputes. Its original aim was at regulating issues involving the state and state-owned companies, corporate matters, employment, and consumer law. However, the provisions respecting the two latter issues were vetoed by the Brazilian president. Consequently, the new statute kept the general framework of arbitrability which was established in the 1996 Act and added to it a provision in relation to arbitration involving the state and state-owned companies and it changed some provisions in the Joint-stock Companies Act. The present article examines the adequacy of the changes that will be in force as well as the ones that were vetoed. It argues that the new additions to the 1996 Act are not completely necessary and may lead to confusion as they try to regulate issues that the courts have been successfully addressing through a consistent case law. It also analyses the vetoed provisions and reaches a similar conclusion, that is, the novelties brought by the 2015 Act are unlikely to make significant differences to the 1996 framework regarding arbitrability. Thus, this article starts by reviewing the general approach to arbitrability of disputes established in the 1996 Act. After, it explores the arbitrability of disputes under the 2015 Act by evaluating arbitrability involving the state and state-owned companies, employment issues, consumer law, and corporate matters.

2. THE OVERVIEW OF ARBITRABILITY IN THE 1996 ARBITRATION ACT

The 2015 Act did not change the method employed to analyse whether a dispute can be submitted to arbitration keeping the previous principle, namely, rights that can be disposed are arbitrable.Article 1 of the 1996 Arbitration Act states that ‘[p]ersons capable of contracting may settle through arbitration disputes related to patrimonial rights over which they may dispose’. That provision has to be read with Article 852 of the 2002 Brazilian Civil Code which states that ‘[a] commitment is prohibited for the resolution of questions of state, personal family rights and other questions that are not strictly patrimonial in character’. This shows that the Act did not make a list of issues that are non-arbitrable, but that the Civil Code did. Examining the provision in the Civil Code, it can be concluded that it followed the same principled rationale of the Act by using the patrimonial criterion. In reality, the Civil Code provision seems unnecessary when combined with the Act since the general rule established in the Act—disposable patrimonial rights—covers the issues listed in the Civil Code. Article 1 of the 1996 Act has a clear two-fold structure. Its first part addresses the capacity of the parties to conclude a contract (‘persons capable of contracting’), that is, it refers to the so-called subjective arbitrability.9 In Brazil, a person can be a natural person or a legal entity. Persons need personality in order to be entitled to rights and obligations.According to Article 2 of the Civil Code, a natural person acquires personality by a birth with life;and according to Article 45, a legal entity acquires personality at the moment its constitutional acts are registered at the proper registry.A natural person needs to be capable of concluding a contract in order for it to be subject of arbitration in case of a dispute. The incapacity of a natural person makes the contract null ab initio or subject to annulment depending if the person is absolutely capable or relatively capable of being entitled to rights and obligations. In relation to legal entities, the capacity will fall on its representatives. Thus, if natural persons, they need to be absolutely capable of civil acts and it is necessary for them to have the necessary powers to represent the legal entity; otherwise they will not be able to bind the entity to the arbitration agreements that they might conclude. The second part of Article 1 refers to patrimonial rights, that is, it refers to the socalled objective arbitrability.The Brazilian approach seems to mirror the German and Swiss view of what can be submitted to arbitration. In Germany, any claim involving economic interest can be arbitrated and in Switzerland ‘[a]ll pecuniary claims may be submitted to arbitration’.Patrimonial rights are the rights that can be subject of a monetary quantification;17 hence, they can be assimilated with having economic interest and being pecuniary since both would lead to a determination of a specific quantity in some type of currency. It is the distinction between patrimonial and non-patrimonial rights that leads to the notion of disposable rights. Patrimonial rights include legal relationships of the law of obligations, relationships rooted on contract and the illicit acts when there is a unilateral manifestation of an intention.18 Non-patrimonial rights are the opposite of patrimonial rights and the person that is entitled to them cannot, in principle, extract economic utility from them.19 They concern human rights, broadly defined as the right to life, the right to have a name, the right to privacy and the right to preserve one’s honour. Any economic advantage obtained out of it is made indirectly, this means that an injury to a non-patrimonial right will entitle the victim to receive damages but not negotiate the right perse.

The examination of patrimonial rights leads to the notion of disposability of the rights because both ideas are naturally interconnected. Non-patrimonial rights are characterized as non-disposable rights as they are the intangible part of a person’s patrimony,21 whereas the disposable rights are the ones that can be alienated, transferred, renounced, and traded.22 If the patrimonial right is a right that entitles a person to a pecuniary advantage, by logical reasoning it is a disposable right that is susceptible of being ascribed an economic utility. In other words, a disposable right, in principle, is in control of the person that possess it, akin to an ownership of a property, while a non-disposable right might be out of the person’s control. Among Brazilian scholars, there is no consensus on what can be considered non-disposable rights; however, the following are commonly presented: family rights (especially child support, child custody, and paternity investigation), criminal law, inheritance rights, taxation, collective rights, antitrust law, and cases requiring the intervention of the Public Attorney’s Office such as guardianship, curator of the state of an absentee, and interdicted persons.

For purposes of arbitrability, it is imperative to distinguish between nondisposable rights and public policy because there are non-disposable rights that do not enjoy public policy status; and there are disposable rights that enjoy that status.24 Within the Brazilian system the arbitrator cannot decide a matter related to a nondisposable right, but that does not necessarily mean that the arbitrator cannot decide questions concerning public policy issues. Just like the other examples presented inthe last paragraph, an arbitrator cannot rule a question concerning the right to life, in itself, because it is a non-disposable right and also a matter of public policy. Hence, permission to engage in assisted suicide will not be the subject of an arbitral tribunal. However, the consequences of a violation of a non-disposable right that can be quantified, such as damages resulting of a violation of a right to life, are capable of being arbitrated by an arbitral tribunal. Moreover, if a contract is illegal because it involves a criminal activity, the arbitrators can declare it void, but they cannot impose criminal penalties to the contracting parties since this right is non-disposable. Such a decision belongs to the exclusive jurisdiction of a court.

Another provision concerning arbitrability in the 1996 Act can be found in Article 25, but this regulation is actually about court interference on incidental issues of arbitrability. It declares that, if during the arbitration a question of arbitrability is raised and the tribunal realizes that its final decision depends on the decision regarding non-disposable rights, it has to send the case to the State Court and wait for the judiciary to resolve the question and, only after the court ruling, the arbitration can recommence.That provision is based on the Italian arbitration law which has a similar regulation. The protection applied by the Brazilian Arbitration Act seems unnecessary because even if the incidental question is about non-disposable rights the arbitrator can analyse the issue and decline its jurisdiction by ruling that the dispute cannot be subject to arbitration. One example used by Brazilian literature is the allegation of incapacity of a party at the time when the arbitration agreement is signed. The question of incapacity is a typical non-patrimonial and non-disposable right and its declaration, as per the provision above, has to be done by the judiciary. However, this does not stop the arbitrators from recognizing it and later concluding that the arbitration agreement is void due to a problem on its formation. The effect would be the same but with procedure economy because, if the arbitrators refer the question to a court judge and the court declares that there was incapacity to conclude a contract, once the arbitration procedure is resumed, the outcome would be identical. If the situation was to be different, that is, the arbitral tribunal concludes that there was no incapacity and the court declares the person incapable, the parties could still challenge the award. Thus, the practicality of the provision is not clear.

The last provisions concerning arbitrability are in relation to recognition and enforcement of foreign arbitral awards. Articles 38(I) and 39(I) and (II) of theArbitration Act have similar wording to Articles V(1)(a) and V(2)(a) and (b) of the 1958 New York Convention on Recognition and Enforcement of Arbitral Awards (NYC). Article 38(I) states that the recognition and enforcement of a foreign arbitral award can be denied if ‘the parties to the agreement lacked capacity’. Here it is a matter of subjective arbitrability representing non-disposable rights. Article 39 has the same rationale and in numbers (I) and (II) it defines, respectively, the reasons why recognition should be denied: ‘in accordance with Brazilian law, the subject matter of the dispute is not capable of settlement by arbitration’ and ‘the decision is offensive to national public policy’. On one hand, Article 39(I) covers issues of arbitrability and it used the exact same wording as Article V(1)(a) of the NYC. On the other hand, Article 39(II) slightly changed the wording from the NYC and established a national public policy instead of ‘the public policy of that country’. The question raised here is that Brazil opted to use the barrier of its national public policy as an alternative to international public policy. Since the NYC was ratified in Brazil after the enactment of the Arbitration Act, there is an understanding that the NYC repealed the conflicting provisions in the Arbitration Act.Now, the imposition of national public policy is no longer valid for the reason that the NYC does not differentiate between national and international. Regardless of the approach, Brazilian Courts have not yet ruled a case of recognition and enforcement of foreign arbitral awards in which the subject was discussed.

The provisions regarding arbitrability mentioned above were not changed by the 2015 Act, which kept the general legal framework of arbitrability in Brazilian Law untouched. Nevertheless the new statute created a small list of disputes that can be submitted to arbitration. It introduced provisions regarding the arbitrability of disputes involving the state or state-owned companies and tried to create provisions about consumer arbitration and employment arbitration, which will be studied below.

3. ARBITRABILITY IN THE 2015 ACT

The provision regarding disposable patrimonial rights has not been repealed by the 2015 Act. Nonetheless, what the new statute tried to do, was to insert new provisions to the 1996 Act specifying how disputes involving the state and state-owned companies, employment issues, consumer law, and corporate matters are arbitrable. Therefore, to understand the modification, each issue must be verified separately without disregard to the interpretation of what are disposable patrimonial rights, as described above.

3.1 State or state-owned companies

The situation whereby a state or a state-owned company can make an agreement to arbitrate is not a new issue and it has been subjected to discussion in other jurisdictions.30 Moreover, until the enactment of the 2015 Act, the interpretation regarding the capacity of the Brazilian state or its state-owned companies to participate in arbitration relied on the general rule of patrimonial disposable rights. There was no specific reason, at least not a statutory one, to constrain the government to arbitrate its disputes; this was an option in which it could freely decide.31 Furthermore, Article 1 of the 1996 Arbitration Act did not exclude its application to public entities; otherwise, it would have expressly said it in the provision.32 What is more, there are other statutory provisions allowing those entities to submit disputes to arbitration, such as Article 11(III) of the Public–Private Partnership Act33 which states that the public bid can have an arbitration clause as long as the seat is in Brazil and the language is Portuguese.34 Apparently, the 2015 Act decided to clarify the current scenario and by doing that, it inserted the following paragraphs to Article 1 of the 1996 Act:

paragraph 1o The direct or indirect public administration can use arbitration to settle disputes related to disposable patrimonial rights.

paragraph 2o The authority or the competent direct public administration body for the conclusion of an arbitration agreement is the same for the perform agreements or transactions.

Besides the two paragraphs added to Article 1, the new statute also included a paragraph to Article 2 making the arbitrations concerning the direct or indirect public administration open to the public.35 A similar approach had been adopted in 2011 by the State of Minas Gerais when it enacted an Act determining that it and its entities could adopt arbitration as a method to solve disputes concerning patrimonial disposable rights.36 Now with the change promoted by the 2015 Act the capacity of a stateor a state-owned company to be a party to arbitration was expressly affirmed at the federal level and there will be no need for other Brazilian states to follow the example adopted by the State of Minas Gerais. The modification avoids a problem, as now any challenge to arbitration involving the Brazilian state or a state-owned company will be rejected by the Brazilian Judiciary. However, this change is just a confirmation of the existing case law on the subject.

Before the new Act, the main obstacle to arbitration involving the state or a stateowned company was the interpretation of disposable rights. This is because the understanding of patrimonial disposable rights in this case rested in the fact that the public administration provides a service in the public interest and public interest is not easily defined. Although its definition can be imprecise, in its execution it has been classified as primary and secondary.The first relates to a government’s conduct executing the public interest by discharging of its political and legislative functions and the second concerns the ramifications of the first, meaning that in order to make the execution of the public interest operational, the guidelines established by the primary public interest are materialized in this second stage. The secondary public interest works as an instrument to achieve the aims established in the primary public interest. At this point, the rights which the public administration will manage are normally patrimonial rights and, hence, are capable of settlement by arbitration. In this area it is easy to distinguish situations which are arbitrable and which are not. If a department of the government has to buy computers to execute the primary public interest, why the sales contract cannot have an arbitration clause? Why is the public interest here so important that the judiciary has to decide a potential dispute?

When the contract refers to patrimonial rights, even if the government is a party, it does not necessarily mean that the public interest at stake cannot exclude the jurisdiction of courts. It would be a type of protectionism that does not make any sense. Conversely, if the issue is about the execution of a primary public interest, such as recounting the votes of an election, the rights are not disposable or patrimonial and they will be non-arbitrable.

Since the enactment of the 1996 Arbitration Act, the debate over the possibility of the Brazilian government being a party to arbitration has been subject of judicial scrutiny. It first was brought up in the Court of Appeal in two different Brazilian states. In 1999, the Distrito Federal Court of Appeal ruled a writ of mandamus challenging an act of the Distrito Federal Audit Court barring a state-owned company to participate in arbitration. In Serveng CivilSan S/A – Empresas Associadas de Engenharia and Andrade Gutierrez S/A v Tribunal de Contas do Distrito Federal a dispute arose in a contract signed in 1987 to readapt and expand the water and sewer treatment system in Brasilia with the state-owned company of Brasilia Water and Sewer Company being one of the parties. The contract provided for arbitration to solve future disputes to be set and regulated by the provisions of the Brazilian Code of Civil Procedure. The Distrito Federal Audit Court declared that the company could not use arbitration to settle any future disputes since the contract concerned non-disposable rights. The first issue addressed by the Court of Appeal was if the clause, at the time, could be evoked since the law in force regarding public tenders gave courts exclusive jurisdiction to solve controversies in which a state or state entity was a party. This law had an exception for international contracts and due to the fact that the contract was financed by the World Bank, the Court of Appeal understood that the agreement to arbitrate fell in the exception. Moving to the question of disposable rights, Justice Andrighi stated that the public interest was non-disposable. Nonetheless, the contractual disagreements that could not be amicably solved could be settled by arbitration because the arbitration itself did not affect the non-disposability of the public interest. Moreover, she said that decisions from the Audit Court are of an inspection nature having no jurisdictional character. The ruling’s foundation is reasonable because the type of service that the contract required meant the supremacy of the public interest was not in danger. On the contrary, as the decision described, the contract would entail services that could easily be resolved by arbitration.

In 2003, the Rio de Janeiro State Court of Appeal had to decide a similar case. In Eliomar de Souza Coelho v Cesar Epitacio Maia & Solomon R Guggenheim Foundation42 an individual brought a suit called peoples’ legal action43 aimed at annulling the contract between the Rio de Janeiro Municipality and the Solomon R Guggenhein Foundation to build a Guggenhein museum in Rio de Janeiro. The claim was based on three points which would lead to the annulment of the contract, they were (i) the existence of an arbitration agreement, (ii) the applicable law to the main contract, and (iii) annual limitations to the state’s government budget. An interlocutory decision was requested and granted by the first instance judge and an appeal was made. Justice Ademir Pimentel declared that the budgetary issues could be solved through time and would not create an obstacle to the contract’s performance; however, the other two claims were more complicated. The applicable law to the contract employed two legal systems to deal with impasses, namely the law of the

State of New York and Brazilian law. Being that the contract was an administrative contract because it involved the public administration, it had to be regulated by Brazilian law, namely, the Act governing public tenders.44 In relation to arbitration, two situations were brought up: the fact that the rights negotiated in the contract were non-disposable and that the arbitration required confidentiality of proceedings which would be offensive to the publicity principle established in Article 37 of the Brazilian Constitution. When assessing arbitrability, the court first demonstrated that arbitration in administrative contracts had been permitted in Brazil through the Acts regarding the concession of public services46 and national energy policies.Conversely, such provisions were specific for the type of contract regulated by the Acts and not in relation to parts of the government, such as the city of Rio de Janeiro. For this reason the rights would be non-disposable. Furthermore, the confidentiality clause was in direct conflict with the publicity principle which requires the government’s transparency in its conduct, save for reasons of national security. Therefore, the court ruled that the contract was not permitted and, because of this decision, today there is no Guggenhein museum in the city of Rio de Janeiro.

The new provision in the Arbitration Act would have changed the decision in Eliomar de Souza Coelho v Cesar Epitacio Maia & Solomon R Guggenheim Foundation, especially the fact that now the direct or indirect public administration can have disputes solved by arbitration, including here the city of Rio de Janeiro. Moreover, the confidentiality clause would not be valid. Even so, without the new Act the non-arbitrability of the dispute was questionable. The contract was to promote a secondary public interest, culture, which does not require the constant supervision of the judiciary. Even if one thinks that courts should participate, this can be done if an award is being enforced.

Examining the decision in Eliomar de Souza Coelho v Cesar Epitacio Maia & Solomon R Guggenheim Foundation, it seems that the 2015 Act came to solve a significant impasse. Nevertheless, the rationale of such decision was not adopted in other cases in which contracts to provide essential services were concluded between a state-owned company and the private sector. The argument that the rights of a stateowned company are not disposable was debated in three rulings made by the Superior Court of Justice. The first was AES Uruguaiana Empreendimentos Ltda v Companhia Estadual de Energia Ele´trica - CEEE48 where a mixed capital company owned by the State of Rio Grande do Sul made a public tender for the purchase of electric energy. AES was the successful party to win the bid and it concluded a contract including an ICC arbitration clause. Companhia Estadual de Energia Ele´trica (CEEE) argued that the contract’s requirements were not met and started legal proceedings at the Rio Grande do Sul State Court. There was a challenge to the court’s jurisdiction and the decision centred on the fact that a state-owned company providing public services could not waive the right to exclusive court jurisdiction without the proper authorization from the state’s legislative sector. This ruling was reversed by the Superior Court of Justice. In Justice Noronha’s opinion the supposed necessity for a legislative authorization is absent when a mixed capital company performs an agreement concerning its economic activities in a strict sense (for instance, an activity of an industrial nature or for the production and trade of goods for profit) and the rights and obligations arising from it are disposable. The opposite would be true if the activities were associated with the power to regulate, which would invade the area or primary public interest and, consequently, would not be disposable.

The story was repeated in TMC Terminal Multimodal de Coroa Grande SPE S/A v Ministro de Estado da Cieˆncia e Tecnologia49 and a similar approach was followed. TMC filed a writ of mandamus claiming that a unilateral decision made by the Minister of Science and Technology rescinded a contract between TMC and Nuclebras Equipamentos Pesados S/A–NUCLEP, a mixed capital company owned by the Brazilian Federal Government. The service provided was for the operation and management of a Seaport Terminal in the city of Itagua?´, State of Rio de Janeiro. TMC’s allegation was that there was an agreement to arbitrate any dispute arising out of the contract and argued that the State Minister could not rescind the contract whereas NUCLEP’s defence was of non-arbitrability. Justice Fux examined the type of contract and the fact that the object of the contract was of a disposable right. The conclusion reached was that ‘arbitration aims at settling disputes relating to disposable patrimonial rights, which does not mean disposability of the public interest, since there is no relation between disposability or non-disposability of patrimonial rights and disposability or non-disposability of public interest’.50 He also declared that a state-owned mixed-capital company is a state entity but if it operates like a privately owned company, it cannot exclude arbitration as a dispute settlement method. In the end, he concluded that holding an arbitration clause in an administrative contract invalid would create a prohibition where the law does not lay down such impediment.

The two cases mentioned above set a strong precedent and one would imagine that these would settle the argument. Yet in 2011, again, the Superior Court of Justice had to rule on it in Companhia Paranaense de Gas Natural – COMPAGAS v Consorcio Carioca Passarelli.51 Another state-owned company, COMPAGAS concluded a contract with a consortium having the sale of natural gas as its object. A dispute arose and COMPAGAS claimed that the rights in the contract were nondisposable and it started court proceedings to annul the arbitration clause. At the final instance, the Superior Court of Justice addressed once more that in the case at hand the subject discussed in arbitration would be related to a change in the maintenance of the economic and financial balance of the contracts made by delays in starting the performance of the contract, which is a matter of disposable patrimonial rights.

Given the above-mentioned decisions it could be argued that the provisions in the 2015 Act are not making any expressive change in relation to the arbitrability of disputes involving the state and state-owned companies in Brazil. Nonetheless, the 2015 Act clarifies another issue involving the same topic. Article 37 of the Brazilian Constitution declares that the government has to abide by the principle of legality.52 This means that the government can only discharge of its competences according to what the law allows it do to. From this line of thought it could be argued that it would be imperative for the government to have a law allowing it to have its disputes being submitted to arbitration. From that perspective, the new rule in the Arbitration Act would void any argument of violation to the principle of legality. However, that is not be the case as the general principle of arbitrability enshrined in Article 1 of the Arbitration Act determines that disposable patrimonial rights can be subjected to arbitration and the government, in its several spheres, has disposable patrimonial rights.

3.2 Arbitrability and labour disputes

Labour disputes are normally guided by a protectionist principle because, quite often, on one side there is an employer with proper infrastructure to support lengthy and expensive litigation and, on the other side, there is an individual who is not in the same circumstances, creating unequal footing in the quarrel. For this reason, labour rights benefit from special protections, making arbitration unattractive. In Brazil, the Constitution gave it a constitutional status by providing, in Article 114, first paragraph, that if collective negotiations are unsuccessful, arbitration can be used to solve collective labour agreements. On one hand, the law expressly addressed the fact that collective labour controversies can be solved by arbitration; on the other hand, when it comes to individual labour rights, there is no statutory provision. The absence of an express law leads to the conclusion that what is not forbidden would be allowed as long as it respects the terms of Arbitration Act, namely, patrimonial disposable rights.53 Some labour rights are non-disposable, such as the right to have holidays, to have a salary that will not be below the minimum national wage, and the year-end salary bonus.54 Conversely, once the employment contract is over, rights acquired by the employee can be negotiated out of court or in court. This means that the employee can settle disputes and receive a smaller compensation than what it waoriginally entitled to. Consequently, the employee cannot dispose the right but the compensation for a violation of a right owned by the employer is of a patrimonial character and it can be disposed.55 Perhaps that was the idea of the legislator when it adopted the 2015 Act. The bill approved by both houses of the Brazilian congress inserted to Article 4 of the Arbitration Act the following provision:

paragraph 4o As long as the employee occupies or will occupy a position or a role of an administrator or a director of a company, in individual employment contracts an arbitration clause can be agreed upon and it will only be effective if the employee takes the initiative of starting the arbitration or if expressly agree with its commencement.

This paragraph was vetoed by the Brazilian President. The main reason for the veto was that the above-mentioned provision would allow arbitration in individual employment contracts for a restrict group of employees, which would create an ‘undesired distinction between employees’.57 The reasons for veto are sensible as the provision could create uncertainty. Perhaps, its rationale is supported by the protectionist principle as employees occupying a position or a role of an administrator or a director of a company are not necessarily in a disadvantageous position. Therefore, they would not be strangers to arbitration and perhaps, they would prefer arbitration over litigation. Nevertheless, the provision would create a distinction between employees which might not be good for arbitration. If labour disputes are to be arbitrated, the dispute resolution method should not discriminate between different types of employees.

The case law regarding the arbitrability of labour disputes in Brazil is quite rich and until 2015, it produced decisions in favour and against arbitrability of labour disputes. The permission affects atypical cases. In Andrea Carla Righetti v Organizac¸a˜o das Nac¸o˜es Unidas (ONU) et al58 the claimant sought a claim in court to recognize her employment relationship and the payment of severance. Andrea Carla Righetti was hired by the United Nations (UN) and United Nations Development Program (UNDP) to provide services at the Brazilian Institute for the Environment and Renewable Natural Resources (IBAMA). Her contract was terminated without proper registration of her worker record book and without severance payment. The contract signed by her contained an arbitration clause59 and once the defendants were served, they challenged the jurisdiction of the courts requesting a stay of proceedings. At the first instance court decided to stay proceedings, a decision that was affirmed by the Employment Appeal Tribunal. A final appeal was made to the Superior Labour Tribunal, arguing that in labour law, arbitration as a form of dispute resolution can only be performed by Commissions of Prior Conciliation authorized by professional and economic categories through Collective Labour Agreements. The resolution of labour disputes outside of court jurisdiction has an exceptional character due to the principle established by Article 5(XXXV) of the Brazilian Constitution60 and the fact that the Arbitration Act allows arbitration to take place when a dispute refers to disposable patrimonial rights, which is not the case of labour rights. The ruling rejected all the arguments and embraced a different viewpoint, which was that the defendants had immunity from jurisdiction and the arbitration clause would be the only path for the claimant to have access to justice. When the Superior Labour Tribunal upheld the validity of the arbitration clause, it was actually guaranteeing the claimant’s right to access justice and not the fact that labour rights might be non-arbitrable.

This decision contradicts another ruling from the same tribunal, but from a different chamber in which, again, there was a UN contract with an arbitration clause. In Ciro Voltaire Saldanha de Oliveira Junior v Programa das Nac¸o˜es Unidas para o desenvolvimento – PNUD61 the plaintiff was hired by the UNDP and the contract had an arbitration clause which was challenged in the judiciary. This time the Superior Labour Tribunal understood that labour rights are non-disposable and of a constitutional nature even though they can be negotiated; thus, extending this interpretation to consider it non-disposable cannot result in waiving the right to pursue a claim in court. Moreover, it pronounced that the arbitration agreement was concluded before the litigation, leading to a previous waiver of court jurisdiction in a moment when the bargaining power between the employee and the employer was in clear disproportion.

The discrepancies continued and the sixth chamber of Superior Labour Tribunal also decided that labour disputes were non-arbitrable, but this time between a private Brazilian company and a Brazilian individual. The case of Empresa Brasileira de Seguranc¸a e Vigilaˆncia Ltda v Neirevaldo Nasareno de Lima62 dealt with an arbitration clause inserted in the term that was signed on the termination of the employment contract releasing the employer of all severance payments due to the employee. The court considered the clause not valid under two arguments. First, it was the idea that arbitration and labour disputes are incompatible because there is no party autonomy in employment contracts since the weaker party, namely the employee, does not always have the power to negotiate the contract, consequently having limited party autonomy. Secondly, according to the provision of Article 114 of the BrazilianConstitution, arbitration of labour disputes would only be allowed when collective negotiations are unsuccessful.

In contrast, the seventh chamber of the Superior Labour Tribunal in Arcanja dos Santos Ferreira Vaz v Lojas Brasileira SA63 recognized an arbitral award in a labour dispute as res judicata and considered it valid. The place of work of the employee was shut down and, as a consequence, the employer terminated the labour contract. By an agreement made between her and the company, having representatives of her union witnessing the transaction, an arbitrator was chosen by the employee and an award was made regarding her severance rights. The court found no illegality in the contract and it did not even discuss the arbitrability of the dispute. It applied the provision of Article 31 of the Arbitration Act that declares that as long as the award was made within the law it has the effect of res judicata.

Although the above decisions make for an uncertain scenario, in Ministe´rio Pu´blico do Trabalho - Procuradoria Regional da 3a Regia˜o v Caˆmara de Mediac¸a˜o de Arbitragem de Minas Gerais S/S LTDA65 a decision in a class action created a strong precedent against arbitration of labour disputes. The Ministe´rio Pu´blico do Trabalho brought up a class action against the Chamber of Mediation and Arbitration of Minas Gerais seeking that the chamber would stop promoting arbitration as a method to solve conflicts involving employment relationships. The argument against arbitration was that labour rights are non-disposable rights even after the employment contract is over, that arbitral tribunals were not selected by the legislator to decide labour disputes and that arbitration as a method to solve individual labour disputes is unconstitutional. In the first instance, the court ruled partially in favour of the claimant but the Employment Appeal Tribunal reversed the ruling. An appeal was made to the Superior Labour Tribunal which had two decisions. The first verdict reversed the Employment Appeal Tribunal ruling deciding that the arbitral chamber could not act if the original employment contract contained an arbitration clause or if one is added to it after its conclusion. However, once the employment contract is over, if the employee wanted to have the dispute solved by arbitration, there was no impediment to this method of dispute resolution. The Ministe´rio Pu´blico do Trabalho filed a request for clarification on the appeal based on a conflict between rulings of the Superior Labour Tribunal which led to the redistribution of the case for another reporting justice who changed the ruling again to stop the arbitral chamber from promoting arbitration also after the employment contract is over.The final decision acknowledged and rejected the understanding that labour rights could be relatively disposable. Justice Dalazen was of the opinion that even after the employment contract is over, the employee cannot have disputes involving its labour rights settled by arbitration. The rationale was that the Constitution limited the use of arbitration for collective labour agreements and as the constitution does not allow a restrictive or an expansionist interpretation of its provisions, one can understand that individual labour rights are not arbitrable. The decision is a strong precedent, especially as it originates from a class action and it will probably be used in future challenges to the use of arbitration in labour disputes.

Regarding the enforcement of foreign arbitral awards, an unusual ruling came from the Superior Court of Justice. In Delphi Automotive Systems do Brasil Ltda v Javier Gerardo Mendoza Rascon67 a judgment from the Mexican Board of Conciliation and Arbitration was brought to be recognized and enforced in Brazil. The defendant argued that the decision was made by an arbitral institution which does not have the competence to decide on non-disposable rights and that arbitration was not adequate to solve disputes involving labour rights. The Superior Court of Justice rejected the allegation, but the reasoning was distinctive because the Mexican Board of Conciliation and Arbitration is not entirely an arbitral tribunal. Thus, the so-called award was in reality a foreign ruling. According to Article 123(A)(XX) of the Mexican Constitution,68 the Board of Conciliation and Arbitration are institutions that are part of the Labour Justice and it has the power to enforce its decisions. Since it was a foreign ruling in which procedures are similar to the employment tribunals in Brazil, there was no violation of public policy. Concerning the rights being non-disposable, the court applied the idea that the employees can negotiate their labour rights and it is acceptable for them to be waived. Notwithstanding the decision was not about a proper award, the rationale adopted leads to the conclusion that if it was a foreign award, conceivably the Superior Court of Justice would allow its recognition; however, the precedent is not so strong since a comparison of Brazilian Courts and the Mexican Board of Conciliation and Arbitration shows similarities in procedure which would not be the case if it was an arbitral award.

The vetoed provision in the 2015 Act when analysed together with the case law does not seem to be very helpful. Vetoing it was reasonable. The protectionist principle in labour law can and must be employed in any type of dispute concerning labour rights, either in court or in arbitration. The feasibility of labour arbitration is also connected to costs. Unless the employee is wealthy, the cost of arbitration could not be afforded, save if there is a system allowing unions to pay for it, but even so, it would be imperative that that system comply with fairness and transparency standards. Arbitration per se is not incompatible with labour conflicts. Depending on the type of system it can be in fact faster and better because once the employee isunemployed, the sooner it gets paid the better chances it has of ‘surviving’ its unemployment period.

3.3 Arbitrability and consumer contracts

Consumer disputes face the same circumstances as labour disputes of disproportionality between the parties. On one side there is a consumer, the weaker party, and on the other side are traders, the stronger party. For that reason, consumer regulations have a public policy nature since they try to break down the inequality between consumer and traders; creating a mechanism to protect the consumers against hostile practices. It could be argued that arbitration of consumer disputes were a draconian approach, particularly if the agreement to arbitrate can be found in the form of an adhesion contract of which the consumer would not be aware of. It could also be argued that arbitration would be forced onto the consumer excluding his or her autonomy and acting as a ‘take it or leave it’ transaction. Even though this might be the scenario, consumer disputes are not necessarily incompatible with arbitration. This was the view that the 1996 Act intended to achieve in paragraph 2 of Article 4:

paragraph 2o In adhesion contracts, the arbitration clause will only be valid if the adhering party takes the initiative to initiate arbitration proceedings or if it expressly agrees to arbitration by means of an attached written document, or if it signs or initials the corresponding contractual clause, inserted in boldface type.

The 2015 Act would have transformed paragraph 2 into two provisions:

paragraph 2o In adhesion contracts, the arbitration clause will only be valid if it is highlighted in bold or in a separate document.

paragraph 3o In a consumer relation established by an adhesion contract, the arbitration clause will only be valid if the person adhering starts the arbitration or expressly agrees with its commencement.

Both paragraphs were vetoed by the Brazilian President. The reason was that such inclusion would alter completely how arbitration takes place in consumer relations without making it clear that the consumer’s consent to arbitration should also be granted when a dispute arises and not only when the consumer was signing the contract. If such alteration would have been approved it would be a ‘retrocession and an offense to the principles governing consumer protection’.

What the new bill attempted was to the make one provision for adhesion contracts in general and another for adhesion contracts involving consumer transactions. In effect, many consumer contracts are made in a form of an adhesion contract using standard forms but not all adhesion contracts arise out of consumer transactions. Despite the failed proposal to insert provisions regarding consumer arbitration in theBrazilian Arbitration Act, this does not mean that there is no understanding over the possibility of consumer arbitration.

The barriers are found in two provisions in the Brazilian Consumers Code. The first is Article 51(VII) which pronounces that compulsory arbitration clauses in consumer contracts are void. An orthodox approach argues that this provision declares any and all arbitration agreements in a consumer contract void because they constitute abuse of power on the part of the trader. However, a more permissive and better view is that the Consumer Code prohibits only compulsory arbitration. That signifies that if the contract establishes a compulsory arbitration, it is void; however, if the contract is silent or establishes arbitration as an option for the consumer, there would be no obstacle for the parties to decide that a dispute can be solved by arbitration, as long as the arbitration is not imposed to the consumer. After all, even though consumer rights are of a public policy nature, they are still disposable patrimonial rights. Should that not be the case, the wording of Article 4(V) of the Consumer Code would make little sense since it determines, as a matter of principle, the creation by suppliers of alternative means for settling disputes.

The second impasse comes from the 1996 Act. As the president vetoed the change to paragraph 2 of Article 4, the previous wording is still in force. Since the 1996 Act is more recent than the Consumer Code, Article 4 paragraph 2 would seemed to have implicitly revoked Article 51(VII) although the statute did not express such repeal. A sensible counter-argument is that not all adhesion contracts are consumer contracts.75 Moreover, what seems more adequate is the harmonic interpretation of both provisions because one determines questions of efficiency and validity of the arbitration clause and the other the prohibition of compulsory clauses.76 If arbitration can be agreed in a non-compulsory manner following the premises determined in the Arbitration Act, there is no reason for it to be invalid. This understanding promotes arbitration in consumer transactions, leaving to the consumer the decision of whether he or she wants to pursue arbitration. This would take away the possibility of the trader forcing a solution to a conflict in a way that disfavours the consumer.

Notwithstanding the scholarly perspective, the case law took a different direction. It first showed a non-permissible view and later, it resolved all possible uncertainties.In CONAC – Construtora Anacleto Nascimento LTDA v Flavia Zirpoli Sobral77 the Superior Court of Justice considered an arbitration clause in a real estate purchase agreement abusive and declared it null according to the Consumer Code. Sobral started legal proceedings to rescind the contract and CONAC challenged the court’s jurisdiction based on an arbitration agreement. The court examined the insertion of the clause in a contract that was found to have been unilaterally drafted by the construction company without any interference from the consumer. It found that the contract was an adhesion contract in which the consumer only had the option of accepting the terms if it wanted to purchase the real estate. Since the arbitration clause was imposed, there was no freedom of contract in relation to arbitration and, following Article 51(VII) of the Consumer Code, such an agreement is null.

A few years later, another decision was made by the Superior Court of Justice, but this time a more thorough analysis of the topic was made. In CZ6 Empreendimentos Comerciais Ltda e Outros v Davidson Roberto de Faria Meira Junior78 a similar suit was proposed, this time aimed at revising and annulling some clauses of a real estate purchase agreement. CZ6 challenged the jurisdiction of the court and a series of appeals lead to the arrival of the case at the Superior Court of Justice. Justice Andrighi first stated that an arbitration clause excludes the jurisdiction of courts, but this is the general rule established by the Arbitration Act that can be changed according to the peculiarities of each case. From that point, she concluded that the contract was an adhesion contract and also a consumer contract, facts that imposed the assessment through the existing legislation. The clause was drafted according to the rule of Article 4, paragraph 2 of the Arbitration Act, but this did not exclude the application of the Consumer Code. In effect, the court clarified the doubts about one act revoking the other by declaring that a law can repeal the other explicitly or tacitly. The first option was discarded and the second can only occur when the new statue completely regulates the subject or when the previous rule is incompatible with the new one. The finding was that the provisions in the Arbitration Act concerning adhesion contracts did not encompass consumer contracts which will be regulated by the Consumer Code. Thus, the court found that there are three different degrees of situations in the current legislation: a general rule imposing arbitration when there is an arbitration convention, a framework for adhesion contracts to be followed when it has an arbitration convention, and the prohibition of compulsory arbitration in consumer contracts. The ruling continued and adopted the scholarly position that as long as the consumer wants to have the dispute decided by arbitration, consumer disputes can be arbitrated. For that reason, the Superior Court of Justice understood that once the consumer chooses to litigate in court, the dispute cannot be arbitrated and the rule of the Consumer Code should prevail.

It is undeniable that consumer regulation is embodied in public policy principles aimed at protecting the consumer against abuses; however, consumers still enjoyfreedom of contract and party autonomy. There is no removal of the public policy aspects from consumer laws by arbitration because arbitral tribunals can only decide if there is a violation of a consumer right or not, it cannot implement consumer policy. Therefore, the arbitrability of consumer disputes is rooted in a matter incapable of settlement by arbitration based on a need to protect the consumer in certain cases. However, if what is being sought is a relief originated in a violation of a consumer protection rule, the consumer should have the power to decide if it wants the dispute to be arbitrated.

3.4 Arbitrability and corporate matters

Corporate issues by nature are purely commercial questions that should not raise questions about its arbitrability. However, the legislation in Brazil has used wording inclining to the exclusive jurisdiction of courts to solve internal corporate disputes. Any corporation, when it is formed, makes an agreement whereby the rules and regulations of the company are described. These documents, called article of associations, articles of incorporations, or bylaws, have a contractual nature.79 As with any contract, an arbitration agreement can be established to solve disputes arising from it.

In Brazil, the Act governing the joint-stock companies80 has a specific provision allowing arbitration but the rule is contradictory. Article 109 provides a list of rules in which the articles of association cannot deprive the shareholders of when performing their duties. The third paragraph of the article establishes that arbitration can be used to solve corporate disputes,81 while the second paragraph of the article states that shareholders cannot be deprived of their rights to sue having as the cause of action the protection of their shareholder’s rights.82 The problem between the second paragraph and the third paragraph is that at one hand, the articles of association could not deprive shareholders from starting legal actions in courts and at the other hand it allows such possibility through arbitration. So, which one should prevail? The answer should be about options. If the articles of association provide for arbitration, which is allowed by the act, the shareholders have to pursue arbitration. If that is not the case, the articles cannot deprive the right of shareholder to access to justice. What the law established was simply the right of shareholders to solve their intra-corporate disputes through arbitration.

The 2015 Act inserted Article 136-A to the Act governing joint-stock companies regulating the right of a shareholder to leave the company if an arbitration clause is inserted in the articles of association. The modification expressed:

The approval by the insertion of an arbitration agreement in the articles of association, subject to the quorum of the art. 136, obliges all shareholdes,If shareholders decide to insert and arbitration clause to the articles of association, the shareholder that disagrees with such conduct can leave the company. Article 136- A has two paragraphs. One states that the arbitration clause will only be valid after 30 days from the publication of the minutes of the shareholder’s meeting.83 The other creates an exception to the right to withdraw if the arbitration clause is a requirement for the company to trade its shares in a stock market or if the company already trade its shares in the stock market and such traded shares have liquidity and are dispersed in the stock market.

When it comes to new shareholders, the interpretation in Brazil is that the arbitration agreement should be valid. That was the understanding of the Federal Justice Council87 in its Commercial Law Journey88 when it decided on Enunciation 16 that the new shareholder adheres to the articles of association and to the arbitration clause if it is a part of the contract.89 In addition, it is important to remember that whoever becomes a member of the company is bound by the rights and obligations of the articles of association, being a recipient of the bonus and onus that are offered to shareholders.90 The change in the new Act concerning the arbitrability of a corporate dispute are questions that relate more to the validity of the arbitration agreement and how it can bind parties, rather than subjects of discussion falling within the exclusive jurisdiction of courts.

4. CONCLUSION

The article in hand set out to assess if the 2015 Act brought a real change to arbitrability in Brazil. It first described the general approach to arbitrability of disputesoutlined in the 1996 Act and after it; it demonstrated how the 2015 Act was not successful in changing the landscape for arbitrability of disputes in Brazil. The 2015 Act is not in its entirety a failure,91 but the expansion of the list of disputes that can be submitted to arbitration did not result in a positive endeavour.

The inclusion of the provision regarding the arbitration involving the public administration consolidated the case law and the doctrinal understanding on the subject. Its necessity can be argued based on the existing approach to the topic but perhaps, in the international arena, it might give security to foreign investors that are not familiar with the decisions of the Brazilian judiciary. Concerning consumer contracts and labour disputes, the changes were not effective. The Presidential veto was adequate as the bill’s proposal was not completely in line with the current understanding of the matter.

Creating a list of disputes that can be submitted to arbitration is not necessarily the best approach. Just because a statute is silent about the arbitrability of a specific issue, it does not necessarily mean that such topic is non-arbitrable. The assessment of arbitrability should be done through another source of interpretation, such as the general rule of disposable patrimonial rights. The general rule to determine what is arbitrable in Brazil should be upheld by leaving the interpretation of what is a patrimonial disposable right to courts. Once several decisions have defined what a patrimonial disposable right is, it will be simpler to answer the question of what is arbitrable. Otherwise, the reasoning to have a general perspective followed by a list of issues that are arbitrable sounds inconsistent and it can generate distrust in the capacity of Brazilian courts to interpret what is arbitrable