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Rio de Janeiro Court of Appeal restates the legality of arbitration agreements in standard form contracts
Practical Law UK Legal Update Case Report 8-508-0380 (Approx. 3 pages)
Rio de Janeiro Court of Appeal restates the legality of arbitration agreements in standard form contracts
by Practical Law
| Published on 01 Sep 2011 • Brazil |
Eduardo Damião Gonçalves (Partner), Débora Auler Almeida Prado (Associate) and Diego Nocetti (Associate), Mattos Filho Advogados
In a decision rendered on 18 August 2011, the Court of Appeal of the State of Rio de Janeiro (TJRJ) reaffirmed the negative effect of arbitration agreements. The TJRJ upheld the lower court’s decision, dismissing the lawsuit filed by the claimant, in which the latter alleged the abusive nature of the arbitration agreement contained in an adhesion contract (standard form contract) entered into with the respondent. The TJRJ confirmed the legality of arbitration agreements in adhesion contracts, provided that the applicable legal conditions were met.
Background
Article 4(2) of the Brazilian Arbitration Act 1996 (BAA) (Law No. 9,307/96) provides that, as regards adhesion contracts, the arbitration agreement shall only be binding if the adhering party (weaker party) initiates arbitration proceedings or expressly agrees to them by means of a written addendum to the contract or by signing or initialing the clause, which must be written in bold font.
Article 8 of the BAA 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 (BCCP), as amended by the BAA, provides that an action concerning a dispute which is subject to an arbitration agreement shall be inadmissible.
Facts
F&F Pinho Comércio de Oxigênio (the claimant) filed a lawsuit before the State Lower Court of Rio de Janeiro (lower court), seeking the supply of two gas cylinders (nitric oxide) by Linde Gases S/A (the respondent), as well as monetary compensation. The claimant and the respondent had entered into an adhesion contract, in which they agreed to submit any dispute relating to the contract to arbitration. The claimant argued that the arbitration agreement was abusive because it was in an adhesion contract. The lower court dismissed the claimant's lawsuit under Article 267, VII of the BCCP, on the ground that there was an arbitration agreement.
The claimant appealed against the decision to the TJRJ.
Decision
The TJRJ upheld the lower court decision and ruled that:
- The claimant's allegations were meritless, as arbitration agreements may be stipulated in adhesion contracts provided they meet the requirements set forth by law (Article 4(2) of the BAA).
- If the arbitration agreement is written in bold font and is signed or initialed by the adhering party, as it was in this case, then it is valid.
Any arbitration agreement must be observed as a matter of legal certainty and pacta sunt servanda (agreements must be kept).
Comment
The recognition of the arbitration agreement's legality when inserted in adhesion contracts illustrates the courts' compliance with and acceptance of the BAA, which imposes conditions in order for the parties to enter into an arbitration agreement in an adhesion contract. The obligation to make clear and unquestionable the intention to arbitrate, either by writing in a separate addendum or by signing or initialing the clause written in bold font, is a measure taken in order to protect the adhering party, which is normally the weaker one. The validity of arbitration agreements in adhesion contracts is frequently questioned. However, in this case, given that the requirements on the BAA were met, the court gave effect to the arbitration agreement.