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São Paulo's Court of Appeal on pathological arbitration agreements
Practical Law Legal Update 9-502-6825 (Approx. 3 pages)
São Paulo's Court of Appeal on pathological arbitration agreements
| Published on 30 Jun 2010 • Brazil |
Valeria Galíndez (Partner) and Patrícia Kobayashi (Associate), Barretto Ferreira, Kujawski, Brancher and Gonçalves (BKBG)
In a decision of 12 May 2010, the Court of Appeal of the State of São Paulo (TJSP) once again recognised the negative effect of arbitration agreements. In so doing, the TJSP affirmed the first instance decision which had dismissed the action filed by the claimant (Back) for the payment by the respondent (Unibanco) of certain monies for services rendered under the subject contract. The TJSP took this view, regardless of the alleged pathological character of the arbitration agreement.
Background
Article 1 of Law No. 9,307/96 provides:
"Persons capable of entering into contracts may settle through arbitration disputes related to freely transferable patrimonial rights."
Article 7 of Law No. 9,307/96 provides:
"Where there is an arbitration clause but one of the parties shows resistance as to the commencement of arbitration, the interested party may request the court to summon the other party to appear in court so that the submission agreement [compromisso] may be signed; the judge shall designate a special hearing for this purpose."
Article 267, VII, of the Code of Civil Procedure (Law No. 5.869/73), amended by Law No. 9.307/96, provides that an action concerning a dispute which is subject to an agreement to arbitrate shall be inadmissible.
Facts
Back filed an action for the payment by Unibanco of certain monies for services rendered under the subject contract in breach of the arbitration agreement. The first instance court dismissed Back's claim on the ground of violation of the arbitration agreement, on the basis of Article 267, VII, of the Code of Civil Procedure.
Back lodged an appeal against that decision, arguing that the arbitration agreement was not binding upon the parties due to its pathological character. According to Back, the arbitration agreement:
- Did not provide for a method for the appointment of the arbitral tribunal.
- Co-existed with a state-court jurisdiction clause.
Decision
The TJSP held that the arbitration agreement was fully binding upon the parties, because:
- Both parties had legal capacity to execute it.
- The arbitration agreement concerned "freely transferable patrimonial rights" within the meaning of Article 1 of Law No. 9,307/96.
According to the TJSP, the arbitration agreement's failure to provide for a method for the appointment of the arbitral tribunal was curable by way of the procedure set out in Article 7 of Law No. 9,307/96.
The TJSP further found that, on its true construction, the state-court jurisdiction clause made clear that it was not to prevail over the arbitration agreement; rather, the state-court jurisdiction clause provided for the state courts to exercise their jurisdiction in support of arbitration and in annulment proceedings.
Comment
The recognition of the binding effect of the arbitration agreement, regardless of the pathological character of that agreement, and of the co-existing state-court jurisdiction clause, demonstrates the Brazilian courts' support for arbitration. This decision runs contrary to other recent negative decisions, the impact of which, in our opinion, has been overestimated (for example, 13ª Vara de Fazenda Pública (São Paulo) Mandado de Segurança No. 053.10.017261-2 Companhia do Metropolitano de São Paulo v Tribunal Arbitral do Caso CCI No. 15283/JRF, judgment of 7 June 2010) .