Originally from Arbitration Law of Brazil: Practice and Procedure - Second Edition

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TWENTY YEARS OF BRAZILIAN ARBITRATION LAW:
OVERVIEW AND PROSPECTS

Pedro A. Batista Martins and Bernard Potsch

I. HISTORICAL INTRODUCTION

1. From a pragmatic standpoint we can say that Brazil has been dealing
with arbitration ages before Law n. 9.307/96 came into force, on
November 23, 19961.

Historically, Brazil has submitted to arbitration proceedings border
disputes with Peru, Argentine and Guyana and indemnification claims
resulting from accidents involving Brazilian and Sweden/Norwegian and
North-American vessels.

Civil and commercial statutes and codes of civil procedure have provided
for arbitration since the middle of the 19th century.

Brazil was even surprisingly used to obligatory arbitration of
controversies arising out of insurance and services agreements since
1836. And under the Commercial Code and the Code of Commercial
Procedure, both of 1850, most commercial disputes were compulsorily
subject to this means of solving disputes.

Nevertheless beginning on 1866, obstacles were to be created, causing
the débâcle of arbitration for more than a century.

2. The first restriction against arbitration came as a reaction to this
obligatory nature. In 1866 it was abolished based on the argument that it
contravened public policy: State courts could not be mandatorily set
aside by virtue of law.

3. The same restrictive concept of public policy was also applied the
very next year to voluntary arbitration although mitigated by a matter of
timing: State courts could only be refrained from their jurisdiction after
the controversy had already arisen and the parties had then signed an
agreement to arbitrate.

Hence, in 1867, Decree n. 3.900, purporting to rule on arbitration, ended
up introducing a new legal concept, namely the compromisso
(compromis), tailored to be the unique legal agreement with power to
enforce arbitration proceedings in lieu of State courts.

As a result, despite the previous existence of an arbitration agreement,
the parties had to sign another document at the moment the dispute
erupted – the so called compromisso (compromis) or submission
agreement.

In other words, the arbitration agreement was not sufficient to ensure the
arbitral jurisdiction and hence was viewed by scholars and case law as a
non-valid clause, depending upon the fulfilment of a second step, that is,
the execution of a compromisso.

Moreover, the parties had no legal obligation to execute the
compromisso. This meant that the violation of the arbitration clause
could not be countered through specific performance, and damages were
nearly impossible to be obtained. Henceforth, the arbitration agreement
was considered a caput mortum. Its validity was based exclusively on
moral and ethical principles.

4. The second barrier was introduced later on in the legal scenario and
meant to require a state stamp to the arbitral award. The decision issued
by the arbitrators should be submitted to the State courts for review of
compliance with formalities.

This meant that the party had to fulfill the judicial homologation
requirement in order to confer enforceability to the arbitral award.

This second restriction (i.e. judicial homologation) further eliminated
arbitration’s advantages of celerity and confidentiality.

5. As such, from 1867 to 1996, arbitration stood undeveloped in Brazil
due to these two historical barriers.