On November 2020, in the judgment of Special Appeal (Recurso Especial) n. 1.894.715/MS, the Third Panel of the Brazilian Superior Court of Justice (Superior Tribunal de Justiça), Brazil`s highest court on non-constitutional matters, rendered an important decision regarding the application of the principle of good faith (princípio da boa-fé objetiva) in relation to the effectiveness of an arbitration clause.

Claimant (Transbarge Navegacion SA) filed the Special Appeal against a judgment of the Court of Appeals of the State of Mato Grosso do Sul, which had applied an arbitration clause in an agreement for the charter of vessels and compelled the parties to arbitration.

In the said Special Appeal, Transbarge alleged that it had filed a lawsuit (ação monitória) for the collection of a debt under a charter agreement because, although the agreement did contain an arbitration clause, the respondent (Serviço de Navegação da Bacia do Prata SA) had previously filed two other lawsuits in court, including a declaratory action for the non-payment of the disputed debt. In this context, claimant pointed to the contradictory behavior of the respondent. Having filed the lawsuits in court instead of going to arbitration, Transbarge considered Serviço de Navegação had waived the arbitration clause, and could not try to enforce it in a new lawsuit in a related matter.  

The Third Panel of the Brazilian Superior Court of Justice agreed with Transbarge. The judgment applied the principle of good faith and the doctrine of prohibition of venire contra factum proprium, that is, the prohibition that a party asserts a right in contradiction with its own  previous conduct in the same contractual relationship. 

The opinion handed down by reporting Justice Paulo de Tarso Sanseverino emphasized that the contracting parties should maintain an ethical posture and behavior throughout the contractual relationship, in line with the case-law of the Superior Court of Justice. In this sense, it is not possible for a party to adopt contradictory attitudes, because the acts of one party raise legitimate expectations on the other contracting party that a certain line of action will be consistent over the life of the contract. Therefore, the behavior of a contracting party over time has relevant legal consequences  in the interpretation of the contract.

The Panel applied the principle of good faith, as recognized in various doctrines (teoria dos atos próprios, venire contra factum proprium) and enshrined in art. 422 of the Brazilian Civil Code, so that there is a duty of consistency of action among contracting parties and a prohibition of going against one's own acts during the course of the same contractual relationship. In doing so, the Court accepted Transbarge's argument that, by filing the two lawsuits before the Judiciary, Serviço de Navegação had tacitly waived the arbitration clause and induced the other party to understand that the dispute should be resolved by the Judiciary, and no longer by an Arbitral Tribunal.

Moreover, the judgment highlighted that the lack of an express waiver of the arbitration clause was irrelevant, because the party`s contradictory behavior in clear violation of the principle of good faith that rendered the arbitration clause ineffective in the case at hand.

In this context, the Third Panel of the Brazilian Superior Court of Justice granted Transbarge's Special Appeal and remanded the case for the lower courts for a judgment on the merits.

It is important to mention that the Superior Court of Justice is recognized around the world as a very pro-arbitration court, and its case-law was key in turning Brazil into an arbitration-friendly jurisdiction since the enactment of the Brazilian Arbitration Act of 1996 (Law n. 9.307). This judgment in Special Appeal n. 1.894.715/MS should not be regarded in any way as a deviation from this pro-arbitration path. It simply reflects the application of general rules of contract law to the arbitration clause, and shows the importance of the principle of good faith in the interpretation of contracts.

The full opinion of the Superior Court of Justice referred to in this article can be found in the internet, in the original Portuguese language, at: https://scon.stj.jus.br/SCON/jurisprudencia/toc.jsp?livre=1894715&b=ACOR&thesaurus=JURIDICO&p=true

Originally Published by Fonseca E Salles Lima

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.