In December 2014, São Paulo Court of Appeals applied the understanding of the Superior Court of Justice considering that the existence of a "full arbitration clause" eliminates the necessity to celebrate a new "arbitration commitment" or Compromisso (meaning an agreement to submit the particular dispute to arbitration after a dispute arises) to validly establish an arbitration procedure1.
In the ruled case, the parties had entered into a franchise contract that had a "full arbitration clause", which means that it established: arbitration chamber and rules, number of arbitrators, division of expenses, seat, language and law that should be applied to any controversy arising from this contract.
Given the unmotivated termination of the contract, the franchisor, ICEMELLOW FRANCHISING LTDA., initiated an arbitration procedure before the arbitration chamber stated in the contract, CAESP – Conselho Arbitral do Estado de São Paulo.
The franchisee, NUNES AND IRRIGATION FOOD PRODUCTS TRADE LTD., attended the procedure, but claimed the invalidity of the arbitration clause, requiring the dismissal of the procedure.
The appointed arbitrator ruled for the enforceability of the clause and scheduled a meeting in order to the parties celebrate the Terms of Reference. The franchisee, NUNES AND IRRIGATION, despite being duly summoned to attend the referred hearing, failed to appear and even without his presence the term was signed by the franchisor and the procedure followed its regular course.
Displeased, the franchisee filed then a procedure at the Judiciary Power in order to obtain a preliminary injunction to suspend the arbitration proceeding. The franchisee claimed that the absence of his signature on the Terms of Reference caused the arbitration procedure to be invalid, since the parties have not duly formalized the post-dispute "arbitration commitment" (compromisso arbitral, stated in article 6 of The Brazilian Arbitration Act). Moreover, the franchisee argued that whenever a party is absent at the Terms of Reference hearing, the arbitrator shall determine to the requesting party to enter with the appropriate demand in the Judiciary Power in order to compel the other party to participate in the arbitration, under article 7 of Brazilian Arbitration Act.
At the lower court, the preliminary injunction was granted. The judge sustained that the arbitration procedure couldn't proceed without the "arbitration commitment" (compromisso arbitral). The franchisor and the arbitration chamber filed appeals before São Paulo Court of Appeals where the decision was overruled.
First, the reporting judge Enio Zuliani recognized the arbitrator's competence in assessing the validity of the arbitration clause (kompetenz-kompetenz), pointing out that the judiciary control over it may arise only after the award is rendered; in an eventual action to set aside the arbitral decision (which has high standards) or whenever it is enforced.
The decision proceeded reaffirming the understanding of the Brazilian Superior Court, positioned by Justice Nancy Andrigh2, who ruled that a contract with "full arbitration clause" eliminates the need for a new "arbitration commitment" (Compromisso). The "full arbitration clause" is considered binding and sufficient, dispensing complementation through a post-dispute arbitration agreement and immediately allowing the establishment of an arbitration procedure.
Given these considerations and since the franchisee was properly notified about the establishment of the arbitration, the procedure must be considered valid; both parties should have referred the dispute to arbitration. The decision also concluded: "To avoid unfair or illegal arbitration decisions, the parties must claim and exert their powers and prerogatives before the arbitrator, and not try to suspend the procedure, since the stoppage does not contribute to the effectiveness of the jurisdiction."
The reaffirmation of this understanding is of utmost importance for national and international arbitration communities. It is noticed that not only the Brazilian Superior Court, but also the State Courts of Appeals have been respecting the competence of arbitration and keeping it away from any kind of intervention from the judiciary.
This decision makes it clear that once signed a contract containing a "full arbitration clause", parties are barred to seek the judiciary in order to exclude the arbitral jurisdiction which was mutually and regularly consented at the moment of the contract formation.
1. In appeal (Agravo de Instrumento) no. 2172858-18.2014.8.26.0000.
2. In appeal (Recurso Especial) no. 1.389.763-PR.
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