On February 9 2017 the Superior Court of Justice issued an important decision that not only demonstrates the level of sophistication reached by the superior courts in relation to arbitration, but also the prestige that arbitration has achieved in the country as a dispute resolution method which has a jurisdictional characteristic.(1)
The Superior Court of Justice's decision was issued in relation to a conflict of jurisdiction proceeding. During such proceedings, where at least two judges or authorities with jurisdiction are competent to adjudicate a certain dispute, the court must decide which is competent to rule on the matter. In accordance with the Constitution, conflicts of jurisdiction are decided by the Superior Court of Justice.(2)
In the case at hand, the conflict of jurisdiction occurred between the arbitral tribunal instituted before the Centre for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada and a judge of the Belem 1st Civil and Corporate Court.
The Superior Court of Justice, as the highest court for non-constitutional matters in the Brazilian legal system, has previously recognised that arbitrators' activities are of a jurisdictional nature, equivalent to that of any state judge.
The parties had entered into a civil construction agreement that included an arbitration clause. In the construction company's view, the contracting company had breached the contract. Therefore, it filed an execution suit before the first-instance judge, seeking execution of the agreement – something which can be enforced out of court under Brazilian law. This type of lawsuit is an expedited legal remedy provided under Brazilian law in order to execute outstanding and liquidated contractual debts against debtors.
The motion for summary judgment referred to the collection of a debt for non-performance of the agreement (which contained an arbitration clause).
The contracting company, on the other hand, initiated an arbitral proceeding before the arbitral tribunal in order to discuss certain contractual issues with regard to the debts charged by the construction company in its motion for summary judgment.
Considering the parallel and conflicting existence of these two proceedings, which involved the same parties and the same contract (including the arbitration clause), the Superior Court of Justice suspended the motion for summary judgment and declared the arbitral tribunal competent to rule on the merits of the dispute:
"It so happens that the arbitral proceeding was instituted to resolve issues the subject-matter of the lawsuit seeking the execution of the instrument enforceable out of court, the competence of which is not attributed to the State Court, which, although able to process the execution, must await the arbitrators' definition (option freely chosen by the contracting parties with the provision of an arbitration clause) of the questions of merit of the motion for clarification, of those related to the contract or to the obligations assumed therein (existence, constitution, or extinction of the credit) and to the subject-matters that were chosen to be resolved by the arbitral authority (kompetenz-kompetenz)."
In conclusion, the Superior Court of Justice found that there was an external detrimental element stemming from the conflict between the ongoing proceedings before the first-instance judge and the arbitral proceedings, to the extent that the decision on the existence of the debt claimed by the construction company in the motion for summary judgment depended on the analysis of the merit of the issues brought forth by the contracting company in arbitration.
The decision analysed herein is critical for the development of arbitration in Brazil, since it reinforces the state courts' position in favour of arbitration – in particular, the Superior Court of Justice.
The Superior Court of Justice positioned itself once again in favour of the possibility of a conflict of jurisdiction between a judicial court and an arbitral tribunal. This clearly demonstrates that arbitration is seen as a dispute resolution method that has a jurisdictional characteristic, such as that of any state court.
In addition, the Superior Court of Justice privileged the principle of competence-competence by suspending the case pending before the first-instance judge and granting the arbitral tribunal full powers to rule on the merit of the controversy between the parties by virtue of an arbitration clause provided in the contract.
The harmonious coexistence of the judiciary and arbitration, as demonstrated by this decision and other Superior Court of Justice precedents, is fundamental for the continuous development and improvement of arbitration in Brazil.
For further information please contact Luciano Timm, Marcelo Richter or Isabela Popolizio Morales at Carvalho, Machado & Timm Advogados (+55 11 2872 4760) or email ([email protected], [email protected] or [email protected]). The Carvalho, Machado & Timm Advogados website can be accessed at www.cmtlaw.com.br.
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Endnotes
(1) Superior Court of Justice. Second Section. Conflict of Competence 150.830-PA. Reporting Justice Marco Aurélio Bellizze. Decision rendered on February 9 2017 and published on February 13 2017.
(2) As per Article 105(I)(d) of the Constitution 1988, the Superior Court of Justice must determine which of the lower-level courts has the competence to rule on the merits of a certain dispute in a case of conflict of jurisdiction.
