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Pedro Guilhardi
Nanni Advogados, São Paulo
pguilhardi@nanni.adv.br

Natália Barthelson Carvalho de Moura
Nanni Advogados, São Paulo
nmoura@nanni.adv.br

In a recent dispute brought before the Brazilian Superior Court of Justice (STJ – the highest Brazilian court for settling disputes concerning federal law matters), the validity of an arbitral award was challenged by one of the parties at the enforcement stage on the grounds that its counterparty had not signed the document containing the arbitration agreement. The STJ confirmed the validity of the award in its ruling.¹

Background of the facts

The dispute involved two different contractual instruments for the purchase and sales of 25,000 bags of sorghum grains that were allegedly executed on the same date, 9 August 2011: (i) a sales agreement (‘Main Agreement’); and (ii) a separate document named ‘Confirmation’. Both instruments involved Três Divisas Armazéns Gerais Ltda, the ‘Buyer’, Rogério Inácio Rohr, the ‘Seller’, and an intermediary firm (‘Intermediary’). It is not clear from the facts of the case which of the instruments was issued in the first place.²

The Main Agreement contained a choice of forum clause whereby the parties to it – the Buyer and the Seller – would resort to the exclusive jurisdiction of the Court of the city of Costa Rica, State of Mato Grosso do Sul. The Main Agreement was duly signed by both the Buyer and the Seller.

The Confirmation, involving the Buyer, the Seller and the Intermediary contained an arbitration agreement whereby all disputes arising out of the contract should be resolved by the arbitration centre of Bolsa Brasileira de Mercadorias (BBM) or by a different chamber previously approved by the administration board of BBM. Moreover, the Confirmation provided that the parties could oppose to its terms within 24 hours, failing which the conditions of the Confirmation would be considered accepted by the parties. The Confirmation, however, was not signed by the Buyer – nor it was opposed by it, while the Seller and the Intermediary duly signed the document.

The arbitration proceedings

The arbitration was commenced by the Buyer after the Seller failed to perform its main obligation and did not delivery the agreed amount of goods. The Buyer sought that the Seller was ordered to pay the contractual penalties provided for in the Main Agreement.

The Seller argued a conflict between the choice of forum clause contained in the Main Agreement and the arbitration clause contained in the Confirmation.

The Seller further asserted that the Confirmation was signed only by itself and by the Intermediary, lacking the signature of the Buyer. Hence, it argued that the Confirmation and, in particular, its arbitration agreement were not binding, as its counterparty did not sign the document.

The Buyer, on the order hand, argued that the choice of forum agreement in the Main Agreement had not been replaced or derogated by the arbitration agreement included in the Confirmation. Rather, according to the Buyer, the arbitration agreement contained in the Confirmation and the choice of forum agreement of the Main Agreement were alternative and granted the parties to choose to arbitrate or to litigate before the courts.

The Arbitral Award

The Arbitral Tribunal declared that it held jurisdiction to settle disputes arising out of the Confirmation but emphasised that claims grounded exclusively on the Main Agreement could not be held arbitrable. The Arbitral Tribunal did not develop the grounds of its decision nor expressed its views on the other arguments raised by the Seller during the arbitration proceedings. On the merits, the Arbitral Tribunal granted the relief sought by the Buyer and ordered the Seller to pay compensation for damages incurred by the Buyer due to the Seller’s failure to fully perform its obligation to deliver the agreed amount of grains.

The resistance of the seller at the enforcement stage

During the enforcement proceedings before the state courts, the Seller challenged the validity of the arbitral award, alleging that due to the absence of a valid arbitration agreement between the parties, the Arbitral Tribunal did not have jurisdiction to settle the dispute.

It reaffirmed its argument submitted in the course of the arbitration proceedings that the arbitration agreement contained in the Confirmation was not binding because it was not signed by the Buyer. It further contended that the arbitration agreement is a ‘solemn act’ that requires unequivocal consent, and that in case of uncertainty, the jurisdiction of state courts should prevail.

After the Seller’s motion to set aside the award was dismissed by the 2nd Lower Civil Court of the city Costa Rica, State of Mato Grosso do Sul, and by the Mato Grosso do Sul’s State Court of Appeals, the Seller filed a Special Appeal (case Resp n 1.818.982/MS), and submitted the conflict to the STJ.

The STJ ruling

The STJ also upheld the decisions rendered by the lower courts and dismissed the Seller’s motion to set aside the award. The decision was grounded on three main arguments.

First, it stated that, despite lacking signature by one of the parties, the Confirmation containing the arbitration agreement was binding to the Buyer and the Seller because it confirmed the Main Agreement that was executed by the Buyer, the Seller and the Intermediary.

Second, the STJ emphasised that the arbitration was commenced by the Buyer, precisely the party who had not signed the Confirmation and, therefore, no harm was caused to the Seller, who had participated in the arbitral proceedings and had agreed to the arbitration agreement involving the three parties.

Third, the STJ relied on the principle of Kompetenz-Kompetenz and stated that the arbitration agreement entails derogation from the state courts’ jurisdiction and grants the arbitral tribunal the right and the duty to decide disputes involving the existence, validity and the effects of that clause.

Remarks on the STJ’s ruling

For many years, the STJ has been having an important role in the consolidation of arbitration in Brazil. In the case at hand, the practical result of the STJ’s ruling seems to be consistent with the Brazilian law concerning arbitration agreements and consent and, therefore, it responds positively to the demands of the arbitral community. However, one should not ignore the fact that some grounds on which it relied to affirm the validity of the arbitration proceedings and, ultimately, of the arbitral award could have been further developed.

The STJ’s interpretation indicates that, although article 4, paragraph 1 of the Brazilian Arbitration Act³ requires that the arbitration agreement shall be in writing, the signature of both parties to such written document is not necessary, which is not to be a complete surprise under Brazilian law, since consent is the cornerstone principle in asserting the formation of a given contract.

The signature of the parties in a document, in most cases, evidences their consent to that contract. However, consent can also be implied from conclusive behaviours (facta concludentia) that amount to tacit declarations of acceptance.⁴

The STJ, for instance, has previously enforced an arbitration agreement inserted on a contract that was not signed by one of the parties, grounding its decision on the fact that the non-signatory party did not challenge the jurisdiction of the Arbitral Tribunal during the arbitration proceedings, but, conversely, participated in the arbitration, presented its submissions on the merits of the dispute and expressed its intention to indicate one of the arbitrators. Such conducts, according to the STJ, demonstrated the party’s ‘unequivocal acceptance to the terms of the arbitration agreement’, despite the lack of signature.⁵

A similar rationale seems to have been adopted by the STJ in the case at hand as it affirmed the Buyer’s consent to the arbitration agreement by its conduct in commencing the arbitration proceedings. The STJ stated as follows:

‘Furthermore, the defendant filed the request for arbitration and, therefore, no damage was caused to the appellant, who had agreed to those terms.

It is to say that, if the lack of signature could cause any damage to the party who had not signed the document, that damage would be caused to the defendant (Três Divisas). However, in the case at hand, the parties did not suffer any damage since the defendant was the one who commenced the arbitration proceedings.’⁶

In addition, STJ declared that the dispute regarding the validity of the arbitral clause in the case at hand should have been raised by the Seller during the arbitral proceedings and should have been decided by the Arbitral Tribunal and not by state courts, making reference to the Kompetenz-Kompetenz principle:

‘Moreover, it must be stressed that, as a rule, the execution of an arbitration agreement amounts to derogation from state courts’ jurisdiction and grants the arbitral tribunal the right and the duty to decide disputes arising out of that contract, including the matters involving the existence, validity and the effects of the arbitration agreement (principle of Kompetenz-Kompetenz).

Hence, if there were any doubts regarding the validity of the arbitration agreement itself, that question should have been settled by the arbitrator, not by State Courts.

And, as stated by the Local Court, the arbitral tribunal did comment on its competence.’⁷

Considering that the Seller has, in fact, raised the jurisdictional issue during the arbitral proceedings and the statement by the STJ that state courts shall not review decisions regarding the jurisdiction of arbitral tribunals, it might seem, at first glance, that the STJ grounded its conclusion on a rather strict interpretation of the Kompetenz-Kompetenz principle that differs from the meaning that the expression is intended to convey when used both in international and domestic arbitration.

The statement, although it could possibly cause some confusion, is to be construed in a way that STJ considered that the decision in the case at hand should not have been reviewed – and does not reflect a general ruling that it could not be reviewed in any case.

It is a well-established rule – although with some different degrees from one jurisdiction to another – that the Kompetenz-Kompetenz principle allows the arbitrators to be ‘not the solejudges, but the first judges of their jurisdiction’.⁸ This means that the arbitral tribunal may come to a decision on their jurisdiction prior to any state court or other judicial authority, but it does not prevent such decision from ulterior judicial review. This is also well established in the Brazilian legal system.

The wording of article 20, paragraph 2 of the Brazilian Arbitration Act⁹ provides that if the challenge on jurisdiction is not accepted by the arbitral tribunal, that decision may be subject to review by the competent judicial authority.

Such possibility was also admitted by the STJ itself in other decisions. For instance, the STJ once relied on article 20 of the Brazilian Arbitration Act and ruled that, despite the Court’s intent to apply the Kompetenz-Kompetenz principle ‘in the most rigorous way as possible’, the review of jurisdictional decisions by the judiciary after the issuance of the arbitral award would be possible by means of a setting aside application grounded on article 33 of the Brazilian Arbitration Act.¹⁰

Conclusion

The STJ ruling in the present case reaffirmed that the parties, under certain circumstances that should be assessed in each particular case, may be bound to an arbitration agreement contained in a document that was not signed by one of them. In the case at hand, in particular, the STJ seems to have recognised the validity of the arbitral clause since the non-signatory party had commenced the arbitration proceedings while the party challenging the arbitration agreement had duly signed it, and therefore no harm would be caused to the parties.

Notes

1. Case REsp n 1.818.982/MS. Reporting Judge Nancy Andrighi. Date of decision: 4 February 2020.

2. While the Arbitral Tribunal stated that the Confirmation was issued before the Main Agreement, the STJ affirmed the opposite.

3. ‘Article 4. An arbitration clause is an agreement by which the parties to a contract undertake to submit to arbitration any disputes that might arise with respect to that contract.
   Paragraph 1. An arbitration clause must be in writing, and it may be inserted into the contract itself or into a separate document to which it refers.’

4. ‘When the party, despite not having signed the arbitration agreement – lacking until then the solemn requirement of written form –, participates on the arbitration proceedings, externalizing its conclusive behavior, it signs the terms of reference, present submissions and perform formal and written acts, the requirements of article 4, paragraph 1 of the Brazilian Arbitration Act are fully met’. NANNI, Giovanni Ettore. Cláusula compromissória como negócio jurídico: análise de sua existência, validade e eficácia. In: ________.Direito civil e arbitragem. São Paulo: Atlas, 2014, p 50.

5. STJ, Contested Foreign Award (SEC) n 856. Reporting Judge Carlos Alberto Menezes Direito. Date of decision: 18 May 2005.

6. Free translation.

7. Free translation.

8. Emmanuel Gaillard; John Savage (Ed), Fouchard, Gaillard, Goldman on international commercial arbitration (The Hague: Kluwer Law International, 1999), p 401.

9. ‘Article 20. The party wishing to raise issues related to the jurisdiction, suspicion or impediment of an arbitrator or arbitrators, or as to the nullity, invalidity or ineffectiveness of the arbitration agreement, must do so at the first opportunity, after the commencement of the arbitration.
   [...]
   Paragraph 2. When the challenge is not accepted, the arbitration shall proceed normally, subject, however, to review of that decision by the competent Judicial Authority if a lawsuit referred to in Article 33 of this Law is filed.’

10. STJ, Conflict of Competence n 151.130/SP. Reporting Judge Nancy Andrighi. Date of Decision: 27 November 2019.

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