The Competence-Competence Doctrine Under Brazilian Law

Author: Gustavo F. Vaughn*

Commercial arbitration is a matter of consent. Parties must agree in writing that disputes arisen within a particular contract should be subject to resolution by arbitrators. Thus, arbitral jurisdiction derives from an agreement between the parties. In this sense, it has been correctly said that the “agreement to arbitrate is the foundation stone of international arbitration” and it “records the consent of the parties to submit to arbitration–a consent that is indispensable to any process of dispute resolution outside national courts.”[1]

The importance of the agreement to arbitrate is undisputable. It is the agreement to arbitrate that ensures arbitrators’ authority to adjudicate disputes. This authority, however, does not have only to do with the merits of the case. Arbitrators also have the authority to “consider and decide disputes over the arbitrators’ own jurisdiction, including disputes over the existence, validity, legality and scope of the parties’ arbitration agreement.”[2] Actually, this authority is an “issue of central importance to the international arbitral process.”[3]

The arbitrators’ authority to determine, at first hand, its own jurisdiction is a question addressed by the so-called competence-competence doctrine, “universally referred to by the German term Kompetenz-Kompetenz.”[4] Two effects stem from the competence-competence doctrine: one “positive” and one “negative.” The term positive competence denotes “that tribunals may themselves resolve challenges to their jurisdiction, without need to refer such matters to a court.”[5] In its turn, the term negative competence indicates that “not only do tribunals enjoy authority to determine their authority, but that that authority is exclusive, at least at the outset of an arbitration.”[6] This means that challenges to the arbitrators’ jurisdiction “may not be brought before a court before an arbitration has begun.”[7]

There are different approaches to the competence-competence doctrine worldwide,[8] although the positive effect is “recognized virtually universally.”[9] Some jurisdictions adopt only the positive effect of the competence-competence doctrine, such as the United States.[10] In contrast, other jurisdictions embrace both the positive and the negative effects of it, such as France and Brazil, where it is accepted that arbitrators have priority as against judges in the determination of their jurisdiction.[11] Interestingly, not even the countries that accept both effects have the same understanding of the competence-competence doctrine.

In Brazil, the competence-competence doctrine (viewed there as a principle rather than a doctrine) is outlined in Article 8 of the Brazilian Arbitration Act (Federal Law n. 9.307/1996).[12] The sole paragraph reads as follows: “The arbitrator has jurisdiction to decide, ex officio or upon request of the parties, on issues concerning the existence, validity and effectiveness of the arbitration agreement, as well as the agreement containing the arbitration clause.” This provision applies equally to domestic and international arbitration since the Brazilian Arbitration Act adopts the monism regime.[13]

Moreover, Article 485(VII) of the Brazilian Civil Procedure Code states that a lawsuit shall be dismissed without prejudice by a judge when the parties have agreed to arbitrate or when the arbitrators have already recognized their own jurisdiction to adjudicate the same dispute before the court. Article 337(X) of the same Code compels the Respondent to allege before a court, as a defense argument in its reply brief, the existence of an arbitration agreement. If the Respondent fails to do so, this right will be deemed waived under paragraph 6 of Article 337.

As it generally happens, to fully comprehend how a country deals with a legal matter, one has to look to that country’s case law. In Brazil, the Superior Court of Justice (“S.T.J” in its Portuguese acronym) is the highest court of appeals for all non-constitutional matters related to federal law. Accordingly, the S.T.J has the last word on the meaning of the Brazilian Arbitration Act’s provisions, and the S.T.J is widely acknowledged in Brazil as a pro-arbitration court.

The S.T.J universally recognizes that the Brazilian Arbitration Act embraces both effects of the competence-competence doctrine. In the court’s wording:

As an alternative method of resolving disputes, the establishment of the arbitration agreement immediately produces two well-defined effects. The first, positive, consists in the submission of the parties to arbitration, to resolve any disputes arising from the underlying contractual relationship (in the case of an arbitration clause). The second, negative, refers to the subtraction of the Judiciary to decide on the conflict of interests that the parties, based on the principle of will autonomy, have reserved for the judgment of the arbitrators.[14]

The S.T.J has also ruled that, according to the competence-competence doctrine, “it is for the tribunal, with precedence over any court, to decide on its jurisdiction to examine issues involving the existence, validity, and effectiveness of the arbitration agreement and the contract that has an arbitration clause.”[15] And the S.T.J has made crystal clear that this orientation came into force “to avoid the premature judicialization of issues that could well be resolved in the arbitration forum.”[16] This is good law in Brazil.

In fact, Brazilian courts and scholars developed the notion that the competence-competence principle gives arbitrators temporal precedence in relation to courts for analyzing issues on arbitral jurisdiction. This is genuinely an important jurisprudential development because Article 8 of the Brazilian Arbitration Act makes no plain reference to this time preference given to arbitrators to determine its own jurisdiction.

But for every rule, there is an exception. There are precedents from the S.T.J stating that, in exceptional circumstances, the competence-competence doctrine could be mitigated under Brazilian law. For example, if the arbitration agreement is manifestly null and void, meaning that the defect of the agreement is so evident that it could be prima facie recognized, the S.T.J would then allow courts to decide questions that touch arbitral jurisdiction regardless of the arbitrators’ opinion. The S.T.J in one case agreed that a court could “exceptionally and theoretically (…) recognizes the inexistence, invalidity or ineffectiveness of the arbitration agreement always when the defect is, in principle, obvious (thus characterizing a true pathological arbitration clause).”[17] Consequently, under Brazilian law “it is up to the Judiciary, in cases where an illegal arbitration agreement is identified, to declare the invalidity of this agreement.”[18]

A case involving adhesion contracts is another scenario in which courts could determine arbitral jurisdiction before arbitrators do so. Article 4, paragraph 2, of the Brazilian Arbitration Act sets forth the rules for an arbitration agreement to be acceptable in adhesion contracts. It reads as follows: “In adhesion contracts, the arbitration clause shall only be effective if the adhering party takes the initiative to commence an arbitration or expressly agrees to its commencement, provided that the clause is executed in writing in an attached document or in bold, with signature or initials especially for this clause.” Such requirements, however, “are not related to the validity of the arbitral clause, but to its effectiveness (that is, the ability to produce the desired effects).”[19] The S.T.J has decided more than once that if the arbitration agreement contained in the adhesion contract (e.g., a franchising contract) does not indicate that the adherent party has expressly and specifically agreed to arbitrate, this will be deemed a prima facie defect and courts will be allowed to declare the invalidity of the arbitration agreement before arbitrators.[20]

Disputes between consumers and businesses are another example. Under the S.T.J case law, it is “possible to use arbitration to resolve disputes arising from a consumer relationship when there is no imposition by the supplier, as well as when the initiative for the establishment of arbitration occurs by the consumer or, in the case of the supplier’s initiative, the consumer expressly agrees or ratifies the beginning of the arbitral process.”[21] In this case, parties will also have to comply with the rules set forth in Article 4, paragraph 2, of the Brazilian Arbitration Act. In addition, Article 51(VII) of the Brazilian Consumer Code forbids the mandatory use of arbitration in disputes between consumers and businesses.

In conclusion, one could say that the S.T.J “has been applying the competence-competence principle very strictly in Brazil”, which means that this court is quite often preserving “the arbitrators’ power to render the first decision regarding their own competence and jurisdiction, with precedence over any state courts,”[22] but has also established some clearly-defined exceptions.[23]

*Gustavo F. Vaughn is an ARIA Student Editor, an LL.M. Candidate at Columbia Law School, and a Member of the 2021-2022 Board of the Columbia International Arbitration Association.

[1] Nigel Blackaby & Constantine Partasides with Alan Redfern & Martin Hunter, Redfern and Hunter on International Arbitration 71 (6th ed. 2015).

[2] Gary B. Born, International Commercial Arbitration 1139-1140 (3d ed. 2021).

[3] Id. at 1139.

[4] George A. Bermann, International Commercial Arbitration In a Nutshell 31 (2020).

[5] Id. at 32-33.

[6] Id. at 33.

[7] Id.

[8] See generally William W. Park, The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Atlantic? 12 Arb. Int’l. 149, 137 (1996).

[9] Bermann, supra note 4, at 33.

[10] George A. Bermann, The “Gateway” Problem in International Commercial Arbitration, 37 Yale J. Int’l L. 48 (2012) (“U.S. courts have consistently viewed the doctrine as having a positive dimension only, in the sense of permitting arbitral tribunals to determine all aspects of their own competence, thereby promoting the efficacy of arbitration.”).

[11] Emmanuel Gaillard & Yas Banifatemi, Negative Effect of Competence-Competence: The Rule of Priority in Favor of the Arbitrators, in Enforcement of Arbitration Agreements and International Arbitral Awards: the New York Convention in Practice 261 (Emmanuel Gaillard & Domenico Di Pietro eds., 2008).

[12] See Carlos A. Carmona, Arbitragem e Processo: Um Comentário à Lei nº 9.307/96 175 (3d ed., 2009).

[13] Frederico José Straube, A Evolução da Arbitragem No Brasil Após A Lei 9307/1996, 50 R. Arb. e Med. 177-183 (2016).

[14] S.T.J.J., Camargo Corrêa v. Ceran, Case No. 1.699.855-RS, Decision on Special Appeal, Jun. 1, 2021, 17 (Braz.).

[15] S.T.J.J., Engebra v. União, Case No. 1.276.872-RJ, Decision on Interim Appeal, Dec. 1, 2020, 5 (Braz.).

[16] S.T.J.J., Beduschi v. Beduschi, Case No. 976.218-SP, Decision on Interim Appeal, Jun. 17, 2019, 12 (Braz.).

[17] S.T.J.J., Camargo Corrêa v. Ceran, Case No. 1.699.855-RS, Decision on Special Appeal, Jun. 1, 2021, 18 (Braz.).

[18] S.T.J.J., Coopers v. Casa do Criador, Case No. 1.773.599-PE, Decision on Interim Appeal, Oct. 26, 2020, 7 (Braz.).

[19] Andre Abbud, Daniel A. Levy & Rafael F. Alves, The Brazilian Arbitration Act: A Case Law Guide 32-33 (2019).

[20] S.T.J.J., Maio Empreendimentos v. Da Fonseca, Case No. 1.761.923-MG, Decision on Interim Appeal, Aug. 16, 2021, 4 (Braz.).

[21] S.T.J.J., Gomes v. JJ Empreendimentos, Case No. 1.785.783-GO, Decision on Special Appeal, Nov. 5, 2019, 9 (Braz.).

[22] Abbud, Levy & Alves, supra note 18, at 54.

[23] Id.