Originally from The American Review of International Arbitration (ARIA)

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I. INTRODUCTION

A corrupt politician and a corrupt businessman had a disagreement, each holding their own perspective. They learned of an extraordinary method for resolving conflicts in which they could choose their own judges. They decided to take their impasse to arbitration. But who would be the arbitrator? The politician suggested his or her cousin, while the businessman wanted to appoint his or her brother. They agreed that selecting a family member would not be advisable. The politician then proposed another politician as the arbitrator, while the businessman recommended another businessman. Ultimately, they recognized the need for an impartial and independent arbitrator. At the same time, the possibility of having God as the arbitrator occurred to both. However, given the nature of their dispute, they doubted whether God would have the necessary experience. In the end, they chose the devil as the arbitrator, certain that the “bad thing” would possess the expertise needed to understand the problem.

II.     THE CONTRACTUAL NATURE OF ARBITRATION

Arbitration is established through a contract in which the parties agree to submit their disputes to an arbitrator or a panel of arbitrators for a final and binding decision. Article 9 of the Brazilian Arbitration Act (Federal Law No. 9.307 of September 23, 1996) governs this contract, known as the arbitration agreement.  

The arbitrators—or the sole arbitrator—are parties to this arbitration agreement. They assume obligations, the most significant of which is to render a judgment on the matter, and they also possess rights, such as the right to receive fees.  A good example of this can be found in the sole paragraph of Article 11 of the Brazilian Arbitration Act, which states that the arbitration agreement may serve as an enforceable title in favor of the arbitrators, allowing them to collect their remuneration.

Typically, even before a dispute arises, the parties include a specific clause in their contract stating that any disagreements between them will be resolved through arbitration. This is known as the arbitration clause, as provided in Article 4 of the Brazilian Arbitration Act.

According to Article 5 of said legislation, the parties may specify in the arbitration clause that the arbitration will be conducted in accordance with the rules of a specialized institution. These institutions usually have an arbitration chamber or center equipped with professionals and infrastructure to oversee the arbitration proceedings.

The arbitration clause can be established in a separate contract or, more commonly, embedded within the main contract signed between the parties, such as a sales, insurance, or service contract. In these cases, the arbitration clause–while autonomous –is incorporated into the contract, establishing arbitration as the method of conflict resolution should a dispute arise.

The arbitration clause creates an obligation to initiate arbitration to resolve any potential disputes. However,

this obligation is contingent upon the condition that a conflict arises which cannot be resolved amicably and is suitable for arbitration. Article 7 of the Brazilian Arbitration Act outlines the procedure for enforcing this obligation in cases involving a “vague clause,” which is one that does not specify how the arbitration process should be initiated. If the clause is well-defined, the arbitration will proceed as detailed in the contract.

It is important to note that by including the arbitration clause, the parties waive their right to access the judiciary. This waiver is not absolute; in exceptional cases, the parties may challenge procedural defects in the arbitration before the courts. However, judicial intervention is only permissible in the presence of a serious procedural flaw, while the substance of the dispute remains for the arbitrators to decide.  Therefore, the

arbitration clause has significant implications for the parties, which is why its application is limited in consumer relations and in employment relationships.