This post is motivated by some recent experience
negotiating arbitration clauses, researches in Brazilian Jurisprudence in the
state of Rio Grande do Sul and studying other relevant issues in international
arbitration. Sometimes, what I am stating here seems obvious, but, when I look
to some circumstances in the real world, I see it is worth it to do a brief
reminder. The agreement to arbitrate should be as clear as possible, in order
to avoid questions on the intention of the parties.
All jurisdictions that recognizes the legitimacy of
arbitration define it as an alternative method of dispute resolution that is
based on the freedom of the parties to decide how to deal with their disagreements.
The written arbitration clause inserted in a contract provide in advance the
will of the contractors on the method of dispute resolution for this specific
commercial relationship. Therefore, if the parties firmly state to arbitrate,
the Courts will rapidly enforce the agreement and all the advantages of the
arbitrations will be preserved.
Despite that, it happens quite often that arbitration
clauses are not so clear. Especially here, in Brazil, where the culture to
arbitrate is still developing and still limited into to a relatively small
group of business lawyers. Some companies intend to use it as method of dispute
resolution, convinced by the advantages it produces, but when it is time to put
it on the paper the intentions is not well reflected in the deal. For example,
in two recent precedents from State Court of Rio Grande do Sul, Brazil (n.
70052917788 e 70052335056), the claimants tried to void two awards based on the
wording of the arbitration agreement, which provided that parties “MAY use arbitration to solve
disputes”. The idea of “option”, in Arbitration, casts doubt on the real
intention of the parties. In addition, some drafts of arbitration agreements
provide arbitration in more than one institution, which also brings a question:
what is the chamber of arbitration to start the procedure? Finally, another
issue is the adequacy of the institution chosen in the contract and the
underlying relationship. Sometimes, arbitration agreement’s drafts provide
agreement to arbitrate under the rules of a chamber of arbitration that is not
adequate to the contract either for being competent to decide about a specific
issue or, most commonly, for being too expensive for the size of the contract.
We always need to keep in mind when opting for arbitration to create the most
adequate form of dispute resolution method, because if we adopt a method that
is impeditive due to its costs or its specificity, we are not delivering the
most adequate method to the parties.
It may looks like this is a Brazilian problem; maybe
we still have difficulties with those complex contracts, since arbitration is
still flourishing in the country. Nonetheless, we can see that this issue is
not only a matter of Brazilian market. In that sense, I bring the example of
the recent case of BG Group vs. Argentinian Government (BG GROUP PLC v.
REPUBLIC OF ARGENTINA, 12–138, SUPREME COURT OF THE UNITED STATES, 2014). This started
as an arbitration based on the Bilateral Investment Treaty – BIT between
Argentina and the UK signed in 1990. The BIT allowed investor to start an
arbitration of dispute if “after a period Of eighteen months has elapsed from
the moment when the dispute was submitted to the competent tribunal of the
Contracting Party in whose territory the investment was made, the said tribunal
has not given its final decision”. A conflict arose between BG Group, as an
investor, against the Argentinian Government. Due to the complicated politics
in Argentina, the Government created all kinds of difficulties to the investor,
including the creation of laws preventing BG Group to file suits against the
government in the State Court. Thus, the claimant BG Group did not filed the
judicial suit previously, as stated in the treaty. After the arbitration award,
Argentina filed a suit in the United States (since the arbitration was seated
in Washington) in order to vacate the award. The first instance held in favor
of BG Group, the second instance reversed the decision in favor of Argentina’s
claim and, finally, the Supreme Court of the United States held in favor of BG
Group with deference to the arbitrators. The basic issue of the judicial case
was whether the arbitrators had jurisdiction or not, once the BIT provided a “local
litigation requirement” before starting an arbitration.
Some arbitralists may argue against this article saying
that State courts should interpret the agreements on pro arbitration basis. The
New York Convention about international arbitration expressly determines to use
the rules that are most favorable to the recognition of the awards. In fact, the
above mentioned precedents from State Court of Rio Grande do Sul, Brazil
recognized the validity of the agreements and of the awards, even though the
clauses adopted the word “MAY” instead of firmly state that disputes “MUST” be
solved by arbitrators. Also, the BG Group v Argentina decision was with
deference to arbitration. Thus, there is no harm stablishing creative
arbitration clauses, inasmuch as Courts are pro arbitration in general.
However, at what cost? Sure, in all the cases mentioned here, the courts upheld
arbitration, but how much time and money the parties lost. In “BG Group”, the arbitration
started in 2003, the final award was in 2007 and only in 2014 the Supreme Court
of U.S. held with deference to the arbitrators. The case was of hundreds of
million dollars that waited seven years to be decided in a State Court after
the Claimant had a final and binding award. Those clauses provide a way for
non-compliant parties to make arbitration difficult on other parties,
increasing the transaction costs.
In conclusion, arbitration agreements need to be written
carefully and clearly. The intention to arbitrate must be firm and
unquestionable, in order to arbitration be effective and achieve all the
advantages that we know it has.
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