Arbitrability and its application in Brazil

Arbitrability concerns whether a particular dispute is legally capable of being resolved through arbitration rather than by the state courts. It defines the boundaries of arbitration by identifying which disputes may validly be submitted to a private dispute resolution mechanism. As a threshold requirement, arbitrability defines whether the dispute is legally capable of falling within the jurisdiction of an arbitral tribunal.

If a dispute is not arbitrable, the arbitration agreement cannot validly require the parties to submit it to arbitration. Consequently, an arbitral award rendered on a non-arbitrable matter may be annulled at the seat of arbitration or denied recognition and enforcement in Brazil or abroad.

Although arbitrability is recognized in virtually every modern arbitration statute, its precise scope depends on the applicable legal system. Brazilian law adopts a broad pro-arbitration approach while preserving important limitations intended to protect public interests and rights that are not freely disposable.

The principal purpose of arbitrability is to ensure that arbitration is used only for disputes involving rights over which the parties may freely dispose. Because arbitration derives from party autonomy, it is appropriate only where the parties may legally settle, waive, transfer, or otherwise dispose of the rights in dispute.

Accordingly, the Brazilian Arbitration Act distinguishes between disputes involving disposable rights, which are generally arbitrable, and disputes involving unavailable rights, personal rights, or matters reserved to the State.

Arbitrability also safeguards broader public interests. Certain disputes involve public policy, governmental authority, or the protection of vulnerable individuals whose rights cannot be negotiated privately. In such cases, Brazilian law limits party autonomy to preserve the integrity of the legal system. These limitations do not reflect skepticism toward arbitration; rather, they recognize that arbitration is a private mechanism designed primarily to resolve private disputes.

Brazilian arbitration is principally governed by the Brazilian Arbitration Act (Law No. 9,307 of 1996, as amended by Law No. 13,129 of 2015). The Act is heavily influenced by the UNCITRAL Model Law and reflects Brazil's long-standing policy of encouraging arbitration as an effective means of resolving commercial disputes.

Article 1 of the Brazilian Arbitration Act provides that “[P]ersons capable of entering into contracts may resort to arbitration to settle disputes relating to disposable patrimonial rights."

This provision establishes the two traditional dimensions of arbitrability under Brazilian law: subjective arbitrability and objective arbitrability.

Subjective arbitrability concerns the parties' legal capacity to conclude a valid arbitration agreement. In general, any person or legal entity capable of contracting may agree to arbitrate disputes. Following the 2015 amendments to the Arbitration Act, this includes public entities, provided the dispute concerns disposable asset-related rights.

Objective arbitrability concerns the nature of the dispute itself. Only disputes involving disposable rights may be submitted to arbitration. Although the Arbitration Act does not define this concept exhaustively, it generally encompasses rights with economic value that the parties may freely negotiate, assign, settle, or waive.

As a result, most commercial disputes are arbitrable in Brazil, including construction, corporate, shareholders disputes, M&A, joint ventures, infrastructure, energy, technology, and international sales disputes.

The Superior Court of Justice (STJ) has consistently interpreted arbitrability broadly to preserve party autonomy and the effectiveness of arbitration agreements, aligning Brazil with the prevailing international trend favoring commercial arbitration.

Public policy overlaps with, but is not synonymous with, arbitrability. While certain disputes are excluded from arbitration because they involve overriding public interests, public policy also constitutes an independent ground for setting aside or refusing recognition and enforcement of arbitral awards. The concept generally encompasses the fundamental legal principles that protect the constitutional order, public administration, the administration of justice, and essential social values.

Public policy serves two functions. First, it limits the types of disputes that may be submitted to arbitration, excluding matters involving sovereign governmental powers or overriding public interests. Second, it serves as a ground for annulment or refusal of recognition and enforcement under Articles 32 and 39 of the Arbitration Act and the New York Convention.

Brazilian courts interpret this exception narrowly. Mere errors in the application of substantive law do not violate public policy, nor do courts review the merits of arbitral awards except in the exceptional circumstances expressly provided by law. This restrained approach has significantly contributed to Brazil's reputation as an arbitration-friendly jurisdiction.

Another limitation concerns disputes involving the rights of third parties who are not bound by the arbitration agreement.

Although an arbitration agreement binds only its signatories, and, in limited circumstances, certain non-signatories under applicable legal doctrines, the mere existence of third parties does not render a dispute non-arbitrable. Multiparty disputes involving affiliates, subcontractors, guarantors, or insurers are common in commercial arbitration.

The limitation arises only where the arbitration would directly determine or impair substantive rights belonging to persons who have not consented to arbitration. In such cases, judicial proceedings may remain necessary to protect those interests.

Unlike some jurisdictions, Brazilian legislation does not contain a comprehensive statutory list of non-arbitrable matters. Instead, arbitrability is determined by applying Article 1 of the Arbitration Act, meaning that the nature of the underlying rights, not the legal field, ultimately determines whether a dispute may be arbitrated.

Family law: Personal status matters (e.g., marriage, divorce, filiation, adoption, guardianship) are generally non-arbitrable. However, purely asset-related disputes arising from family relationships, such as the valuation or division of assets, may be arbitrable if they involve disposable rights.

Criminal law: Criminal prosecution is non-arbitrable. Civil damages arising from criminal conduct may be arbitrated if they concern disposable rights and are covered by a valid arbitration agreement.

Tax matters: Tax disputes are generally non-arbitrable because they involve the State's sovereign taxing authority. Although Brazil has increasingly adopted consensual mechanisms such as tax settlements (transação tributária), arbitration has not become a general mechanism for resolving disputes concerning the assessment or collection of taxes.

Public law: Public entities may arbitrate disputes involving disposable rights (e.g., infrastructure, concessions, PPPs). Sovereign functions, such as regulatory powers and administrative sanctions, remain non-arbitrable.

Insolvency: Arbitration may continue to determine the existence, validity, or amount of claims, whereas issues concerning the collective administration and distribution of the bankruptcy estate remain within the exclusive jurisdiction of the bankruptcy court.

Employment: Individual employment arbitration is permitted only under the strict conditions of Article 507-A of the CLT and remains subject to close judicial scrutiny, particularly regarding the employee's genuine consent and compliance with the statutory requirements.

Consumer disputes: Consumer disputes require particular attention. The Brazilian Consumer Protection Code generally protects consumers against mandatory pre-dispute arbitration clauses contained in standard-form contracts, which may be deemed abusive. Nevertheless, consumer disputes are not categorically non-arbitrable. Arbitration may be appropriate where the consumer voluntarily elects arbitration after the dispute has arisen or otherwise provides valid and informed consent. In practice, however, consumer arbitration remains relatively uncommon.

Questions of arbitrability become particularly significant in international arbitration, where several legal systems may simultaneously be relevant. A dispute connected with Brazil may require consideration of the law governing the underlying contract, the arbitration agreement, the arbitral seat (lex arbitri), the jurisdiction where recognition or enforcement is sought, the parties' legal capacity, and, in some cases, the jurisdiction where relevant assets are located.

These legal systems do not always adopt identical conceptions of arbitrability. Consequently, a dispute considered arbitrable under Brazilian law may encounter obstacles if enforcement is sought in a jurisdiction with a more restrictive approach.

Brazilian law nevertheless favors a presumption of arbitrability. The STJ has repeatedly emphasized that arbitration agreements should be interpreted in a manner that promotes their effectiveness and respects party autonomy. For parties involved in international transactions, careful drafting of arbitration agreements, including the choice of seat, governing law, and enforcement strategy, can significantly reduce the risk of future arbitrability challenges.

Brazil has developed one of the most arbitration-friendly legal frameworks in Latin America. Guided by the principle that disputes involving disposable rights may be submitted to arbitration, the Brazilian Arbitration Act adopts a broad conception of arbitrability that aligns with international standards and strongly favors party autonomy.

Although important limitations remain, notably in matters involving personal status, criminal law, core tax disputes, sovereign governmental powers, and other unavailable rights, these exceptions are interpreted narrowly and have not hindered the widespread use of arbitration in commercial practice.

The Superior Court of Justice has consistently reinforced this pro-arbitration approach by upholding arbitration agreements, limiting judicial intervention, and enforcing arbitral awards save in the exceptional circumstances expressly provided by law. Together with the 2015 amendments authorizing public entities to arbitrate in certain circumstances, precedents have strengthened Brazil's position as one of the leading arbitration jurisdictions in Latin America.

In cross-border disputes, arbitrability should nevertheless be assessed in light of all potentially applicable legal systems, particularly the law governing the arbitration agreement, the law of the seat, and the law of the jurisdiction where enforcement may ultimately be sought. Subject to those considerations, parties doing business in Brazil can generally rely on arbitration as a robust, predictable, and judicially supported mechanism for resolving commercial disputes.