The Brazilian Arbitration Act was enacted more than two decades ago and had its constitutionality declared incidentally by the Brazilian Supreme Court (STF) in the context of an appeal arising from a proceeding of ratification of a foreign court decision (Case No 5,206, judged in 2001). The analysis of the constitutionality of the Arbitration Act went through the analysis of the constitutional guarantee of non-obviation of judicial jurisdiction. The conclusion was that the Federal Constitution ensure the access to the justice system but at the same time also ensures the right to settle disputes by other mechanisms.

Even though the discussion concerning the constitutionality of the Arbitration Act is already fully overcome, the Court of Appeals of the State of Rio de Janeiro, at the end of 2020, decided to review the issue of non-obviation of judicial jurisdiction to deny the enforceability of an arbitration clause due to the supervenience of a decree of bankruptcy of one of the contracting parties (case records n. 0018212-97.2015.8.19.0209).

The mentioned lawsuit is a contractual review lawsuit with a request for damages filed jointly by Stiebler Arquitetura e Incorporações Ltda. and two specific purpose societies. Whereas the agreement contained an arbitration agreement, the defendants raised that as a preliminary challenge to the lawsuit. The judge granted the request to dismiss the lawsuit since the dispute should be settle by an arbitral tribunal.

However, after Stiebler's bankruptcy decree, the judicial trustee requested that the court of the bankruptcy should be consider the only court to rule on issues involving the bankrupt company. Stiebler, for its part, also argued in its appeal that a company under a bankruptcy regime, which means subject to Law No. 11,101/05, Brazilian Reorganization and Bankruptcy Act, cannot be a party in arbitration proceedings claiming that this would be a breach of the guarantee of non-obviation of judicial jurisdiction.

In addition to analyzing other issues that fall beyond the scope of this article, the Court of Appeals of the State of Rio de Janeiro, more specifically the 3rd Civil Chamber of Rio de Janeiro Court of Appeals, considered that the arbitration clause cannot have unrestricted application and its analysis should consider the high costs that will be borne by the insolvency estate and by the creditors.

Thus, considering that the insolvency estate could not bear to pay for the costs of an arbitration proceeding, the court held that right to access the judicial jurisdiction should be protected and the dispute should remain within the judicial court. This decision was subject to a motion for clarification that was dismissed by the Rio de Janeiro Court of Appeals. Following this, an appeal to the Superior Court of Justice (STJ) was filed by one of the parties to discuss if the arbitration clause remains valid (REsp nº 1959435 / RJ). The appeal was received by the Superior Court in September 2021 and is pending trial.

The decision rendered by the Rio de Janeiro Court of Appeals represents a step backwards to the whole case-law already well- established on the issue. In fact, the STJ itself had already rendered strategic decisions regarding the use of arbitration in the country, also regarding the arbitrability of disputes involving companies going through insolvency proceedings. An example is a decision rendered by Minister Nancy Andrighi in 2008, under Precautionary Measure No. 14,295/SP, which decided on a matter of arbitrability involving a company in out-of- court liquidation. This matter involved ABC Health Services Hospital and Interclinical Health Plan S.A., the Minister rapporteur considered that the arbitration clause remains valid, as it was concluded before the decree of liquidation.

Another example, in Targa vs. Cremer, also judged by the Court of Appeals of the State of Rio de Janeiro in July 2014, lawsuit registered under no. 0016509-16.2014.8.19.0000, Targa turned to the judicial court to request the suspension of an arbitration proceeding claiming that the issues under discussion involved a matter that could not be subject to arbitration because the company was under a reorganization proceeding. The court ruled that since the discussion was substantially contractual, there were no grounds to discuss the lack of arbitral jurisdiction.

Such cases are not isolated and are in line with legislative developments on the subject. First, the II Commercial Law Seminar of the Council of Federal Justice (CJF), held in 2015, approved the 75th statement as it follows: "if there is arbitration agreement, if one of the parties has been declared bankrupt: (...) the judicial trustee cannot refuse the effectiveness of the arbitration clause, given its autonomy in relation to the contract.". Despite this statement had no binding force, it reassured the interpretation given by scholars regarding the matter.

With the enactment of Law No. 14,112/20, the Brazilian Judicial Reorganization and Bankruptcy Act was amended to expressly provide that "the commencement of judicial reorganization proceeding, or the decree of bankruptcy does not authorize the judicial trustee to refuse the enforcement of the arbitration agreement, not preventing or suspending the beginning of the arbitration proceedings" (art. 6, § 9).

This means that the judgment of the 3rd Civil Chamber of the Court of Appeals of Rio de Janeiro, that rejected the enforceability of the arbitration clause, disregarded all recent case-law developments and even legislative changes about the matter.

If the precedent of the 3rd Civil Chamber of the Court of Appeals of Rio de Janeiro is not reviewed – which is apparently a remote hypothesis –, such interpretation will bring legal uncertainty to the arbitration agreements and will imply a real setback in relation to the institute.

There are still problems regarding the compatibility between arbitration and insolvency, however, provided that the matter under discussion is considered arbitrable under Brazilian Arbitration Act, the state and the arbitral jurisdictions can and must live harmoniously. It is expected that when the appeal is judged by the Superior Court, they will maintain its position regarding the binding effect of the arbitration clause, which will be aligned with the legislative developments on the matter.