Agility, confidentiality, specialization, adaptability and internationality: these characteristics are frequently found in arbitration procedures, and they help to explain why this dispute resolution method has become so popular. However, the full use of these advantages depends on the choices made by the parties throughout the arbitration procedure, starting from the arbitration clause provided in the agreement executed by the parties.
Cornerstone of arbitration, the arbitration clause is responsible for determining the scope, efficiency and effectiveness of the procedure.
The arbitration clause requires the parties’ express consent in order to allow for future litigation to be solved by arbitration. By the way, it is important to emphasize that because arbitration involves waiver of a constitutional right – submitting the matter relating to damage or threat to a certain right to the Judiciary’s analysis – the interpretation of the arbitration clause must always be strict.
The legislation does not require the inclusion of other elements in this document agreed by the parties for it to be effective; however, an empty arbitration clause creates the risk of a long litigation prior to solving the matter itself. In these cases, and in the absence of an agreement between the parties, the Judiciary must be called to intervene in the establishment of the arbitration. Nevertheless, the Judiciary will not be allowed to rule on the dispute’s merit.
Hence, we advise that the parties formalize the choice for ad hoc or institutional arbitration – electing, on the second case, the arbitration center to administrate the procedure. Considering that the applicable regulation will have full influence on the establishment and development of the arbitration, the choice of the arbitration institute is one of the most relevant decisions to be made, and therefore will be further discussed in the next article.
The seat of the arbitration is another issue that must be carefully analyzed, especially when referring to international agreements, because the legislation of the country of origin may affect the validity of the clause and afterwards the enforcement of the arbitration award. Indeed, Brazil allows the direct enforcement of arbitration awards rendered in national territory. However, it requires a preliminary procedure before the Federal Court of Appeals (STJ) in order to enforce foreign awards.
How to structure the arbitral tribunal and the number of arbitrators are also very relevant choices: they will facilitate the establishment of the procedure and may reduce costs for the parties. It is also valid to consider providing the definition of the language and the confidentiality of the procedure in the arbitration clause. Complementary elements may be included in the clause according to the parties’ specific needs.
Nevertheless, if a clause with little information creates significant implementation difficulties, the opposite situation may also cause the same problems. Sometimes, the parties intend to thoroughly regulate the entire procedure and the litigation possibilities, creating countless rules that end up being counterproductive, contradictory and even unachievable.
Escalation clauses – by means of which the parties engage in a series of steps determining the adoption of more than one dispute resolution method – also usually cause complications while being enforced, and may delay the solution of the dispute. Choosing this type of clause turns out to be wise in very few cases and, when used, the wording requires attention in double. Lastly, in cases of agreements with related parties, it is important to adjust the respective clauses providing dispute resolution methods.
When drafting an arbitration clause, the challenge is to balance entirety and simplicity, and that is why objectiveness and clarity are watchwords. In spite of being labeled midnight clause, the dispute resolution clause (naturally including the arbitration clause) deserves more attention when negotiating and drafting agreements, because the choices made in those moments will play a major role in determining the duration and cost of future litigation, and therefore may even affect the merit of the dispute.
By Antonio Tavares Paes, Carolina Xavier da Silveira Moreira and Rafael Lins e Silva Nascimento