Thursday, October 04, 2007

Domestic Arbitration

Arbitration is the preferred method of dispute resolution for foreign investors doing business in Brazil. Most foreign investors, however, prefer to select a foreign city —generally in the U.S. or Europe, as the case may be— as the seat of arbitration. They rarely select a Brazilian city as the seat (please read Seat in Brazil?). Foreign investors also prefer international institutions for administration of their arbitrations against Brazilian parties, such as the ICC, LCIA and the Triple A/ICDR. This is obvious as Brazilian arbitral institutions still lack the necessary ability to administering international disputes.

Some foreign investors doing business in Brazil through Brazilian subsidiaries (therefore, purely domestic transactions for purposes of Brazilian law) insist in inserting arbitral clauses providing for ICC arbitration. This is possible under ICC Rules of Arbitration. But while some believe that the party autonomy provided for Section 2 of the Brazilian Arbitration Act allows a party to a purely domestic transaction to elect any given law or lex mercatoria as the contract's governing law, the majority of scholars and arbitration practitioners believe otherwise.

Purely domestic disputes submitted to arbitration must (i) have Brazilian law as the governing law and (ii) establish a Brazilian city as the seat of arbitration. Foreign investors must avoid anything different than that in their arbitration clauses, unless the contract is —in fact— an international contract.

1 comment:

Quiana said...

Keep up the good work.