Amanda Pierre de Moraes Moreira is a dispute resolution lawyer at Campos Mello Advogados, civil law master’s candidate at Universidade do Estado do Rio de Janeiro (UERJ). She holds a bachelors degree in Law from Faculdade Nacional de Direito of Universidade Federal do Rio de Janeiro (FND/UFRJ).

Beni Flint is a dispute resolution lawyer at Campos Mello Advogados. He is specialized in arbitration at Washington College of Law and is post-graduated in patrimonial law. He holds a bachelor’s degree in law from PUC-RJ.

It is common ground in the Brazilian Superior Court of Justice (“SCJ” ) and among specialists that, upon filing of a request for enforcement of an instrument with the nature of an extrajudicial enforceable title that contains an arbitration clause, if the defendant intends to seek arbitration to allege that the plaintiff does not have the right to collect, it shall file a request for arbitration with claims that would be discussed in a Motion to Stay Enforcement before the State/Federal Court if the instrument lacked an arbitration clause.

After all, if the defendant does not recognize the credit or the instrument that is being enforced, it needs to file a defense and is interested in undoing the enforcement title through an award to be rendered by the arbitrators. The arbitrators will be able to analyze the merits that could be addressed by means of a Motion to Stay Enforcement, which must be filed by the debtor, especially under item VI of art. 917 of the Brazilian Civil Procedure Code (“CPC”): “Art. 917. In the motion to stay the enforcement, the debtor may raise: (…) VI – any issue that could lawfully be argued in an ordinary proceeding”.

In this sense, the I Seminar on Extrajudicial Dispute Prevention and Resolution of the Council of Federal Justice approved Statement No. 12: “The existence of an arbitration clause does not prevent the enforcement of an extrajudicial enforceable title, reserving to arbitration a decision on the matters provided for in art. 917, items I and VI, of the CPC/2015“.

Carlos Alberto Carmona, in an academic study focused on this theme, teaches that “once the enforcement lawsuit is filed, what should be done with the Motion to Stay Enforcement that the debtor may file? It seems reasonable to conclude that, if there is an arbitration clause – and if the Motion to Stay Enforcement addresses substantial matters (validity, effectiveness and scope of the enforcement title) -, [the debtor] should address these issues to the arbitrators, while the court will only be responsible for the decision of a Motion to Stay Enforcement that deals with procedural issues”.

In this scenario, the Brazilian case law seems to have established that the simple commencement of an arbitration proceeding is enough to stay enforcement, as it constitutes an incidental issue, under the terms of art. 313, V, paragraph “a”, of the CPC, which provides that “Art. 313. Proceedings shall be stayed: V – when a judgment on the merits: a) depends on the trial of another claim or on the declaration of the existence or inexistence of a legal relationship that constitutes the main subject matter of another pending lawsuit”.

Indeed, in 2018, the Second Section of the SCJ, when deciding on CC 150.830/PA, reported by Justice Marco Aurélio Bellizze, was called to settle a conflict of jurisdiction between the 1st Civil and Business Court of Belém/PA and the Center for Arbitration and Mediation of the Brazil-Canada Chamber of Commerce – CAM-CCBC, and determine the suspension of the enforcement lawsuit while a decision by the arbitrators was pending as to whether the creditor, who was the defendant in the arbitration, would have an effective right to collect the amount enforced before the court, verbis:

“It is undeniable, furthermore, that the enforcement action is dependent on the proceeding that takes place before the Arbitration Chamber. The decision that will be rendered by the arbitrators concerns precisely the debt that is being pursued in the collection lawsuit. Thus, the result of the arbitration proceeding will have direct effects on the continuation of the enforcement lawsuit. (…) in the sense of the grounds outlined above, I make the injunction previously granted now definitive, in order to recognize the jurisdiction of the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada – CAM-CCBC, and to prevent the continuation of the enforcement lawsuit before the State court as long as the discussion therein has not been defined or there is no deliberation in the opposite direction of the reputed competent arbitration tribunal”.

The Court of Appeals of São Paulo (“TJ/SP”) is embracing such ruling, as seen in the recent case laws below, dated February and June 2021, respectively, through which the enforcement of the extrajudicial instruments was stayed. The first case deals with a lawsuit seeking the collection of amounts supposedly due as a result of an extrajudicial transaction between the parties, and the second sought the collection of several promissory notes.

In both cases, given the allegation that the conditions to enforceability of the amounts contained in the instrument had not yet been fulfilled, a matter of merits which had to be discussed in arbitration, the TJ/SP, expressly citing the CC No. 150.830/PA case from the SCJ, decided to stay the enforcement until the final decision on the merits of the arbitration based on the simple allegation of the existence of an arbitration clause, verbis:

“INTERLOCUTORY APPEAL. Enforcement. Motion to Stay Enforcement. Decision that has determined the suspension of the lawsuit until the issues are decided by the arbitration court – The rejection of the enforcement will only be possible if there is a decision of the arbitration court recognizing its competence or determining so. Interpretation of art. 485, VII, of the NCPC. Viable stay – Precedent of the SCJ – The alternative request made by the appellant in the appeal is rejected, because it was not subject to the decision, and the Court is responsible for re-examining the decision by the lower court, it is not supposed to take its place, which would cost undue suppression of a degree of jurisdiction – Decision maintained. Appeal dismissed, in the part which was admitted”.

“INTERLOCUTORY APPEAL. Enforcement of Extrajudicial Title. Promissory notes issued “pro solvendo” to a loan agreement for the performance of a solar energy project. Decision that granted the attachment of assets and rejected the Motion for Preliminary Dismissal of Enforcement filed by the appellant. Regardless of the inadequacy of the motion for advance dismissal of enforcement, as the matter under dispute cannot be decided ex-officio, requiring the production of evidence, the attachment of assets is unreasonable, given the existence of an arbitration clause, provided in the contract, which alters the enforceability of the title, and the matter must be taken to an arbitration tribunal. Enforcement that shall be stayed until there is a decision by the arbitral tribunal on the dispute. Blocked values that must remain so, deposited in a judicial account. Decision modified. APPEAL GRANTED.“

Although everything indicates that the above ideas are correct in relation to the harmonious coexistence between an arbitration clause and an enforcement of an extrajudicial title, it should be noted that, currently, there are no further discussions regarding the notorious advantage of the debtor that can take the matter to arbitration jurisdiction over the debtor that can only discuss the merits of the debt before the Judiciary. For the debtor entitled to resort to an “arbitration to stay enforcement”, it is enough that an arbitration proceeding is initiated so that the enforcement filed against it is stayed; while, for the plaintiff of the State Court motion to stay the enforcement, the stay of the imposed enforcement is not that simple.

In other words, by applying the reasons of the case law referred to above, the “plaintiff of the motion to stay enforcement”, which is the plaintiff in the arbitration, would neither need to post a bond to the enforcement nor demonstrate that the necessary requirements for granting provisional relief are fulfilled, as provided for in art. 919, §1, of the CPC, applicable to cases of motions to stay enforcement filed before a State Court. On the other hand, the stay of the enforcement procedure through securing the enforcement debt considerably protects the creditor, while in the arbitration the creditor would be forsaken of such guarantee.

Depending on the amount involved in the enforcement, it is clearly a privilege granted exclusively to the contracting parties of underlying agreements that contain an arbitration clause and against which an enforcement action will be brought. Although the costs of arbitration to the debtor are substantially higher compared to the procedural costs due in case of filing of a motion to stay enforcement, there is an effective economic advantage to the debtor, which will not be immediately required to incur the amount enforced by the creditor (or even to contract a judicial guarantee insurance bond or another type of similar bond) to secure the enforcement while discussing the enforceability of the debt before the arbitration panel, and the enforcement lawsuit will remain stayed until a final award deciding the merits of the dispute is rendered.

In a different sense, and with a better indicator of a symmetrical treatment, Luiz Fux, Justice of the Brazilian Federal Supreme Court, understands that “in view of the fact that if there is an arbitration clause, the debtor will not be able to file a motion to stay enforcement for discussing substantial law, and considering that an arbitration will perform the role of such motion to stay enforcement, it seems to us that the most coherent thing is that the submission both of the injunction and the request for the initiation of arbitration shall occur within a deadline of 15 (fifteen) days, the same given to the debtor for the presentation of the judicial motion to stay enforcement, when there is no different arbitration provision and upon presentation of due guarantee (bond).”

However, as it can be noted, despite this scholarly understanding, the most recent case laws so far seem to point in a different direction, creating asymmetry between arbitral and state courts with regards to the lack of a requirement of a bond to seek the stay of the enforcement. This does not seem to be the best solution for the desirable equal treatment that should be granted in either jurisdictional path.