Bypassing The Kompetenz-Kompetenz Rule: A Critical Note On The Recent São Paulo Court Of Appeals Decisions

Under the Brazilian Arbitration Act (Law No. 9,307/1996, the “BAA”), any party capable of contracting may submit disputes concerning freely transferable property rights to arbitration and may choose the rules of law that will govern it (Articles 1 and 2, § 1, BAA). At the same time, Article 8, sole paragraph, entrusts to the arbitrator any challenge to the existence, validity or capability of being performed of the agreement from which his mandate derives.

The structure is well-defined. Parties establish the terms on which they will arbitrate, within the limits set by the BAA, and the arbitrators are entrusted with the task of ruling on any challenge to those terms. Courts may intervene beforehand only in exceptional cases where a defect in the arbitration agreement is ascertainable on a prima facie basis (e.g., manifest invalidity or non-compliance with mandatory formal requirements). It is only in even more limited circumstances that courts may set aside the resulting arbitral award.

Within eight weeks, two panels of the São Paulo Court of Appeals (“TJSP”) departed from this framework. Both declined to enforce an arbitration agreement providing for a foreign seat and did so before any arbitral tribunal had the opportunity to rule on its own jurisdiction. See Appeal No. 1008970-38.2025.8.26.0602 (the “JCB Case”) and Appeal No. 1141196-92.2024.8.26.0100 (the “Amazon Case”).

The JCB Case

Three Brazilian companies belonging to the same group distributed agricultural and industrial machinery under standard-form agreements with JCB do Brasil Ltda., the Brazilian subsidiary of a British manufacturer. Clause 24.1 of the distribution agreement subjected the agreements to English law and referred any dispute to arbitration seated in London under the LCIA Rules, conducted in English before a sole arbitrator appointed by agreement of the parties or, failing agreement within 30 days, by the LCIA. The clause preserved the parties’ right to seek interim relief before the courts, while Clause 24.2 gave only the manufacturer the option to bring proceedings before the Brazilian courts to protect certain rights.

Upon termination of the relationship, the parties disagreed as to the buy-back value of the machines and parts held by the distributors. Instead of commencing arbitration, the distributors applied to the Campinas business court for the early production of evidence, seeking a judicial valuation of the goods. The court of first instance dismissed the application without prejudice, holding that it did not qualify as a request for interim relief and that the question of jurisdiction should be submitted to the arbitrator.

On appeal, the TJSP reversed the first-instance decision by majority. It held that the Kompetenz-Kompetenz principle is “relative” and permits judicial review of the arbitration agreement, “on an a priori basis”. It then declared the clause “pathological” on three grounds:

     i.         the parties’ choices of London as the seat, English as the language of the proceedings, and English law as the applicable law made no “sense” for a contract executed and performed in Brazil between companies incorporated in Brazil;

    ii.         the clause was absent from the original contract and had been introduced by an “amendment imposed” by the manufacturer after the distributors had made substantial investments; and

  iii.         Clause 24.2 was abusive because it granted only one party access to the state courts and that such asymmetry “emptied” the arbitration agreement of its binding force.

The Court further held that the valuation sought involved no “effective litigiousness” and should be entrusted to an expert in Brazil. It reached these conclusions notwithstanding its express acknowledgment that the parties were commercial entities, that none of them was in a position of weakness, and that the principle of minimal intervention in commercial contracts applied.

While prima facie review is admittedly permitted where a defect is manifest upon summary examination, it has been largely confined to adhesion contracts that fail to meet the formal requirements of Article 4, § 2 of the BAA and to consumer contracts, in which Article 51, VII of the Brazilian Consumer Protection Code (“CDC”) renders compulsory arbitration clauses void. Neither situation arises in the JCB Case. The ruling itself found that the contract had been entered into by commercial parties and even emphasized the principle of minimal intervention. Whether the clause was unilaterally “imposed” by the manufacturer, moreover, is a question of fact that a court cannot investigate at this stage.

Equally untenable is the characterization of the clause as pathological, which the judgment adopts while simultaneously describing it as “cheia”, that is, complete. The two findings are irreconcilable. The expression “pathological clause”, coined by Frédéric Eisemann in 1974 (EISEMANN, Frédéric. La clause d'arbitrage pathologique, 1974 apud GAILLARD, Emmanuel; SAVAGE, John (eds.). Fouchard Gaillard Goldman on International Commercial Arbitration. Haia: Kluwer Law International, 1999, p. 262), is used in Brazil to designate a clause so defectively drafted that the arbitration cannot be initiated, typically because the institution cannot be identified or the appointment mechanism is inoperative. Clause 24.1, which specified the seat, the institution, the rules, the language and the number of arbitrators, with a default appointment by the LCIA, suffered from neither defect.

The remaining grounds fare no better. The absence of “effective litigiousness” is difficult to reconcile with the Court's own observation that the parties failed to reach agreement on the buy-back values — the very reason the application for early production of evidence was brought — all the more so given that non-urgent early production of evidence under an arbitration agreement falls to the arbitral tribunal. As to the asymmetry, the question whether it is compatible with Brazilian law is one that Article 8, sole paragraph, of the BAA reserves to the arbitrator.

The Amazon Case

The second case concerned a seller whose Amazon Marketplace account had been suspended and whose balance of USD 18,153.72 had been withheld. He brought proceedings against Amazon Serviços de Varejo do Brasil Ltda. before the São Paulo courts, seeking reinstatement of his account, release of the withheld funds, and damages for lost profits. The claim was upheld at first instance.

On appeal, Amazon argued that it lacked standing to be sued because the contractual relationship had been entered into with Amazon.com Services LLC, a U.S. company allegedly responsible for operating the website through which the claimant made his sales. Amazon further invoked an arbitration clause contained in the Amazon Business Solutions Agreement, the platform's standard-form seller agreement, which provided for arbitration under the AAA Rules. On that basis, Amazon also challenged the jurisdiction of the Brazilian courts and argued that the CDC did not apply because the claimant used the platform for profit.

The São Paulo Court of Appeals unanimously dismissed the appeal. It rejected the jurisdictional objection on the ground that the seller’s store was identified on the Brazilian platform and that the Brazilian courts therefore had jurisdiction under Article 21 of the Brazilian Code of Civil Procedure (“CPC”). The Court also relied on Article 75, X, of the same statute, reasoning that Amazon Serviços de Varejo do Brasil Ltda. and Amazon.com Services LLC belonged to the same corporate group and that the foreign entity could therefore be represented in court by its Brazilian affiliate even though they were separate legal entities.

The Court’s assessment of the arbitration agreement was confined to a single sentence. It reasoned that, because it considered the Brazilian courts to have jurisdiction over the dispute, “it was not appropriate to refer the file to the foreign arbitration institution”, since it would be impossible “in this context to impose foreign arbitration compulsorily”. The Court quoted one of its own precedents, in which a similar clause had been annulled under Article 51, VII of the CDC. Nonetheless, the Court never addressed whether the relationship qualified as a consumer one and, despite relying on that precedent, upheld lost profits precisely because the claimant used the platform “for professional purposes”. At first instance, the seller had been treated as a consumer on the ground that, although acting professionally, he was in a position of vulnerability vis-à-vis the platform — a finding the appellate decision neither adopted nor rejected.

The reasoning conflates two distinct questions. Articles 21 and 75, X of the CPC determine when Brazilian courts may hear a case against a foreign defendant, but they do not prevent the parties from submitting their dispute to arbitration. That possibility is expressly preserved by Article 3, § 1 of the CPC and reinforced by Articles 337, X and 485, VII, which require the court to dismiss the claim when an arbitration agreement is properly invoked.

Had the Court wished to assess the validity of the clause on a prima facie basis, Brazilian law offered two possible routes. Marketplace terms of use are typically adhesion contracts, in which an arbitration clause would only be deemed effective (under Article 4, § 2 of the BAA) if the adhering party initiates the arbitration or expressly agrees to it, either in a separate document or in bold type with a specific signature. Alternatively, if the marketplace user is qualified as a consumer, Article 51, VII of the CDC would render the clause void. The judgment relied on neither ground, leaving a decision of such consequence without reasoning capable of supporting it.

Conclusion

Party autonomy and the Kompetenz-Kompetenz rule are not incidental features of the Brazilian arbitration system. They form the basis under which arbitration has developed in Brazil. Reasoning that a foreign seat “makes no sense” for a contract performed in Brazil, or that foreign arbitration cannot be “imposed” where Brazilian courts have jurisdiction provides no legal basis for setting aside an arbitration clause.

Fortunately, these decisions do not reflect the broader picture. For three decades, the Brazilian Superior Court of Justice has consistently upheld arbitration agreements and the arbitrator's priority to rule on them, and the prompt criticism that these recent judgments have drawn within the Brazilian arbitration community suggests that they may remain isolated episodes.