A few short notes on arbitrator’s duty to seek a ruling on the constitutionality of laws: a Brazilian perspective

Gustavo Favero Vaughn. Associate lawyer at Cesar Asfor Rocha Advogados (São Paulo, Brazil); Master’s Candidate at the University of São Paulo; Professor, Graduate Program at Ibmec-SP Law School; ACIArb.

  1. Arbitration and Constitution

Under Brazilian law, the Federal Constitution of 1988 is the country’s supreme law. Its purpose is to be the parameter to validate all other laws and decisions that the Federal Powers pass. Therefore, in Brazil, the constitutional supremacy principle prevails, which requires the legal system to reject laws and decisions that, whether due to formal or substantive flaws, violate the Constitution.

Despite the Constitution’s evident importance, the study of constitutional law, especially the judicial review analysis, usually focuses only on the judge’s role as a Judicial Branch member. On the other hand, from a constitutional standpoint, there is little arbitrators’ examination as de facto and de jure arbitral process judges.

Although the Supreme Court in Brazil is the judicial body responsible for the ultimate decision on the meaning of constitutional rules, one should not disregard the arbitrators’ importance when interpreting and applying the Constitution. So the question is, just as the Brazilian law allows any judges to perform a judicial review, could not (or should not) arbitrators be allowed to decide on the constitutionality of the law applicable to the arbitration?

  1. Arbitral jurisdiction

One of this article’s basic premises is that arbitrators have jurisdictional power. That is so because they decide disputes applying the law, and the award they render is binding and definitive upon the parties. The arbitrators’ award achieves the same purpose as the court’s judgment: it is a matter adjudged, an instrument enforceable in court, and issued by a third-party alien to the interests at stake in the case.

As it is a jurisdictional process, undoubtedly, arbitration is subject to constitutional procedural law rules. Thus, the arbitral process must always comply with the Constitution’s provisions, even if the parties do not wish so.

In the constitutional model applicable to arbitration, the arbitral process subjects must comply with the constitutional rules, and the arbitrators must resort to the constitutional provisions to form a conclusion and decide. Moreover, the parties must comply with the constitutional provisions to enter into agreements and set forth the arbitration’s procedural rules. Although the arbitral tribunal belongs to a private justice system, it must follow the constitutional rules.

  1. Must arbitrators declare laws unconstitutional?

The arbitrators’ activity has a jurisdictional nature, and the arbitration process is subject to constitutional rules. For this reason, not only can arbitrators carry out the diffuse control of constitutionality in commercial arbitration, but they must do so.

However, arbitrators are only responsible for the judicial review by incidental means. Exercising abstract judicial review is strictly forbidden. Under the Brazilian legal system, abstract judicial review is under the Supreme Court’s exclusive and sovereign jurisdiction.

The equivalent de facto and de jure judges arbitrators’ holding endorses this assertion. Like court judges, arbitrators must declare the unconstitutionality of law when they see it applicable and pertinent. The arbitrators’ duties to settle a specific dispute by applying the law to the case are inexorably linked to constitutional parameters so that there is no loophole for arbitrators to excuse overlapping constitutional rules on any other when judging a controversy.

The Constitution’s supremacy is mandatory in every case subject to Brazilian law. This requirement cannot be removed from the arbitral process and is not at the parties’ or the arbitrators’ service. The arbitrators’ duty to synchronize the applicable law with the Constitution comes from the Brazilian law’s systematic logic. Therefore, the arbitration players cannot escape from it, even if the arbitral process has its idiosyncrasies and is a different system from the state process.

Recognizing and accepting the arbitrators’ authority to appreciate, by incidental means, the constitutionality of laws applicable to the arbitration is the most consistent – if maybe not the only – interpretation. If the Constitution is the country’s highest law, all other laws must obey it unconditionally; otherwise, they will be deemed invalid. There is no credible justification for removing the diffuse control of constitutionality from the arbitrators.

Arbitrators must apply the law that the parties elect. Suppose the applicable law is the Brazilian law. In that case, the Constitution is the ultimate parameter of validity, the primary guideline for interpreters, and laws must be interpreted in light of the Constitution. In fact, arbitrators must rule out laws that are incompatible with the constitutional rules.

Arbitrators also have to reject a request for declaration of unconstitutionality when they understand that the law claimed to be unconstitutional is not. In other words, just like arbitrators must rule out an unconstitutional law, they must also apply the constitutional law when that is the case. So the judicial review works for both sides. Still, there is a greater weight for the declaration of unconstitutionality, mainly because the laws have a presumption of constitutionality, at least under Brazilian law.

Peter Haberle idealized a concept known as the plurality of interpreters of the Constitution. This concept is also applicable to arbitration. In other words, we should see arbitrators as one of the many interpreters of the Constitution because arbitrators must verify constitutionality by incidental means, whether to rule out an unconstitutional law or to apply a constitutional law, by dismissing the allegation of unconstitutionality.

The arbitral decision that declares the constitutionality or unconstitutionality of law – especially in this second case, considering the presumption of constitutionality of the rules referred to above – must be duly motivated, explaining what led the arbitrators to conclude in one way or another.

Arbitrators may exercise the diffuse control of constitutionality at any time during the arbitration. The interpretation of the conformity of laws with the Constitution, precisely because its primary scope is to ensure the predominance and normative power of constitutional rules, is an imperative activity, mandatory for arbitrators, not limited to a specific phase of the arbitral process and not susceptible to preclusion, in addition to being identifiable ex officio by the arbitrators.

For the sake of effectiveness and efficiency of the arbitral process, a judicial review should be carried out, as the case may be, at the time of the award (partial or final). Therefore, the decision of unconstitutionality in procedural orders, for example, would be avoided.

It is not possible for the parties to limit, by agreement, the exercise of constitutional jurisdiction by arbitrators. This power-duty is not at the parties’ service to agree, even if the autonomy of the will is undeniably important for the arbitration doctrine, as it actually is. The parties’ will faces insurmountable hindrances in the Constitution’s supremacy, being unfeasible for the parties, since it is unconstitutional, to establish in the arbitration clause, for example, that the arbitrators will not be able to verify the constitutionality of laws.

The constitutional jurisdiction, from which the arbitrators’ power-duty to interpret and apply the Constitution arises, acts as a legitimate source of limitation to the parties’ will. In this aspect, naturally, the autonomy of the parties’ will yields to the importance of consistency between the laws and the Constitution, thus avoiding undesirable conflicts between rules of different hierarchy.

  1. Conclusion

This text’s initial premise is reinforced because it brings elements to further considerations on commercial arbitration and judicial review. The doctrine explores this aspect little; however, it is certainly of great relevance for the full development of arbitration in Brazil, whose constitutional model allows us to say, without doubt, that arbitrators must exert judicial review when applying the Brazilian law to the arbitration.