Arbitration Clauses: How to Draft an Arbitration Provision in Your Contracts

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Companies that sign high-value contracts are turning more and more to clauses that send future disputes to arbitration, drawn by the promise of confidentiality, speed, and specialized decision-makers. But a hastily drafted provision often turns that supposed security into years of argument over whether the agreement is even valid.

What an arbitration clause is and why it comes before the dispute

An arbitration clause (cláusula compromissória) is a contract provision in which the parties decide, at the time of signing, that any disputes arising from that deal will be resolved through arbitration rather than by the courts. It is governed by Brazil’s Arbitration Law (Law 9.307/96, amended by Law 13.129/2015) and binds the parties from the moment the contract is made, long before any disagreement arises.

It should not be confused with the submission agreement (compromisso arbitral), which is signed only after a dispute already exists. The arbitration clause is preventive: it works like procedural insurance that you draw on in the future. For that very reason, its technical quality is measured by whether it works smoothly on the day the relationship between the parties has already broken down.

The sensitive point is that a company negotiates the clause in the cooperative mood of signing, when no one imagines a falling-out. That psychological distance between drafting and use explains why so many provisions are born incomplete and reveal their flaws only when it is too late to fix them.

The essential elements of a well-drafted clause

A solid clause defines precisely what legal scholars call a “full clause”: one that contains every element needed to start the arbitration without any further negotiation. The opposite is the “empty clause,” which merely mentions arbitration without saying how it will work, forcing the parties to go to court to fill the gaps.

Among the indispensable elements are the arbitral institution or the applicable rules, the seat of arbitration, the language of the proceedings, the law governing the merits, and the number of arbitrators. When any of these is left out, it opens a door for the defaulting party to buy time arguing over form instead of answering on the substance.

Deciding on the number of arbitrators shows how much care is required. A sole arbitrator reduces costs and suits smaller disputes; a panel of three offers greater robustness in complex cases, at the price of higher fees and longer timelines. The choice should reflect the profile and typical value of that company’s contracts, not a generic formula copied from another deal.

The choice should reflect the profile and typical value of that company’s contracts, not a generic formula copied from another deal.

Choosing the institution, the seat, and the language

The arbitral institution is the body that administers the proceedings, handles notifications, monitors deadlines, and applies its own rules. Choosing a well-regarded institution brings predictability, known fee schedules, and a roster of qualified arbitrators. Leaving this point open is the most common defect, and the one that most often pulls the dispute into the courts.

The seat of arbitration, in turn, is not a mere address. It determines which procedural law applies, which state court may grant supporting measures, and where the arbitral award may eventually be challenged. A seat chosen without care can subject a company to a procedural regime it does not know and that does not favor it.

Language completes the trio of structural decisions. Contracts involving foreign parties or documents call for a clear choice, because translating hundreds of pages during the proceedings raises costs and creates room for objections. When the deal is entirely domestic, specifying Portuguese avoids any later claim of difficulty understanding the proceedings.

Settling these three pillars at the right moment is what separates a working clause from a merely decorative one.

The mistakes that make a clause fragile

The first mistake is the so-called pathological clause: one that names arbitral institutions that do not exist, mixes arbitration with court jurisdiction in the same sentence, or refers to rules that no longer exist. These internal contradictions create uncertainty about what the parties actually intended and give the other side a pretext to challenge the validity of the entire mechanism.

A second common mistake is a poorly calibrated hybrid provision, which points to arbitration in one place and reserves certain matters for the courts in another, without clearly marking the boundary between them. The result is a jurisdictional fight, a dispute within the dispute, which is exactly what arbitration is supposed to avoid.

There is also the mistake of copying clauses from generic templates without adapting them to the value, complexity, and nature of the contract. A clause designed for an international contract worth tens of millions may be out of proportion for a mid-sized local deal, where the arbitration costs would exceed the economic benefit of the case itself.

The strategic impact for the company that signs the contract

For a company, the arbitration clause is a risk-management decision, not a closing formality. A full, well-calibrated clause shortens the path to a resolution, protects commercial confidentiality, and lets you choose decision-makers with technical knowledge of your industry. A fragile clause has the opposite effect, adding a preliminary fight over the chosen forum to the dispute over the merits.

The cost of that fragility rarely shows up in the contract’s spreadsheet. It materializes later, in additional fees, in months of delay getting the proceedings underway, and in the risk that the arbitral award will be taken to court for annulment. What looked like time saved at signing becomes expense and uncertainty at the critical moment.

The strategic recommendation is to treat the clause with the same rigor you give to the price and subject matter of the contract. That means assessing, case by case, which institution fits the value of the transaction, which seat offers the safest procedural environment, which language makes sense for the parties, and how many arbitrators are proportionate to the expected complexity.

Companies that standardize this analysis gain predictability across their entire portfolio of contracts. They stop improvising clause by clause and begin working from templates reviewed against clear criteria and adjusted to the profile of each deal. That discipline is what turns arbitration from an abstract promise into a concrete tool for protecting assets.

Frequently Asked Questions

Does an arbitration clause completely block access to the courts?

Not absolutely. The clause removes the courts from deciding the merits of the dispute, which becomes the arbitrator’s job. The courts remain available for supporting functions, such as granting urgent measures before the proceedings begin and, in limited circumstances set out in the law, hearing a request to annul the arbitral award for formal defects.

What is the difference between a full clause and an empty clause?

A full clause contains every element needed to start the arbitration immediately, such as the institution, the seat, the language, and the number of arbitrators. An empty clause merely states that there will be arbitration, without detailing how it will work, which often forces the parties to go to court to fill the gaps before the dispute itself even begins.

Should every company include an arbitration clause in its contracts?

Not necessarily. Arbitration is advantageous in contracts of significant value, technical complexity, or those requiring confidentiality, but its costs can be out of proportion in smaller deals. The decision depends on the profile of each transaction, and a prior review by a qualified professional helps you avoid both giving up a useful tool and adopting a mechanism that is expensive and ill-suited to the case.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.