Brazil: Choice Of Forum Clauses In International Contracts With Obligations Enforceable In Brazil And The New Brazilian Code Of Civil Procedure

Brazil: Choice Of Forum Clauses In International Contracts With Obligations Enforceable In Brazil And The New Brazilian Code Of Civil Procedure

Jurisdiction clauses are, in general, a very common contractual provision. They aim to avoid or minimize conflicts of laws, promoting greater security for contractors in what comes to the procedure and the location where disputes arising from that document will be resolved. However, this clause is not mandatory. It is a faculty of the contractors, and the freedom of contract to exercise this power is legitimized by Precedent No. 335 of the Supreme Court, which provides: “Choice of forum clauses are valid for lawsuits arising from the contract”. This provision is especially important with regard to international agreements.

Brazilian law determines the concurrent jurisdiction between Brazilian and foreign courts. In other words, in addition to the competence of the Brazilian jurisdiction to handle the disputes arising from an international contract, an eventual action could also be filled before foreign courts.

However, in spite of the choice of forum having always been a legal possibility, Brazilian courts have held a position so far in the sense that, in certain cases of agreements between Brazilian and foreign companies, the Brazilian forum could not be excluded by the will of the parties. That is, the parties might not elect the foreign court exclusively.

This understanding was based on certain fundamentals and principles that oppose to the principle of freedom of contract and challenge the effectiveness of the jurisdiction clauses, such as the principles of National sovereignty, Social function and Adherence. Those principles have been understood as applicable in international contracts.

This position, which was reaffirmed in a recent decision, determined that the Brazilian forum could not be excluded if the contractual obligations had been fulfilled in Brazil and the parties had domicile in the country, even if the parties expressly agreed to it in the jurisdiction clause. In the same position, there are a large number of other decisions, including decisions of the Supreme Court.

However, the New Brazilian Code of Civil Procedure, which entered into force on March 18, 2016, included an express provision about the choice of foreign forum in international contracts that has no correspondence in the previous code.

Article 25 of the New Brazilian Code of Civil Procedure establishes explicitly that the Brazilian judicial authority is not competent to judge the matter if the international contract contains exclusive choice of foreign jurisdiction. As an exception to this disposition, the first paragraph of the same article provides that it does not apply to the hypothesis of Brazilian exclusive international jurisdiction, which are, cases related to real estate and inventory of assets located in Brazil.

Furthermore, the forum selection clause can be reputed ineffective if considered abusive by the judge, who can determine the jurisdiction of the defendant’s domicile, even if it is not an adhesion contract.

Thus, despite the new Civil Procedure Code still provides for the concurrent jurisdiction of the Brazilian jurisdiction in the cases when the defendant is domiciled in Brazil, the obligation is fulfilled in Brazil or the action’s foundation is fact or act occurred in Brazil, it is likely that we see a modification of the prevailing precedents considering the law reform with the inclusion of Article 25 of the New Brazilian Code of Civil Procedure.

Even though we need to wait for the enforcement of the New Code to know for sure how the legal provisions on forum choice in international contracts will be construed, the inclusion of Article 25 in the New Brazilian Code of Civil Procedure represents a major advance in contractual matters, since it aims to guarantee that forum choice and dispute resolution clauses are effective and enforceable rather than only ink on paper. This is of great value for freedom of contract, with a consequent enhance to contractual relations between foreign and Brazilian companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.