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16 April 2019
Article 25 of the relatively new Civil Procedure Code specifically authorises the parties to a contract to select a foreign jurisdiction to decide their disputes:
Brazilian courts do not have jurisdiction to preside over and try actions when, in an international agreement, the parties agree on an exclusive foreign jurisdiction, and this argument is raised by the defendant in the defence.
Although the language of Article 25 is straightforward, the lower courts are still debating whether the choice of a foreign jurisdiction would set aside the jurisdiction of the Brazilian courts.
There is uncertainty as to what constitutes an international agreement and whether the Brazilian courts would have competing or parallel jurisdiction to hear a case involving a contract which is performed in Brazil.
Further, Article 63(3) of the code allows judges to strike down abusive choice of forum provisions before a defendant has had the opportunity to argue their enforceability, by stating that "prior to the service of process, the venue clause, if unconscionable, can be deemed unenforceable ex officio by the judge, who shall determine that the case be assigned to the court in the venue of the defendant's domicile".
Unfortunately, as is the case with the definition of an 'international agreement', the code is silent as to what actually constitutes an unconscionable clause when it comes to choice of forum provisions.
The abovementioned uncertainties will be resolved only when cases involving a choice of foreign jurisdiction reach the Superior Court of Justice, which has the final say on federal law issues (eg, the interpretation of Articles 25 and 63(3) of the code). This will likely take a few months, if not years.
There are good grounds to defend the enforceability of choice of foreign forum provisions, particularly those included in contracts involving purely international agreements (eg, agreements to distribute foreign products in the Brazilian market).
However, until the Superior Court of Justice sheds some light on what constitutes an international agreement and an abusive clause, it will remain unclear whether Brazilian courts' jurisdiction can be set aside in favour of foreign courts.
One way to mitigate the risk of a foreign party being subjected to the Brazilian courts' jurisdiction would be to employ an arbitration clause in the underlying agreement (eg, sales, distribution or M&A agreement).
The Brazilian courts, including the Superior Court of Justice, have produced a steady flow of pro-arbitration decisions and routinely set aside the jurisdiction of local courts when faced with clearly written arbitration provisions, including those which have chosen foreign law to govern the underlying agreement.
Given its party-autonomy stance when it comes to arbitration clauses, the Superior Court of Justice is expected to, in due time, enforce most (if not all) choice of foreign forum provisions, thereby recognising the proper scope and limitations of Articles 25 and 63(3) of the CPC.
For further information on this topic please contact Fernando Eduardo Serec or Antonio M Barbuto Neto at TozziniFreire Advogados by telephone (+55 11 50 86 50 00) or email (email@example.com or firstname.lastname@example.org). The TozziniFreire Advogados website can be accessed at www.tozzinifreire.com.br.
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