Overall, the new law brings the positive impact of promoting legal certainty and safeguarding the will of the contracting parties at the time of execution of the agreement, reducing the possibility of co-existence of conflicting decisions.
Selection of foreign forum has always been the object of great controversy among Brazilian courts and scholars. Art. 88 of the 1976 Code of Brazilian Civil Procedures provides that Brazilian courts will have jurisdiction when (i) the defendant, whatever his/her nationality is domiciled in Brazil; (ii) the obligation is to be performed in Brazil; (iii) the lawsuit results from a fact which occurred, or an act that was performed in Brazil. This jurisdiction is considered as non-exclusive (concurrent) and therefore, notwithstanding the selection of foreign forum being acceptable under Brazilian law, the dominant view of the Superior Court of Justice is that when the main obligation/object of an agreement is to be performed in Brazil, the selection of foreign forum does not prevent the parties to file suit in Brazil and Brazilian courts shall inevitably accept the claim, creating a situation of legal uncertainty and possible conflicting decisions from different jurisdictions.
In order to overcome this situation, foreign and national companies alike have been widely using international arbitration clauses whose validity has been repeatedly upheld by the Brazilian Superior Court of Justice and the Brazilian Supreme Court, even when consumer protection arguments have been raised (insofar as evidenced that consumer has unequivocally and explicitly consented to such clause).
It seems that Art. 25 of the new Brazilian Code of Civil Procedures which is slated to come into effect on March 17 2016, a year following its presidential approval, was tailored made to resolve this controversy. It explicitly provides that Brazilian courts have no jurisdiction over proceedings in the event of existence of a selection of foreign forum clause provided in an international contract, which shall be pleaded before the court with defendant´s Statement of Defense.
The term “in an international contract” may generate some confusion as to what should be considered an international contract: the majority of Brazilian scholars define a contract as international when 1- the contracting parties have different nationalities or domiciles; 2- the country of execution of the contract is different from the country where the obligations is carried out; and 3- obligations thereunder are carried out overseas. Apparently, the aforementioned categories are not enough to cover all circumstances having international elements. Imagine, for example, a situation of two Brazilian subsidiaries wholly owned by American entities and having the majorities of their assets located in the United States entering into an agreement in Brazil pursuant to which 90% of the obligations need to be carried out in Brazil whilst 10 % thereof will take place in the United States. It is not clear if this should be considered an international contract. Absence clear definition, classification of a particular contract as “international” shall be evaluated on a case to case basis.
The provision may also trigger a legal phenomenon known as race for jurisdiction. As parties may be prevented from bringing a lawsuit in Brazil, they will act quickly to file their lawsuit overseas before proceedings may be initiated in Brazil in order to object any arguments based on collateral estoppel.
Overall, the new law brings the positive impact of promoting legal certainty and safeguarding the will of the contracting parties at the time of execution of the agreement, reducing the possibility of co-existence of conflicting decisions from different jurisdictions. Hopefully, Brazilian courts will apply this new instrument in a smart fashion avoiding further abuse of right by litigants.
There are no legal grounds for differentiating between parties’ right to choose a foreign forum over the right to choose an international arbitration court, provided such foreign jurisdiction is not considered a non convenience forum and accepts its appointment. As companies and individuals become more confident in the upholding of foreign forum selection clauses by Brazilian courts they may gradually increase their use as an alternative to international arbitration which shall serve as a legal option and not as an obligation to parties operating in Brazil.