Additional Limitations on Forum Selection Clauses in Contracts Subject to the Jurisdiction of the "Brazilian Courts"
Because the Brazilian president enacted a federal law restricting the right of contracting parties to choose a specific forum for contract disputes, parties should consider their litigation strategies and review existing jurisdiction clauses.
On June 4, 2024, Brazil's president enacted Federal Law No. 14,879/2024, which amends the Brazilian Federal Code of Civil Procedure ("CPC") and restricts the right of contracting parties to choose a specific forum for contract disputes containing a "Brazilian Courts" forum selection clause.
According to Rafael Prudente, the House Representative who introduced the bill, freedom of contract and party autonomy should be limited. The new law was designed to prevent parties from abusing jurisdiction clauses and "elect[ing] courts that present a better performance in the country" at the expense of parties genuinely doing business in those specific jurisdictions.
The new law amended paragraph 1 of Article 63 CPC to require contracting parties to choose a venue that "is related to the domicile or residence of one of the parties or the location of the obligation," save for consumer contracts, where consumers may continue to choose the most favorable forum. (Paragraph 1, Article 63 CPC). This requirement will also apply to international contracts (Paragraph 2, Article 25 CPC). Further, as an additional measure to prevent forum shopping, the new law also added a paragraph 5 to Article 63, pursuant to which filing suit in a venue "without any connection to the domicile or residence of the parties to the contractual relationship at issue in the dispute" will be deemed abusive, such that Brazilian judges may deny parties their chosen forum.
The new law lacks clarity concerning what the expression "location of the obligation" means (i.e., the contract's performance or execution?) and whether it will apply to arbitrations seated in Brazil. It is also unclear how international contracts will be affected by the jurisdiction requirements introduced by the new law.
Parties wishing to bring their disputes before the Brazilian courts should therefore keep these developments at front of mind when considering litigation under an existing jurisdiction clause or negotiating new clauses, in order to avoid uncertainty as to which "Brazilian court" will have jurisdiction over their dispute.
