New Brazilian law imposes limits for the choice of forum clauses

Although the Brazilian law was not clear on whether parties in a contract could freely choose the competent forum to resolve related disputes, Brazilian doctrine interpreted that the principle of “autonomy of will” would prevail in contracts involving capable parties and available assets over which the parties could dispose according to the law.

Last June 4th, an amendment to the Brazilian Civil Procedure Code (CPC) restricted the choice of forum right, establishing that the chosen venue must be “related to the domicile or residence of one of the parties or to the place of the obligation”. It is not clear what is meant by “the place of the obligation” – would it be, e.g., the place where the obligation was contracted or where it would be performed?

The new provision also establishes that filing a lawsuit in a random court, defined as one with no connection to the domicile or residence of either parties, or with the legal transaction in question, constitutes an abusive practice that can result in the court declining its jurisdiction.

The most accurate interpretation of the law indicates that this rule shall apply when parties have selected a random court as the forum for their contract. However, interpreting this new provision in isolation could lead to the misconception that it also applies to non-contractual offenses.

The amendment was motivated by the fact that some courts, which were most frequently chosen by the parties, became overloaded. This new rule, altering the status quo on the matter, will increase legal uncertainty for parties engaging in contracts and allow for varying interpretations by the courts. Despite addressing the problem of the sluggishness of the Brazilian judiciary, it does not consider the negative impacts on the business environment.