Amendment to Brazil’s Civil Procedure Code limits forum-selection clause

Matheus Barcelos
BMA Advogados, Rio de Janeiro
matheus.barcelos@bmalaw.com.br

Liz Martins
BMA Advogados, Rio de Janeiro
liz@bmalaw.com.br

Background

On 4 June 2024, the Brazilian Government issued Law No 14.879 amending the forum selection rules provided in the Brazilian Code of Civil Procedure.^[1] There are several undetermined legal concepts in the new law, which opens space for interpretation and may create – at least at this early stage – legal uncertainty for those who negotiate contracts governed by Brazilian law.

Until this legislative innovation came into force, parties were free to choose the seat for resolving contractual disputes, regardless of where the parties or their obligations were located. Since 4 June, the chosen forum must ‘be relevant’ to the domicile or residence of one of the contracting parties or to the place of the obligation. The new law also establishes that filing a lawsuit in a ‘random’ court – meaning one without ties to the domicile or residence of the parties or the legal transaction in question – can be considered an abusive practice, allowing the court to decline its jurisdiction on an ex officio basis. The purpose of these new provisions is to prevent forum shopping, transferring to judges the decision of whether a determinate court is appropriate to solve a particular dispute. In practice, Law No 14.879 brings Brazil closer the doctrine of forum non conveniens, which surrounds the idea of the existence of an ‘inadequate’ or ‘inconvenient’ court.^[2]

The impact of Law No 14.879 on construction contracts

In the short term, the restrictions imposed by Law No 14.879 may create an unwanted and unpredictable outcome for contracting parties. As it consists of a procedural rule, one could consider that the new law impacts choice of forum clauses in pre-existing contracts.

This raises specific concerns regarding commercial contracts, including those involving construction, in which sophisticated and well-advised parties often choose a place that may not relate to their domicile or to the fulfilment of the obligation at stake. In Brazil, parties frequently select specialised courts focused on commercial law matters (seated in São Paulo and Rio de Janeiro) to solve controversies related to major projects. These courts are also commonly chosen to grant interim and conservatory measures prior to the commencement of arbitral proceedings.

In 2023, the Brazilian Association of Infrastructure and Basic Industries (ABDIB) reported that only 17 per cent of the ongoing infrastructure projects (led solely by state governments or in association with private entities) were developed in the states of São Paulo and Rio de Janeiro,^[3] while the majority of projects were underway in Brazil’s northeast region. The new law could potentially limit the parties’ freedom to solve a dispute regarding a construction project before a court seated in a different state.

Another problematic scenario would be one involving foreign parties to a construction contract in Brazil. In this case, the choice of a different forum, including a foreign one, could be deemed ineffective. Recently, the São Paulo Court of Appeals invoked Law No 14.879 to disregard parties’ intention to solve their disputes in England because the ‘forum chosen by the parties is totally disconnected from the place where the legal acts and facts took place’.^[4]

Moving forward

The legislative innovation at hand evidently requires meticulous attention when drafting contracts or amendments. From now on, legal advisors shall ensure a clear connection between the selected forum, the domicile or residence of one of the contracting parties and the place of the obligation. This will prevent clauses from being deemed abusive and consequently annulled, preserving party autonomy and legal certainty.

Furthermore, as a result of Law No 14.879, contracting parties could avoid submitting their disputes to courts, opting instead for private methods such as mediation, dispute boards and (especially) arbitration. In this context, parties might even be encouraged to opt for an emergency arbitrator to grant reliefs prior to the commencement of the proceedings, avoiding conflicts of jurisdiction in courts when time is of the essence.