It is common for many medium-sized and large Brazilian companies to enter into various contracts with foreign companies. The types of contracts often entered into there are distribution agreements, services agreements, transfer of technology agreements, joint ventures, franchising agreements, agency agreements, among many others.
An important aspect that must be considered during negotiations and the drafting of these contracts is the Forum Selection Clause: this choice should not be merely a decision between arbitration and state jurisdiction.
As in a marriage, parties should not enter into a contract expecting the worst, such as a disagreement or an abrupt termination of the contractual relationship. However, it is crucial to take necessary precautions to protect the client’s interests even before there is a need to seek judicial relief.
In cases where the law does not provide for a specific venue as mandatory due to the subject matter of the dispute, the following aspects should be considered when negotiating the aforementioned Forum Selection Clause: the location where the contractual purpose is to be performed, the location of the parties’ headquarters, the location where the parties hold their assets, costs related to court/arbitration fees, Brazilian and/or foreign lawyers, experts, and the procedural rules of the arbitral chamber and/or those provided in the applicable law to the contract in question.
Emphasis should be given to the location where the parties hold their assets, as any enforcement action may require the seizure of the defaulting party’s assets, and choosing a venue corresponding to the location where the assets are located can facilitate the satisfaction of the creditor’s claim.
In the case of opting for the Brazilian courts’ jurisdiction, it is worth mentioning the recent enactment of Law No. 14,879/2024, which brought significant legislative changes regarding the choice of venue in private agreements:
“Amends Law No. 13,105 of March 16, 2015 (Code of Civil Procedure), to establish that the choice of venue must be related to the domicile of the parties or the place of contractual performance, and that the filing of a lawsuit in an arbitration venue constitutes an abusive practice, subject to the declination of competence ex officio.”
This law amended Article 63 of the Code of Civil Procedure, adding a fifth paragraph and altering the first paragraph, in order to eliminate the so-called “forum shopping” practice, in which parties could choose any venue often with the intent of obtaining procedural advantages. By limiting the validity of the choice of venue to locations relevant to the domicile of one of the parties or the place related to the contract’s purpose, this measure aims to ensure greater equality between the parties and prevent the proliferation of cases in locations unrelated to the dispute, overburdening certain courts and hindering procedural efficiency.
For example, a contract between a Brazilian company based in Manaus, in the state of Amazonas, and a French company for the performance of an undertaking in Chile could have as its chosen venue an arbitral chamber, the court in Manaus, the French judiciary (according to applicable rules), or the Chilean judiciary (depending on applicable rules), but it could not have the corporate claims court of São Paulo’s capital or the Federal District as its chosen venue.
Therefore, it is recommended that contracts entered into before the enactment of this law be reviewed to avoid future challenges by the Brazilian judiciary, and that new contracts be drafted in strict compliance with the current rules.
Finally, it is worth noting that the aforementioned new law represents an important step towards a fairer and more efficient civil procedure. By prohibiting “forum shopping,” the law seeks to ensure greater equality between the parties and prevent the proliferation of cases in inappropriate locations. However, it is necessary to monitor its practical effects and make necessary adjustments to ensure its effectiveness and avoid conflicts with other dispute resolution systems, such as arbitration.