Legal Insights From Brazil to Start Your Week

Contracts | Understand the Change in Brazilian Law That Impacts the Jurisdiction Clause in Domestic and International Contracts in Brazil

The jurisdiction clauses in domestic and international contracts governed by Brazilian law will be substantially impacted by a recent law update.

Federal Law 14.879, published on June 5, modified art. 63, §1, of the Brazilian Code of Civil Procedures (CPC) to provide that the clause of choice of jurisdiction must "keep relevance with the domicile or residence of one of the parties or where the obligation is to be performed, except for consumer agreements, when favorable to the consumer”.

The new legislation also added that the filing of lawsuit in a “random” court could be considered an abusive practice that would justify the decline of jurisdiction of the respective court.

See the impacts of the legal changes on clause of choice of jurisdiction in domestic and international contracts:

1. What Changes Were Made to Law That Impact the Choice of Jurisdiction in Domestic and International Contracts??Federal Law 14.879 modified art. 63, §1, of the Brazilian Code of Civil Procedures (CPC) to provide that the clause of choice of jurisdiction must "keep relevance with the domicile or residence of one of the parties or where the obligation is to be performed, except for consumer agreements, when favorable to the consumer”.

It also added §5 to art. 63 of the CPC to establish that the filing of lawsuit in a “random” court may be considered an abusive practice.

2. How Do Changes to Law Impact Domestic Contracts? Financial and banking contracts for domestic operations may be impacted when the lender/creditor wishes to define S?o Paulo (SP) as the chosen jurisdiction (given the vast track record in judging cases of these matters) and the location of the lender, borrower or obligation is not for S?o Paulo.

Until these new changes in law came into force, the general rule was that parties were free to choose the jurisdiction to resolve disputes, regardless of the location of the parties or their obligations. From June 5th (date of publication of new law changes), this will no longer be possible.

Domestic commercial contracts will have less impact since, in general, they already choose the jurisdiction of the headquarters of one of the parties to resolve conflicts.

3. How Do Changes in Law Impact International Contracts? International banking and financing contracts governed by Brazilian law will be directly impacted. This is because foreign lenders and investors, who do not have an address in Brazil, will not be free to define S?o Paulo (SP) as their chosen jurisdiction, except if the borrower is located in S?o Paulo (SP) or the obligation has to be performed in the city.

Banking, Financial, tech and commercial contracts, related to international transactions, which are governed by Brazilian law, will have to have their terms reassessed and adjusted, especially with regard to the place of fulfillment of obligations and choice of jurisdiction clause to ensure legal certainty in the execution of credit and collateral.

Changes in law regarding the choice of jurisdiction clause will impact domestic and international contracts worth billions of Brazilian reais. It will be essential that financial institutions, funds, investors and companies carry out risk assessment and implement the necessary adjustments as soon as possible.

Dispute Resolution | Digital Marketplaces Are Not Liable For Fraud in Transactions Outside the Platform, Says Brazilian Superior Court of Justice

In a recent decision, the Superior Court of Justice (STJ) ruled that marketplace websites cannot be held responsible for fraud occurring in the purchase of a product advertised on the platform but negotiated informally outside of it.

As a rule, the Brazilian judiciary tends to hold digital commerce websites responsible for user fraud in the sale of products advertised on their domains, regardless of the company's fault.

However, according to the STJ's new position, marketplace liability requires that the transaction occurs through its platform, not being enough for the consumer to have only found the ad through the website.

To avoid penalties or ban on digital commerce sites, it’s common for fraudsters to use the marketplace only to publish the false ad, continuing the negotiation through external channels.

From the perspective of the recent STJ decision, this does not constitute a security flaw on the company's part, as the negotiation took place outside its virtual environment.

Although it sets a favorable precedent for digital platforms, companies must act with caution and proactivity, seeking to prevent such practices in their terms of use, as well as clearly guiding their users through other means.