Enacted a few months ago, Law No. 14,879 amended Article 63 of the Civil Procedure Code, modifying the already well-established rule regarding the choice of forum clause. Before the legislative change, with a few exceptions, the parties to a contract could freely agree on the forum responsible for judging actions arising from the contract entered into.
In other words, even if one of the parties has head offices in the city of Recife, and another in the city of Salvador and the contract was executed in the city of Manaus, the forum chosen for dispute resolution could be São Paulo.
With Law No. 14,879, the choice of forum must be restricted to the domicile of the parties or the place of the contractual obligations. Choosing a different forum may be considered an abusive practice by the court that receives a dispute arising from a contract, ordering the transfer of the case to the defendant’s domicile.
The legislative change goes against a practice widely adopted by the market and, until now, well-established in Brazilian law – including by the Brazilian Supreme Court – STF, through Summary 335. The election of forum is an important mechanism for reducing transaction costs, allowing parties to choose the court they consider most efficient, neutral and/or specialized, in any location in the country, providing legal certainty.
The new law did not concern itself with addressing the rule applicable to contracts entered into before June 4 of this year (the date of enactment of the law), which may raise doubts. However, according to the non-retroactivity rule of civil law, contracts prior to Law No. 14,879 are (or at least should be) protected against the change in the rule of election of forum.
Another problem lies in Article 25 of the CPC, which expressly mentions the forum selection clause in international contracts (which is dealt with in Article 63, as amended by the new law), in which case the jurisdiction of the Brazilian judiciary may be excluded. Since the forum selection clause is expressly mentioned, a hasty (or literal) interpretation of Articles 25 and 63 of the CPC could argue that the foreign forum selection clause should be excluded from international contracts – which definitely does not seem to be the appropriate understanding.
Made under the argument that certain courts are overcrowded, the legislative change rebounds on those who need to knock on the Judiciary’s door. The price of the alleged inefficiency, which is reflected in the change brought about by Law No. 14,879, is largely passed on to the private sector, which, in turn, has its contractual autonomy restricted and may incur higher transaction costs to seek solutions to problems that apparently did not exist.
If the jurisdictions of the place of execution of the contract or their domiciles are uninteresting, the parties may resort to arbitration – which, naturally, may lead to higher costs. In other words, if there is suspicion of delay, impartiality and/or lack of specialization of the possible jurisdictions of choice, arbitration may be the only option. Point for arbitration.
By Gustavo Chamadoiro, associate at Candido Martins Advogados.