The Brazilian market is very dynamic, with many sophisticated deals involving worldwide interests and cross-border activities. In many dual or multi-jurisdiction transactions, clients engage legal counsel from several different jurisdictions to assist them throughout the transaction.
This has diminished the differences between the transactions made in Brazil and elsewhere. English is commonly the language that predominates in the negotiations and also in which the contracts are written. Although Brazil is a civil law system country, the international contracts commonly accepted in the US and Europe are easily adapted to our jurisdiction.
The most important aspect to be considered by a foreigner is that the rights and obligations of the parties are not limited to the terms of the contract itself but are also influenced by Brazilian law.
In order to be valid in Brazil, contracts executed abroad must be notarized and legalized at the Brazilian consulate or embassy nearest to the place of signature. A contract signed in any language other than the Portuguese must be translated into Portuguese by an official translator in Brazil duly registered at a local Commercial Registry. The contract (and its official translation) must then be registered at the relevant Registry of Titles and Documents in Brazil in the city of domicile of the Brazilian party.
Please note that no matter any provision on the contrary in the contracts, the Portuguese version of the agreement prepared by a sworn translator will always prevail over any other language. If the contract is executed in Brazil, notarization is advisable as evidence that the signatures of the contracts are of the persons who should sign it. Therefore, no one could question this point before the Brazilian courts.
In this context, the so-called boilerplate clauses, which usually appear at the end of a contract and are generally referred to as "miscellaneous provisions", also appear in international contracts signed by Brazilian parties. The purpose of a boilerplate clause is to save the parties and drafters of contracts time with commonly used and understood language but they may always be reviewed in light of Brazilian law.
We will comment below the relevant aspects to be considered regarding some of these boilerplate clauses when the deal involves a Brazilian party, namely: (i) choice of law (also known as applicable law) and choice of forum; (ii) arbitration; (iii) termination; and (iv) intellectual property clause.
1. CHOICE OF LAW AND CHOICE OF FORUM1
In Brazil, the proper choice of law for a contract is determined by the preamble of article 9 of the Law of Introduction to the Civil Code (Decree-Law No. 4657, of September 4, 1942), which provides that:
"Art. 9. To qualify and govern obligations, the law of the country where they are constituted shall be applicable". (free translation)
In the case of international agreements, the parties are free to choose the applicable law, provided that such law conforms to Brazilian public policy and good morals and does not encroach on questions of national sovereignty. If the parties do not specify the applicable law in the contract, the law to be applied will be that of the place where the contract was made (lex loci celebrationis), as established in article 9 transcribed above. The most important factor to be taken into consideration by the parties to decide the choice of applicable law in our jurisdiction is whether there is a certain connection (nexus) between such law and the transaction.
Furthermore, the Brazilian courts give effect to the provisions of a contract setting forth that it shall be governed by the laws of Brazil.
There are no restrictions in Brazil relevant to international transactions regarding the choice of applicable law. Consequently, the inclusion in the contract of a clause whereby the parties choose to have it governed by a foreign law is permitted. Brazilian courts may apply such choice-of-law clause in proceedings related to the contract, provided that the applicable foreign law does not contain provisions considered contrary to Brazilian sovereignty, public policy or good morals.
Regarding the choice of venue, the Brazilian judicial authorities are competent if:
- the defendant, whatever the nationality, is domiciled in
- the obligation is to be performed in Brazil; or
- the action arises out of an event or action that took place in Brazil.
Brazilian judicial authorities have exclusive competence in actions related to real property located in Brazil and to draw up the inventory and apportion of the estate left in Brazil, even where the deceased was a foreigner and did not reside within the Brazilian territory.
The domicile of an individual (natural person) is the place where his/her residence is located definitely. If, however, the individual owns several residences where, alternately he/she lives, his/her domicile will be any of them. Domicile of an individual is also, with respect to professional relations, the place where the person's occupation is exercised. If a person exercises his/her occupation in several places, each of them will be the domicile for professional related relations. The domicile of an individual who does not have a residence on a regular basis, is the place where he/she is. For legal entities, the domicile is the place from where their respective boards and managements operate, or the place indicated in their organization documents as the special domicile. If a legal entity operates from several establishments located in different places, each of them will be considered a domicile for the purpose of the actions performed by the legal entity. If the management, or board of officers, is based abroad, the domicile of the legal entity concerned, for the purpose of obligations created by each of its branches will be the place of location of its head office in Brazil. For written contracts, the parties to a contract may indicate as the domicile the place from where the rights and obligations arising out thereof are exercised and satisfied.
Arbitration is a very good and reliable alternative used method of dispute resolution and it is being frequently more used in our jurisdiction in the case of international transactions. Nowadays we can state that this is the best option for companies to settle their disputes.
An arbitration clause is an agreement by which the parties to a contract undertake to submit to arbitration the disputes which may arise with respect to that contract. The arbitration clause shall be in writing and it can be inserted in the main contract or in a document to which it refers.
According to the Brazilian Arbitration Law (Law No. 9307, of September 23, 1996), the parties may freely choose the rules of law to be applied in arbitration, as long as there is no violation of good morals or public policy. When the arbitration clause makes reference to the rules of a particular arbitral institution or specialized entity, the arbitration shall be instituted and conducted in accordance with such rules, unless otherwise agreed by the parties. If the arbitration clause has no provision to the appointment of arbitrators, it will be the judge´s task, after having heard the parties, to rule with respect to this, having the option of nominating a sole arbitrator for the resolution of the conflict.
An arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. It shall be up to the arbitrator to decide in its own motion or per request of the parties, the issues concerning the existence, validity and efficacy of the arbitration agreement and of the contract which contains the arbitration clause.
Therefore, an arbitration clause involving a Brazilian party must:
- establish clearly that any controversies between the parties arising out or relating to the contract will be settled by arbitration;
- indicate the name of the institution that will administrate the arbitration proceedings;
- designate the applicable law and venue; and
- mention how the arbitrator(s) will be chosen.
In Brazil arbitration is possible and the award is final and enforceable. An arbitral award issued in accordance with the terms of the commitment itself (compromis) or of the arbitration clause will be recognized and enforced by the Brazilian courts without review of the merits of the case.
Foreign arbitral awards must be confirmed by the Brazilian Superior Court of Justice. The only situation in which an award will be re-examined by a judicial body is if: (i) the award does not comply with the terms of the commitment itself (compromis) or of the arbitration clause; and (ii) it is considered partially or totally null and void.
Under the Brazilian Arbitration Law, an arbitral award is null and void if: (a) the submission to arbitration is null and void; (b) it is made by a person who could not be an arbitrator; (c) it does not comply with the mandatory requirements specified above; (d) it has exceeded the limits of the arbitration agreement; (e) it does not decide the whole dispute submitted to the arbitration; (f) it has been duly proved that it was made through unfaithfulness, extortion or corruption.
Despite the fact that it is possible that the award be re-examined and considered partially null and void, this is very difficult to happen, once the arbitrators usually are very careful and usually the award complies with all the above-mentioned legal requirements.
The mandatory requirements of the Brazilian Arbitration Law, which is based on the UNCITRAL Model of Law, regarding the content of the award are the following: (i) a report containing the names of the parties and a summary of the dispute; (ii) the grounds for the decision where questions of fact and law shall be analyzed, mentioning expressly whether or not the arbitrators are deciding the case on the basis of equity; (iii) the opinion wherein the arbitrators shall resolve questions that are submitted to them and shall establish the time frame for the compliance with the decision, if applicable; and (iv) date and place where it was rendered.
The arbitral award shall be signed by the arbitrator or all arbitrators. In the event that one or more arbitrators cannot or do not wish to sign the award, the chairman of the arbitral tribunal shall certify this fact.
A foreign arbitral award will be recognized and enforced in Brazil in accordance with the international treaties with validity in the internal legal system and, in the absence of that, strictly according to the terms of the Brazilian Arbitration Law. A foreign award is considered to be one which has been rendered outside the Brazilian territory.
To be recognized or enforced in Brazil, the foreign award is only subject to ratification ("homologation") by the Brazilian Superior Court of Justice. The ratification shall be requested by the interested party, which must present: (a) the original of the arbitral award or a duly certified copy thereof legalized by the Brazilian consulate accompanied by the official Portuguese translation; and (b) the original arbitration agreement or a duly certified copy thereof, accompanied by the official Portuguese translation.
Recognition or enforcement of an arbitral award may only be refused when the defendant furnishes proof that: (i) the parties to the arbitration agreement were under some incapacity; (ii) the arbitration agreement was not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; (iii) it was not given proper notice of the appointment of an arbitrator or the arbitral proceedings or was otherwise unable to present his/her/its case; (iv) the arbitral award was rendered beyond the limits of the arbitration agreement and it was not possible to separate the exceeding part from that which was submitted to arbitration; (v) the institution of the arbitration proceedings was not in accordance with the commitment itself (compromis) or the arbitration clause; (vi) the arbitral award has not yet become binding on the parties or has been set aside or suspended by a court of the country where the arbitral was rendered.
The ratification for the recognition or enforcement of a foreign award will also be denied if the Brazilian Superior Court of Justice finds that: (i) according to Brazilian law, the subject-matter of the dispute is not capable of settlement by arbitration; or (ii) the recognition or enforcement of the award would be contrary to the Brazilian public policy.
The effective citation of a party whose domicile is in Brazil, within the framework of the arbitration agreement or of the procedural law of the country where the arbitration was held, shall not be considered an offence against Brazilian public policy, including the admittance of a postal citation with unequivocal proof of receipt, as long as it assures the Brazilian party reasonable time to exercise its right of defence. The denial or homologation for recognition or enforcement of a foreign arbitral award due to formal defects does not prevent the interested party from renewing his/her/its request once the defects presented to the court are cured.
The Brazilian Arbitration Law sets forth that any controversy, conflict or misunderstanding that relates to freely transferable property rights may be resolved by arbitration. Therefore, any dispute involving an international contract may be solved by arbitration.
According to our experience, in general clients favour institutionalized arbitration systems rather than ad hoc arbitration.
At least for a Brazilian company, a local chamber of commerce is a preferred alternative. Foreign investors, however, prefer international Institutions for administration of their arbitrations against Brazilian parties, such as the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA) or the American Arbitration Association (AAA or Triple A) / the International Centre for Dispute Resolution (ICDR). Based in our experience with more the one chamber in Brazil, the procedure of a local chamber of commerce when compared to any institutionalized arbitration system is usually less expensive and quicker. Whenever an international institutionalized arbitration system is adopted, the conclusion of the matter takes substantially more time and costs more money. Although the professional challenge might be very exciting from the standpoint of a lawyer this not necessarily true for the businessman.
Our local institutionalized arbitration system follows basically the same model which is adopted internationally and it is very reliable. Both for the institutionalized arbitration as well as the ad hoc arbitration, there are legal principles that must be observed that cannot be set aside. The Brazilian Arbitration Law sets forth that the parties will be treated equally, they will have the right to express themselves in order to defend their rights and interests, and that the arbitrator(s) shall be independent and impartial and must show a basis for his or her decision.
The termination of contracts in general is governed by the Brazilian Civil Code. The dissolution (distrato) should be done as established in the termination clause that usually establishes that a previous notice of certain time should be done. However, given the nature of the contract, if one party has made considerable investments to perform the contract, the denunciation shall only take effect after the elapsed time frame is deemed to be compatible with the nature and extent of such investments.
Therefore, for Brazilian purposes, it is not sufficient to establish in the termination clause that one of the parties may terminate the contract by giving advance written notice of 90 days (for example), if the other party evidences before the competent court that it has made investments to perform the contract and requires a longer period (for example 180 days) to recover such investments. Despite the termination clause, the judge may condemn the terminating party to pay the innocent party an indemnity sufficient to compensate the loss resulting from the early termination of the contract under such conditions. This is just an example and each situation is different and should be evaluated on a case-by-case basis.
In the event of unilateral termination, it is always very important that the terminating party give notice of termination to the other party, as established by the parties in the contracts or by law. The purpose of that notice is two-fold.
First, it is necessary to inform the party against whom termination is requested that the contract will end by the other party. Second, the notice may fix the exact date on which the contract ceased to be binding on the parties, at least for the main obligations. Ancillary obligations such as the duty to keep information confidential, or to refer to some alternative dispute resolution body (arbitration) may survive termination.
Additionally, if the contract is for a certain period of time, depending on the nature of the contract, the other party may request the payment of the remaining payments. For the above mentioned reasons, a boilerplate clause may not have the expected effect of terminating the agreement "for good". Provisions establishing rules about the investments and about the early termination of contracts with a certain period of time should be included.
The situation of the distribution and agency agreement also illustrates our comments above. In the case of a distribution or agency contract4 if the contract is for an indefinite period (with no final term), either party may terminate it by giving advance written notice of 90 days, provided that the elapsed time frame is compatible with nature and the extent of investment required by the distributor or agent. In case of disagreement between the parties, the judge will decide the reasonableness of the period and the amount due.
In the case of a agency agreement5, if the contract is with no final term and in force for more than six months6 and it is terminated without cause by any of the parties, the terminating party must give to the innocent party a written notice of 30 days, or to pay an amount equivalent to 1/3 of the commissions received by the agent in the previous three months.
4. INTELLECTUAL PROPERTY CLAUSE7
Another customary boilerplate provision which frequently appears in international contracts is the clause that deals with intellectual property (IP) rights, which in the sample provision that we will discuss comprise copyrights, trademarks and trade dress, products, product components and designs, whether or not patentable or registerable, and related information.
The clause states that the Manufacturer owns exclusively all right, title and interest in its IP rights, all of which shall remain the property of the Manufacturer and that all physical embodiments of such shall be returned to the Manufacturer or destroyed, if so requested in writing by the Manufacturer. For the purpose of fulfilling the contract, the Manufacturer grants the Distributor a limited license to its IP rights, but such license terminates without need for further action upon the expiration or earlier termination of the contract.
This might be convenient from a contractual standpoint but normally does not work so well in practice, at least in Brazil.
First, there is a risk that the Distributor may return to the Manufacturer all physical embodiments of the licensed IP rights and maintain a copy in its files, without disclosing this fact to the Manufacturer. Or alternatively, the Distributor could confirm to the Manufacturer that everything has been destroyed, without taking any measure to accomplish that!
Second, although the contract contains a "generic provision" mentioning that upon expiration or earlier termination, the limited licensed granted to the Distributor to the Manufacturer`s IP rights, it would be paramount to review all the specific licenses of the each different types of IP rights signed between the Manufacturer, as grantor, and the Distributor, as grantee, to verify whether no additional action is required to effectively terminate such licenses.
* This article contains the notes prepared by the author for the Program "Structuring the international sales contract: when the boilerplate bursts", organized by the International Sales Committee of the Legal Practice Division of the International Bar Association (IBA), held on Wednesday, October 6, 2010, at 3pm-6pm, during the 2010 Conference IBA in Vancouver, Canada.
1. Sample of the "applicable law" and "choice of forum" provisions submitted for discussion during the Boilerplate Program:
"Applicable Law. This Agreement shall in all events and for all purposes be governed by, and construed in accordance with, the laws of the Province of British Columbia, without regard to such jurisdiction's conflict-of-laws provisions."
"Choice of Forum. The place of arbitration shall be Vancouver, Ontario, or such other place as the Distributor and Manufacturer shall agree in writing. The language of the arbitration shall be English. The award of the arbitrators shall be final and binding on all Parties."
2. Sample of the "arbitration" provision submitted for discussion during the Boilerplate Program:
"Arbitration. All claims, disputes, controversies and causes of action arising out of or relating to this Agreement and its subject matter, and all transactions it contemplates, including without limitation, the validity, interpretation, construction, performance and enforcement, in the broadest possible way, including tort claims between the Parties ("Dispute"), shall be determined by arbitration administered by the American Arbitration Association ("AAA") in accordance with its International Arbitration Rules including its International Mediation Rules, and its applicable Procedures for Large, Complex Commercial Disputes. Either Party may apply to the arbitration tribunal seeking injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Either Party also may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any interim, injunctive, equitable or provisional relief that is necessary to protect the rights or property of that Party, in that Party's sole opinion, either pending the establishment of the arbitral tribunal or after establishment of the tribunal, and such Party shall be entitled to do so without the necessity of complying with this Section. In the event that the Dispute proceeds to arbitration pursuant to this Section, the non-prevailing Party in the arbitration shall bear all costs and expenses (including reasonable attorneys', consultants' and other professional fees and disbursements of every kind, nature and description) incurred in connection with, resulting from, arising out of or incident to the arbitration, but not relating to the "meet and confer" or mediation process outlined herein."
3. Sample of the "termination" provision submitted for discussion during the Boilerplate Program:
"Termination. Either Party may terminate this Agreement for any reason, without cause, by providing written notice of such termination to the other Party at such office designated herein or as otherwise set forth in this Agreement, one hundred and eighty (180) days notice. Either Party may terminate this Agreement with immediate effect by serving notice in writing of the occurrence of an event in which the other Party (a) Commits a material breach of any term, condition or representation contained in this Agreement; (b) Does any act or attempts to do any act that exceeds the express rights and obligations set forth in this Agreement; (c) Commits any act of fraud, moral turpitude or willful misconduct, or becomes insolvent, or if the Party or one or more of its principals, officers or partners is indicted or convicted of a felony; (d) Files or has filed against it a petition in bankruptcy or an assignment for the benefit of creditors, or a petition or pleading seeking or acquiescing in any reorganization or dissolution or the appointment of a receiver, trustee, or liquidator; or (e) Ceases doing business, for whatever reason."
4. Pursuant to the preamble of article 710 of the Brazilian Civil Code, the agent (agente) is the person that, in exchange of a remuneration, undertakes on a non-contingent basis (in character no eventual) and without any bound of dependency of the principal the obligation to promote certain businesses, to the account of another (the principal), in a designated area. If the asset to be negotiated is at the disposal of the agent, however, he/she/it will be deemed to be a distributor (distribuidor).
5. The activities of the agent (representante comercial) in Brazil are governed by specific legislation (Law No. 4886, of December 9, 1965, as amended by Law No. 8420, of May 8, 1992). The agent is the autonomous individual or legal entity that carries out, without job relationship, in character no eventual and on behalf of one or more persons, the mediation of mercantile businesses, negotiating proposals or orders, to transmit them to the principal, practicing or not actions related with the execution of the businesses (preamble of article 1 of Law 4886/1965).
6. The agency contract with fixed term is considered a contract with "no final term", when its initial term is prorogated, tacit or expressly. The contract which is executed within the term of six months counted from the termination of other contract previously signed between the same parties, also deemed a contract with "no final term".
7. Sample of the "intellectual property" provision submitted for discussion during the Boilerplate Program:
"Intellectual Property. Manufacturer owns exclusively all right, title and interest in its copyrights, trademarks and trade dress, products, product components and designs, whether or not patentable or registerable, and information (except as noted below), all of which shall remain the property of Manufacturer. All physical embodiments of such shall be returned to it or destroyed, if so requested in writing by Manufacturer. Manufacturer grants Distributor a limited license to its intellectual property rights solely for the purpose of fulfilling the this Agreement. Upon the expiration or earlier termination of this Agreement, such license terminates without need for further action."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.