Brazil: Supreme Court Decision Reinforces Limits on the Application of Foreign Laws

Last August 18th, a decision by Supreme Court Justice Flávio Dino (ADPF 1.178) gained prominence, establishing an important precedent for foreign companies operating in Brazil or entering into international contracts involving the country. The decision reinforces that foreign laws cannot be automatically applied within Brazilian territory, except in cases where there is specific court authorization or intervention by the Supreme Court itself.

This position has direct implications for how international contracts and obligations are structured. In many cases, especially in transactions involving foreign partners or investors, it is common for contractual instruments to stipulate the application of foreign law or require the fulfillment of obligations arising from external regulations within Brazil. However, the decision indicates that such clauses will not have immediate effect in Brazil without judicial ratification, highlighting the importance of exercising increased caution when drafting international contracts.

This understanding does not prevent the parties from choosing a foreign law to govern their relationship. However, it emphasizes that judicial ratification will be required for such a choice to produce concrete effects in Brazil. This may affect a wide range of arrangements, from supply contracts, joint ventures, and financial transactions to arbitral disputes that provide for the application of foreign laws.

The practical implication is that, in case of a dispute, Brazilian courts may decline to apply the foreign law directly, requiring the matter to be reframed within the boundaries of the Brazilian legal system.

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For more information on the above or other matters, please contact Maristela SA Rossetti (mar@rraa.com.br) or Gilberto Rossetti (gmr@rraa.com.br).

This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice foreign subsidiary as a comprehensive analysis of the matters referred to herein.