Ratification of Foreign Judgments and Arbitration Awards in Brazil

Speech given at American Bar Association, St. Louis, Missouri, EUA, April 3, 1998.

In today´s presentation, I shall briefly discuss the prevailing Brazilian legislation and practice in relation to the enforcement in Brazil of foreign decisions and external arbitration awards.

1. Enforcement of Foreign Judgments

Foreign judgments may be confirmed and enforced in Brazil irrespectively of reciprocity arrangements and/or the prior existence of a specific treaty or convention. Essentially, in establishing the rules for confirmation and enforcement of foreign judgments, Brazil has adopted the system of limited review where judicial control is exercised over certain aspects of the judgment, without entailing re-examination of the merits of the dispute. For the purpose of the relevant Brazilian laws, “judgment” means a final decision of a civil, commercial or criminal nature, rendered by a judge or court of justice, pursuant to the due process of law in the jurisdiction of origin.

1.2 Prevailing Brazilian rules on enforcement of foreign judicial decisions are contained in the 1988 Federal Constitution; the Law of Introduction to the Civil Code (The “LICC” – Decree Law 4.657 of September 4. 1942), the 1940 Penal Code, the 1973 Civil Procedure Code (“CPC”) and the 1941 Penal Procedure Code. Article 483 of the CPC recognizes the competence of the Brazilian Federal Supreme Court (“Supreme Court”) to establish the requirements for ratification of foreign decisions and articles 215 to 224 of the Internal Rules of the Supreme Court consolidate all the prevailing rules, including the CPC and the Penal Procedure Code (3) on the matter.

1.3 For an international judicial award to be enforced in Brazil, it must be previously ratified by the Supreme Court and such ratification will be granted by the Supreme Court upon fulfillment of five essential requirements (4) as follows: i) Foreign Court having personal and matter jurisdiction; ii) Proper summons; iii) Final judgement; iv) Legalization and sworn translation.; and v) Compliance with basic Principles. These shall now be considered in turn.

1.3.1 The foreign judgment must have been rendered by a Court having personal jurisdiction over the judgment debtor and subject matter jurisdiction over the dispute to which the judgment applies. The assessment of jurisdictional authority is not based on the law governing the foreign court, but rather upon the Brazilian conflicts of law rules, which principles are also reflected in the relevant provisions of the CPC. In this respect, if the Brazilian courts have concurrent jurisdiction with the relevant foreign court, and all other requirements are met, the foreign judgment may be enforced in Brazil. On the other hand, if Brazilian courts have exclusive jurisdiction (under relevant Brazilian Law), enforcement of the foreign decision will be denied. The concurrent jurisdiction stems from the fact that a given foreign jurisdiction does not exclude the jurisdiction of the Brazilian courts (5) these shall be competent when:

(i) the defendant, whatever his nationality, is domiciled in Brazil (foreign legal entities having an agency, branch or subsidiary in Brazil are considered domiciled in Brazil);

(ii) the obligation is to be performed in Brazil; or

(iii) the dispute arises from matters occurring or practiced in Brazil. If the matter falls within the above mentioned cases and in the event that legal proceedings are brought simultaneously in Brazil and in another different jurisdiction, the prevailing decision in Brazil shall be that one which first reaches the status of “res judicata”, constituting an absolute bar to a subsequent action involving the same claim, demand or course of action. Thus, if a decision of the foreign court is not ratified by the Supreme Court before a decision of the Brazilian court on the same issue becomes “res judicata”, then the decision of the foreign court will not be ratified and the Brazilian decision will prevail in Brazil. In some cases, even if a decision is still pending before a municipal court in Brazil, the Supreme Court may eschew ratification of an overlapping decision by a foreign court, if the Supreme Court takes the view that the foreign court is not vested with jurisdiction and/or that public order would prevent ratification in view of the existing suit in Brazil. The first paragraph to Article 12 of the LICC, combined with Article 89 of the CPC, provides exclusive jurisdiction to the Brazilian Judiciary in order to:

(i) take cognizance of and decide cases related to real estate property located in Brazil; and

(ii) act upon inheritance and estate division proceedings of property located in Brazil, even if the deceased was a foreigner and lived abroad. As I have already mentioned, if the object of a foreign decision falls within the exclusive jurisdiction of the Brazilian courts, enforcement of the foreign decision will be denied.

1.3.2 The defendant must have been properly summoned or have appeared before the court. The judgment will be ratified by the Supreme Court provided that the defendant has been properly summoned or has appeared before the court of origin and provided that it does not violate Brazil’s public order. A violation of the public order is deemed to occur “inter-alia”where formalities pertaining to the summons of a defendant resident or domiciled in Brazil are incompatible with the Brazilian “lex fori” (6). It is, therefore, essential for the ratification of the award that the defendant domiciled in Brazil be properly summoned by means of rogatory letters, in accordance with the Brazilian provisions on the matter. The summoning of foreign litigation in Brazil must be requested by the foreign court, through diplomatic channels, to the Supreme Court. Service of process made by any other means (e.g. by publication, mail or diplomatic representatives) does not constitute valid summoning for the purposes of ratification and enforcement of foreign judgments in Brazil. There is a vast jurisprudence in this regard. By way of an example, in proceeding SE 2912, published in the Justice Gazette of December 2, 1983, reporter Justice Neri da Silveira stated that it is a principle of public order in Brazil that a defendant resident in Brazil must be summoned to respond to the suit brought against him abroad (as per Article 12 of the LICC). The decision also stated that a proper summons is made by means of a rogatory letter, after the “exequatur” is obtained from the president of the Supreme Court. In proceeding SE 2912, the defendant was not properly summoned by means of a rogatory letter and therefore the Supreme Court denied ratification of the foreign decision.

1.3.3. The judgment must have become “in rem judicatam” (a final judgment without recourse) (7) and contain the necessary requirements for execution in the place where the award was ratified. In accordance with Brazilian law, a judgment is final if no further appeal is possible. To expedite the confirmation process therefore it is advisable to ensure that, if possible, the foreign judicial degree contains such statements or affidavits as may be necessary to evidence compliance in this regard.

1.3.4 The judgment must be legalized by the Brazilian Consulate having jurisdiction in the area the decision was given and translated by a sworn translator in Brazil.

1.3.5 The judgment cannot violate Brazil’s national sovereignty, public order or morality. This is above is the sole aspect concerning the substance of the foreign judgment which the Supreme Court considers. The essential objectives are to ascertain that the judgment debtor has been awarded full right of defense and that no fraud against Brazilian law has occurred. Public Order is the legal precept that certain norms cannot be modified by the interests of the parties. It is also referred to as imperative law. This “unconditional” characteristic of the public order norms is the result of the need for the adoption of non-flexible norms which are necessary for the maintenance of the social order. In general, public order laws are the result of public order principles, and are classified as such. The constitutional, administrative, criminal and procedural provisions are considered public order norms that cannot be modified by the interests of the parties. Public order is always considered to be a restriction on the enforcement of foreign court judgments and foreign court awards. As noted before, an example of the public order occurs when the defendant in the action has not been properly summoned or when the matter falls within the exclusive jurisdiction of the Brazilian court.

2. Enforcement of Foreign Arbitration Awards

2.1 Until very recently, for an international arbitration award to be enforced in Brazil, it had to be ratified by the local judicial court, and further ratified by the Supreme Court. It was only after this double ratification that the award could be executed through a separate judicial proceeding, an undoubtedly time-consuming and laborious process. Both the judicial ratification and the judicial execution were subject to tests and challenges based on one of the various specific requirements for a valid award. These included:

(i) It was essential that the defendant domiciled in Brazil had been properly summoned by means of rogatory letters, in accordance with the Brazilian provisions on the matter. Service of process made by any other means (e.g. by publication, mail or diplomatic representatives) did not constitute valid summoning.

(ii) The Supreme Court would not ratify awards based on submission clauses drawn up before the parties had any concrete dispute.

2.2 Some of these difficulties were minimized in relation to arbitration awards issued in any of the signatory countries of the Panamá Convention of 30th January 1975, which has been in force in Brazil since December 27, 1995 (8). Under the terms of the Panamá convention, any arbitration award issued in a signatory member, will be ratified by the Supreme Court even if the parties submitted to the relevant arbitration before the dispute arose and even if the arbitration award was not ratified by the local judicial court. The only exception in the latter case concerns disputes which, under Brazilian law, cannot be subject to arbitration. Under domestic law, only disputes relating to “available patrimonial assets” may be subjected to arbitration (9). In such a case, the foreign arbitration award would require ratification by the local judicial court prior to ratification by the Supreme Court.

2.3 A further significant improvement has now occurred under Brazilian Law 9307, which came into force on November 24, 1996. Relevant provisions include:

(i) International arbitration awards are dependent on ratification by the Supreme Court only and shall be enforceable in Brazil in accordance with the applicable international treaties with effect in Brazil and, in their absence, strictly in accordance with the provisions of Law 9307/96.

(ii) The award may be based on submission clauses, whose validity will survive the relevant agreement.

(iii) Defendants resident or domiciled in Brazil may be summoned in accordance with the applicable international treaty or foreign law. Even the summoning by mail with receipt acknowledged is allowed, provided the Brazilian party is granted enough time to present its defense.

2.4 In previous years, the Supreme Court denied ratification to many sentences which supposedly harmed the national public order, in accordance with articles 216 of the Supreme Court Internal Rules, 781 of the Penal Procedure Code (10) and 17 of the LICC. In these cases, the Supreme Court has frequently applied the internal law to verify the appropriateness of foreign legal decisions. Thus, a decision was deemed harmful to the national public order when it did not respect provisions of the relevant Brazilian law. The new Arbitration Law clearly establishes in article 38, II, that the law used to examine the foreign sentence must be the law of the country of origin.

2.5. With the liberalization of Brazil’s economy that has taken place in the past five years, gradually the country’s legal infra-structure has been adjusted to prevailing international patterns.