Choice of venue and applicable law in Brazil

From time to time, I will post some interesting conversations I have had with readers. Content is true, names, maybe.

Mr. Martins,

I am a law student at the University of Gotham in the United States.

I'm doing class research on accepting Brazilian law as the governing law for a contract between an American software company and a Brazilian telecommunications company, and was wondering if you had any insight. 

I am also researching how to establish Brazil as the jurisdiction or venue for any disputes that may arise during the course of this contract.

I read your article on electronic contracts posted on February 11th, and it was helpful (though I can't read the Portuguese article you linked to).

However, I was wondering if it would apply to a paper contract that would be mailed back and forth between the two companies.

Thank you in advance for any help you can provide.

Sincerely,

Bruce Attman Wayne

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Dear B. Attman,

Thank you for your message. It is always a pleasure to help readers of my blog.  

What is the contract about? Brazil has a regulatory agency for Telecommunication issues, called Anatel, which issues a considerable number of regulations: http://www.anatel.gov.br/Portal/exibirPortalInternet.do .

However, if the subject is related only to software, the American company may be able to skip these regulations. 

Brazil accepts choice of venue clauses, generally speaking (not to be confuse with choice of Law clauses. Those are only applicable in case of arbitration).

So, you won't have a problem with that, unless the agreement deals with real estate or inheritance. In these cases, the Brazilian venue shall generally apply. 

The same rules regarding electronic contracts apply to paper ones mailed back and forth (the law applicable to the agreement is the law of the country where the final proposal has been made).

The regulations are contained in articles 427 to 435 of the Brazilian Civil Code.  However, since the acceptance is not instantaneous, the contract will be reputed as celebrated once the acceptance is received by the offeror, or declined if an acceptance fails to reach the offeror within reasonable time. 

Adler

__________

Mr. Martins,

Thank you for your quick response.

The contract covers the sale of software services to the telecommunications company.  Would the American software company still need to comply with the Anatel regulations?

Glad to hear about the choice of venue clause and the contract does not cover real estate or heritages.  What about the governing law of the contract (and any disputes that may arise)?  Are there any issues with creating a contract that is governed by Brazilian law?

I will look at those sections of the civil code and thanks again for your help!

B. Wayne

__________

Master Wayne, 

Sorry for the late response this time. 

It looks like only the Telecommunication company should worry about Anatel's regulations. But I'd have to take a closer look to be sure. 

About the governing law: Brazilian courts will always use Brazilian conflict of law rules to determine the applicable law, regardless of the choice of the parties, unless the parties choose arbitration. 

Regarding the Brazilian law, if the contract is to be executed directly in Brazil, it might be the safest bet.

__________

Mr. Martins,

Thanks again for your response and your willingness to talk to a student about an obscure (dark) Brazilian contract law problem.

You've been a great help and if I have any further questions, I will definitely email you back.

By the way, the company is called Wayne Enterprises.

Conjur - TST reafirma que lei para empregado no exterior é a que lhe for mais benéfica

Conjur - TST reafirma que lei para empregado no exterior é a que lhe for mais benéfica

Gerdau case: exemption of taxation over foreign subsidiaries

 Since 2001, all Brazilian matrix companies must pay income tax over the profits of its foreign subsidiaries yearly, even if such profits are not properly distributed as dividends. 

That has led the Brazilian Revenue Service to hunt down several Brazilian companies that maintained subsidiaries abroad, and tax them. 

However, the situation remained unclear in many instances. For example: what would happen when the country where the subsidiary was located maintained a non double taxation agreement with Brazil?

Or, what if there were many layers of shell companies and subsidiaries?

Today, there are literally billions of dollars at stake, as the Brazilian Supreme Court analyzes the constitutionality of such taxation. More on that here.

However, a very good piece of news came up this week: an administrative court has ruled in favor of Gerdau, in a case related to Gerdau's subsidiary in Spain (which maintains a NDT with Brazil). 

By the way, Gerdau is a leading producer of long steel in the Americas and one of the largest suppliers of special steel in the world.

I'm hoping this decision will tip the scale in favor of the Brazilian companies. After all, it has discussed many of the arguments that will be judged by the Supreme Court in the future. 

A detailed description of the case, in Portuguese, may be found here. 

EMPLOYMENT RELATIONSHIP ACCORDING TO THE BRAZILIAN LAW

I. INTRODUCTION

1.1      The rights and duties of employers and employees in Brazil are set out in the so-called “Consolidation of Brazilian Labor Laws – CLT”, which is the main statute regulating labor rights in Brazil, issued in 1943. Labor rights are also regulated by collective bargaining and collective agreements.

1.2      Foreigners cannot provide any kind of paid work in Brazil, unless they possess a Work Visa or a Permanent Visa. 

1.3      Hiring employees is extremely costly in Brazil. Thus, it is very important to know what are the conditions under which an agreement is to be considered an employment agreement.

II. LEGAL DEFINITION OF EMPLOYER AND EMPLOYEE

2.1      The regular procedure to hire an individual to render services in Brazil requires the establishment of an employment relationship under the CLT´s rules and regulations.

2.2      According to article 2 of the CLT:

Art. 2.  It is considered as employer the individual or collective company which, bearing the risk of the economic activity, hires, pays and manages the work provided personally by others.

2.3      Since the issuance of the “Consolidation of Brazilian Labor Laws”, this article has been largely studied and construed by Doctrine and Court Decisions.

2.4      In spite of the Article`s apparent limited scope, the general interpretation is that “It shall be considered as an Employer every individual or entity that makes use of subordinated workers”.[1]

2.5      Accordingly, the current understanding about the Article is that, when referring to “individual or collective company”, the actual objective of the law was to cover all kinds of Employers, including Individuals, Autonomous professionals (Ex: Accountants who hire secretaries), Non-incorporated business, nonprofit organizations, etc.

2.6      One of the reasons the article has been construed so broadly was the underlying desire to always protect the employee.

2.7      For example: A technician works for a company that is not incorporated. In most cases, he won`t be aware of the fact that the company has not been dully registered yet. Even though, his rights as an employee must be respected. In this case, the law provides that the owners of the “company-to-be” shall be considered the employers, and comply with all the employer`s obligations.

2.8      Regarding the definition of employee, article 3 of CLT establishes that;

 “Art. 3^rd. An employee is every individual that renders services not eventually, under the employer subordination (obedience to rules and orders given by the employer) and that receives a salary.”

2.9      Generally, employees are hired for an undetermined period of time. However, there can be, as an exception, temporary service rendering.

2.10    According to the CLT, the main difference between an autonomous work and the employment relationship is that the employee is legally subordinated to the employer, while the autonomous work retains independence to make its own decisions.

2.11    This subordination consists in the way the employer sets out the employee’s activities as well as the goals he/she must achieve.

III. EMPLOYMENT RELATIONSHIP – REALITY PRINCIPLE

3.1      Brazilian labor law does not require the execution of a formal written employment agreement between employer and employee to prove the labor relationship between two parties. Therefore, oral employment contacts are fully valid and enforceable, subjecting the employee and the employer to the rules and regulation of the CLT.

3.2      In consideration to the above mentioned, it’s important to highlight that Brazilian Labor Law adopts the “Reality Principle”, by virtue of which the reality of service rendering prevails over the written terms.

 3.3     In other words, the Reality Principle states that:

In Labor Law, what matters are the practical conditions, which supersede the documents. Therefore, in any case where the work is executed in disagreement with the written contract, the Law applicable to the facts shall prevail over the Law applicable to the contract.

3.4      This principle is firmly based on many of CLT`s prescriptions, among which:

Art. 442 – The personal employment contract is the tacit or explicit contract that corresponds to the employment relationship.

Art. 447 – In the lack of agreement or where the proof of essential conditions to the verbal agreement is absent, the proof of the verbal agreement shall be considered as existent, as if the parties had made proof of an agreement in accordance to the legal commands adequate to the parties’ legitimate position.

3.5      Since Art. 442 states that an employment contract will be considered as valid every time that an employment relationship is deemed existent, and considering that Art. 3 defines as employee every individual that renders services not eventually, under the employer subordination and that receives a salary; it is, therefore simple to conclude that,  every time an employee renders services, there will be a valid employment contract.

3.6      This employment contract will be entered into between the employee and an individual or collective company (the employer).

4.1 FORMAL HIRING

4.1.1   As a general rule, an employee is regularly hired by means of the inscription in his/her personal Labor Card (Social Card) and of the registration in the books of the company for purpose of payment of the social taxes and contributions.

4.1.2   But that is not always the case, because, due to the “Reality Principle”, any employment relationship implies an Employment Contract. In consequence, even if the employer does not comply with the formal hiring procedures, the employee sustains all of his labour rights.

5. CONCLUSION

5.1      Taking in consideration all the motives mentioned above, and according to the Brazilian Law:

     1)    An employment relationship can be entered into between an employee and a “non-incorporated” company, that is, a company not formally incorporated, such as a foreign company, or between an employee and an individual in Brazil, even if this individual is a foreigner;

       2)    According to the Brazilian Law, an “employment relationship” can be proved according to the facts of the case. The mere lack of documents, such as the Labor Card (Social Card) is not enough to supersede the “Reality Principle”.

So, take care.

---

[1] This is the opinion of, among other, Mauricio Godinho and Magano.

HOW TO: Getting Married in Brazil.

This is a guest post from Mr. Nuno, my intern, who publishes Brazil Business 101.

______________________________________________

Hello everybody, here is something that a lot of people have been asking me, you a good looking “gringo”, find a good looking Brazilian, you fall in love, then you decide to get married here, now, WHAT TO DO?.. Here is the procedure you’ll need to take. (the entire procedure will be covered in 4 posts)  

*Little observation, every Cartório (notary) has it's own procedure, this are the minnimum requirements, it may alter from city to city or from cartório to cartório.

First of all you need to get all you documents and get everything registered and ready to be used in your marriage.

 Documents required for registration 

• Original Birth Certificate of the groom or bride – (Authenticated* / consularized in the Brazilian Embassy or Consulate in the country of origin of the betrothed). This procedure will not be done in the ministry of international relations of Brazil or in an embassy in Brazil so do this in your county.

• Certificate of marital status of the groom or bride, (Authenticated*  /  consularized in the Brazilian Embassy or Consulate in the country of origin of the betrothed). This procedure will not be done in the ministry of international relations of Brazil or in an embassy in Brazil so do this in your county.

• Certified copy of passport (main pages, and by that I mean, everyone that has something written on).

• Two witnesses on the day of  the marriage, with at least 18 years of age, known to the couple and that can provided with identity and CPF (Brazilian “Social Security Number”), they can be relatives, but cannot possess a proxy of any of the spouses (if the marriage is taken place outside the notary, you’ll need four witnesses);

• If your wedding is by PROXY, the proxy should be recorded in the notary or Brazilian consulate in the country of origin of the betrothed. This procedure will not be done in the ministry of international relations of Brazil or in an embassy in Brazil so do this in your county.

The proxy must contain:

• Name that the bride will use after the wedding. Note: you can only add a name, never delete one.

• Name the groom will use after the wedding. Note: Same as the above.

• Specify in the proxy if the spouse will be present on the day of the wedding.

• Not being present, you must specify that the prosecutor shall have full powers to represent the betrothed before the Judge of Peace (the person who conducts the marriage) in the wedding.

• Specify the property regime to be adopted, i.e Universal Communion of Assets, Full Separation of Assets (we will cover this in another post.). In the regimes of Universal Communion, Separation and Participation in Final Aqüestos  is mandatory to present a prenuptial agreement, drawn up in the Registry of Notes.

Note: The documents of the first two items above must be translated by a sworn public translator in Brazil, then you must authenticate (also to be covered in another post) the translator’s signature on a Notary, after this procedure you must record the translated documents in the Registry of Deeds and Documents.

For a divorced person.

• You must have your divorce sentence or similar, approved by STJ (Superior Court) and attached to all the documents above.

This was part 1, more to come.

Xerox, Authenticated Copies, I need caipirinha, please.

Here is another guest post by Ms. Gringa da Silva.

It is funny, but also carries a lot of truth and street smart advice.

______________________________________________________

Hello my pretties,

How was your first week in Brazil? Did you miss me? Have you clogged a toilet yet? (You know, that little basket beside the toilet is not a hint, it is a strongly worded suggestion, sort of like those letters the UN writes to the naughty countries? So put your paper in the basket and live a happy and clog free life. Gringa has clogged toilets twice so far.. but who's counting?)

Getting over jet-lag and dealing with trying to cross the road in a major city in Brazil can be trying enough, but chances are that if you are here for business or some official reason, versus simply backpacking (we will get to teaching English as a scruffy, unwashed foreign student taking a gap-year later) you are going to have to start dealing with the various steps needed to do that official business stuff here.

All of the steps will include bureaucracy.

In Brazil, the Religion may be football, but The King is paperwork and absolutely all of it has to be done correctly, lest you are looking to hear: Falta! (we covered this word last week, my dears.. do try to keep up)

Enter, Authenticated Copies. (drum roll please)

This does not mean that you go to some random photo copier and sit on it and take that obligatory copy of your authentic and real-life derriere (your mother is so proud whenever you do that) this means that you need to find a Cartório, and deal with bored bureaucrats to whom you are not allowed to be rude. (Example of how to behave in a bureaucratic location in Brazil: http://youtu.be/2NKY_-u6AmA?t=58s)

I can hear you asking: But why would I be rude, I am a polite person! My mother taught me not to burp in public and to wash behind my ears!

Just you wait, my pretty. We are still very low on the caipirinha scale...

An Authenticated Copy, means that you will get a copy of whatever document you need copied certified as an Authentic Copy. Clear as mud, yes? Bring cash, your patience and be prepared to be annoyed and confused.

You will enter the Cartório, need to find the correct Senha from the relevant machine or person (a number that will allocate your position in the line - remembering of course that no one who works in these locations speaks English) and have to sit on 'comfy chairs' (http://youtu.be/XnS49c9KZw8?t=1m26s) and have to pay attention while you wait for the word, Próximo (next) to be called out in a low voice, indistinctly over lots of background noise.

Alternately, it is possible that your specific number will be displayed along with a noise that is about as soothing as fingernails on a blackboard on some LED panel somewhere that will point you to a specific bureaucrat to go to.. assuming of course that the bureaucrats are numbered, biensûr.

No one will be clear about what you need to do next.

It is good to remember that using cell phones is not allowed in these locations and the bureaucrat won't speak to anyone on the phone anyway, so don't bother calling for help.

Basically, you need to hand over your document(s) and you will be handed a number, which will then be called out later after which you will pick up your documents, the Authenticated Copies and will be required to pay in cash for the service.

The copies can cost a fair deal of money, especially if you have many to do, but it will vary by location. Make sure you have enough small bills and large bills to pay the fees.

These places are not reliable enough to leave your documents at while you run to get cash and they will not return either the originals or the copies until you have paid.

Tips:

If you don't know what to ask for, have a Brazilian write it down.

Bring enough cash.

Expect large lines, inefficient and/ or confusing service and short and nasty opening hours and to have your time wasted.

Exactly no one cares who you are or what you want or if you are in a hurry; they only care that you do not inconvenience them and don't bother them.

Don't be rude. It is an offence punishable by arrest without bail.

Be pragmatic. There is no escaping this procedure if it is required. Brazilians live this stuff every day. You as a foreigner are just starting to put up with it. Deal with it.

Seriously...

On the caipirinha scale, this experience only rates a 1, my dears. Well, perhaps a 1.5 in which case you might as well upgrade to a full 2. With caipirinha, you always upgrade!

Until next week, yours in the spirit of cachaça,

Ms. Gringa da Silva

All rights reserved © 2012 by Ms. Gringa da Silva (http://msgringadasilva.orgfree.com/)

São Paulo Court allows purchase of rural land by foreigners

I'm adamant about the unconstitutionality of the restriction on the purchase of land by companies that are controlled by foreigners. 

Today, Valor Economico, a Brazilian newspaper, published an article stating that the São Paulo Court of Justice (similar to a State Court, or court of appeal) has ruled that a Brazilian company with a majority of its capital owned by foreigners can, indeed, purchase land. 

The company in question is a paper mill and, apparently, needed land to harvest trees. 

I congratulate Mr. Ricardo Quass Duarte, from  Trench, Rossi e Watanabe Law Firm, for this victory. 

Anyone needing more details about the case is welcome to contact me. 

A link to the original article follows below:


http://www.valor.com.br/brasil/2954596/tj-sp-autoriza-registro-de-terras-por-empresa-controlada-por-estrangeiro#ixzz2GqiUeZsS

TJ-SP autoriza registro de terras por empresa controlada por estrangeiro | Valor Econômico

Brazilian (and Chinese) Business Law Trends for 2013.

This post, as many others, has been inspired by Dan Harris' China Law Blog.  The link to the original post is also at the bottom.

Interestingly, some China trends he mentioned are the opposite of the Brazilian legal trends on the same subjects. It invites comparison:

1. China will step up even further its crackdown on foreigners in China violating its visa/immigration laws. 

1. Brazil is set to make immigration easier, specially for specialized workers. Legal changes are expected to take place in March, 2013.

2. China will increase its efforts to root out and shut down illegal and unregistered foreign businesses. 

2. Brazil is not seeing any special movement on this area.

3. China will increase its tax collection efforts.

3. Brazil is already super effective in tax collection. What we are about to see, though, is an increase in the control and taxation of international service and software sales. The Brazilian Revenue Service has just put the "Siscoserv" in place. This system controls every international service transaction in the country. Personally, I see it as a harbinger of tax increase. After all, the government does not have much left to tax.

4. China: Litigation is increasing.

4. Brazil: Arbitration is increasing. The Brazilian courts are broken, and everybody knows that. Arbitration is the only safe harbor for international investors. 

Other trends that were not mentioned for China, but are relevant for Brazil:

5. Infrastructure regulation will remain uncertain, as the government sorts out how to fix the legal mess it made in 2012.

6. Regulatory compliance for consumer goods (toys, medicines, electronics) will soar. 
  As more and more imported products flow to the Brazilian economy, the pressure from the Brazilian industries will generate more and more non-tariff barriers to imports. It has just begun. 

What do you think?

China's Business Law Trends for 2013. Booorrring. | China Law Blog