Foreign companies seeking to invest or establish partnerships in Brazil must pay close attention to the judicialization of commercial contracts, a frequent phenomenon in Brazilian business relations. Even agreements entered into by sophisticated parties with specialized legal counsel are subject to judicial review, which can undermine legal certainty and the predictability of business operations.
The Brazilian legal environment is characterized by strong state intervention in private relations, especially in commercial contracts. The Brazilian Civil Code, together with the civil law tradition, grants the Judiciary broad powers to adopt flexible interpretations regarding the principle of the binding force of contracts (“pacta sunt servanda”). It is not uncommon for contractual clauses to be revised based on arguments such as excessive onerousness, economic imbalance, or even for reasons of practical convenience —particularly in times of economic crisis, pandemics, or exchange rate instability.
This means that clauses limiting the liability of one of the parties, imposing penalties in the event of default, or establishing strict consequences for contractual breaches may be mitigated by the courts, even if expressly provided for in the contract.
Another point of attention concerns penalty clauses (“cláusulas penais”). Although widely used to compensate for losses in the event of default, it is common for Brazilian judges to reduce their value based on the principles of “reasonableness” or “proportionality” — even in the absence of a request from the defaulting party. Limitation of liability clauses, in turn, also face resistance: they may be deemed invalid when there are allegations of gross negligence, bad faith, or significant impact on the Brazilian party
Finally, the enforcement of contracts itself can be slow and bureaucratic. The courts require robust documentary evidence of breach, and judicial proceedings tend to be slower than what investors accustomed to more expeditious jurisdictions might expect.
Given the slowness and unpredictability of the Judiciary, arbitration has become a consolidated, efficient, and secure alternative for resolving commercial disputes in Brazil. The Brazilian Arbitration Act is modern and internationally recognized, allowing foreign parties to choose specialized arbitrators, procedural rules, and even the language of the proceedings.
The Brazilian regulatory and case law environment is in constant evolution. Foreign companies should regularly monitor judicial and administrative decisions that may impact their contracts, periodically reviewing their strategies and contractual instruments.
Therefore, when entering into contracts with local partners, it is advisable to pay special attention to the drafting of sensitive clauses, to prefer alternative dispute resolution methods (such as arbitration), and to constantly monitor Brazilian case law practices. Understanding how the judicialization of commercial contracts operates is essential to reduce risks and protect foreign investment in Brazil.