Ratification of foreign judgment against a company in process of judicial reorganization

23/Jan/2020 - Juridical -

St√ľssi Neves Advogados

 

In the words of the American orator Robert Green Ingersoll, who lived from 1833 to 1899, ‚Äútrade is the great civilizing influence. We exchange ideas when we exchange textiles‚ÄĚ. This ever-increasing international trade has brought with it the need for the drafting of contracts that are more and more complex, in which the parties frequently establish clauses choosing where any litigation will be held and the law of the country that is to be applied. The parties are free, for example, to agree that any dispute will be submitted to the ordinary courts of a given country, or to arbitration, to be held in a place that may normally be chosen anywhere in the world.

When a Brazilian company is in the position of debtor of a foreign enterprise and the decision recognizing such situation is rendered outside Brazil (either by an ordinary court or by an arbitration tribunal), such decision will only be effective in Brazilian territory after a procedure for ratification of the foreign judgment by the Brazilian Superior Court of Justice.

After the ratification procedure, the foreign enterprise may then enforce its rights against the Brazilian company by means of separate court proceedings. Without due ratification of the foreign judgment, the foreign company’s right simply does not exist in Brazil, unless the Brazilian company decides to recognize it spontaneously.

The main objective of the ratification procedure is to verify formal aspects of the foreign judgment, especially (i) if it was entered by a competent authority, (ii) if service of process on the parties was valid in the original proceedings, (iii) if the judgment is effective and final in the country in which it was entered, (iv) if it does not violate Brazilian res judicata and (v) if it does not contain a violation of public policy.

Having verified these requirements, the Superior Court of Justice will ratify the foreign judgment.

However, recently doubts have arisen as to whether it is possible to ratify a foreign judgment against a company that is in the process of judicial reorganization.

The controversy arose because of two provisions in the law relating to judicial reorganization: one provides that any actions against the debtor must be stayed; the second states that only claims existing on the date of application for reorganization are subject to the procedure.

The following doubt therefore arises: if the rule calling for suspension of all actions against the debtor is valid also for the ratification of the foreign judgment, how can the creditor participate in the reorganization if its right is not recognized in Brazil?

These questions were the subject of discussion recently in proceedings handled by this office on behalf of a foreign client. The Superior Court of Justice reached an important decision, settling the issue and recognizing the possibility of ratification of the foreign judgment against a company in the process of judicial reorganization, taking the view that ratification has the effect of constituting a right, and therefore the creditor cannot be prevented from exercising its right in national territory.

The reporting judge in the case emphasized that ratification is a logical requirement to enable enforcement of the foreign judgment, but does not form part of the enforcement procedure, which will take place later, if necessary.

The above decision was fundamental to guarantee that the creditor would have its right recognized in Brazil and, consequently, could have its claim included in the reorganization of the Brazilian company.

 

Luiz Adolfo Salioni Mello and Charles Wowk

Associate lawyer and Partner in the Civil Area at St√ľssi Neves Advogados ‚Äď S√£o Paulo

[email protected]¬† and [email protected]