Branches, subsidiaries and affiliates & some jurisdiction issues

Last year the Court of Appeals of the State of São Paulo ruled in an interesting matter of jurisdiction in which parties all agreed the dispute should be settled in Brazilian courts, but not so the trial court in the first instance. Martin Bianco Indústria e Comércio Ltda, a Brazilian company, filed a suit, in the trial court of São Paulo, for damages and lost profits against Ingersoll-Rand International Sales Inc. and Ingersoll-Rand do Brasil Ltda. Back in 1991, Martin Bianco and Ingersoll International signed a commercial distribution contract by which Martin Bianco would have exclusivity in the sales of the products of the Swiss company in Brazil. Martin Bianco claims that, in 1995, as businesses went well, another contract was signed, giving Martin Bianco the right to manufacture in the country some of Ingersoll’s new products. Later on, in 1999, by means of its subsidiary (Ingersoll Brazil), Ingersoll started manufacturing some products in Brazil and then sold them directly to Martin Bianco, which would afterwards commercialize them. There followed a chain of events which Martin Bianco claimed constituted unfair competition in violation of the contracts. Ingersoll International and Ingersoll Brasil defended the action and expert evidence was being produced when the trial court decided to stay further proceedings on the grounds that the commercial distribution agreement established that the contract should be “governed and interpreted in accordance with the laws of Switzerland”; and that parties had agreed upon taking to the courts of Fribourg canton, in Switzerland, any disputes arising from the contract. The case was dismissed on lack of jurisdiction and on the grounds that Swiss law did not provide for any sort of waiver of jurisdiction. Both parties appealed to the State Court of Appeals.

The State Court found it was relevant that, in 1998, Martin Bianco and Ingersoll Brasil had signed a contract, by means of which Ingersoll Brasil, to push up sales made by Martin Bianco, would secure Martin Bianco’s clients bank debts related to the purchase of Ingersoll’s products. On that occasion all the stipulations of the previous contracts were reaffirmed, except for the jurisdiction over disputes arising from that contract, which parties assigned to São Paulo courts. In assessing the legal separation of the two Ingersoll companies, the Court found that both of them belonged to the same economic group and that, in fact, Ingersoll International legal representative in Brazil was a manager at Ingersoll Brasil. In such a scenario, a ruling on the jurisdiction of São Paulo courts was passed and the case was sent back to the trial court for a ruling on the merits.

The Court of Appeals relied on Article 88, I, and its sole paragraph, of the Civil Procedure Code, to affirm the jurisdiction of São Paulo courts. This article reads that Brazilian judicial authorities will have jurisdiction if the defendant, regardless of his nationality, has domicile in Brazil; and that a foreign company might be considered to have a domicile in Brazil if it has a branch, a subsidiary or an affiliate in the country. The Court also relied in the provision of summary of case law No. 363 of the Supreme Federal Court, which reads that “the legal person governed by private law may be a defendant in the domicile of its agency and establishment in which the act was executed”. More generally, the rules and doctrines of concurrent jurisdictions were tackled, since under article 88 the dispute could have been also taken to Swiss courts; and if a judgment had become unappealable in Switzerland, later on it could have been enforced in Brazil. Parties’ waiver on that possibility, though, was to be accepted.

No further digressions were made by the Court of Appeals on the reference the trial court made to article 17 of the Swiss Civil Procedure Code, which states [as quoted]: "Sauf disposition contraire de la loi, les parties peuvent convenir d’un for pour le règlement d’un différend présent ou à venir résultant d’un rapport de droit déterminé. Sauf disposition conventionnelle contraire, l’action ne peut être intentée que devant le for élu. 2 La convention doit être passée en la forme écrite ou par tout autre moyen permettant d’en établir la preuve par un texte"

Couldn’t party autonomy manifest itself, anyway, after the dispute has arisen, so as to allow a defendant to accept the jurisdiction of a different court than that which had been initially thought of? However implicitly, the State Court of Appeals has said yes to that question.

Martin Bianco Indústria e Comércio Ltda v. Ingersoll-Rand International Sales Inc. and Ingersoll-Rand do Brasil Ltda (Court of Appeals of the State of São Paulo – No 0043542-60.2003.8.26.0100 – May 19th, 2014. Judge-Rapporteur Itamar Gaino) In Portuguese here.

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