Brazil: Limiting Liability Under Brazil's Civil Code

Knowing the rules of the game is essential when dealing with contractual liability in Brazil, where the legal system is based on the Napoleonic Code. Godofredo Mendes Vianna, partner in Rio de Janeiro law firm Kincaid, and senior associate Paula Roberta Campos, unravel the intricacies 

Brazil operates under civil law – its civil and commercial codes inspired by the French Napoleonic Code – which means the Brazilian legal regime differs in substance from the Anglo Saxon case law system. It is something that should be borne in mind when doing business in Brazil.

Most of the contracts adopted by the tug and OSV industries have been developed within the Anglo Saxon framework. For example, the well-known BIMCO standard forms, such as Supplytime and Towcon, refer to English or US law and jurisdiction, with Singapore included recently as a third option.

Needless to say, whenever tug and OSV owners are contracting with Brazilian counter parties or operating in Brazilian jurisdictional waters, accurate analysis and special attention should be given to the liability clauses.

According to the Brazilian civil code, any party who causes damages to another is obliged to indemnify, in totum, such damages. Damages immediately and directly caused by the damaging act shall be compensated by the offender, including immediate material damage, loss of profits and, in some cases, moral and punitive damages.

In circumstances where the activity normally carried out by the party who caused the damage entails, by its nature, risk to the rights of others, civil liability will arise regardless of fault. The same applies to the liability of the employer due to the acts or omissions of its representatives, employees or subcontractors. However, despite the broad spectrum of the above general proviso, the Brazilian civil code also provides for the freedom of the parties to contract.

Therefore, under Brazilian law, parties can agree on limitations of liability and provide for different apportionment of liability (as in a knock for knock regime, for example) as long as the object of the agreement is a disposable patrimonial right and parties voluntarily and freely agreed to such a condition.

In this sense, it is not possible, for example, to agree on a limitation of liability towards third parties in a case of environmental damage, since the environment is considered a public policy matter. However, parties can agree under the contract how they will apportion liability between themselves should environmental damage occur.

By the same token, one can have difficulties before a Brazilian court in upholding a limitation of liability clause inserted in adhesion contracts where one of the parties, affected by the limitation proviso, has not had the opportunity to negotiate its terms and conditions. There are precedent cases at the Brazilian Superior Courts declaring null and void limitation clauses, which are not only inserted in adhesion contracts but also, if applicable, would entail a severe burden to the damaged party, denying its right to recover losses.

This is unlikely to occur when the matter at hand is an offshore and towage contract, since the parties involved in the agreement usually have a more open and reciprocal capacity for negotiating the contractual conditions. Therefore, Brazilian courts should not consider a limitation of liability clause, or a knock for knock provision, unfair due to a lack of bargaining strength of the contracting party.

The Brazilian offshore market usually works with two main contractual regimes: the one adopted by the IOCS and provided in the traditional BIMCO standard forms, which usually incorporate the knock for knock regime and the exclusion of consequential damage, and the one provided by the Brazilian state oil company, Petrobras.

It is worth mentioning that Petrobras adopts a tailor-made contract for the chartering of supply vessels. Being a quasi-public company, the award of any charter agreement is preceded by a public bid, where the main conditions of the future agreement are presented in advance by Petrobras. The possibility of negotiating the provisions of the agreements is, therefore, close to zero.

Petrobras' contracts do not usually embrace the knock for knock regime. However, they do incorporate the provisions of the Brazilian civil code (ie, the party which caused the damage is liable for its reparation), adopting caps for the parties' contractual liability, as well as excluding liability for loss of profit and indirect damages.

The general provisions of Brazilian law in respect of civil liability may seem odd to an international player in the OSV and tug sectors, since usual conditions – such as knock for knock and the comprehensive liability of the tow toward the tug – are not incorporated in the legal framework.

However, it is important to bear in mind that, although such conditions are not provided by Brazilian law, parties are not prevented from agreeing to them, as long as such agreement is made voluntarily.

Therefore, when operating in Brazil or under Brazilian law, it is important to be aware that it is possible to contract, for example, on a knock for knock basis and to contractually limit liability. However, this needs to be written into the contract, and parties need to have voluntarily agreed on such terms, since the general rule provided by the Brazilian Civil Code is of full reparation by the party who caused the damage.

As in any other jurisdiction, the Brazilian legal system has its particularities – but these need not undermine the chances of a successful operation, as long as the players know the rules of the game.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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