Government measures in key jurisdictions 5th edition - Flipbook - Page 18
Brazil
Among other relevant issues, the parties must verify whether the contract provides for: (i)
specific notification proceedings; (ii) the allocation of risk between the parties in case of a
force majeure event; (iii) extension of time for the affected party to overcome the delay
due to a force majeure event; (iv) specific remediation measures and mitigation of the
other party’s losses that must be implemented; and (v) termination due to a prolonged
force majeure event and consequences.
In such cases, the affected party must comply with the specific notification proceedings
provided for under the contract, describing (i) the force majeure event; (ii) which
contractual obligations were directly affected; and (iii) the measures adopted to mitigate
and reduce the impacts of the force majeure under the contract. In addition, the affected
party remains bound to comply with all other contractual obligations which were not
affected by the force majeure event.
It is important to highlight that, due to the drastic economic and social consequences of
the Covid-19 pandemic, the Brazilian government authorities have been comprehensive
with projects that adopt mitigatory measures, such as robust action plans, in line with the
determinations and recommendations of the competent health authorities, to prevent the
dissemination of Covid-19 in the place of work, allowing for the continuity of these
projects in compliance with some restrictions.
In addition, Article 422 of the Brazilian Civil Code establishes that the parties must
proceed in good faith when performing the contract. Therefore, in case the parties do not
reach an agreement regarding the measures to restore the contract’s economic balance,
necessary due to Covid-19 pandemic effects.
Articles 317 and 480 of the Brazilian Civil Code provides that, in case supervenient and
unforeseeable events arise and cause the obligations of one of the parties to become
excessively disproportional in view of the transaction, the courts may take actions, at the
request of a party, to restore the economic balance of the contract.
As per the requirements provided under such Articles, in order to interfere in the
contractual relationship, courts should assess (i) the (un)foreseeability of the supervenient
circumstances and (ii) the disproportion between the obligations of the parties.
Notwithstanding the above, according to the courts’ and jurists’ prevailing understanding
and the Brazilian law, especially in business relations, the extent of the court interference
in contractual relations should (i) be restricted and (ii) take into consideration the
particularities of the case when assessing the (un)foreseeability and the disproportion
between the obligation of the parties, as well as any other circumstances which require
their interference. This understanding has gained significant support with the enaction of
Provisional Measure No. 881/2019 (“Economic Freedom Act”) in May 2019, which was then
converted into Federal Law No. 13,874/2019 (“Economic Freedom Law”) later in October of
the same year.
Article 421 and Article 421-A of the Brazilian Civil Code, as amended by the Economic
Freedom Law provide that:
(i) in private contractual relations, there should be minimum State interference, and
contractual revision by external agents should be an exception;
(ii) the allocation of risk agreed between the Parties should be preserved;
(iii) in business relationships, the parties are presumed to be equally equipped.
Hence, although Brazilian civil law does allow for court interference to restore the balance
of the contract, in business transactions, such interference should be minimum and the
parties, which are considered to be sophisticated entities with equal bargaining power,
should have their agreements enforced as provided for in the contract.
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Government measures in key jurisdictions
