For obligations under an international contract to be enforceable against one of its parties in Brazil they must not be contrary to Brazil´s national sovereignty, public order or morality. And this is the reason why one needs to be extremely careful with overriding Brazilian legal provisions.
In this respect, we have to start by calling your attention to the new Brazilian Civil Code, Law 10.406 of 10 January 2002 (“CC”), which came into force on 11 January 2003 with substantial amendments to previously prevailing legal provisions, including those relating to contracts.
The CC has some serious failures and numerous shortcomings, which must be clearly understood for the necessary adaptations to be incorporated in the relevant specific documentation.
One of the problems to be circumvented pertains to sale and purchase transactions. In accordance with the CC, if the documents to be delivered to buyers include an insurance policy covering transportation costs, these are to be borne by the buyer (article 531). Well, this is contrary to INCOTERMS and to the clauses Cost, Insurance and Freight (CIF) and Freight, Carriage and Insurance (CIP), in accordance with which the seller has the obligation to ensure the costs of transportation of the relevant goods.
We shall now consider some relevant Brazilian legal provisions applicable to Direct Sales, Distribution, Representation and Joint Ventures before analysing some precautions to be taken during negotiations and completion of any of those contracts with Brazilian parties. For ease of reference, this presentation has been divided into the following topics:
(i) this INTRODUCTION
(ii) DIRECT SALES
– Law n. 6.729/79
– Chapter XII of the new CC
(v) JOINT VENTURES
(vi) CONTRACT CONCLUSION, CONTENTS AND TERMINATION, SECURING OF PAYMENTS:
– Risk of Claims in Relation to Abortive Negotiations and Possible Mitigation
– Adhesion Contracts
– Extraordinary or Unforeseen Events and Termination of Contracts
– Securing of Payments
(vii) FINAL REMARKS
A Swiss manufacturer may sell its products directly to Brazilian consumer, and the obligations of the Brazilian purchaser will be enforceable in Brazil, provided that they are not overridden by Brazilian applicable legislation and that all the relevant Brazilian regulations are complied with. Thus, for instance, the price and terms of payments must be clearly agreed in advance and the Brazilian import license must be obtained prior to the shipment of the goods to Brazil. Also, the Swiss manufacturer will be solely responsible for the consumer rights as defined in the Brazilian Code of Protection to Consumers. In practice, however, in view of the particularities and vast extension of the Brazilian market, most transactions are better structured with the intermediation of a local party.The CC, under Chapter XII, denominated Agency and Distribution, deals erroneously with distribution in article 710, as being differentiated from agency only by the effective possession of the goods. Distribution would thus be characterised when a party assumes, on a regular basis, the obligation to promote certain transactions in a given area, on another party’s account and against payment, provided that the distributor has possession of the goods being negotiated. It is still early days to know whether the Brazilian Courts will apply the provisions of Chapter XII of the CC to real distribution agreements between a manufacturer and the distributor who buys the products and contracts to resell them in its own name and at its own risk and to render technical assistance.
Obviously with a proper distribution agreement, the distributor can count on the resale profit, benefiting from the trademark and publicity of the manufacturer, whilst the manufacturer can expand its sales network without having to pay for all the overhead of the distributor or to render technical assistance to all the customers of the distributor.
For that, the wrong definition of the CC must be circumvented with very good drafting skills to adapt international reality and practices to Brazilian law as further detailed below.