Brazil operates under civil law – its civil and commercial codes inspired by the French Napoleonic Code. 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.

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.

Sources

• Brazil: Limiting Liability Under Brazil’s Civil Code
• Commercial Contracts