CMS Guide to Consequential Loss in Brazil

No.  The expression “consequential loss” has no established or recognized meaning under Brazilian law.

The Brazilian Civil Code (“Code”) sets out the legal framework for damages arising from breach of contract.  Pursuant to Article 402 of the Code, a party that causes loss or damage to another is obliged to compensate the injured party.

Recoverable financial damages are classified into two categories: actual damages (danos emergentes), which refer to the effective loss suffered, and loss of profits (lucros cessantes), which include the loss of future gains that could reasonably be expected but for the breach. The standard of “reasonableness” is understood as the likelihood, under the specific circumstances, that such profits would have been generated. Unlike in some common law jurisdictions, reasonably expected loss of profits is treated as a form of direct damage under Brazilian law, rather than as a consequential or indirect loss.

The obligation of a breaching party to compensate for damages depends on three elements:

• The occurrence of an illicit act;
• The existence of damage; and
• A causal link between the illicit act and the damage in question.

Under Article 403 of the Brazilian Civil Code, a party may only be compensated for actual damages and loss of profits that arise as a direct and immediate consequence (por efeito dela direto e imediato) of the breach.

This requirement does not introduce a test of foreseeability: under Brazilian law, the recoverability of damages is not conditioned on whether the loss was foreseeable, but rather on whether the causal link between the breach and the damage remains unbroken - that is, no other cause intervenes with sufficient preponderance to disrupt the chain of causation.

If another event (a secondary cause) interferes significantly with the original chain of causation, the resulting loss will be deemed indirect in relation to the initial breach (original cause). The causation analysis under Brazilian law serves a dual purpose:

• to identify the party responsible for the damage - and therefore liable to compensate it; and
• to determine the extent of compensable loss – losses that are too remote remotely or weakly connected to the breach of contract are generally not recoverable.

Yes. Contracts in the energy industry frequently include exclusion of liability clauses that seek to exclude liability for “consequential loss”,  and/or, more commonly, “indirect loss” – and in many cases, both expressions are used together. Although these terms are not defined under Brazilian law, they are often incorporated by reference to international drafting standards.

Oil and gas industry

There is no official model form contract specifically mandated for oil and gas projects in Brazil.

Some examples of typical clauses often included in FPSO charter agreements, offshore services contracts, and other oil and gas industry contracts include:

Example 1

“None of the PARTIES shall be responsible before the other PARTY for indirect damages and/or loss of profit, whether totally or partially, which are the result or have any relationship with the AGREEMENT, including, without limitation, loss relating to the production, profits, advance of profit, ownership rights, mineral exploration rights, business. However, the limitation provided for in clause 13.17 above is not applicable to the events of liability to any of the PARTIES for consequential damage and / or loss of profit caused to THIRD PARTIES.”

Example 2

“Notwithstanding any provision to the contrary of this AGREEMENT, the liability of the PARTIES or their affiliates shall be limited to direct damages according to the Brazilian Civil Code and applicable legislation, excluding loss of profit and indirect damages.”

Example 3

“Consequential Damages – Neither Party shall be liable to the other for any consequential damages whatsoever arising out of or in connection with the performance or non-performance of this Contract, and each party shall protect, defend and indemnify the other from and against all such Claims from any member of its Group as defined in Clause 14(a). “Consequential damages” shall include, but not be limited to, loss of use, loss of profits, shut-in or loss of production and cost of insurance whether direct or indirect and, whether or not foreseeable at the date of this Contract.”

Example 4

“Neither PARTY shall be responsible before the other for indirect damages and / or loss of profits, whole or in part, which result or is connected with this Agreement, including, but not limited to, production losses, profits losses, anticipation of profits, property rights, mineral rights or any business. This limitation shall not apply to wilful misconduct or fraudulent acts.”

Example 5

Petrobras contracts include the following clause:

 — “From the execution date of this AGREEMENT, the liability of PETROBRAS and the CONTRACTOR for losses and damage shall be limited to the direct damages according to the Brazilian Civil Code and applicable legislation, excluding loss of profits and indirect damage, and the direct damage shall be limited to USD 20m (twenty million dollars) per event and consequences thereof, converted into Reais (RD) by PTAX for sale of US Dollars into national currency, published by the Central Bank of Brazil, on the last business day immediately preceding the day of the payment of such damage.”

In recent years, Petrobras has developed and implemented a modified version of the knock-for-knock liability allocation between members of the Vendor (Seller) Group and the Petrobras (Buyer) Group in many of its offshore contracts. With respect to consequential damages, a typical clause reads as follows:

“22.9. Consequential Damages. Notwithstanding any other provision of this Agreement to the contrary, and except for Seller’s liability to Buyer for the infringement of third parties’ intellectual property rights and the circumstances specified in Section 20.1, 20.4 and 20.5, in no event shall Buyer or Seller be liable to each other for any indirect, special, incidental or consequential losses or damages (other than such damages as may be included as a component of liquidated damages hereunder) including loss of profits or revenue, loss of opportunity or use incurred by either Party to the other, or like items of loss or damage, and each Party hereby releases the other Party therefrom.”

An important carve-out from this exclusion applies in the event of Seller default and subsequent contract termination by Petrobras. In such cases, the Seller shall be liable for:

• Reasonable costs incurred by Petrobras in completing the scope of supply, including, but not limited to, reasonable expenses for expedited or accelerated construction efforts actually undertaken to meet the deadlines defined in the Project Schedule; and 
• Related expenses and professional fees incurred in attempts to achieve handover by the Guaranteed Handover Date (as defined in the contract), if such date has already passed.

These amounts, to the extent they exceed the contract’s lump-sum price, shall not be deemed consequential damages for purposes of the liability exclusion clause.

Under Brazilian law, there is no settled legal definition of “consequential loss” when used in a contractual context. Similarly, the term “indirect loss” is not defined by statute or jurisprudence. As such, when a contract excludes liability for “consequential loss” or “indirect damages,” these terms should be explicitly defined within the agreement to avoid uncertainty or disputes over their scope.

In general, the prevailing interpretation is that indirect losses are those not directly caused by the breaching party’s conduct but rather arise from secondary or intervening causes or circumstances. However, absent a contractual definition, there is no clear case law in Brazilian case law guiding how courts or arbitral tribunals will interpret these terms. The general position is that indirect damages are not recoverable – even without an express exclusion.

Where a contract excludes “consequential losses,” it is also common to find the clause specifying particular subcategories of loss that are intended to fall within that exclusion, such as loss of profit, loss of opportunity, or loss of goodwill, to ensure clarity and enforceability.

The term “consequential loss” is typically included only in clauses dealing with limitation or exclusion of liability. There is no settled jurisprudence from Brazilian courts specifically addressing the interpretation of exclusion clauses that refer to “consequential loss” alongside other heads of loss. However, general case law on limitation and exclusion of liability clauses is relevant and provides guidance on how such provisions may be construed.

In the absence of statutory or judicial definitions of “consequential loss,” Brazilian courts will typically rely on principles of freedom of contract, party autonomy, and the express terms of the agreement. Courts tend to uphold exclusion clauses where the parties have acted with equal bargaining power, and the clause does not conflict with mandatory legal provisions or public policy, nor deprive the contract of its essential purpose.

Notably, Brazilian courts have held that a contractual clause may be deemed invalid if it neutralizes the essential purpose of the agreement – for example, by excluding or excessively limiting liability for a party’s core obligations, thereby depriving the counterparty of the expected contractual benefit. This principle is particularly relevant in contracts where there is a significant imbalance in bargaining power, or where the exclusion clause operates in a manner that is excessively burdensome (onerosidade excessiva) or abusive (cláusula abusiva), contrary to the principles of good faith and to the social purpose of the contract.

There is no jurisprudence in Brazilian law to suggest that the existence of a “consequential loss” exclusion clause - or a broader limitation of liability clause has any bearing on the availability or likelihood of success of non-damages claims, such as applications for injunctive relief.

In general, Brazilian courts retain discretion to grant injunctions or specific performance orders where appropriate, including in contracts that contain clauses excluding liability for indirect or consequential damages. A limitation of liability clause does not prevent the court from issuing an injunction to prevent a threatened or ongoing breach, particularly where monetary compensation would be insufficient to preserve the claimant’s rights or interests.

Therefore, such exclusion clauses are not typically interpreted as a bar to preventive remedies under Brazilian civil procedure.