Brazil: Force Majeure - Hardship in relation to Conflict and Sanctions

Yes. There are two main provisions that could impact commercial contracts and their performance in case of war: 

• State of Defence and State of Siege measures.
•  Sanctions (including commercial and economic) imposed against a country, legal entities and individuals. 

The Brazilian Federal Constitution (“CF”) has specific provisions referring to the State of Defence and State of Siege (Articles 136 to 139). 

The President may, after consultation with the Council of the Republic and the National Defence Council, decree a State of Defence to preserve or quickly re-establish public order and peace in certain areas, in response to serious and imminent institutional instability or major natural calamities.

The President may request authorisation from the National Congress to decree a State of Siege, after consulting the Council of the Republic and the National Defence Council, in the event of: (i) serious disturbance with nationwide effects or evidence of the ineffectiveness of measures taken during the State of Defence; and (ii) declaration of war or response to foreign armed aggression. The decree of the State of Siege shall specify the period of its duration, the rules required to implement it and the constitutional guarantees that are to be suspended. After its publication, the president shall assign the person/authority responsible to enforce the specific measures. 

As Brazil is a member of the United Nations (“UN”) and has ratified the UN Charter into the Brazilian legal system [Federal Decree No. 19,841/1945], UN Security Council Resolutions are promptly enforceable in Brazil, including economic sanctions preventing or restricting trade with certain countries (and certain legal entities and individuals). 

Federal Law No. 13,810/2019, regulated by Federal Decree No. 9,825/2019, requires compliance with UN Sanctioning Resolutions, including provisions related to the freezing of assets, the national designations of individuals under investigation or charged on terrorism allegations, financing of terrorism or related acts. Violation of those rules and measures under the State of Siege could lead to administrative penalties imposed by the competent authority and even criminal prosecution. 

In periods of recognised abnormality, temporary and exceptional laws can be enacted to deal with the consequences of such abnormal circumstances. In that case, enforceability of such laws is limited to the duration of the event itself (e.g. war). Therefore, sanctions and/or government decisions (factum principis) may impact or prevent the performance of commercial contracts.

Brazilian law has no specific legislation addressing the legal consequences of war or sanctions on commercial contracts. There are, however, statutory provisions regarding ‘force majeure’ (força maior) and ‘act of God’ (caso fortuito), which are applicable to commercial contracts subject to Brazilian law. 

Article 393 of the Brazilian Civil Code provides: 

“Art. 393. The debtor shall not be liable for the losses resulting from ‘acts of God’ or ‘force majeure’, if he has not expressly assumed responsibility for them.
 ‘Act of God’ or ‘force majeure’ consists of a necessary fact, the effects of which it was not possible to predict or avoid.”

The Brazilian Civil Code does not distinguish between the concepts of force majeure and act of God.

Yes, unless the contract states otherwise.

Usually, the following should apply in order for force majeure to exist under statutory law: (i) the affected party must claim force majeure (it does not arise automatically); (ii) the party has been prevented from performing as a result of such event; (iii) the event was beyond the control of the affected party; (iv) the party could not have taken any steps to avoid the event or mitigate its effects. 

It is not required. In the absence of specific contractual provisions, the Brazilian Civil Code will apply.

Nonetheless, the parties can contractually agree on the definition of force majeure (e.g. expressly agreeing not to include a specific supply shortage), listing the events that must necessarily fall into or be excluded from the definition, so that they have more clarity on what events could excuse them from responsibility for non-performance. It is recommended to address any relevant event or circumstance that could adversely impact on the performance of any party, in order to avoid future disputes.

Articles 478-480 of the Brazilian Civil Code enshrine the doctrine of “rebus sic stantibus” into Brazilian Contractual law. In contracts where there is continuing or deferred performance, the debtor may apply for dissolution of the contract or renegotiation of their terms in order to re-establish economic balance.

The party claiming a relief for performance under the contract or for payment of damages, following a breach of contract arising from a force majeure event, must prove that the event was un unforeseen circumstance beyond their control. It is worth noting that the event must be extraordinary, unforeseen and not related to the inherent risks of the contract.

As a rule, impacts of war on obligations and contracts are considered unforeseen circumstances if, although expected, they were impossible to prevent . In Brazilian law, the main factor is not necessarily the unpredictability, but rather the circumstance's inevitability  beyond the control of the party. However, to allege the application of the Excessive Burden’s doctrine under Brazilian law, the parties seeking the revision or termination of the contract must prove all of the following requirements: (i) the performance becomes excessively burdensome – “rebus sic stantibus”; (ii) there is extreme advantage to the counterparty; and (iii) the causality effect in light of extraordinary and unforeseeable events.

As mentioned, Article 393 of the Brazilian Civil Code provides that parties shall not be liable for losses resulting from unforeseeable events, whose effects the parties could neither predict nor avoid. 

Sanctions imposed by the EU against a country that could adversely impact on commercial agreements governed by Brazilian law should be considered a force majeure event, unless the contract states otherwise. See comments in item “3”. 

The purpose of a force majeure clause is to relieve a party from performing its contractual obligations when an unexpected, external event has occurred that prevents the performance of the contract.

When an event delays or deters the performance of the contract, and falls within the legal concept of force majeure, the party may invoke this clause to exempt itself from the consequences of the delay or to obtain the termination of the contract, without incurring any indemnity. This party has the burden to prove the event falls into the force majeure concept. Force majeure can only be invoked as a justifying cause of non-performance provided that the party has no fault on that.

The consequences of a war may be treated as force majeure in Brazil, to the extent that they prevent the performance of a specific contractual obligation. However, it will be necessary to consider cause and effect in each case. It is not sufficient to show that performance has become more expensive or that the war requires performance in a different manner to that originally contemplated, but not specified in the contract.