introduction to brazilian law – mid-term exam luis f. gomez

7/28/2019 Introduction to Brazilian Law Mid-term exam Luis F. Gomez

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Introduction to Brazilian Law Mid-term exam Luis F. Gomez

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Question 1

Konrzd Zweigert and Hein Kotzsstatement depends on what very similar solutions means. In

my opinion, different legal systems generate different answers and this applies even for systemswith a common origin. I will elaborate on this thesis by contrasting ostensible differences

between the Brazilian and Mexican legal system and the U.S. and Brazilian legal systems. I will

use this dual approach to show that not only are there differences between the common la and

the civil law, but between legal systems with a common origin.

Example 1 Mexico Brazil Contract Law:

Despite a common origin, Mexican and Brazilian contractual legislations have become very

different. Brazilian law has departed from a liberal model gravitating towards a collectivist model

while Mexican contractual legislation still adheres to the freedom of contract principle and the

liberal model. This has changed the understanding of the function and origin of contracts in

Brazil.

Mexican and Brazilian contract law were once heavily influenced by classical Roman law,

nineteenth century German legal theory and the French codification. They shared notions of

freedom of contract and a general non-interference in the parties bargain. With the enactment

of the Civil Code of 2002, Brazilian contract law departed from the liberal model of contractual

relationships and gravitated towards a collectivist model that increases intervention in the realm

of the parties. Meanwhile Mexican contractual legislation remained fixed to the liberal model.

Thorough the enactment of Brazils Civil Code of 2002, contract law can be revamped to break

away from the liberal model and understand a social function in contracts that allows the

judiciary to promote the equilibrium between the contracting parties, to protect the weaker and

strive to maximize societys welfare. Brazils Constitution and federal legislation have undergone

major transformations that have furthered the constitucionalization of institutions that used to

be considered private law. Contract law in Brazil is now based on the th eories of solidarity that

propose the socialization or institutionalization of the contractual regulation. This theory gives

the law a role in setting parties on equal footing, which is achieved through the disparate

treatment of unequal parties. After the Civil Code of 2002, Brazils contractual law is now based

on a social law theory and the State has assumed a new role. In line with Brazils new


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Constitution and its new consumer protection law, the State is to allow economic growth while

promoting its distribution and the protection of those with inferior bargaining power.

In Mexico, the liberal principles of private law have also receded since the enactment of the

Federal Civil Code of 1928. This code is no longer purely based in the liberal model of the

nineteenth century; however, the influence of the principle of contractual freedom was not

diminished in the civil code. Instead, with the exception of employment agreements, Mexicos

contacts are still regulated by a product of liberalism: the principle of freedom of contract.

The divergences between Mexico and Brazil are not minor. The 2002 Civil Code created major

modifications like: (a) mandating that contract regulation adheres to the principle of social

function of the contract and limiting the parties freedom of contract to the purpose and limits of

the social function of contract (em razo e nos limites da funo social do contrato); (b)

imposing a new good faith requirement mandating the parties to observe probity and good faith(princpios de probidade e boa-f) in the conclusion and performance of contracts and; (c) and

allowing greater judicial intervention in the judicial revision of contracts. In contrast to the

modifications in Brazil, the contractual regulation in Mexico considers contracts to be private

instruments regulated by the principle of freedom of contract. Thus, to form a contract all that is

required is the consent of the parties to something that can be matter of a contract. If the matter

is legal, contracts are only invalidated when there is a defect in the consent of a party. In

Mexico, mere consent to a contract binds the parties to its terms according to goof faith,

costumes and the law. This nature of contracts is the major distinction between Mexican andBrazilian contractual regulation. There are also no good faith requirements or probity mandates.

Finally Mexican judges are greatly limited by the principle of the freedom to contract as

governmental involvement is exactly what the liberal model is designed to avoid. The different

involvement of judges in reviewing contracts is the direct consequence of following different

theories of the nature and purposes of contracts. These are not, in my opinion, similar solutions,

even as to detail, to a very basic question: what is a contract.

Example 2: Brazil U.S. Contract law

While Brazilian law (as stated in the previous example) has departed from the liberal model and

gravitated towards a collectivist model, Contract law in the United States has always adhered

completely to the freedom of contract principle and the most liberal model. The different


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understanding of the function and origin of contracts could not be greater. The two countries

contractual law not only has different principles it also leads to diametrically different results.

In the U.S., as in all common law countries, the Seal as it was used in ancient times is now

gone because it lost its formality and derived into a common informal procedure. The three

ancient common law actions: covenant, debt and assumpsit have also derived in to a single

action for enforcement of contract. However, the understanding of contracts has not gone to bee

anything other than the will of the parties which constitutes an exchange of valid consideration.

This is, in principle, the most liberal of approaches to contract formation.

Does this means that the dissimilar approaches form Brazil and the U.S. allow for great justice

in Brazil and unfair result in the U.S. No, it isnt necessarily a better or worst comparison.

However the solutions are dissimilar and so are the consequences. Even in the U.S. a court of

equity can refuses specific performance of a contract where consideration for it is grosslyinadequate or its terms are unfair, or its enforcement will cause unreasonable or

disproportionate hardship or loss to defendant or to third persons, or it was induced by some

objectionable practice, misrepresentation, or mistake.

As noted in McKinnon v. Benedict, the Supreme Court of Wisconsin, found that when a specific

performance of the contract was not equitable, and an injunction would not issue where the

contract terms were oppressive and there was great disparity in the consideration between the

parties. This case, however, would be different in a Court of law that was addressing merely

monetary damages. This shows that even with the strict approach the judiciary is to take in the

liberal model (like the U.S.) there is still room to seek justice and fairness. The U.S. system

differs completely form Brazils understanding of contracts but still procures that while its rules

should be clear even if they make injustice in some cases (Professor Willston) at the same time

the rules should be flexible enough so the courts have ample room to make justice (Professor

Corbin).

Example 3 Mexico

Brazil

U.S. Class Actions in consumer protection law

Brazil has also changed its legislation on consumer protection. The Consumers Protection Code

(Cdigo de Defesa do Consumidor) is a federal code created by a Constitutional mandate. The

legislation was enacted in 1990 and its application is limited to consumer transactions. The code

is a law of public order and social interest that transcends private interests and parties are not

free to contract the inapplicability of its provisions. The protections offered by the code are


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mandatory and judicially enforceable. Most every business in Brazil (including the library where I

am currently answering this exam) shows a copy of the C.D.C at the entrance and makes the

copy available to any consumer. The Consumer Code enacts a dissimilar treatment of unequal

parties by recognizing that consumers can be in a disadvantageous situation. Consumer rights

overlap with any other existing rights in a consumer contract. To protect consumers, the

Brazilian Consumers Protection Code has enacted judicial procedures allowing class action

claims for individual damages. This modification can empower consumers to go to court en

masse against private business and corporations. The Consumers Protection Code has a tittle

dedicated to the protection of the consumer through judicial processes in which the legislature

included detailed procedures for class action suits for individual damages. This modification is

particularly important for the protection of consumer rights as it allows class actions to be

brought against private corporations with abusive or deceptive practices.

Unlike Brazil, Mexicos consumer protection law (LeyFederal de Protecin al Consumidor) does

not allow class actions in either the arbitration procedures or at trial. After a recent Constitutional

modification, there is a constitutional mandate to enact legislation allowing class actions to

reach federal courts but this wont necessarily be available for contractual disputes. This rule

may not be trans-substantive. The Consumer Protection Code which applies only to consumers

was intended to give consumers legal certainty and transparency in their commercial contracts

with suppliers of goods and services without redefining contracts, changing the burden of proof

or offering special judicial review. The Federal Consumer Protection Law mandates mediation

procedures and promotes optional arbitration as the appropriate forum to solve consumer-

related contractual disputes. These two forms of alternative dispute resolution offer less

benefits than a judicial process and can become an additional burden for those consumers with

the means to go to trial. This law does not foresee or allow class actions in either the arbitration

procedures or at trial; however, there is an existing Constitutional mandate to enact legislation

allowing class actions to reach federal courts. At this point it is uncertain if the new legislation

will include contractual disputes, torts and other civil wrongs.

Unlike Brazil, The United States does not have a Consumer Protection Code. However, unlikeMexico, it does allow for private class actions by consumers against businesses. Without great

discussion in Congress or anyone foreseeing a transformation in Consumer protection a slight

modification to the Federal Rule of Civil Procedure Rule 23 (i) made class actions possible for

consumers who suffered similar wrongs from the same entity. The result there is what Brazil is

now trying to achieve with its Cdigo de Defesa do Consumidor. This shows that despite a


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common legal system (civil law) Mexican and Brazilian legislations are now very different in

regards to the ability to bring class actions, while the Brazilian consumer law has followed the

American approach despite being from a different legal system. At the end, the class action

availability for consumer-protection cases (in both the U.S. and Brazil), make a big difference

when compared to the lack of this resource for Mexican consumers.

Through this three country comparison, I intended to show that there are, indeed, different

results from different approaches and different legislations and that not only are this determined

by the origin of the legal systems or the cultures.

Question 2

By the end of 2000 the So Paulo Stock Exchange created the Novo Mercado. Inspired by

Frankfurts Neuer Markt, this private institution has become an alternative corporation law that

avoided the legislative process and the mandatory enforcement of a public law.

Based on a voluntary-adhesion system or voluntary listing, this model success was due to its

less threatening appearance (at least at its inception) to well established firms that already had

access to (and a monopoly of) capital. As part of this non-threatening appearance, the Novo

Mercado was only one of the four possible listings and the only one with the most stringing

requirements. One of the other three available listing even allowed the continuation of the pre-

existing regime. This approach avoided a strong reaction from the well-established firms, in

what has been named the Orson effect.

Unlike the Novo Mercado was a "one share, one vote" requirement. The pre-existing structure

created publicly traded companies with an all-powerful controlling shareholder and

disenfranchised public shareholders that gave Brazil the world's largest number of dual-class

firms.

Another interesting feature of the Novo Mercado is that its rules will be enforced through a

specific arbitration procedure. This process is to be faster, confidential than a lawsuit in court.

This procedure happens before the Market Arbitration Panel of the Paulo Stock Exchange that

publishes the content of the substantive decisions. This approach tries to create an effective,

reliable yet trusted adjudicator for the disputes of the Novo Mercado firms (like a private


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Delaware Court of Chancery) that brings certainty and allows for efficient and timely

enforcement of this new investor regime created through the listing.

The Novo Mercado was geared towards attracting those making an IPO and not on the

migration of the old firms. This indeed has been where the Novo Mercado found its success. As

the excerpt from The Economist mentions, the new IPOs have had to sign u o to so-called

Novo Mercado guidelines, which do away with the dual share classes, over-friendly board

members and non-existing protection for minority shareholders that made life hazardous for

outside investors. This is exactly what the Novo Mercado was meant to create, and through

new IPOs was exactly how it was supposed to happen. The access to the markets was the

carrot that would lead the new players on the market to play by the new rules; while allowing the

old players to follow the previous rules (and only mandatory ones) and keep access to their

previous sources of capital.

However, the success of the Novo Mercado goes beyond attracting the new IPOs (79%

between the 2004-2009) and being able to boast of the biggest offering in history (Petrobras).

The Novo Mercado has also attracted firms listed in the other tiers. Out of more than 20% of the

firms listed had previously been listed on the traditional segment. This might be due to the fact

that pre-listed firms, with a substantial amount of nonvoting preferred shares held by minority

shareholders, are not impeded from migrating to the Novo Mercado. This is possible due to the

authorization of uneven reorganizations that eliminate the nonvoting shares while compensating

the controlling shareholders at a greater ratio.

Now the BOVESPA is the ninth biggest market and the third biggest of the emerging markets.

This does not mean there arent big challenges looming over this dual-approach method.

Despite the amount of new IPOs in the Novo Mercado, the firms that remain in the traditional

listing are relevant not for its number but for its significance in the market. With some of the

largest and most successful Brazilian corporations outside of the novo Mercado and without an

incentive to join as they have always had privileged access to local and foreign capital markets

and other financing sources it is unexpected that they will voluntarily commit to more stringent

governance levels or allow a reform that makes it mandatory for all listed corporations. This

creates the need to perpetuate the double-approach system and not only use it as a transition

method through which all listed firm end up regulated as the ones now in the Novo Mercado.

Finally, Brazil has a particularly high amount of government participation in many firms which

creates a greater need for further developments in this area.

introduction to brazilian law – mid-term exam luis f. gomez

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