The Differences between Australian Contract Law and Brazilian Contract Law - Term Paper Example

Memorandum of Advice Introduction When drafting contracts for business transactions in Brazil it is important to watch out for the differences between Australian contract law and Brazilian contract law. These differences will be relevant for determining the validity and enforceability of contracts and are especially important for contracts that will be governed by Brazilian law. For this purpose, the major differences between Brazilian and Australian contract law are highlighted above. The Major Differences Between Brazilian and Australian Contract Law 1. Freedom of Contract The most salient distinction between Brazilian and Australian contract law is the doctrine of freedom of contract. It is a long established principle of Australian contract law that the parties to a contract are free to agree on the terms and conditions of their contract, provided that those terms and conditions are legal.1 In general the parties are at liberty to look after their own interests and to manage their respective contractual obligations with reference to a general duty to act in good faith.2 While Brazilian law, like Australian law indorses the duty to act in good faith and honesty with respect to contractual relations, the doctrine of freedom of contract under Brazilian law is subject to constraints.3 The new Brazilian Civil Code 2003, mandates that the freedom of contract shall be based on and constrained by the “social function of the contract”.4 As Grebela explains: “…no agreement shall prevail that contravenes the social function of property and of the contract, which is deemed to be a matter of public policy.”5 2. Formation of a Contract For the purposes of the formation of a contract, Brazilian contract law is at odds with the position taken in Australia. For instance, an offer made to multiple persons, such as those made in advertisements are generally considered to be an invitation to treat under Australian contract law unless the contrary is derived from the nature of the offer.6 Ultimately, goods placed on display with price tags attached are not offers but actually invitations to negotiate offers and do not become an offer to enter into contractual relations until such time as an item is selected and presented for purchase.7 Under the Brazilian Civil Code the opposite position is true. By virtue of Article 429 of the Civil Code 2003 (Brazil) any offer made to multiple parties will be deemed to be a contract proposal if the offer contains the essential elements of the actual contract.8 In other words the general rule under Australian law is that an offer made to the public is no more than an invitation to treat unless it clearly intends to form the basis of an offer. Under Brazilian contract law, the offer made to the public at large is a contract proposal/offer unless it is clearly meant to be a mere invitation to treat. 3. Time for the Performance of Contractual Obligations Under Australian contract law, when the time for performance of the parties respective obligations is fixed under a contract, the parties may extend that time by agreement, acquiescence or waiver.9 In a typical case, the courts tend to encourage the continuation of a contract and will not treat delay as a fundamental breach if it is possible for the parties to comply with the contractual terms despite the delay and default by one of the parties.10 Grebler, explains however, that under Brazilian contract law, the old Roman doctrine dies interpellat pro homine prevails.11 Under this Roman doctrine, when a contract provides for a fixed time for the performance of an obligation, “a mere lapse of such time” is sufficient to amount to a breach of the contract.12 Moreover, where no time is fixed for the performance of an obligation, a notification to the other party that the performance is late will suffice to set a time for completion of the obligation.13 4. Fundamental Breach Under Australian contract law, a breach of contractual terms and conditions will not automatically give rise to the termination of the contract with remedies for damages. In order for the contract to be terminated the breach must be a fundamental breach to the extent that it goes to the root of the contract.14 The courts in Australia typically take the position that the breach, in order to characterized as a fundamental breach must be construed by reference to the totality of the contract before assessing whether or not the contract should be terminated with the consequences of ordering damages to the innocent party.15 No such principle of law exists under Brazilian law of contract. Grebler explains that the general rule of Brazilian contract law is that any failure to perform obligations under the contract constitutes a breach and is subject to remedies for damages to the innocent party. In addition the Civil Code 2003 (Brazil) permits recovery of interest, “monetary adjustments” and legal fees from the party who breaches his or her obligations under a contract.16 In addition, the innocent party is at liberty to terminate the contract or insist upon specific performance together with damages in each case.17 5. Specific Performance Specific performance under Australian contract law is an equitable remedy and will typically not be ordered unless damages are inadequate.18 Gillies explains that: “If the assessment of damages…was to produce an unsatisfactory result, it may happen that (subject to the tests governing its award) the court would order specific performance of the contractual promise in issue…As a general rule, the remedy of specific performance is prima facie available where an award of damages would be inadequate for one reason or another.”19 Brazil’s new Civil Code takes an entirely different approach to specific performance, treating it as a right the wronged party is at liberty to insist upon.20Article 475 of the Civil Code 2003 (Brazil) makes provision for the wronged party to require specific performance of any obligation that has not been fulfilled under the contract.21 In this regard, specific performance is routine right for the wronged party to a contract governed by Brazilian law. Under Australian contract law, specific performance is generally only available when damages would be an inadequate remedy. Conclusion There are obvious discrepancies between the contractual obligations, validity and formation of a contract under Australian and Brazilian law of contract. Advertisements placed by the Brazilian Business Management team will have to guided by the fact that those advertisements can be considered contract proposals under Brazilian law where as under Australian law they are regarded as no more than an invitation to treat. In order to avoid the consequences of Brazilian law with respect to formation of a contract, advertisements placed in Brazil will have to ensure that the terms and conditions of sales and services are accurately displayed. Ultimately, an erroneous display of terms and conditions can be binding on the company whether from the outset, despite the fact that the display is merely meant to invite negotiations for the formation of a contract. In terms of negotiating a contract in Brazil, the Brazilian Business Management team will be best advised to keep in mind the constraints on freedom of contract and party autonomy. Since Brazilian law limits the operation of the doctrine of freedom of contract by subjecting the contract to social and public policies it is best to insert a choice of law clause in the body of each contract that opts for Australian law as the governing law of the contract. By taking this approach, the doctrine of freedom of contract will not be compromised and the parties can safeguard their respective interests under the contract by not having to defer to Brazilian social and public policies. Since social and public polices are in a constant state of change, the enforceability and validity of the contract will remain uncertain and unpredictable under Brazilian law. The question of fundamental breach also makes it imperative that the contracts negotiated and concluded in Brazil be governed by Australian law. Under Brazilian law of contract a contract can be terminated for any breach, regardless of its significance to the contract. This is an undesirable and impractical result for contracts which involve international parties. For example, should there be a delay in the transfer of money or property from overseas, the other party may terminate the contract. Since delays of this nature are likely to occur, given the international character of the business, all efforts should be made to ensure that Brazilian law does not govern the contract. The frequency with which terms and conditions of the contracts may be delayed will result in an indeterminable number of aborted contracts with negative economic consequences for the company. Likewise specific performance as it is applied under the Brazilian contract law is entirely counterproductive. This aspect of Brazilian contract law also warrants the inclusion of choice of law clause in contracts negotiated and concluded in Brazil. When one considers that it may not be possible to provide a service or a product within the time fixed for doing so taking into account the international elements involved, insistence upon specific performance will not be an option. In some cases it may not be possible to comply with an order for specific performance unless at the considerable expense and hardship of the company. Under Australian law restitution offers a more convenient remedy in instances where the delay or non-performance occurs and the company is acting in good faith and honestly. Restitution permits the parties to be restored to the position they would have been in but for the contractual obligations and the ensuing breach.22 In other words, the innocent party will be entitled to compensatory damages in respect of all steps taken to his or her detriment pursuant to the contract, in the event the contract is breached by the other party. This appears to be a fair and equitable remedy for all parties and will not compromise the company’s business relations in Brazil. When each of these major differences are taken into account, it is entirely undesirable to permit Brazilian law of contract to govern contracts negotiated and conclude in Brazil. Brazilian contract law is far too liberal in its approach to breach of contract and permitting the contract to be terminated. With the complexities involved in transborder trade in goods and services, breaches in terms of delays are likely to occur. Very few delays are fatal to a contract containing international elements and many contracts can survive these delays. Since Brazilian contract law will allow the termination of the contract when there is a delay with respect to performance obligations, there is only one viable remedy, and that is to choose Australian law as the governing law of each contract concluded and/or negotiated in Brazil. Since Brazilian contract law mandates that all contracts be negotiated and performed in good faith and honestly there is no discrepancy in the way that Australian law and Brazilian law governs the manner in which contracting parties conduct themselves pursuant to the contract. To this end, there should be no difficulty convincing Brazilian parties to submit to an Australian choice of law clause in a contract. Ultimately, the underlying goal is to conduct successful and amenable business relations in Brazil. It is imperative that the other party is aware that the advantages of choosing Australian law as the governing law is for the benefit of both parties to the contract and that Australian law seeks to ensure that the contract is not terminated unless a breach goes to the root of the contract. References Adams, John and Brownsword, Roger. Key Issues in Contract. (Butterworths, 1995) 198. Civil Code 2003 (Brazil). Esso Autralia Resources Pty Ltd. V Southern Pacific Peteroleum NL & Ors. [2005] VSCA 228. Furmston, M.P.; Cheshire, G.; Simpson, W. and Fifoot, W. Cheshire, Fifoot and Furmston’s Law of Contract. (Oxford University Press, 2006) Gillies, P. Concise Contract Law. (Federation Press, 1988 Grebler, E. ‘The Convention on International Sale f Goods and Brazilian Law: Are Differences Irreconcilable?’ (2005-2006) 25 Journal of Law and Commerce, 467-476. Monohan, G. Australian Essential Contract Law. (Cavendish, 2001) Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd. [1953] 1 QB 401. Read More