By Christiana Abbade do Couto, General Counsel Iron Mountain do Brasil Ltda Quinn Smith, Partner, Smith International Legal Consultants Mauricio Gomm, Partner, Smith International Legal Consultants Contract negotiation in Brazil is similar to other countries but with some key differences. While parties need to always worry about the rights and obligations of the parties, Brazil has some noteworthy pitfalls to watch out for. Below, we provide a few tips to remember before going to Brazil or dealing with a contract that has a Brazilian company as the other party.
1. Cultural Tips
Brazil's native language is Portuguese and not Spanish, unlike neighboring countries. This is a common mistake made by foreigners when they first look at Brazil. In business, Brazil's second language is English, so if you are an English speaker, you will be fine negotiating in Brazil, although it is still helpful to have at least one Portuguese speaker on your team to help with some of the unique translations of Portuguese words and other cultural issues that may arise.
2. Personal Relationship
In order to gain the trust of a Brazilian, the personal relationship is really important. You should consider before sitting at the table to negotiate going out for lunch, dinner or only a coffee. Brazilians like this informal environment.
3. Civil Law and not Common Law
Similar to forgetting the correct language, many foreigners overlook the fact that Brazil is a civil law country and not a common law country. Brazil has written legislation for almost everything, including lease agreements, insurance contracts, agency relationships, the protection of intellectual property, and many other areas. It is very important to know if there is a special law that will apply to a certain transaction in order to know what you should and you should not include in the contract.
4. Dispute Resolution Clause: Courts or Arbitration?
It is important to define where a dispute will be resolved. For international contracts it is always recommended to choose arbitration and select a recognized chamber to administer the dispute. The arbitral institutions have more experience with international negotiations, and the solution of the dispute will be a lot faster than if you go to regular Court, which can take more than 10 years to reach a final conclusion. In addition, many transactions with local contractual performance also include arbitration clauses because of the delays in the court system and the relatively favorable view of courts to arbitration. It is also important to remember that many of the public contracts (those involving concessions, public-private partnerships, and similar agreements) require arbitration in Brazil and in Portuguese.
5. Labor and Employment Legislation
Be careful with Brazilian labor and employment legislation. This legislation and court decisions are really protective and difficult for companies deal with. This concern is especially important if you will have Brazilian employees working inside your company. The Brazilian labor courts may recognize the employment relationship with your company despite the absence of any employment agreement, and if the Brazilian company does not pay all taxes, wages, and benefits, you may be liable for more than you would imagine.
6. FCPA and SOX
If you have to comply with FCPA and SOX and will contract with Brazilian company, it is best to research and learn about the company quite deeply before contracting with it. Not all Brazilian companies are in compliance with this legislation, and most of Brazilian companies have not heard about these laws. It is important to train your Brazilian counterparty and audit prior contracting.
7. Non-compete clauses
It is possible to have non-compete clauses in certain types of negotiations but be careful with such clauses. Brazil has a government authority that regulates competition called CADE (Conselho Administrativo da Defesa da Concorrencia). Before establishing any non-compete clause is important to review the competition legislation, especially Federal Law 8884 from June 11, 1994, and the interpretations made by CADE on such legislation.
8. Language of the Contracts
There is no problem signing a contract that is in Portuguese and English. But if the legislation applied is Brazilian, the Brazilian law mandates Portuguese version shall prevail and that the payment of the contract usually has to be in Brazilian Reais, there are some exceptions that we suggest you review with a local Brazilian attorney.
9. Pace of the Negotiation
Depending on your negotiating counterpart, the pace can be totally different. The Paulistas (in the State of Sao Paulo´s) are considered the most "stressed" people and typically want to execute the contract ASAP. Others from Bahia and Rio de Janeiro (also known as "cariocas") may have a different, slower pace.
Remember, Brazil is a civil law country and has written legislation for everything, including taxes. You will have tax implications in all types of contracts in Brazil. If you are dealing with supply of products, you will have the ICMS (our VAT tax), when rendering services you will have the ISS tax and maybe INSS (social security contribution), income tax (IR), and others. The tax laws also frequently change or the interpretations evolve, requiring constant attention to the tax requirements placed by local, state, and national governments.
The information in this Top Ten should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or the ACC. This Top Ten is not intended as a definitive statement on the subject addressed. Rather, it is intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.
Reprinted with permission from the Association of Corporate Counsel (ACC) 2011 All Rights Reserved.