One obvious consequence for breaching an agreement is becoming liable to repair the damages that were caused.
Sometimes, the amount of money and the business risk involved in some transactions are so substantial that companies try to avoid liability at all costs. Such limitation is called in Brazilian legal technique as exclusion and liability limitation clauses in contracts, which are written statements that will confine the situations when the infringing party may be held liable to only a few.
In the business environment, parties are allowed to insert provisions in contracts limiting damages to a certain amount, or even excluding them.
To exclude or to limit liabilities in agreements is a good way of apportioning risk between the parties in the event of a breach. Such limitations or exclusions can assume different shapes: an exclusion of liability altogether; a cap to the amount payable in damages; a restriction on the types of loss recoverable or the remedies available; and the imposition of a restricted period to present claims, among many others.
In Brazil, there is no specific law that regulates the limitation of liability, neither a written rule that expressly prohibits it. As the Brazilian courts do not have a major position on the topic, it is possible that clauses of limitation of liability are challenged on that ground.
That’s a reason why it is extremely important that the parties describe in contracts some fundamental concepts for the enforceability of the dispositions regarding responsibility and its limits. In general, these are: (i) the concept of loss; (ii) the moment when a loss can be required of the party that must indemnify; (iii) the mechanism through which the indemnifying party will be informed of, as well as by which form it will be paid to the innocent party; and (iv) a form of conflict resolution in relation to any disagreement over liability for a loss.
In this regard, we verify a tendency in Brazilian courts of nullification liability limitation clauses every time an event of intentional misconduct or gross negligence surfaces.
According to court precedents, in Brazil, the acceptance of the limitation of liability is strictly linked to the respect of freedom of contract balanced with the principle of the social function of the contract; in other words, a party which freely undertakes to abide by contractual provision is not always totally free to abstain from their duty to comply.
Patrícia Perinazzo C. Medeiros is a lawyer in the intellectual property and data protection area at PNST Advogados.
Bruna Tubertini Delmorio was associate at Pacheco Neto Sanden Teisseire Law Firm.
Victoria Carmín Musachi was associate at Pacheco Neto Sanden Teisseire Law Firm.
