Multinational companies usually operate with standardized contractual templates for services or supplies, among others, developed over many years and used in several countries. It is therefore natural that, when starting operations in Brazil, the first idea is simply to translate these documents into Portuguese and use them locally, often without any adjustment to Brazilian law.
Unfortunately, this practice is one of the major sources of legal risk for foreign investors.
Translating an agreement does not mean adapting it to the Brazilian legal system. While language is important, the real difference lies in the legal rules that govern the relationship between the parties. An agreement that is perfectly valid in another country may contain clauses that are ineffective, unenforceable or even void when applied in Brazil.
Each country has its own legal system
Many foreign investors come from countries whose legal tradition differs from Brazil’s. In common law jurisdictions, such as the United States and the United Kingdom, agreements tend to be extremely detailed, seeking to anticipate practically every possible situation. Brazil, however, follows the civil law system, based on codified legislation, general principles of law and rules of public order that, in many cases, prevail over what the parties have agreed.
Thus, although contractual freedom is broad, it has limits: not every provision that is acceptable in the company’s home jurisdiction will necessarily be upheld by a Brazilian court.
Clauses that often need to be adapted
Throughout my practice advising foreign companies that start their activities in Brazil, certain issues arise quite frequently.
- Limitation of liability
It is common for international agreements to include broad limitations of liability, excluding practically any type of damages. In Brazil, however, certain limitations may be mitigated or set aside by the courts, especially where there is willful misconduct, gross negligence or breach of rules of public order. In addition, relationships involving consumers are subject to specific rules under the Brazilian Consumer Protection Code, which significantly restrict the possibility of excluding liability.
- Governing law and jurisdiction
Another clause frequently copied from the parent company’s template provides that any disputes shall be resolved exclusively before foreign courts and under the law of the company’s home country. Although such a provision may be valid in certain international business relationships, it will not always produce the expected effects when the agreement is performed in Brazil or where Brazilian courts have exclusive jurisdiction over specific matters. Moreover, certain obligations will inevitably be subject to Brazilian law, regardless of the parties’ choice.
- Security and guarantees
Security instruments widely used in other countries do not always have a direct equivalent in Brazil. In many cases, the contemplated security must be replaced with mechanisms that are compatible with Brazilian law, such as surety, performance bonds, fiduciary transfer of title or other forms of security admitted by national legislation. An inadequate adaptation may compromise precisely what was meant to be protected: the effective recovery of the credit.
- Data protection
Although Brazilian data protection legislation is inspired by European regulations, it is not identical to them. Therefore, simply applying global privacy and data processing policies in Brazil may not be a good idea.
Any operation carried out in Brazil must comply with the Brazilian General Data Protection Law (LGPD), which sets out specific obligations regarding the collection, processing, sharing and storage of personal information.
It is not enough to reproduce the policy adopted by the parent company. It is necessary to verify its compatibility with Brazilian legislation.
- Consumer relationships
Another recurring mistake is to use agreements drafted exclusively for business-to-business relationships in operations that, in Brazil, will be classified as consumer relationships. The Consumer Protection Code contains several mandatory rules designed to protect the party regarded as vulnerable. Clauses that restrict consumer rights or create contractual imbalance may be declared void, regardless of the parties’ intent.
The agreement must reflect the reality of the operation
More than translating documents, it is essential to understand how the operation will actually work in Brazil.
- Who will be the contracting party?
- Who will provide the services?
- Who will be liable towards the customers?
- Who will assume the risks?
- How will invoicing be carried out?
- Which taxes will apply?
- Which licenses will be required?
The answers to these questions often require material contractual adjustments capable of reducing future risks and providing greater certainty for investors, officers and business partners.
The real role of legal counsel
The adaptation of international agreements is not about merely “localizing” foreign documents, but about harmonizing global interests with the requirements of Brazilian law, preserving the company’s business strategy without compromising its legal certainty. When this step is taken at the beginning of the operation, disputes, renegotiations, tax contingencies, regulatory challenges and costs that could easily have been avoided are substantially reduced.
We have already advised companies in the technology, healthcare, agribusiness and services sectors in the adaptation of global agreements to the Brazilian legal framework. In almost all cases, we identified clauses that needed to be revised to avoid regulatory, tax or liability risks for the Brazilian subsidiary.
In the business environment, a good agreement is one that formalizes a negotiation and remains enforceable when problems arise. For this reason, it is essential to adapt, not merely translate.