Appeal Court Boosts Consumer Protection

When discussing e-commerce regulation, one of the main concerns relates to the application of consumer protection and defence laws.

Difficulties concern the following:

• the nature of adhesion of the vast majority of the agreements entered into electronically;

• proving transactions conducted, by virtue of the absence of any essential formality (eg, signed and witnessed documents); and

• geography, since electronic transactions are very often international in nature.

According to Brazilian laws, whenever a contract omits clauses about the relevant legislation or competent venue, these aspects will be determined by the location at which the contract is considered to be made. When it is not possible to verify the exact place of the contract's execution, Brazilian law considers a contract to be made at the location of the proposal (Civil Code, Article 1,087). Thus, a contract entered into by a Brazilian natural or legal person with, for example, a site of North American origin that offers its products on the Internet is considered to be made in America. Thus the law applicable to the agreement is not Brazilian law, and domestic courts are not competent to decide on any conflicts arising from such a contract.

As a rule, and with rare exceptions, the legal system of a given country is only applicable to the events taking place in its territory and relating to persons present therein, even if they are merely passing through. Thus, the Consumer Protection and Defence Code (Law 8,078/90) applies only to the consumer relationships established in that territory.

In point of fact, the country's legal system will only apply to the legal relationships occurring in Brazil. Yet the respective understanding would leave consumers unprotected. This conflicts with the objective of the consumer protection laws in force in Brazil, which are comprehensive in respect to maintaining contractual equilibrium between consumers and vendors.

What treatment shall be given, then, to a consumer relationship entered into by means of e-commerce, where the Brazilian consumer has purchased products on an international site from a foreign company? Should the consumer remain unprotected, and seek possible reparation before a foreign company at the place of its headquarters, submitting itself to foreign legislation?

This issue is controversial. However, a recent decision of the Federal Court of Appeals (the highest court of the country in matters concerning the interpretation of federal legislation) indicates that the judges tend to be rigid in respect to consumer protection in consumer relationships with internationality characteristics.

The case decided by the appeal court upon examining Special Appeal 63.981-SP deals with the intent of indemnification of a consumer who purchased a defective product.

Mr Plínio Gustavo Prado Garcia was in Miami, in a commercial establishment in that location and country. He purchased a video camera manufactured by Panasonic Company (a North American company) but his petition for indemnification was presented before the Brazilian courts against Panasonic do Brasil Ltda, a company belonging to the same business group but with a distinct legal status, independent from the company that manufactured and marketed the defective product.

Following defeat at the trial court and the state court, the consumer had his claim accepted by the Brazilian Federal Court of Appeals, which determined that Panasonic do Brasil Ltda should pay the damages suffered by the purchaser of the defective video camera.

The grounds of the decision were that the case involved a consumer relationship, marked by the hypo-sufficiency of the consumer in the face of a major multinational corporation which operates in a globalized economy, without territorial limits and with branches in several countries. The corporation benefits from intense advertising on its trademark, and so the consumer cannot bear "the negative consequences of transactions involving defective objects."

The court understood that to the same extent that such companies benefit from the absence of frontiers relating to the consumer market, the consumer protection laws should be interpreted in a less rigid manner, rendering the principles and objectives of the respective regulations effective.

Similar facts could easily occur in an electronic context, for example where a Brazilian consumer purchases a product on an international web site and the maintainer company happens to have a branch in the Brazilian territory. The branch, although not a direct party to the relationship, may be liable for damages, in accordance with the consumer protection principles.

In fact, the appeal court's judgment expressly mentions such transactions as meriting such attention:

"If the globalized economy no longer has rigid frontiers, and stimulates and favours free competition, it is essential that the consumer protection laws gain greater expression in their exegesis, in pursuit of the equilibrium that should govern legal relationships, also determining the extent of the risk factor, inherent to the competitiveness of business and mercantile transactions, above all when on an international scale, in which powerful multinational companies are present, with branches in various countries, not to mention the sales made these days by the IT process and the strong consumer market that represents our country."

Conclusions regarding the rigidity of consumer protection are also evident from the opinion of Minister Sálvio de Figueiredo Teixeira:

"...because we are living in a new reality, imposed by the globalized economy, we also have the presence of a new legal framework, it being essential that there be an interpretation consistent with this reality. Thus a protection based on internal limits and on traditional legal statutes does not suffice, when it is known that the Brazilian consumer protection code is one of the most advanced existing legal texts."

The consumer protection laws emerged to balance the commercial relationships resulting from the mass economy, in which major corporations and companies transact directly with natural and legal persons with little power. In this respect it is inevitable that the companies operating in the global market, via e-commerce, should be prepared to face the rigidity of the consumer protection laws, taking precautions not only in relation to the quality regulations of the products and services offered, but also in respect to the commercial conditions offered.

For further information on this topic please contact Ricardo Barretto or Fabiana Regina Siviero at Barretto Ferreira, Kujawski, Brancher e Gonçalves – Sociedade de Advogados by telephone (+55 11 3066 5999) or by fax (+55 11 3167 4735) or by e-mail ([email protected] or [email protected]).