A foreign bunker supply company recently filed an arrest claim against a foreign shipowner before the Brazilian courts in order to:

  • arrest a vessel that was temporarily berthed at a Brazilian port; and
  • obtain an indemnity for an alleged unpaid bunker that had been supplied months earlier to the company that was chartering the vessel.

The bunker supply agreement provided for a foreign jurisdiction clause. Nonetheless, the lawsuit was filed in Brazil on the grounds that the vessel was scheduled to berth at a Brazilian ports before sailing to international waters.


First instance court ruling
As soon as the arrest lawsuit was filed at court, the first instance judge rendered an ex parte decision granting an order in limine (ie, an order to be heard before the main issue) for the arrest of the vessel as a guarantee for the bunker claim.

The judge stated that the requirements for the in limine order were met, as the plaintiff had reasonably demonstrated justifiable evidence for the claim and there was concern that the vessel could soon leave the Brazilian port to sail to an unknown destination, thus leaving the claimant without a guarantee to enforce the credit in Brazil.

The judge also commented that the arrest measure was a precautionary proceeding intended to secure a main lawsuit, in which the merits of the bunker claim would be discussed. In accordance with the regulations of the Civil Procedural Code, the main lawsuit must be filed by the arresting party before the same court within 30 days of the arrest.

Finally, following the provisions of the code, the judge ordered that the plaintiff, as a foreign company without assets in Brazil, present security at court for 10% of the values claimed, as a guarantee for court costs and loss of suit expenses in the event that the lawsuit was rejected or dismissed.

As soon as the master received the summoning order, the shipowner took immediate legal action to release the vessel. However, the first instance judge did not accept the request to review the preliminary decision before a formal defence was presented. This led the shipowner to present a protection and indemnity club letter of undertaking in order to guarantee the claim and secure the immediate release of the vessel, avoiding further costs associated with the detention.

The shipowner subsequently presented its defence in the arrest proceedings. The shipowner also presented a bill of review to the state court of appeals requesting the revocation of the arrest order (on the grounds that legal requirements had not been met), as well as the dismissal of the case.

As argued by the shipowner, the Civil Procedural Code expressly provides that the Brazilian courts have jurisdiction only if:

  • the defendant is a Brazilian company or an entity with an address or a representative in Brazil;
  • the obligation in question was to be performed in Brazil; or
  • the fact that gave rise to the claim arose from an act performed in Brazil.

In the present case, none of these criteria was met, thus leading to the conclusion that the Brazilian courts should not have jurisdiction for judging the claim.

In addition, the bunker supply agreement presented by the claimant expressly provided for a foreign jurisdiction clause and the claimant was able to pursue its credit claim before the correct forum.

Appellate court ruling
After the defence was presented by the shipowner, a decision was rendered ordering the dismissal of the proceedings in view of the lack of jurisdiction of the Brazilian courts. The judge released the shipowner from the burden of keeping the letter of undertaking and also requested that the claimant pay the loss of suit expenses.

The claimants appealed the decision. However, this was rejected by the Sao Paulo State Court of Appeals. The court recognised the lack of jurisdiction of the Brazilian courts over the claim and upheld the first instance decision by on the original grounds.

For further information on this topic please contact Godofredo Mendes Vianna at Law Offices Carl Kincaid by telephone (+55 21 2276 6200), fax (+55 21 2253 4259) or email ([email protected]).