The Rio de Janeiro State Court recently issued a ruling confirming the Brazilian courts' lack of jurisdiction to judge a claim brought by a foreign bunker supplier against a foreign shipowner and operator seeking arrest of the debtor's vessel while calling at a Brazilian port.

Facts

The dispute related to an alleged unpaid credit of bunker supplied in Singapore to a Liberian-flag vessel owned by a Greek shipowner and operated by a Switzerland-based company. The bunker agreement was entered into with the ship operator and the bunker delivery note was signed and stamped by the vessel's chief engineer.

After the credit due date had passed, the bunker supplier notified the shipowner, the ship manager and vessel's operator of the default in payment and subsequently engaged in an action to arrest the vessel, which was trading in Brazilian waters at the time.

While analysing the arrest request, the first-instance judge understood that the claim did not meet the legal requirements to establish Brazilian jurisdiction.

In fact, the judge promptly dismissed the claim based on the Brazilian courts' lack of jurisdiction, considering that:

  • the claimant was based in Portugal;
  • the defendants were based in Greece and Switzerland;
  • none of the parties had an office or address in Brazil;
  • the bunker agreement was entered into and performed in Singapore; and
  • such contract had no express provision establishing Brazil as a forum of choice.

This decision was appealed and recently upheld by the Rio de Janeiro Court of Appeals.

Decision

While court of appeal judgments are normally rendered collectively in panel sessions by a group of judges, the Procedural Code allows the reporting judge to render unilateral and monocratic decisions in some specific cases, including when the appellate decision is in line with precedents established by the superior courts or when the case does not fulfil basic procedural requirements.

In the case at hand, the reporting judge issued a monocratic decision rejecting the appeal on the grounds that the requirements for attracting Brazilian jurisdiction were not met. Such requirements are as follows:

  • the defendant must be a Brazilian company or an entity with an address or a representative in Brazil;
  • the obligation under discussion must be performed in Brazil; or
  • the act that gave rise to the claim must have occurred in Brazil.

The reporting judge also stated that, as opposed to the international arrest conventions, which were not ratified by Brazil, the 1926 Brussels Convention has no criteria for establishing jurisdiction. The judge also remarked that there was no contractual provision selecting the Brazilian courts and that the mere existence of a maritime agent providing services to the vessel in Brazil was insufficient to establish jurisdiction.

The reporting judge also observed that the legal criteria for establishing the jurisdiction of the Brazilian courts are flexible, provided that the claimant has no access to justice and cannot pursue the claim abroad. However, this did not apply to the case at hand, as the claimant had provided no proof that it could not lodge its claim before the correct forum abroad and eventually seek an arrest order that could be fulfilled by the Brazilian courts by means of a letter rogatory or enforcement of the foreign judgment.

The decision became final.

Comment

Considering that an arrest can be sought through an ex parte injunction, it is not rare to see claimants attempting to arrest a vessel in Brazil without meeting some basic legal requirements such as jurisdiction. While it is true that in most of these cases, the arrest is not granted, in some circumstances, the judges may find, in a preliminary and superficial analysis, that the claim is valid and grant an ex parte arrest.

This puts a heavy burden on the vessel's interests and can generate severe losses due to the interruption of the vessel's activities as well as unchain considerable cargo, insurers and charterer's claims.

Further, this may represent a significant risk for claimants in cases of wrongful arrest. If an arrest is initially granted and later overturned by the court, the shipowner may be entitled to seek indemnity, in the same proceedings, against the claimant for the losses sustained while the vessel remained arrested.

The decision sets an important precedent and should help to prevent ungrounded arrest claims, as it clarifies that it is paramount to carefully analyse all of the risks involving an arrest lawsuit in Brazil before taking any action in order to avoid unnecessary exposure.

For further information on this topic please contact Lucas Marques at Kincaid | Mendes Vianna Advogados by telephone (+55 21 2276 6200) or email (lucas@kincaid.com.br). The Kincaid |Mendes Vianna Advogados website can be accessed at www.kincaid.com.br.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.