6/25/2020
In the last months, the commercial scenario has faced changes with the occurrence of the COVID-19 pandemic and the measures of containment established by the public authorities. L.O. Baptista arbitration team is closely following the repercussions of the new scenario, both in arbitration and in the judiciary, considering the rise in revision and extinction of contracts related demands in virtue of the effects of the pandemic in various economic sectors.
Even with the growth of arbitration as a form of dispute resolution, the judiciary system still holds important decisions that can influence arbitrators and lawyers. Due to the unprecedented outcomes of the pandemic in various sectors, requests for urgent/injunctive relief are common, and frequently occur as a prior step for the opening of arbitral proceedings, possibly resulting in decisions that will directly affect the argumentation and claims of the parties in the dispute.
Although the construction of a “pandemic jurisprudence” is still underway, it is possible to identify a certain pattern in the decisions ruled by the state judges.
In the cases analyzed by the L.O. Baptista arbitration team[1], it can be observed some caution by the state courts in the intervention on private legal affairs signed freely between the parties. It is not enough to claim unpredictability of the effects of the pandemic for the parties to alleviate their contractual obligations. It is necessary to prove the connection between the pandemic and its direct effect in the object of the contract, among other requirements.
In the scope of the Chambers of Corporate Law of the São Paulo State Court, it has been concluded that requests for the suspension of judicial reorganization plans must be accompanied by actual proof that the incapacity of fulfilling obligations comes from the pandemic. In the cases where previous problems with cash flow of the claimant was observed, a suspension or partial reduction of the payments due were not allowed[2].
The requests for revision of commercial tenancies has also become increasingly frequent since the onset of the protection measures taken by the Government, that established the closure of non-essential services, including shops located in streets and in shopping centers. The São Paulo State Court (TJ-SP), when deciding a case in which the tenant demanded the total suspension of the payment of rent[3], prioritized the analysis of the specific case above the possibility of hypothetical damage. Although the judge considered the pandemic as an absolutely unpredictable event, it was understood that the generalization of the claim for suspension of rent payments would result in the collapse of the rental company, to the detriment of all. Combined with an analysis of the substantial effects of the pandemic in the contract between the parties, the judge analyzed the 60% discount given on rent payments previously agreed between the parties, concluding that this was a sufficient discount for the adaptation of the contract to the circumstances of the pandemic.
Sales contracts are also the subject of revisional demands. In a decision by the TJ-SP[4], the temporary suspension of payment of the contracted installments was dismissed. In this case, the buyer, a sports court rental company, argued that the suspension of its activities due to social isolation placed it in a position of financial impossibility to fulfill its contractual obligations. In his decision, the judge stated that it was impossible for the judiciary to interfere in the contract between the parties due to the mere generic allegation of hypothetical damage, without presenting documentary evidence of force majeure and its effect on the contractual relationship.
In cases involving relationships between individuals and legal entities, this conservative understanding remains. In a case judged by the Rio de Janeiro State Court (TJ-RJ) [5], in which the individual contracted a real estate loan with a bank, the judge did not suspend payments, as he understood that without proof of the effects of the pandemic in the particular case, the allegation of financial difficulty is not enough to alter a loan taken without any defect.
It is noticed that most state courts understand that COVID-19, by itself, does not authorize intervention in private contracts, being mandatory to tangibly prove that the pandemic seriously hinders or objectively prevents the fulfillment of contractual obligations.
L.O. Baptista arbitration team is monitoring all court decisions and their consequences for arbitration procedures related to the effects of the pandemic, and is available to assist their clients in adopting the best strategy for their business, considering the new perspectives of contractual renegotiation, which faces constant changes with the new global reality.
Coauthors: Patricia Albuquerque Pimentel and Isabela Diniz Gonçalves Gualtieri
[1] In addition to the cases referred to in the text, see also (i) Agravo de Instrumento nº 2073861-87.2020.8.26.0000, 1ª Câmara Reservada de Direito Empresarial, 25.05.20; TJSP; (ii) Agravo de Instrumento nº 2090533-73.2020.8.26.0000, 15ª Câmara de Direito Privado, 21.05.20; TJSP; (iii) Agravo de Instrumento nº 2090679-17.2020.8.26.0000, 22ª Câmara de Direito Privado, 13.05.20; TJSP; e (iv) Agravo de Instrumento nº 2062931-10.2020.8.26.0000, 21ª Câmara de Direito Privado, 05.05.20.
[2] TJSP; Agravo de Instrumento nº 2060570-20.2020.8.26.0000, 2ª Câmara Reservada de Direito Empresarial, 12.05.20.
[3] TJSP; Agravo de Instrumento nº 2085152-84.2020.8.26.0000, 26º Câmara de Direito Privado, 22.05.20.
[4] TJSP; Agravo de Instrumento nº 074659-48.2020.8.26.0000, 3ª Câmara de Direito Privado, 19.05.20.
[5] TJRJ; Agravo de Instrumento 0025089-25.2020.8.19.0000, Ilha do Governador 3º Vara Cível, 26.05.20.
