We now take a close look at Brazil where we spoke to Godofredo Mendes Vianna who is managing partner of Kincaid Mendes Vianna Advogados, a leading Brazilian law firm established in Rio de Janeiro in 1932. He joined the firm in 1987 and became a partner in 1993. Godofredo has longstanding experience in litigation and arbitration, with emphasis on shipping and international trade matters. He is recognized by the most accredited international publications such as Chambers and Partners, Legal 500, Who’s Who and Who Thought Leaders as Leading Lawyer in his field. Godofredo is the Chair of the Maritime and Port Law Committee of the Rio de Janeiro Bar Association and Co-Chair of the Transport and Maritime Law Committee of the International Bar Association – IBA.
1) What is the current situation and reality for the people of Brazil in terms of health and safety?
As of July 22, 2020, official information from the Ministry of Health shows that Brazil has had 2.159.654 confirmed cases of COVID-19 from which 1.465.970 has been recovered and 612.197 are still being monitored. Additionally, the Ministry of Health has accounted for 41.008 new cases countrywide.
Due to the number of cases and the commitment of Brazilian researchers, Brazil was indicated as the ideal place to test the new vaccines against COVID-19. Thus, some companies have started testing vaccines.
As a federated country, Brazil has 26 states with autonomy to establish their own measures to contain the pandemic as well as to establish a plan for the return of activities, as the virus has spread differently. The Federal government and Federal Agencies have also passed laws and regulations to be adopted in the whole country. For instance, back in March it was determined the closure of all non-essential activities and commerce, which contributed to an increase in social distancing.
Since June, the number of new cases in large cities such as Rio de Janeiro and Sao Paulo has been decreasing, which has also led to a decrease in the occupancy rate of hospital beds. Thus, by the end of June and beginning of July, several States and Cities have initiated plans to gradually decrease the restrictions by establishing steps for the return of commercial activities in the light of WHO recommendations.
2) How has Covid-19 affected the already tense political situation in Brazil and how hard has the Brazilian economy been hit by both?
Regarding the political situation, the executive power in Brazil is divided at the Federal, State and Municipal levels, so, due to this decentralization and the divergence of political opinions, there were some conflicts between authorities in the Federal and State levels on how to handle the Covid-19.
In this scenario, the majority of the States decided to take a more conservative approach, which led to quarantines and lockdowns as well as the creation of field hospitals, purchase of respirators, and the adoption of the general measures indicated by the WHO.
The federal government, for its part, has been trying to find ways to mitigate the economic impact of these measures by signing acts, decrees and laws on several areas whose main changes can be pointed out below:
Financial Aid: On April 2020, the Economy Minister and the Congress enacted a federal law for a monthly financial aid in the amount of BRL 600,00 for informal workers affected by the pandemic. By July over 100 billion Reais were spent in the assistance of 70 million people.
Labor: Specific legislation makes the employer responsible for taking protective measures to ensure the safety of its workers in the workplace, e.g. providing masks, hand sanitizers etc. Additionally, is has become easier and less bureaucratic for employers to implement teleworking, grant collective vacations, readjust wages and working journey, and suspension of work contracts.
Taxes: Payments of several taxes such as Social Security Contribution and Federal Welfare Tax (PIS and COFINS) has been postponed. Social charges of the so-called “system s” levied on the payroll were reduced by 50%. Financial Transaction Tax (IOF) were reduced to zero in several credit transactions contracts such as loans or cash advances.
Corporate: The National Department of Business Registration and Integration has enacted regulations to regulate remote participation and voting of shareholders in corporate meetings. Additionally, companies were allowed to postpone registration of its corporate acts until the Board of Trade are back in operation. In relation to the Corporations, the term of the administrators was extended automatically, and Boards were given powers to deliberate ad referendum for matters that are urgent and emergencies.
Overall, Brazil is the world’s 9th largest economy and the strongest one of Latin America. According to the World Bank, GPD increased 1,14% in 2019, against 1,32% in 2018. The Central Bank of Brazil has estimated the economy to contract 6,4% this year, but the outlook seems to be improving, according to Reuters. Additionally, the central bank’s target for 2020 is 4% inflation, for 2021 it is 3.75% and for 2022 it is 3.5%, with an acceptable margin of 1.5 percentage points up or down in both cases.
3) how has Covid-19 impacted and continues to impact the shipping industry in Brazil, i.e. for Brazil shipowners and for Brazilian ports and terminals?
Impacts should be felt in the maritime industry as a whole, such as in maritime trade, in the financing of vessels, in construction and repair contracts, among others. Due to its essential role, on March 20, the National Waterway Transportation Agency (ANTAQ) has clarified that all public and delegated port facilities remain in operation, as well as interstate and international waterway transportation activities.
Regarding cruise ships, the National Commission of Port Authorities – CONAPORTOS issued guidance to public entities in organized ports and port facilities for immediate suspension of new boarding on cruise ships; as well as determined restrictions to passengers and crewmember disembark on an international route.
In connection with the offshore marine activities, Brazilian authorities together with the O&G Sector and Petrobras issued directives/protocol with several guidelines for the crewing of OSV vessels and platforms, being the most relevant the quarantine for seafarers before embarking, with relevant impact on costs for the contractors.
Nevertheless, according to Reuters, Brazil has increased crude exports to Asia in the first half of 2020 as global rives make record cuts. Asia imported an average of 1.07 million barrels per day of oil from Brazil in the first half of the year. Brazil then has boosted total output to a record 2.97 million bpd so far this year, up from 2.6 million bpd in the same period of 2019. Thus, as stated by Oil price Magazine, the impact of Covid-19 on the petroleum industry of Brazil has not been as severe as anticipated which, coupled with an unexpected spike in demand for Brazilian oil from China, might blunt the economic fallout from the pandemic.
4) As a renown and leading P&I correspondent, do you see a pattern or trend in claims which are triggered by the Covid-19 situation?
It is not yet fully possible to see the impacts that these cancellations will have. This is because, as a rule, pursuant the Brazilian Consumer Code, cancelling or changing travel dates would entitle the passenger to a full refund. However, Provisional Measure no. 948/2020 issued in April assured tourism companies the right not to refund the tickets and reservations as long as they reschedule a date or make the credit available for the customer to use in another product or service. However, as a temporary measure, the extent of the rights of the parties involved is not yet clear.
Moreover, in respect to claims involving liners, we have not yet seen a considerable change in Courts. Usually, cargo claims are not brought to Court straight away. Most Courts have suspended all in loco activities and had all deadlines suspended for several months. We believe that claims related to demurrage or other costs caused to delays are likely to increase, but impacts will be easier evaluated after some months.
In relation to claims directly related to COVID-19, we have noticed an increase in claims discussing contractual rebalance and force majeure. Many companies are also suffering strongly from the crisis and many have requested judicial recovery or filed for bankruptcy.
Godofredo Mendes Vianna
Managing Partner – Kincaid / Mendes Vianna Advogados