by Geovanne Lucas da Silva Ribeiro
The alarming economic and social scenario caused by the Covid-19 pandemic is public knowledge, justifying the necessary joint efforts of the Federal Government, states, municipalities and society in general to mitigate the effects of the current health crisis, without losing sight of the economic crisis that is approaching.
Specifically regarding the measures being adopted by the Government, there is concern about the effects of the various restrictions that directly and negatively affect business activity, such as social distancing measures and recent orders to suspend works and services and limit the operation of commercial establishments.
As a result of the weakening of business activity, major challenges arise for consumer contracts, whether due to the substantial change in the factual circumstances that motivated the decision to contract and the price structure, or due to the influence of external factors, such as the aforementioned government acts, which end up preventing or hindering full or partial performance of the contract or reducing the usefulness of the good or service.
This circumstance aggravates Brazil’s already intricate challenge of reconciling the survival and development of companies with consumer protection, equally important missions in the eyes of the 1988 Federal Constitution.
On the one hand, it is well known that the Brazilian legal system presumes that consumers are the weaker party in relation to suppliers, justifying the possibility of State intervention in the relationships between them. This phenomenon, known as “contractual dirigisme”, underpins the high rate of judicial revision of consumer contracts by state courts across Brazil.
On the other hand, the Federal Constitution’s emphasis on free enterprise reflects the recognition that the company, as a fundamental institution in the capitalist context, encompasses the interests of multiple relevant entities and sectors, categorized by modern management theory as “external stakeholders”, including suppliers, workers, the State as tax authority, members of the community where the company is located and, of course, consumers themselves.
Recognizing that post-modern rationality has elevated the preservation of companies to the level of public interest, it is certain that, in times of Covid-19, the revision of consumer contracts requires twice the caution and sensitivity on the part of administrative and judicial bodies, at the risk of worsening business sustainability and amplifying the imminent economic crisis.
Take, for example, the tourism sector, probably the one most quickly affected by the effects of the pandemic. Between January and November 2019, the tourism activity index in Brazil grew 2.6%, according to the Monthly Services Survey (PMS) of the Brazilian Institute of Geography and Statistics (IBGE). However, due to airport closures, flight cancellations and the suspension of activities and travel in many states, the business sustainability of hotels and travel agencies was drastically compromised.
To show the impact of the crisis in the sector on the country’s economy, tourism accounted for approximately 8% of Gross Domestic Product (GDP) and 6.9 million jobs — 7.5% of all jobs generated in the country in 2018.
In response to the growing number of consumer disputes in the context of the pandemic, the National Consumer Secretariat (SENACON), the Consumer Protection and Defense Foundations (PROCONs) and other bodies of the National Consumer Protection System are promoting the use of self-composition methods such as negotiation and mediation, with the aim of preserving contracts and mitigating damage to business activity.
In this regard, there is a major government campaign encouraging companies to register on the “consumidor.gov.br” platform — an electronic mediation channel that allows direct dialogue between consumers and companies in search of alternative, consensual solutions to consumer disputes.
It is a free public service encouraging settlements which, if properly used by companies and consumers, can effectively reduce the burdens of litigation.
Another relevant fact is that the Ministry of Justice and Public Security (MJSP), the Federal Prosecution Service (MPF) and the Public Prosecutor’s Office of the Federal District and Territories (MPDFT) have already stated that Covid-19 qualifies as a “force majeure” event, capable of excluding or mitigating the supplier’s liability under article 393 of the Civil Code.
The Consumer Protection Code, based on the theory of business risk, established strict civil liability for suppliers as a general rule. Although force majeure is not expressly included in the list of cases in article 14 §3 of the Consumer Protection Code, Brazilian case law has established that this defense applies to consumer contracts.
In this regard, in the judgment of REsp No. 120,647-SP, Justice Eduardo Ribeiro of the Superior Court of Justice noted that “the fact that art. 14, § 3 of the Consumer Protection Code does not refer to acts of God and force majeure when listing the grounds exempting the service provider from liability does not mean that they cannot be invoked within the system it established.”
Indeed, in the case of a contract materially affected by Covid-19, if it is shown that the events are unrelated to the supplier’s activity and extraneous to the product or service, it will, as a rule, constitute force majeure.
Starting from the premise that the effects of Covid-19 are beyond the parties’ control, and mindful of the need to mitigate losses to business activity, SENACON and the state PROCONs have been advising consumers and suppliers to (i) encourage amending contracts by delivering the product or providing the service in an alternative manner, at no additional cost; (ii) ensure that, where there is no other option, consumers can cancel the product or service, with partial or full refund of the amounts due, but with the possibility of the supplier extending the payment period; and (iii) adopt refund systems that preserve consumers’ rights without economically compromising business activity.
For a clearer picture, some of the recent measures adopted by bodies linked to the National Consumer Protection System are summarized below:
- a) Air and tourism services
On 03/20/2020, a Conduct Adjustment Agreement (TAC) was signed by the Ministry of Justice and Public Security (MJSP), the Federal Prosecution Service (MPF) and the Public Prosecutor’s Office of the Federal District and Territories (MPDFT) with the Brazilian Association of Airlines (Abear), valid until 03/19/2021 and extendable if the national epidemic or global pandemic scenario persists, containing rules on the cancellation of domestic and international flights due to the Covid-19 pandemic.
It was agreed that flights operated between 03/01/2020 and 06/30/2020 could be rebooked once, keeping the same origin and destination and the same season (high or low), for any date within the ticket’s validity period, without charging a rebooking fee or fare difference;
It was established that tickets for domestic and international flights operated between 03/01/2020 and 06/30/2020 could be canceled without fees or penalties, by conversion into a credit for use with the airline or partner companies, valid for 1 year.
If the consumer requests a refund, the airlines that signed the TAC may apply the contractual penalties and fees resulting from the cancellation, and the residual amount will be refunded within 12 months.
Finally, it was agreed that airlines are not responsible for providing material assistance to consumers (provided for in Section III of Anac Resolution No. 400/2016) in the case of passengers affected by flight delays or cancellations resulting from border closures that prevent airlines from operating flights to the location affected by Covid-19.
- b) Automotive sector
In a note published on 03/19/2020, SENACON reminded companies of the need to continue reporting recall campaigns to the Consumer Protection and Defense Department (DPDC), as required by Ordinance No. 618/2019, which provides in its article 3 that “a supplier that, after placing the product or service on the consumer market, becomes aware of its harmfulness or dangerousness must report the fact within two business days”.
In view of social distancing measures, it was also recommended that the possibility of presenting new recall campaigns in two stages and readjusting old campaigns be considered, all with the aim of avoiding encouraging consumers to leave home while the pandemic lasts.
- c) Educational services
In a Technical Note released on 03/25/2020, SENACON recommended that consumers avoid requesting tuition discounts so as not to disrupt schools that had already made their annual plans — which could even affect the payment of teachers’ salaries, rent and other costs and expenses.
It also advised consumer protection entities to seek conciliation between suppliers and consumers in the education market so that both can reach an understanding to ensure the provision of services (offering online tools and/or making up classes, among others), without litigation over tuition discount requests, enabling the contract to be preserved.
Subsequently, on 03/27/2020, a Conduct Adjustment Agreement (TAC) was signed by the National Consumer Secretariat of the Ministry of Justice and Public Security in partnership with the Federal Prosecution Service, with representatives of the agencies representing exchange program service providers, valid until 03/10/2021 and extendable if the national or global epidemic scenario persists;
They agreed on the possibility of rebooking exchange packages, at no additional cost to the consumer, once, for a period of 24 months from the original date, subject to the other conditions originally agreed;
In the event of cancellation at the consumer’s initiative, the exchange agency was allowed to retain, as remuneration, an agency fee of 15% plus a termination penalty of 5% to 35%, depending on the student’s departure date, with the residual amount to be refunded within nine months from the date of the cancellation request.
In general terms, the main recommendation of public bodies linked to the Executive Branch is that companies offer flexibility and the possibility of negotiation to consumers and, on the other hand, that consumers be encouraged to opt to amend the contract through postponement, change or conversion of amounts into credits for later use with the contracted company.
There is legitimate concern among the authorities about the need to avoid mass cancellations and refund requests — which would cause a real widespread collapse in companies’ cash flow.
It is also always advisable for companies to provide clear and accurate information to consumers, especially regarding any impossibility of performing the contract on the originally agreed terms, without neglecting the duty to mitigate any damage, with the principle of objective good faith — the source of the duties of information and loyalty so dear to civil and consumer legislation — prevailing in any case.
Beyond legislative measures, dealing with the impasses arising from Covid-19 requires administrative and judicial bodies, when faced with claims for revision or termination of such contracts, to safeguard the well-being of consumers in their particular condition, but with twice the caution regarding the preservation of the supplier company’s economic and financial health.
This entails the necessary policing and reprimand of opportunistic behavior by consumers. The role of administrative and judicial bodies becomes even more important in the current context, both because of the increase in revision claims already recorded and because of the potential generation of negative externalities for business activity and the duty of public authorities to foresee and mitigate them (articles 20 and 21 of the Law of Introduction to the Norms of Brazilian Law).
These authorities are challenged to reach fair and economically rational solutions — which will require careful work in applying the rules and adopting objective parameters for contract revision, especially given the Consumer Protection Code’s methodological choice of abstract concepts that, due to their degree of abstraction, entrust the decision-maker with a heavy interpretive burden, such as expressions like “excessively burdensome” (art. 6, V), “manifestly excessive” (art. 39, V) and “exaggerated disadvantage” (art. 51, IV). The same caution will be required in applying procedural institutions such as the reversal of the burden of proof against the supplier.
As can be concluded, given the delicate economic context created by Covid-19, the response to consumer disputes will require even more effective solutions and, as far as possible, less tied to the dogma of the vulnerable consumer and the all-powerful supplier. The revision of consumer contracts should take into account not only regulatory paradigms but also the economic externalities of Covid-19 for business activity as a whole. After all, in times of pandemic, companies’ financial crises no longer suggest mismanagement, but courage.
Article originally published on the Consumidor RS portal (in Portuguese), on 04.03.2020.
