This whole picture started changing with the new Brazilian Constitution dated 1988, which made the environment a public asset that must be preserved for present and future generations. The Constitution also allowed the Federal Government, as well as States and Municipalities to act and legislate simultaneously in the matter of environment, but attributing to the federal legislation the higher hierarchy of general rules that may be only supplemented by the rules made by the smaller political units of the Federation.

As a result, the nineties saw an increasing development of public actions and policies in respect of the environment all over the country. Federal, State and Municipal governments organised specific offices within the structure of Public Attorney Departments so as to deal with legal aspects of pollution — these are the Public Attorneys for the Environment, which soon began to play a very active role in all pollution incidents throughout the national territory. Furthermore, a number of administrative bodies had their previous structures largely improved and became progressively interconnected, forming a network of public entities dealing with offences against the environment (environmental bodies in federal, state and municipal levels). Last but not least, a very strict federal legislation has been enacted, supplemented by that of the States and municipalities.

II – LEGISLATION NOW IN FORCE

In this context, three important acts were enacted since 1998. These are: Law 9.605, dated 1998, dealing in general with penal and administrative sanctions for conducts
harmful to the environment; Decree 3.179 which regulated in detail Law 9.605; and Law 9.966 dated 2000 on prevention and control of pollution caused by oil or other hazardous or noxious substances in Brazilian territorial waters (the regulation of this Law by a Decree is still pending).

The main features of these three statutes are as follows:

• Pollution incidents may have legal consequences in three different spheres: penal, civil and administrative ones;

• As far as the penal sphere is concerned, in addition to punishment to those who wilfully or recklessly cause pollution (including, if the case, directors of companies), there may also be penal action against legal entities themselves whenever infractions are committed by decision of the entities’ legal representative or management corporate body in the benefit of the company. In this case, punishments against a legal entity may include fines, restriction of rights (suspension/prohibition of activities; or prohibition to enter into contract with public bodies or to obtain subsidies, tax exemptions, etc.) and compulsory services to the particular community affected by a pollution incident (paying for environmental projects or the maintenance of public areas such as hospitals, schools, etc.);

• In civil sphere the governing legal principle is that of polluter – payer, whereby civil liability is strict, deriving solely from the fact of pollution itself, regardless of considerations on fault. Furthermore, it is allowed the piercing of corporate veil so that one can reach the assets of companies’ shareholders (the American “disregard doctrine“) where the existence of a legal entity becomes an obstacle to full compensation of environmental damages;

• In administrative sphere the authorities have the power to impose a wide range of punishments which include fines that may reach up to R$ 50.000.000,00 for each separate infraction (before the Argentinean crisis this amounted to around US$ 25,000,000.00; at present, the crisis has caused this figure to be in the region of US$ 18,500,000.00) and the right to retain vessels which cause pollution incidents until proper security is given to the Brazilian authorities (with the exception of vessels covered by CLC/69, as these are already provided with a compulsory security certificate). Further, the imposition of fines is not subject to any scale between the amount of pollution and the amount of the fine; the penalty must be established by the Navy, after receiving the relevant assessment report from environmental authorities, on the basis of the extent of pollution, the nature of the area affected, particular circumstances of the case and the precedents in relation to the polluter;

• On account of Law 9.966 dated 2000 it is forbidden, as a rule, the dumping of oil, oily mixtures or any other hazardous or noxious substances, including garbage from ships in Brazilian waters, therein included the EEZ (and “dumping” in this legislation encompasses both intentional and unintentional disposal of substances). The few exceptions to this general rule depend first on previous authorisation of environmental authorities so as to be implemented;

• As a result, ports and terminals in Brazilian territory must build facilities to receive and dispose of any and every such substances. These facilities must be built within 3 years from the date when the relevant project is approved by environmental authorities;

• Law 9.966 dated 2000 contains the following further requirements concerning ships:

 Vessels must have a oil logbook according to the requirements of Marpol 73/78 where it must be recorded all operations relating to bunkers, oil as cargo, ballast and oily mixtures, including those that will be delivered in the future to proper facilities in ports and terminals for disposal purposes;

 Vessels carrying hazardous or noxious substances in bulk must have a cargo logbook according to Marpol 73/78 for the purpose of recording such operations as loading, unloading, transfer, ballasting and deballasting of tanks, clean up of tanks and disposal of any kind;

 Vessels carrying hazardous or noxious substances as breakbulk cargo must have a document which specifies and locates these cargoes on board;

• Pollution incidents must be immediately reported to the Brazilian Navy and environmental authorities (and also the National Petroleum Agency in the event of offshore activities).

III – FINAL COMMENTS
As set out above, pollution legislation in Brazil is now severe. This circumstance by itself must be a cause of a new posture on the part of Owners and P&I Clubs operating in Brazilian territorial waters in order to avoid the harsh legal consequences established in the law.

And the risk of facing problems is further increased by a practical circumstance, which is the fact that Brazilian authorities presently are still: 1) becoming acquainted with the new legal procedures; 2) establishing their legal standards in connection with the new regulations. Thus, problems have been occurring sometimes in respect of the correct application of procedural dispositions and also, particularly, concerning the assessment of fines. Concerning the latter, the authorities are still lacking objective criteria to assess the environmental damage, which has been a cause for rather different punishments from area to area, notwithstanding the similarity noted between or among many cases.

Therefore, strict compliance with the new rules on pollution is strongly advisable. Second, depending on the particular circumstances of each case, recourse to legal defence may not be entirely excluded where unlawful application of the legislation takes place. It must be remembered that the application of the law is in its early stages, and, consequently, it may be convenient to avoid unreasonable administrative or court precedents, which may affect negatively a number of cases in the future.

As of 11 th January 2003 Brazilian law underwent a major transformation in its civil and commercial legislation with the coming into force of the new Brazilian Civil Code.

Until then Brazilian legal tradition had always distinguished between civil and commercial legislations. This was reflected in the existence of two separate Codes, the Civil one dated 1916 and the old Commercial Code of 1850. The new Code, however, breaking away from this tradition, was designed to unify all general principles and rules in both civil and commercial areas.

On account of that the 1916 Civil Code is now revoked, the same applying to approximately half of the Commercial Code containing the general rules of commerce (its Part I), the dispositions of which are now completely replaced by the new set of rules of the new Civil Code.

The changes are obviously immense and affect many legal matters. Therefore, doubts will inevitably exist and it will be some time until legal doctrine and court precedents help in establishing the prevailing interpretation on controversial issues. Notwithstanding, in the meantime, the maritime community involved with the effective or potential application of the Brazilian law must comply with the new regulations in a safe manner. Thus, our purpose is to provide basic information on the fundamental changes concerning two specific topics of most interest to maritime community: contracts of sea carriage and time limits .

I - CONTRACTS OF SEA CARRIAGE

I.1. S cope of application . The new Civil Code contains a whole chapter dedicated to Contracts of Carriage (articles 730 to 756). It contains some general principles applicable to any kind of carriage and two separate sections on carriage of passengers and of cargo, respectively.

The dispositions contained in the new Code apply to any type of carriage (general cargo, containers, bulk carriage and multimodal transportation), and do not revoke any statute or international treaty on this subject, provided that the provisions of these are not in conflict with those of the Civil Code. In other words, in case of conflict the dispositions of the new Code shall prevail over those of specific statutes or treaties.

From a practical point of view, the most important consequence is that the Multimodal Transportation Act of 1996 remains in force and applies, since the Civil Code has only

two articles on this subject, basically repeating the broad principle already stated in the Multimodal Statute itself that carriers performing this type of contract are joint and severally liable for damages to or losses of cargo.

I.2. Cargo misdescription . One significant change has to do with cargo misdescription by cargo interests. While the new Code expressly states the general principle that cargo interests are responsible for proper and correct description of the goods that will be shipped, on the other hand it also establishes a very short term for the carrier to claim compensation from cargo interests in the case of cargo misdescription. This type of claim must be filed within 120 days and such time limit cannot be extended by any means. The rule is not entirely clear, but it seems to indicate that the 120 day period should count from cargo misdescription itself, i.e., normally the date when the bill of lading is issued.

This means that in the event of damages to a ship or other cargoes on board, or even pure economic losses (such as the delay to deliver other cargoes at destination), the carrier must bring the relevant action for compensation within that period of time, or, otherwise, the claim will be definitively time barred.

This very short legal term will certainly be a problem. Within such a period damages or losses often are not yet assessed in a final manner and sometimes technical investigations are not even completed so as to attribute the damage or loss to cargo misdescription.

We are of the opinion that the starting point of this legal period should be construed in some other manner. Perhaps counting from the date that the carrier becomes aware of cargo misdescription. Or at least from the date when the incident with the misdescribed cargo occurs. But until this aspect is further considered by our legal commentators and Brazilian Courts, it is advisable to try to finish all technical investigations and file the claim for compensation within 120 days from the date that the relevant bill of lading was issued. If the damages or losses are not yet quantified the action may be brought in this way, thus leaving quantification for a later stage.

I.3. Defences . Another point of interest is the defence available to the sea carriers under the Brazilian law.

Article 102 of the old Commercial Code (located in its first part) expressly limited the defences under the Brazilian law to two alternatives: fortuity/force majeure and inherent vice of cargo. Insufficiency/deficiency of packing was deemed equivalent to inherent vice.

This article is now revoked. But, surprisingly, the new Civil Code, in its dispositions on “Contract of Carriage” does not establish the defences allowed to carriers. This point is simply omitted.

As aforementioned, multimodal transportation is regulated by a specific statute, which supplements the Civil Code. This area will not be affected by this omission because the Multimodal Transportation Act has a provision listing the following circumstances as carrier's defences: a) fact or act that may be attributed to the shipper or cargo receiver, which caused the damage or loss; b) inadequacy of package, when this may be attributed to shippers; c) inherent vice of cargo; d) handling, loading, stowing or discharge carried out by the shipper, consignee or receiver, or their agents, which caused the damage or loss; e) fortuity or force majeure.

However, on the other hand, all non-multimodal transportations — all of them not regulated by supplementary statutes — are indeed within the “uncertainty zone” created by such absence of statutory provision in the Civil Code.

Thus, the point in respect of non-multimodal transportations will be to persuade the Courts that the new legal regime has not become stricter and that the defences must still contemplate at least the traditional alternatives of force majeure/fortuity, inherent vice and inadequacy of packing.

The argument for that will be the use of analogy, which is the first means in Brazilian law to sort out legal gaps. And the analogy with other statutes on contracts of carriage does demonstrate that those three defences are generally available to carriers. This can be seen in the two legal regimes that are closest to sea carriage, that is, the Multimodal Transportation Act aforementioned and the Brazilian Code of Aeronautics in its article 264 which exempts the carrier from liability if he proves: a) inherent vice of cargo; b) defective packing; c) act of war or armed conflict (which is a type of force majeure in our law), or; d) act of public authority in relation to cargo (again, another type of force majeure named by us factum principis ).

But we will have to wait and see how the Courts will react to the controversies that will certainly arise from the legal omission.

I.4. Protest. The new Civil Code has not changed the general principle that cargo damage or disappearance of goods at destination must be characterised by means of a proper remark by the terminal at the time of discharge. But it has introduced a new period for protest when the problem is not perceptible at first sight. According to the old rules, the receiver had 5 days to present this protest. But now the period has been extended to 10 days counting from delivery.

I.5. Liability. The Civil Code states that the carrier's liability is limited to the value of cargo appearing in the bill of lading (article 750). Therefore, apparently, any other losses such as warehousing costs and loss of profits would be excluded.

In spite of that, we have reservations on whether or not such a literal interpretation of the disposition will prevail. Brazilian law and jurisprudence are presently living a moment of extreme protection towards consumers of products and services. In this context various judgments on air carriage by our highest Court in the matter of federal law (Superior Tribunal of Justice) have even held that the Code for Protection of Consumers prohibits any type of limitation of liability to the detriment of consumers. In consequence, one can expect much debate on this question of limitation of liability before the Brazilian Courts.

However, one must bear in mind that most bills of lading have no declaration as to the cargo value. What happens then ? The Civil Code has no provision in this respect.

In such circumstance we understand that the principles existing under the old Civil Code are still in operation. Therefore, regarding multimodal transportation , there is a legal limitation in the Multimodal Transportation Act equivalent to 666.67 SDR per package/unit or 2 SDR per kilo of gross weight, whichever is higher. Concerning non-multimodal transportation the Courts have been accepting “per package” limitation clauses inserted in the bills of lading, provided that the resulting compensation is not deemed “derisive” — in which case they are held tantamount to illegal non-compensation clauses, null and void of effect. “Derisive” is clearly an “indeterminate concept” as it is termed under Brazilian law and this broad notion has the deliberate purpose of leaving freedom for the Courts to establish, in each particular case, the amount which is acceptable or not. Considering the existing precedents from the S.T.J., limitations up to 8%-10% of cargo value have been considered “derisive”.

II - TIME LIMITS

II.1. Time extension . Firstly, if in the past it was debatable whether or not parties might extend time limits by mutual agreement, the new Code has definitely put an end to any controversy. In accordance with article 192 time limits established by law cannot be changed by agreement of the parties involved.

As a result, if parties wish to prevent time barring, the usual way to achieve this is by means of a judicial protest, however, with one important limitation: unlike the old Civil Code, the new one limits the number of time extensions to one only .

This restriction of time to pursue rights under the Brazilian law is clearly double-edged towards the shipowners. It can be to owners' advantage in relation to disputes where they are in the position of defendants to actions (for instance, cargo claims). But, conversely, the provision puts them at a disadvantage in case they are in the position of plaintiffs (freight and demurrage disputes, recovery actions, etc.). The shorter the particular time period, the greater the advantage or disadvantage involved, respectively.

II.2. Particular time limits. The new Civil Code has introduced several significant changes in the particular time limits that apply to different types of disputes in maritime law.

II.2.a. Personal Injuries. The time limit concerning personal injuries is traditionally subject, in our law, to the greatest period of all. While in the old Code this period was 20 years, the new Civil Code has reduced it to a half, that is, 10 years. Although this may still be greater than the time limits existing in other jurisdictions, the reduction was indeed substantial. Chiefly the P&I Clubs will benefit from this change as they were obliged to keep records and documents during two decades regarding accidents leading to personal injuries, so as to be in a position to oppose any claims from the victims or their next-of-kin, which not rarely are brought just a few months or even days before the 20 years deadline.

II.2.b. Cargo claims. The Civil Code does not contain any provision concerning time limit for cargo claims arising from contracts of carriage. But a specific statute concerning loading/discharge operations in Brazilian ports (Decree-Law no. 116 of 1967) supplements the new Civil Code, as it is not incompatible with the new regime. And this statute establishes that cargo claims are subject to one-year time bar. Thus, in principle, the situation seems unaltered.

However, it must be noted that irrespective of the regime contained in Brazilian civil legislation , there has been instead a tendency by the Superior Tribunal of Justice to apply the 5 years time limit of the Code of Protection to Consumers to air transportation. Recently, in one precedent, the same understanding was extended to a cargo dispute resulting from a contract of sea carriage . But this was a first precedent, from one of the two Chambers of the S.T.J. dealing with private law, taken by majority of votes only (3 x 2) and, anyway, a final appeal against the decision is still pending. Until we have more precedents repeating the same position so that it becomes the prevailing interpretation of our federal law on the matter (Brazil, be it remembered, is not a judge-made law system), it must be understood that the one year time limit still applies.

II.2.c. Other contractual disputes. The part of the Commercial Code that was revoked contained a number of dispositions on time limits for maritime claims, such as freight, demurrage, collisions, etc. The new Civil Code, however, makes no reference to maritime disputes at all. Instead, all those claims seem to fall under the general pattern of “claims for civil compensation” referred to in article 206, § 3, item V, and the applicable time limit is now three years.

II.3. Rules of transition. Article 2.028 of the new Civil Code sets out an important rule of transition between the old system of time limits and the new one. The old time limits apply when: a) these were reduced by the new Civil Code, and, additionally; b) in January 2003 (date when the Civil Code came into force) more than half of the particular time limit under the old regime had already elapsed. Otherwise, the new time limits apply to all cases.

In view of the coming into force of the new Civil Code, old procedures, strategies and legal schemes must be readjusted accordingly so as to comply with the new rules. This broad view intends to assist shipowners, charterers, P&I Clubs and foreign maritime lawyers to be on the safe side when making their decisions. Future issues of this newsletter will update this matter as developments come up, mainly from the Brazilian Courts.

It is undisputed that evaluation of environmental damage is an extremely complex area. This is clearly reflected in the varied and often controversial material available on the matter, from studies of legal principles to courts precedents on actual pollution cases. Brazil is no exception to this rule.

Prior to the 1980's, Brazilian legislation on pollution was neither extensive nor severe. As far as marine pollution caused by ships was concerned, sanctions against polluters were limited to administrative fines imposed by the Naval authorities through local Port Captaincies. Public actions in the civil sphere were extremely rare. This was due to the lack of specific statutes and of an administrative structure to deal with the problem.

This picture has changed radically since then. The 1990's and early 2000's brought abundant and very aggressive rules (in the ambit of penal, civil and administrative law) in respect of pollution in general and also pollution caused specifically by vessels. At the same time, environmental bodies, as well as Prosecutor Offices in Federal and State spheres, greatly improved their operational structures. As a result, the value of administrative fines escalated and civil actions by Public Prosecutors became the norm.

As a consequence, the problem of quantification of environmental damages became acute. Against this background, the Environmental Body for the State of São Paulo, CETESB, came up with a formula for quantifying environmental damages. Given the good technical reputation of this body and also the leading role of São Paulo in the Brazilian economy (it was also home to the largest Brazilian port, Santos), this formula rapidly spread from its cradle in the administrative sphere and started being used in court cases.

However, as is often the case with mathematic al formulae, the CETESB formula failed to provide a fair assessment of all circumstances involved in pollution cases, both aggravating and mitigating. To make matters worse, its conceptual flaws also caused the resulting values to increase exponentially and absurdly; For example, even when starting from zero pollution (but with the input of other variables at low figures) the formula yields a result of a minimum of over US$ 31,000. If there is no pollution, how can there be any "damage" to compensate for ?

From the very beginning Brazilian lawyers acting for Owners and P&I Clubs have waged a fierce court battle against the application of CETESB's formula, trying to draw the Courts' attention to its flaws and inconsistencies. But the results during more than a decade were unquestionably negative. While compensation figures were in fact eventually reduced in a number of cases on account of defence arguments against the formula these were small claims and the reductions in compensation amounts were granted by the Courts intuitively, because the values initially found seemed excessive, but without any formal criticism of the formula itself. These reductions were seen instead as small corrections required by the particular circumstances of a few cases, leaving intact, or even confirming the validity of, CETESB's formula as a safe criterion for assessing the quantum of environmental damage.

However, this position now seems to have been drastically changed in what has become the most important precedent against CETESB's formula. In a case handled by our firm, involving an oil spill during fuel supply operations, the owners calculated the spill at 30 litres (compared with 273 litres by the Federal Prosecutor Office's assessments). A civil action for compensation for environmental damage ensued and was filed before the 1st Federal Court of Santos. A technical investigation by a court expert was held with a view to quantifying the damage to the environment. Application of the CETESB's formula resulted in the astronomical figure of US$ 912,640,962.56 !

This assessment was strongly opposed and the first instance Court requested a second survey by a different expert. The aim of this second investigation was to consider specifically the criticisms against the CETESB formula.
The results of the second survey were decisively positive. First, the expert recommended a reduction in quantum of the compensation to a symbolic amount - US$ 1.00. In reaching this conclusion the expert took into consideration the small amount of the spill and other factors such as (i) the Member's immediate and effective reaction fighting the oil spill and (ii) the hydrodynamic conditions of the Santos estuary which is capable of supporting small spills without significant alterations to its natural status. In figurative but particularly expressive language the court expert said:

"should it be possible to insert on a ruler 100 centimetres long, in an escalating manner, the maximum amount being the valuation previously proposed (around 1 billion U.S. dollars), it is correct to affirm that the amount to be compensated by the defendant in the particular episode should be far closer to the zero on the ruler than to the end of the scale".1

Additionally, the expert - himself a biologist from CETESB - admitted that even in the administrative sphere CETESB has now ceased to use the formula in question, as it is no longer considered an adequate instrument to evaluate damages arising from oil spills: "CETESB's technical body is firmly convinced that the limitations and technical inconsistencies" (says the report about the formula) "make it difficult to support it and consequently to continue using it"2 .

It is true that these are considerations set out not in a judgment, but, so far, only in a survey report which has yet to be examined by the First Instance Court. However, it will be very difficult for the second survey report not to exert enormous influence on the judge's mind when the time comes to render judgment in the case. And, more than this, it was decidedly good news to have a public mea culpa from CETESB, after all these years of unfair use of such a long-criticised formula. It is expected that the effects of this technical investigation will now slowly spread to other Courts in and out of Santos until the application of CETESB's formula is definitively banished from court practice. The negative experience of this formula will then allow room for other criteria of assessment of environmental damage that may be more just. Hopefully, this is what the future holds, sooner rather than later.

1.Report, court file, folio 454. This conclusion immediately brings to mind what happened in the well-known precedent of the "PATMOS" case which was dealt with by the Italian Courts. In a sense, it must be noted that the Brazilian case went even farther than the Italian one. In Italy, likewise, there were two technical reports and the experts stated that where it was not possible to precisely appraise the damages they would supply the Court with the information necessary to reach a just evaluation. Because of that there was a widespread criticism that the conclusions reached by the said specialists were vague. In Brazil, on the contrary, the expert not only recognised the existing difficulties, but was courageous enough to recommend a symbolic figure, as this was found adequate in the circumstances.
2. Report, court file, folio 454.