The provision of air services in a globalised world: jurisdiction, governing law and alternative dispute resolutions method

Neil Montgomery[1]

Montgomery & Associados, São Paulo

Neil.montgomery@montgomery.adv.br

Larissa Paganelli Torelli

Montgomery & Associados, São Paulo

Larissa.torelli@montgomery.adv.br

In pre-Coronavirus pandemic days, global trade and international air services grew vigorously. In such times, Brazilians were avid consumers of international travel, which led to the number of foreign air carriers operating in Brazil increasing significantly in the last decade. Moreover, the expansion of domestic and cross-border e-commerce in Brazil, accelerated by the Covid-19 pandemic, has expanded the operation of large foreign players in the Brazilian market[2], thereby also fostering the transportation of cargo, whether by air or land.

In this context, the question is whether Brazilian law is prepared to regulate and govern these new social and economic movements, seeking to bring greater legal certainty, less bureaucracy and, in turn, better protection to consumers, thus encouraging enhanced investment and ensuring that the quality of services provided to Brazilian consumers is offered at the same level as that provided abroad.

Further, if conflicts arise during or after the purchase of airline tickets or products through electronic or physical means hosted abroad, could Brazilian consumers resort to consumer protection agencies in Brazil (known as ‘PROCONs’) and would Brazilian courts have jurisdiction to rule on such disputes? Would Brazilian or foreign law govern the relationship with foreign air carriers?

To answer such questions, the most important element is to establish whether the service or product acquired will be provided or delivered in Brazil.

If the answer is ‘yes’, then the air carrier or supplier of products will mostly likely be subject to Brazilian law, mainly air transportation norms contained in international air transportation treaties ratified by Brazil, as well as the Brazilian Consumer Protection Code (‘BCPC’).

However, if the answer is ‘no’, ie, even when a Brazilian is a resident outside Brazil/uses a website hosted abroad or intends to obtain services or products also to be performed/delivered abroad, the Introductory Law to the Brazilian Legal System[3] (‘LINDB’) and the Brazilian Code of Civil Procedure[4] (‘BCCP’) would provide a different answer, having regarded the transaction as being governed by the law of the country where the same was closed or where it must be performed (as per Article 9 of the LINDB). However, disputes arising in respect of the same should also be heard by the courts of the jurisdiction where the facts occurred (as per Article 53 of the BCCP). Further, the Brazilian Civil Code[5] (‘BCC’) also provides in Article 1.137 that ‘the foreign company authorized to operate will be subject to Brazilian laws and courts, as to the acts or operations practiced in Brazil’.

It seems logical that international transactions be governed either by the law of the country where they were closed (ie, where the contract was formed) or where they have to be performed, otherwise, the supplier would be subject to countless different rules depending on each consumer’s country of residence, thereby having to adapt its operation to the domestic law of each customer. This would inevitably make the business unfeasible and generate higher costs and legal uncertainty.

In this regard, there are precedents from Brazilian courts determining that the regulation of services offered and provided abroad must be governed by the domestic laws of the place the service was rendered and any disputes arising in connection therewith should be ruled upon by the courts of such country as the decisions partially described below demonstrate:

‘(…)

When reviewing the records, one can ascertain that the Plaintiff purchased two tickets, one for an international flight - Brazil-Argentina - and another only for flying in the neighboring country, the same being an exclusive flight within Argentina, between the cities of Buenos Aires-Neuquén.

The flight on which the Plaintiff had problems was the flight performed in Argentine territory, involving the cities of Buenos Aires and Neuquén, it not being an international flight, but a domestic flight performed only in a foreign territory.

Despite the Plaintiff’s address being Brazilian, Brazilian jurisdiction is limited in cases where the same is international, that is why a with prejudice judgment in the case at hand would be incongruous with reality, since the appropriate reparation of the facts described by the Plaintiff to support that he suffered damages are grounded on the application of the BCPC (Brazilian norm), as well as on the provisions of ANAC’s (the Brazilian Civil Aviation Authority) rules.

Therefore, the application of the relevant aeronautical regulations, as well as the appropriate reparation must be established by the regulation of the place where the alleged damage occurred.

Thus, the indemnification for damages that the Plaintiff claims to have suffered must be claimed in Argentina.’

(Case No. 0028481-12.2020.8.16.0014, 5th Civil Court of Londrina-State of Paraná, issued on 11.03.2021)

‘(…) The Plaintiff purchased the tickets at the Student University agency, in South Brisbane, i.e., the tickets were not purchased in Brazil and the contracted company is not Brazilian.

Article 21 of the CPC defines: ‘It is up to the Brazilian judicial authority to prosecute and rule on actions in which: I - the defendant, whatever his/her nationality, is domiciled in Brazil; II - the obligation has to be performed in Brazil; III - the facts occurred or were practiced in Brazil. Sole paragraph. For the purpose of the provision in item I, a foreign entity is it is considered to be domiciled in Brazil whenever it has an agency, branch or branch in Brazilian territory. ‘

Although, in his response , the plaintiff justifies the defendant's domicile being in national territory by having a branch in São Paulo, in accordance with Article 53, item IV, point ‘a’, of the BCCP, the jurisdiction of the place of the act or fact applies to the action for: a) damages, which, applied to the specific case, refers to the absence of Brazilian jurisdiction to rule on the demand.

(…)’

(Case No. 1001093-12.2020.8.26.0153, 1st Civil Court of Cravinhos-State of São Paulo, issued on 22.02.2021)

‘(…)

Firstly, the Defendant is correct in sustaining that the Consumer Protection Code does not apply, as the services were performed in foreign territory, under the domestic laws of Argentina and due to Brazilian consumer legislation not having extraterritorial application, for which the reason the Argentine Aeronautical Code and other rules pertaining to air transportation should apply (BC, Article 376).

As can be seen, the airline argues that the cancellation of the flight purchased occurred exclusively due to a judicial decision issued by the Argentine Federal Court which, by limiting the flight operating hours at El Palomar airport in Buenos Aires, culminated in the rescheduling of several other flights, including the flight purchased by the Plaintiffs, which is confirmed by the copy of the decision attached to the event.

(…)’

(Case No. 0003666-97.2020.8.16.0030, 2nd Small Court of Foz do Iguaçu-State of Paraná, issued on 15.02.2021)

Although the BCCP states that if a company has a branch or agency in Brazil, Brazilian courts would have jurisdiction over a dispute, it should be noted that when the claim seeks indemnification for damages, the place of the fact or the act should govern the application of the correct jurisdiction, pursuant to clause IV of Article 53 of the BCCP.

In this context, it must be noted that international conventions are of great relevance to regulate international disputes and, since Brazil has ratified the Montreal Convention, which deals with liability arising from international air transportation services, it must be noted that such treaty establishes in Article 33[6] that: ‘an action for damages must be brought, at the option of the plaintiff, in the territory of one of the Party States either before the court of the domicile of the carrier or of its principal place of business, or where it has a place of business through which the contract has been made or before the court at the place of destination’, however, pursuant to Article 33.4 - ‘Questions of procedure shall be governed by the law of the court seized of the case’, ie, the above mentioned Brazilian procedural rules provided for by the BCCP should govern the jurisdictional issue in such cases.

It is also important to note that although there are certain international conventions addressing the issues of governing law[7] and choice of forum[8] in relation to the international sale of goods, as well as dealing with dispute resolutions under the law of nationality or the law of the domicile[9], either Brazil has not ratified such treaties, or they have not yet become effective in Brazil. Their discussion and ratification by most countries would be important to promote a more straightforward solution for cross border disputes in a more frequent context of e-commerce of air services and goods.

Furthermore, given the large number of consumer disputes heard by the Brazilian Judiciary, which could easily be resolved out of court and without the need for state intervention or with minimal intervention, if the parties are previously advised on their rights and duties in light of applicable law, as well as on the form and bodies that facilitate the composition between them, it is very important to raise awareness of both parties (consumer and supplier) to alternative dispute resolution methods available in Brazil, mainly to ensure cost reduction, enhanced investment and, consequently, better services.

In Brazil, consumer protection watchdogs – PROCONs – still seem to have deficiencies in their systems and structure, not being able to widely ensure success in this goal of fostering and encouraging alternative dispute resolution methods. This is due to both structural and economic factors because there is not an integrated and modern system. The system is polarised in each Brazilian municipality and lacks the necessary investment so the rapid resolution of conflicts in an out-of-court manner is affected, thereby encouraging the consumer to seek judicial methods. Moreover, the lack of international interaction among dispute resolution bodies goes against the globalisation of trade and prevents greater investment in the sector.

In this context and to the extent Brazil wishes to be admitted to the OECD, such an organisation encourages its member countries to implement measures necessary for efficient and effective alternative methods of solving consumer conflicts, which are:[10]

‘i) Businesses, consumer representative bodies and entities should continue to establish fair, efficient, and transparent internal mechanisms to deal with consumer complaints and difficulties and respond in a fair and timely manner without undue burden or cost to the consumer and consumers should be encouraged to take advantage of these mechanisms.

ii) Business and consumer representatives should continue to establish cooperation and self-regulatory schemes to address consumer complaints and help consumers resolve any disputes arising from business-to-consumer e-commerce.

iii) Business, consumer representatives and governments should work together to continue to provide consumers with alternative dispute resolution options that ensure the effective resolution of disputes in a fair and expeditious manner without undue burden or cost to the consumer.

iv) In implementing the above, businesses, consumer representatives and governments should make innovative use of information technologies and take advantage of them to improve consumer awareness and freedom of choice.’

Furthermore, some form of international cooperation between consumer watchdogs is encouraged, given the globalisation of commerce, especially in view of the rapid expansion of e-commerce resulting from the Covid-19 pandemic, which is expected to remain a global trend. As far as passenger air transportation services are concerned, this measure seems to be essential, since when subject to foreign legislation and jurisdiction, both suppliers and consumers must be prepared and supported to seek, even if outside their home country, guidance and solutions to any conflicts that may arise.

Brazil has been trying to add public policies to achieve these goals, such as implementing the online platform called ‘Consumidor.gov.br’, where consumers and suppliers can communicate directly aiming at solving consumer complaints. In this regard, the number of claims satisfactorily resolved on this platform, launched in 2014, is positive news[11]. Moreover, certain topics are being discussed at public consultations with the National Consumer Secretariat[12], aimed at achieving a better performance of the PROCONs, improving and stimulating the use of online and modern platforms to bring together suppliers and consumers, integrating Court systems with a view to fostering settlement agreements, but essentially to bring faster and greater guidance to consumers for achieving better services.

The expectation is that such improvements may, in addition to reducing the judicialisation of consumer claims and improving services for Brazilian consumers, also reduce costs and promote the international commerce of passengers, which are necessary for a faster economic recovery of many countries in a post Covid-19 pandemic world.