In February of this year, after a long wait and intensive debate, the 1842 Direct Unconstitutional Claim covering the power for the rendering and management of basic sanitation services in metropolitan areas was judged by the Supreme Court. The controversy dealt with in ADI (Direct Unconstitutionality Claim) dates back to late 1990, when the State of Rio de Janeiro...

INFRASTRUCTURE - Mário Saadi and Letícia Oliveira Lins de Alencar


In February of this year, after a long wait and intensive debate, the 1842 Direct Unconstitutional Claim covering the power for the rendering and management of basic sanitation services in metropolitan areas was judged by the Supreme Court.

The controversy dealt with in ADI (Direct Unconstitutionality Claim) dates back to late 1990, when the State of Rio de Janeiro edited two laws that created the Metropolitan Region of Rio de Janeiro and the Northeast Region (Complementary Law 87/89), and established the powers and methods for the management of metropolitan services (Law 2.86/97). In their terms, the services of common interest, especially the sanitation-related ones, would be dealt with and decided by a Board (consisting of the municipalities and the State), but the final word in decisions would be assigned thereto. Thus, the Board was a consultative body, to the extent that the final decision was only borne by the State of Rio de Janeiro, limiting the effectiveparticipation of the municipalities in the associated management of services in the Metropolitan Region.

As a result of the transfer of powers endorsed by these standards, some questioned its constitutionality.

The controversy comes, actually, from an inaccuracy contained in the text of the Federal Constitution itself: it does not determine how public services regarded as of common interest should be provided, in the jurisdiction of a metropolitan region. Strictly speaking, the municipalities must arrange and render, whether directly or through concession or permission, the public services of local interest. On the other hand, the Constitution establishes that the metropolitan regions will be created by States to join the Organization, the planning and performance of public tasks of common interest. So, there were several schools of thought to explain if the consolidation, sponsored by metropolitan regions, would be borne: by the State alone, jointly by the States and municipalities, or only by the municipalities in view of their constitutional power to be managing services of local interest.

In this scenario, ADI 1842 was brought in June 1998. Applicants understood that the transfer of powers, endorsed by such questioned state laws, violated a number of rules and principles of a constitutional nature. The idea was that the STF (Supreme Court) declared that the municipalities should have the final word with respect to the rendering of basic sanitation services within the Metropolitan Region.

The core issue discussed in the records was the legitimacy of regulatory provisions that, by instituting the Metropolitan Region of Rio de Janeiro and the Northeast Region, had transferred from the municipal to the state the administrative and regulatory powers of the municipalities, that relate to basic sanitation services.
Without prejudice, the majority of the Ministers of the STF voted for the partial upholding of the lawsuit, in the sense that the management of basic sanitation services must be shared between the municipalities and the State. Also, the modulation of the effects of the decision was accepted, so the legal relations that are not in line with it are adjusted within 24 months. In any case, the model that should be adopted by the federated entities, so that the associated management and sharing are enforced, was not adopted.

The STF decision must be considered positive for the sector, since it puts an end to ambiguities that compromised legal certainty. At this point, the states and municipalities must adapt its situation to what was decided, in order to avoid future questions.

INTERNATIONAL TRADE – Elton Minasse and Pedro Leal Fonseca

Brazil adheres to the convention on international purchase and sale contracts

Brazil joined in early March, the UN Convention on Contracts for the International Purchase and Sale of Goods (CISG). As of April 1, 2014, the CISG rules will apply to purchase and sale contracts between natural persons or legal entities located in Brazil and people located in any of the other 78 countries-members of the Convention. Brazil’s major trading partners such as China, United States, Argentina, Germany and Japan, are members.

Amongst other matters, CISG governs the formation of the contract (effects of the proposal, the counterproposal and withdrawal of the parties), rights and obligations of the seller and the buyer, transfer of risks, warranties for defects and liability for noncompliance.

CISG does not cover the sales of goods for personal, family or household use, carried out by public auction, pledge or other judicial proceeding, securities, credit bonds and currencies, ships, boats and aircraft and electricity. CISG also does not apply to contracts in which the buyer gives the seller an essential part of the raw material for the manufacture of the goods.

The impacts brought by CISG by virtue of the great importance of imports and exports of goods by country must be understood. In the next articles, we will examine in greater detail the operations affected by CISG and the differences between the legal regime created thereby in relation to the traditional method rendered by the Civil Code.

CORPORATE – Ricardo Luiz Nicolaci Santos and Guilherme Bruschini

Minority Control

The creation of the Novo Mercado in 2000, with the strengthening of Brazil’s capital market that has been noted since 2004, assisted in the emergence of a new power structure in publicly held companies. Such change was based on the distribution of shareholders, detracting from the daily operations of some of these companies the clear role of the shareholder or group of shareholders, controller, and holder of the majority of the voting shares.

In this new scenario, the management bodies became important and are now responsible for decisions that assist companies in the medium and long terms, which were previously directly and strongly influenced by the controlling shareholder. This new power structure highlights the role of the Board of Directors, due to its greater autonomy and strategic function when taking those decisions.

Another noteworthy result of this phenomenon of widespread ownership is the possibility of a minority partner to influence the deliberations of a publicly-held company, exercising the control without ownership of more than half of the voting shares, as noted in the most traditional form of control. The so-called minority control, however, should not exempt the shareholder or operating group of shareholders from the liabilities set forth in corporate law, especially those related to the abuse of power.

It is noted that in exposing much of its widely-held shares, the company becomes more vulnerable to investors who wish to gain complete control over it, whether by one acquisition, or through successive purchases on the stock exchange. Poorly managed companies and shares quoted at prices that do not reflect its actual or potential value are the most susceptible to control. In order to restrain this behavior, some companies adopt in their articles of incorporation clauses to protect from widespread ownership. These clauses oblige the purchaser of a given amount of shares to make a Public Offering of Shares for the acquisition of the remaining shares, at a price higher than that of the market, the so-called Brazilian poison pill.

For being a recent trend yet without a proper legal treatment, the law will again face the challenge of finding solutions, setting parameters and outlining the future of corporate relations from this new reality, in the light of the economic and social dynamism which we live today.

REAL ESTATE - Juliano Zorzi and Felipe Mendes de Godoy

Authorities strengthen inspection for operation of commercial establishments

The fire in the nightclub Kiss, that occurred in Santa Maria (RS), at the end of January, infuriated the country and mobilized public authorities towards greater inspection of the operation of commercial establishments – including nightclubs, show rooms, clubs and even religious temples - throughout the country.

It is a basic requirement for the operation of commercial establishments to obtain two documents: the Operating License and the Fire Department Inspection Certificate. The Operating License is the permission granted by the City Hall for the exercise of a commercial activity in a specific location. In São Paulo, the party of interest shall submit the application with the commercial real estate approvals and documents certifying the minimum conditions of security and customer service are met.

The Operating License should be granted within 30 days of the protocol before the City Hall. However, the process may be extended for a longer period of time due to legal requirements that might legally postpone the deadline - only a license request protocol does not authorize the initiation of commercial activities on site.

The interested party shall also prove that the building has fire prevention equipment, upon the submission of the Fire Department’s Inspection Certificate. For nightclubs in São Paulo with more than 750 m², for example, the installation of linings with their own materials, emergency signaling, fire extinguishers, fire hydrants, fire alarms, sprinklers, fire brigade, emergency plan and car access.

Should the minimum conditions be met to combat fires, the Fire Department may issue a provisional permit, for a period of time necessary for the reformation of the building. The site will be subject to a new inspection at the end of the term of such permit.

In São Paulo, both documents must be renewed annually and the inspection is made by the City Hall. Should there be irregularities in the documentation, changes to the building or in the commercial activity, or a violation of restrictions imposed by the permits, the City Hall will apply a fine and will grant a term to normalize the situation. Should this not occur, the City Hall will apply a new fine and will require the owner to take the necessary measures within 90 days, under penalty of closing down the establishment.

In 2010, the Secretary of the Management of the State of São Paulo had established the Integrated Licensing System - a single data system for entities liable for the licensing of commercial establishments. The purpose of which is to create more interaction and speed in the exchange of information between the bodies of the City Hall and the Fire Department and to facilitate the inspection and licensing of establishments. Recent events may serve as an incentive so other states and Municipalities, jointly, review there procedures to create more dynamic controls and improve the supervision of business activities.