Bringing a claim - initial considerations

Key issues to consider

What key issues should a party consider before bringing a claim?

Review of court precedents in addition to statute is advisable to assess the likelihood of success. See question 3.

A claimant should also take the economic burden of the dispute into account. Pursuant to the applicable ‘loser pays’ rules under the 2015 CPC, the defeated party must bear the court-related expenses and also pay attorney’s fees to the prevailing party’s counsel. See question 47.

Foreign claimants who do not own real estate in Brazil will customarily need to deliver security for all those expenses and fees. See question 28.

Timing may also be a concern as court proceedings may drag and could take several years to unfold before the lower court and the court of appeals (see question 38). If the matter is urgent, the claimant may need to consider resorting to ADR or seeking an injunction.

Establishing jurisdiction

How is jurisdiction established?

Brazilian courts have jurisdiction over lawsuits involving:

  • defendants domiciled in Brazil, which includes foreign companies with a local office, agency or branch;
  • obligations to be performed in Brazil;
  • the facts that occurred or acts performed in Brazil; or
  • the enforcement of a contract that chose Brazil as the venue for court disputes.

Jurisdiction is exclusively vested with Brazilian courts when it comes to disputes over real estate located in Brazil, family affairs and other non-commercial matters.

There is no international lis pendens as a rule, so the party will usually not be prevented from bringing forth the same claim before a different jurisdiction, and a foreign award may be confirmed (homologated) and enforced in Brazil while the Brazilian lawsuit is pending.

Parties to an international contract may choose foreign courts as the venue for dispute resolution and this choice will be enforceable against the claimant if the defendant raises the matter in its statement of defence.

The 2015 CPC also contains several rules on internal jurisdiction.

Preclusion

Res judicata: is preclusion applicable, and if so how?

A party is precluded from challenging a decision if it has failed to timely do so, except if it is within the court’s power to review the subject matter ex officio (eg, standing to sue and be sued), or a legitimate cause prevented such party from lodging the appeal.

Pursuant to article 966 of the 2015 CPC, a party may, under very strict circumstances, seek to set aside (rescind) a final award on the merits after it has become res judicata.

Applicability of foreign laws

In what circumstances will the courts apply foreign laws to determine issues being litigated before them?

Decree Law No. 4,657, dated 4 September 1942, contains the applicable rules for conflict of laws. The company’s formation, structure and dissolution are governed by the law of the jurisdiction in which it was formed. The law applicable to property is usually that of the venue where it is located, but the law of the pledgee’s domicile (or the domicile of the person possessing the pledged asset) applies to pledges. Production of evidence and burden of proof involving facts that occurred abroad are governed by the laws of the country where the fact has occurred.

The law applicable to contracts and other obligations is that of the jurisdiction where the contract was signed or the obligation was undertaken; if there is no reference in the contract, the law of the proponent or offeror’s domicile applies. There is no clear statutory or case law in Brazil on the validity and enforceability of choice of governing law clauses inserted in international contracts.

Initial steps

What initial steps should a claimant consider to ensure that any eventual judgment is satisfied? Can a defendant take steps to make themselves ‘judgment proof’?

A claimant should search for information on the defendant’s economic wherewithal to bear an unfavourable award (ie, other lawsuits filed against the defendant, insolvency filings, debts recorded with public officials) and, if need be, seek an injunction to freeze the defendant’s assets.

The right to resort to the judiciary is enshrined in the 1988 Constitution. A defendant may not be contractually exempted from the risk of litigation and an adverse ruling, and any such waiver of the right to sue a defendant is void.

Freezing assets

When is it appropriate for a claimant to consider obtaining an order freezing a defendant’s assets? What are the preconditions and other considerations?

The preconditions to all interim remedies under the 2015 CPC, including asset freezes, are urgency (risk of harm, usually relating to the concrete risk that the defendant will become insolvent or the argument that it is hiding its assets away from creditors) and plausibility of the claimant’s right on the merits. See questions 8 and 11.

Pre-action conduct requirements

Are there requirements for pre-action conduct and what are the consequences of non-compliance?

There are no required pre-action conducts unless the parties have agreed them (eg, engaging in ADR or healing periods). In the latter case, failure to perform these conducts could cause the suit to be dismissed without prejudice on the grounds that the dispute was not yet mature enough to be taken to the judiciary.

Other interim relief

What other forms of interim relief can be sought?

Courts have the power to enter whatever interim remedies they see fit as requested by the party, such as freezing assets, orders to search and seize property, cease and desist orders, and the advance production of evidence. They may go as far as advancing the practical effects of an award on the merits (see question 39). A claimant must provide convincing elements to the court about plausibility, namely, the likelihood of success on the merits (fumus boni iuris), and urgency, namely, the risk that a final award will be useless or ineffective if relief is not promptly granted (periculum in mora).

Urgency may be dispensed with if:

  • the defendant has abused its right of defence or sought to delay the proceedings;
  • a binding precedent applies and there is enough documentary evidence on the factual allegations;
  • the claimant seeks to regain possession of its property and has produced evidence of his or her right to repossess the asset; or
  • the defendant has failed to reasonably dispute the facts of and exhibits to the statement of claim.
Alternative dispute resolution

Does the court require or expect parties to engage in ADR at the pre-action stage or later in the case? What are the consequences of failing to engage in ADR at these stages?

As for pre-action ADR, see question 10. After a claim is filed, and before the defendant files its statement of defence, a settlement hearing must be held under the 2015 CPC unless both parties expressly refuse to attend the hearing or applicable statute prohibits settlement of the matter. A fine of up to 2 per cent of the amount in dispute may be imposed on the party who fails to attend the hearing.

Claims against natural persons versus corporations

Are there different considerations for claims against natural persons as opposed to corporations?

Claims against natural persons and corporations are basically subject to the same rules; differences are minor and regard service of process and the documentation to prove the party’s capacity to be in court.

Class actions

Are any of the considerations different for class actions, multi-party or group litigations?

There are several types of proceedings of a collective and public-interest nature under Brazilian law, each of which with its specificities. The standing to sue and be sued, and the effects of res judicata, will greatly vary according to the type of proceedings. For instance, individuals lack the standing to sue under the 1985 Civil Public Action Act but they do have the standing to enforce a favourable award thereunder, and also to sue to safeguard public interest under Law No. 4,717, dated 29 June 1965.

As for strictly commercial disputes between private parties, a party will not have standing to pursue a right held by a third party except in very limited cases (eg, a trustee in a debenture issue may enforce the indenture and collaterals on behalf of holders). Strict rules also apply to the joinder of third parties and the filing of cross-claims. See question 30.

Third-party funding

What restrictions are there on third parties funding the costs of the litigation or agreeing to pay adverse costs?

The doctrines of champerty and maintenance do not apply in Brazil and there are no statutory rules about third-party litigation funding. In principle, a party should be free to fund a dispute, and to have its dispute funded. That said, alternative funding structures are still very recent in Brazil and there is no case law; courts may eventually impose limits thereto based on an interpretation of Brazilian legal system as a whole, such as prohibiting the funding if the purpose of the dispute is to tarnish the reputation of a competitor of the funder, or capping the return on investment if the deal is interpreted as a loan.