Litigation in Brazil – The Difficulties & Alternatives

By Octávio Aronis

Posted: 2nd April 2014 08:38

As an attorney in São Paulo, Brazil, simply speaking, navigating the Brazilian legal process can be difficult and time-consuming.
 
I always carefully explain to all of my clients that due to the costly bureaucratic legal process, commercial litigation should only be pursued when all other alternatives have failed.  For example, obtaining a judgment through a lawsuit can generally take between five to 10 years.
 
That said, Brazil has established an excellent regulatory and monitoring agency called the Conselho Nacional de Justiça.  This agency has been effective in prosecuting unethical and corrupt judges, and has worked to monitor court procedures to ensure that litigation processes are not unduly delayed, including reducing the number of cases eligible for presentment to the Supreme Court.
 
However, there is still a considerable problem in using conciliation, mediation, arbitration and other methods to expedite the resolution of many cases.  There is also a lack of control in the number of frivolous lawsuits filed, with approximately 63.5 million pending lawsuits awaiting judgment.  Furthermore, there is a lack of regulation over which trial judgments can be appealed, which has led to excessive appellate filings.
 
Another important element to be considered before entering into litigation is the costs.  Due to the length of time, there are usually costs incurred during several steps, and since there is no guarantee of monies being ultimately collected, litigation is generally not recommended on commercial claims less than USD $50,000.
 
In addition to legal fees, there are general costs that must be considered, particularly with foreign claimants, whereby all pertinent documents must be translated into Portuguese by an official translator, and subsequently certified by the local Brazilian Consulate.
 
Further contributing to the inherent difficulties in pursuing litigation in Brazil, Brazilian law states that foreign claimants must provide a legal bond, between 10 – 20% of the claim value, prior to the commencement of a lawsuit.  This bond must be available for execution in the event that the plaintiff does not prevail in the lawsuit and is found liable for the defendant’s legal fees.
 
I often receive inquiries from overseas companies that are already involved in litigation in Brazil and suddenly realise they have paid fees equivalent to almost 50% (or more) of the original claim value.  As the slow bureaucratic process requires significant legal work, a rigorous investigation should be performed of a defendant’s assets, operational status, as well as the long-term financial viability to pay a claim, prior to commencing with a lawsuit.
 
Generally speaking, it is considered reasonable to pay legal fees either completely on a contingency basis or as a combination of a handling fee and a success fee based upon the amount collected.  Including a contingent fee element motivates Brazilian attorneys to resolve legal matters swiftly and encourages the avoidance of an unnecessary or lengthy legal process.
 
Arbitration, Mediation and Conciliation
 
In Brazil, there are several Chambers of Arbitration to support the arbitration process.  These Chambers employ highly qualified legal personnel who encourage negotiation amongst the parties.  While the costs for these Chambers of Arbitration remain relatively high, resolution often comes quicker than through the court system, and should be considered as a forum when negotiating contracts, particularly when high claim amounts may be involved.
 
Binding Mediation and Conciliation are two other excellent alternatives if all parties have a genuine interest in reaching a resolution.  With either of these alternatives, both parties must be willing to be present their respective arguments as well as accept the ultimate decision of the mediator(s).
 
Payment by installments, cash payment with a discount, loans and personal guarantees are some of the ways in which settlements with a debtor are reached.  In some cases, it is recommended to offer a reasonable discount against the amount owed as an initial negotiation strategy, rather than invest significant capital and risk a significant delay before payment is eventually made.
 
In Brazil, it is common practice for a personal guarantee to be used to support a company’s debt obligations.  However, to ensure enforceability of personal guarantees, a local attorney is recommended to verify the legal terms of the guarantee.  It is furthermore advisable to register personal guarantees with a Brazilian Notary Public.
 
Over the years, we have noticed a significant difference in the positive outcome of international claims which have been entrusted to local Brazilian counsel or collection agencies, compared to when they are dealt with directly from overseas.  It is the local professional’s experience and know-how regarding local laws and cultural peculiarities that helps to minimise expenses.
 
Finally, it is highly recommended that prior to doing business with a new customer in Brazil, a thorough credit investigation surrounding a particular customer should be thoroughly investigated with all contracts and other legal documentation properly reviewed by local counsel.  This will minimise potential problems and future misunderstandings, and will ultimately lead to a more positive and profitable experience in Brazil.
 
Octávio Aronis graduated in Law from the Faculdades Metropolitanas Unidas in 1984, and subsequently obtained graduate law specialisation diplomas from the University of California Los Angeles and the Fundação Getulio Vargas (GV Law).  For the past 30 years, Mr. Aronis has continued to provide a wide range of legal expertise to small, medium, and multinational companies that are doing business throughout Brazil and South America.
 
Octávio is continuously invited to present at many domestic and international associations and conferences.  The topics have ranged from Criminal, Commercial, and International legal challenges to Effectively Doing Business in Brazil and other South American Countries.
 
Octávio is Director of the Jewish Confederation of Brazil (CONIB), one of the legal officers to the Israeli Federation of São Paulo State (FISESP), Vice-President of Corpore-Brasil, and sits on the Board of Advisors for the Hospital Israelita Albert Einstein.
 
Mr. Aronis can be reached at octavio@aronisadvogados.com.br

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