ILO / Lexology: Brazil’s Superior Court of Justice rules on burden of loss and attorneys’ fees

22nd June

This article was originally published in the Litigation-Brazil Newsletter of the International Law Office – www.lexology.com/commentary.

At the end of March 2022, Brazil’s Superior Court of Justice (STJ) gave a ruling regarding attorneys’ fees. The judgment considered the 2015 reform of the Brazilian Civil Procedure Code and the latest understanding of the application of its section 85(2) over its paragraph 8.(1) The STJ set forth a new interpretation of the limits of attorneys’ fees and the burden of loss, which will impact all future lawsuits in Brazil.

Background

The previous Brazilian Civil Procedure Code (effective from 1973 to 2015) stated that the losing party of a lawsuit should pay the burden of loss to the winning party. This includes court fees, taxes and expenses related to the lawsuit, as well as attorneys’ fees for the counterparty.

As a general rule set forth under section 20 of the previous Brazilian Civil Procedure Code, attorneys’ fees due to the burden of loss are established by the court or judge during the sentencing and are set at a rate of between 10 and 20% of the given value of the lawsuit or its economic benefit. However, section 20 allowed the court or judge to take equity and fairness into consideration when establishing attorneys’ fees due to the burden of loss in lawsuits that had:

  • no economic value;
  • an irrelevant economic value; or
  • an extremely high economic value.

In such cases, the court or judge was allowed to establish a value that was not mandatorily set at between 10 to 20% of the economic value.

The Brazilian Civil Procedure Code 2015 changed this situation. Its section 85(2) now states that attorneys’ fees due to the burden of loss must be set, mandatorily, in correlation with the given value of the lawsuit or its economic benefit – at a rate of between 10 and 20% thereof.

Due to the economic relevancy of such change, it was expected that the STJ would face discussion relating to the fairness of this new rule sooner rather than later. However, it was unclear which way the STJ would decide.

Facts

A collection lawsuit concerning a Brazilian company’s due and unpaid taxes was brought before the Paraná State Federal Court. Later, a motion to disregard was filed in order to reach the company’s shareholders’ assets.

The disregard motion was overruled by the Court and, due to the burden of loss under section 85 of the Brazilian Civil Procedure Code, the attorneys’ fees were established at a specific value(2) (ie, not between 10 and 20% of the economic benefit)(3) as sustained by the claimant (which, in the matter, was deemed responsible for the burden of loss).

An appeal was filed to the STJ, which began reviewing it in December 2016. The first trial was held in March 2017 under Justice Herman Benjamin in the Second Chamber. His decision to dismiss the appeal was rendered in October 2017.

The trial was followed by a request for Justice Og Fernandes to review the case. In February 2018, Justice Og Fernandes agreed with Justice Herman Benjamin. Justice Mauro Campbell Marques dissented from the other two justices in April 2018, granting a special appeal with the STJ’s Second Chamber. Justice Og Fernandes then changed his understanding and followed Justice Mauro Campbell Marques’s dissent.

Due to the dissent, the trial was adjourned. The Brazilian Bar requested to be admitted as amicus curiae, a request which was later dismissed in April 2019. The Second Chamber sent the appeal to be reviewed by the STJ’s Special Court in December 2019, in light of the dissent over the matter between its chambers.(4)

The Special Court trial began in September 2020 and ended, finally, in May 2022. Justice Og Fernandes’s final opinion prevailed over Justice Herman Benjamin’s initial dissent.

Decision

In the Special Court, the dissent arose between the opinion of Justice Herman Benjamin and that of Justice Og Fernandes.

For Justice Herman Benjamin, the application of section 85(2) could not be indiscriminately applied to all matters and cases. It could create a “benefit” for attorneys in litigation against the state that could not be granted to the state against its counterparts for the burden of loss, even in cases of conflict with the Brazilian Constitution and its principles.

His opinion also stated that the Brazilian Supreme Court, in the past, had stated that where attorneys’ fees under the burden of loss are deemed to be unreasonable, paltry or excessive, the courts should establish moderate values.

This opinion was followed by Justices Nancy Andrighi, Laurita Vaz and Maria Thereza de Assis Moura.

Justice Og Fernandes, on the other hand, stated that section 85(8) could only be applied over section 85(2) when the ruling:

  • does not grant collection; and
  • is related to a cause that has irrelevant or inestimable economic benefit or low value.

Except in these situations, the court must establish the attorneys’ fees for burden of loss, regardless of whether the case relates to state matters, as foreseen in section 85(2) – that is, at between 10 and 20% of the economic benefit or the given value to the lawsuit. Therefore, the Court may not create a new law even when the economic benefit or given value is very high. The STJ may not disregard all the previous rulings in this sense, and nor may it disregard Congress’s decision on how to regulate the matter when established section 85 of the Civil Procedure Code was established back in 2015, in Justice Og Fernandes’s opinion.

Justice Og Fernandes was followed by Justices Raul Araújo, Mauro Campbell Marques, Luis Felipe Salomão, Jorge Mussi, Benedito Gonçalves and João Otávio de Noronha.

Therefore, the prevailing opinion was that section 85(2) will only be not applied when the ruling:

  • does not grant collection; and
  • is related to a cause that has irrelevant or inestimable economic benefit or low value.

Outside these exceptions, the court must establish attorneys’ fees for burden of loss at a rate of 10 to 20% of the economic benefit or the given value to the lawsuit.

Comment

Although the fact that Justice Og Fernandes’s opinion prevailed was celebrated by a large part of the legal community, this ruling has a much larger application when the risks relating to filing lawsuits are taken into account.

Claimants and respondents frequently ask how much a lawsuit will cost. Attorneys can now state with further assurance when the burden of loss will likely be established under section 85(2) or section 85(8). Therefore, the likelihood of adding 10-20% to the costs is, more than ever, a relevant factor in the decision over whether to go to court.

For further information on this topic please contact Paulo Guilherme de Mendonça Lopes or Alexandre Paranhos Tacla Abbruzzini at Leite Tosto E Barros Advogados Associados by telephone (+55 11 3847 3939) or email (paulogml@tostoadv.com or alexandrepta@tostoadv.com). The Leite Tosto E Barros Advogados Associados website can be accessed at www.tostoadv.com.

Endnotes

(1) STJ – Corte Especial, REsp No. 1,644,077/PR, Rel Min Herman Benjamin, Rel acórdão Min Og Fernandes, j 16 March 22, DJe 31 May 2022.

(2) Section 85(8) of the Brazilian Civil Procedure Code.

(3) Section 85(2) of the Brazilian Civil Procedure Code.

(4) The STJ’s Special Court comprises 15 of the STJ’s longest-serving justices and is responsible for reviewing cases in which the matters have split opinions between the STJ’s chambers.

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