Publications

Category: Banking, insurance and finance

Resolution No. 4,662 of the National Monetary Council (CMN), issued on May 25 of this year, provides for the requirement of a bilateral margin of guarantee on transactions with derivative financial instruments carried out in Brazil or abroad by financial institutions and other institutions authorized to operate by the Central Bank of Brazil (Bacen).

The new rules converges with the improvements applied to the derivatives market since the global financial crisis of 2008 and with the recommendations by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) for transactions with derivatives conducted in over-the-counter markets.

Resolution No. 4,662/18 does not apply: (i) to derivative transactions settled through an entity that intervenes as a central counterparty, if that entity: a) is a clearing house and a clearing and settlement service authorized by Bacen, in accordance with Law No. 10,214/01 and the regulations in force; b) is recognized as qualified by Bacen, pursuant to Circular No. 3,772/15; or (c) complies with the rules that are in accordance with the principles established by the Committee on Market Payments and Infrastructure (CPMI) and by IOSCO; (ii) to derivative contracts with delivery of a physical commodity, except for gold; and (iii) transactions carried out within the scope of the Brazilian foreign exchange market dealt with in Resolution No. 3,568/08.

According to the new resolution, financial instruments that possess all of the following characteristics are derivatives: (i) variable market value as a result of changes in a certain interest rate, price of a financial instrument, commodity price, exchange rate, price index or rate, credit rating or index, or other similar variable, provided that, in the case of a non-financial variable, it is not specific to one of the parties to the contract ; (ii) no or a small initial net investment in relation to the value of the contract; and (iii) settlement {liquidation} carried out on a future date.

On the other hand, the following shall not be considered "hedged transactions": (i) derivative financial instruments included in the portfolio of assets of a Real Estate Guarantee, as referred to in Resolution No. 4,598/17; (ii) derivative financial instruments between institutions that are members of the same prudential conglomerate; (iii) forward contracts for currencies with physical settlement (FX forward); and (iv) physical currency swap contracts (FX swap).

The requirements of the initial margin and the variation margin established in the context of derivative transactions must be observed both by the "covered institutions" and by the "covered counterparties".

Covered institutions are defined as institutions authorized to operate by the Central Bank that, individually or jointly with the other entities that are part of their operating group, average aggregate notional value of derivative transactions higher than R$ 25 billion. Covered counterparties are defined by the rule as: a) the covered institution and any entity that is part of its operating group, as defined in the rule; and b) any other entity that has, individually or jointly with the other entities that are part of the operating group to which it belongs, a notional average aggregate value of derivative transactions in excess of R$ 25 billion.

By seeking to ensure a high level of security for derivative transactions, the rule also provides general prohibitions on the guarantees established in the scope of these transactions. One of these prohibitions applies to the sale or re-use of financial instruments received as collateral for any other purpose, including the creation of a guarantee of new transactions by the receiving counterparty. In addition, it is mandatory to segregate the financial instruments used as the initial margin guarantee for the assets of the guarantor and the guarantee, thus ensuring their timely availability in the event of insolvency, bankruptcy, or dissolution by the competent authorities.

In order for all players involved in transactions of this nature to be able to adapt to the new rules, they will only be applied to covered transactions as of September 1, 2019.

Category: Infrastructure and energy

In view of Brazil's current economic scenario, many companies have filed applications for judicial reorganization as a way of renegotiating their debts in order to maintain their activities and carry out their corporate purpose. Often, they must resort to this procedure without prior approval by the general meeting, which is pending further confirmation per the terms of article 122, sole paragraph, of the Brazilian Corporations Law.

In some cases, however, this approval does not happen or there are discussions between, on the one hand, shareholders, interested in protecting their rights under corporate laws, and, on the other hand, the company in reorganization, sometimes accompanied by its creditors.

In recent judicial decisions, our courts have addressed these discussions and tended to protect the decisions reached by the company in reorganization and/or the community of creditors, based on the prevailing interest in the judicial reorganization process.

An example of such a situation is the judicial judicial reorganization of the Renuka Group,^[1] especially the interlocutory appeal filed in the case, which debated the decision by the bankruptcy court that dismissed the affirmative vote of the minority shareholder for purposes of a capital increase in the company provided for in the reorganization plan.

In this specific case, the São Paulo State Court of Appeals (TJSP) upheld the decision by the trial court on the grounds of abuse of minority position and conflict between its actions and the company’s interests. According to the TJSP, it would be legitimate to suppress the need for approval by the minority shareholder for a capital increase (rule set forth in the company’s bylaws), as well as to have an arbitration clause on the subject (according to which any corporate dispute should be resolved via arbitration), since the capital increase, through the contribution of the majority shareholder, was allegedly compatible with the economic situation of the company and would not, therefore, mean unjustified dilution.

The TJSP opted to give prevalence to the rules of the reorganization plan and to its fulfillment with respect to the corporate issues relating to the matter since the decision to increase share capital was found to be "the pathway found by the company to overcome the crisis",^[2] with economic and corporate justifications explained well explained by the Renuka Group, and that the minority shareholder supposedly only sought to have its interests prevail.

Another relevant case on the subject is the judicial reorganization of the Daslu Group, in which minority shareholders sought to debate via an interlocutory appeal a decision granting an application for judicial reorganization.^[3] The Superior Court of Justice (STJ) upheld a decision by the TJSP according to which shareholders cannot seek to fight against a decision that approved the judicial reorganization plan derived from the respective approval of the plan in a general meeting of creditors. The TJSP understood that their interests "do not prevail over the principle of preservation of the company and its corporate function,"^[4] nor over that of the community of creditors.

The minority shareholders, in this case, sustained that the effectiveness of the reorganization plan was conditioned on the approval of the shareholders, according to a memorandum of understanding entered into by them. And, moreover, they argued that there was a shareholders' agreement that granted minority shareholders the right to participate in new businesses entered into by the company. Along these lines, according to the minority shareholders' theory, they have an interest in vetoing the reorganization plan since: (i) their approval is said to be a condition of effectiveness; and (ii) the plan was said to provide for the creation of a new company that would receive assets from the Daslu Group, including that its brand, without specifying how minority rights would be satisfied.

The trial court, the TJSP, and the STJ were of the position that such issues would not block approval of the plan. The TJSP further stated that, since these are corporate matters, they should be settled in a separate and autonomous proceeding, and not in the context of a judicial reorganization.

Finally, one of the cases with the greatest repercussion on the subject was the positive finding of conflict of jurisdiction ^[5]resulting from the judicial reorganization of the OI Group, involving the 7th Business Court of the Capital District of the State of Rio de Janeiro/RJ^[6] and the Arbitral Tribunal of the Market Arbitration Chamber of São Paulo/SP.^[7]

In summary, minority shareholders sought to challenge the reorganization plan approved in court on the grounds that it provided for a capital increase, through the conversion of OI Group debts into shares, the approval of which should be submitted to OI S.A.'s board of executive officers. The minority shareholders also called an extraordinary general meeting (AGE), whereby they decided to remove from office part of the board of directors of the OI S/A Group and approved the filing of an action of liability against two OI S.A. officers, one of them being the CEO. In view of these facts, OI S.A. submitted a plea at the reorganization hearing seeking to suspend the effects of the resolution passed at the AGE, which was promptly granted. Nonetheless, the minority shareholder Bratel BV, based on the bylaws of OI S.A., instituted arbitration proceedings to challenge the adoption of the measures provided for in the approved reorganization plan, which was granted in limine by the arbitral tribunal. In view of this, OI S.A. raised a positive conflict of jurisdiction before the STJ, seeking to suspend the decision by the arbitral tribunal and to obtain a declaratory relief affirming the jurisdiction of the 7th Court of Rio de Janeiro.

The reporting judge, via an in limine order, granted a stay of the decision handed down by the arbitral tribunal in the case, therein provisionally finding the 7th District Court of Rio de Janeiro as having jurisdiction to review issues related to judicial reorganization and related urgent measures as a means of preserving the interests and assets of the company undergoing reorganization.

In reviewing the cases decided, one notes, therefore, that in judicial reorganizations, either at the time of filing the request or at the time of a resolution on the means of reorganization, conflicts may arise between the corporate law and the Bankruptcy and Reorganization Law, with the prevailing theory to date being that it will be incumbent on the reorganization court to decide on the issue, and, to that end, resolve, among other points: (i) the conflict in the specific case; (ii) the motive of the shareholder with its actions and the claim sought by it; and (iii) the profile of the controlling power of the company under judicial reorganization.^[8]

Despite this, it is true that a great deal of debate will still arise regarding the subject, on the one hand, the defenders of the prevalence of corporate rights and arbitration, and, on the other hand, those who consider the rights of the company in reorganization.

^[1] Case No. 1099671-48.2015.8.26.0100, 1st Bankruptcy and Judicial Reorganization Court of the Central Judicial Section of the District of São Paulo - Interlocutory Appeal No. 2257715-26.2016.8.26.0000, 2nd Chamber Reserved for Business Law - TJSP

^[2] P. 9 of the appellate decision handed down in Interlocutory Appeal No. 2257715-26.2016.8.26.0000

^[3] Interlocutory Appeal No. 0154311-66.2011.8.26.0000, Chamber Reserved for Bankruptcy and Reorganization, TJSP - Resp 1.539.445 - SP, Third Panel, STJ.

^[4] Headnotes of Interlocutory Appeal No. 0154311-66.2011.8.26.0000.

^[5] Conflict of Jurisdiction No. 157.099/RJ, STJ

^[6] Court where the judicial reorganization of Oi is pending (case No. 0203711-65.2016.8.19.0001).

^[7] Court where Arbitration Proceeding No. 104/18 is pending, initiated by the minority shareholder Bratel BV.

^[8] COELHO, Fabio Ulhoa, idem, pp. 256.

Category: Intellectual property

Presidential Decree (MP) No. 869/2018, published on December 28, amended provisions of Law No. 13,709/2018, the so-called General Data Protection Law (LGPD), and created the Brazilian Data Protection Authority (ANPD), a part of the Executive Branch.

Among the changes promoted by the MP, it is worth highlighting the extension by six months of the date of entry into force of the new law. As a result, the obligations set out therein will become effective as of August of 2020.

The creation of the ANPD, in turn, takes effect as of the date of publication, with emphasis on the following points: 

• The ANPD will be composed of a Management Board, the National Council for Personal Data and Privacy Protection, the overseer’s office, the ombudsman's office, the advisory board, and administrative/specialized units for the application of the LGPD.
• The Management Board shall be composed of five members, appointed by the President of Brazil, for four-year terms.
• The National Council for Personal Data and Privacy Protection shall have 23 representatives, all of them appointed by the President of Brazil, 11 of them being from the State (6 from the Executive Branch, 1 from the Senate, 1 from the Chamber of Deputies, 1 from the National Council of Justice, 1 from the National Council of the Public Prosecutor’s Office, and 1 from the Internet Governance Committee in Brazil), 4 from civic society entities, 4 from scientific institutions, and 4 from the business sector.
• The ANPD shall be responsible for, among other things: promulgating rules and procedures for regulating the LGPD, interpreting the LGPD, and monitoring and applying the sanctions set forth in the LGPD.
• The ANPD shall coordinate its work with the National Consumer Defense System of the Ministry of Justice and other bodies and entities with sanctioning and normative competencies related to the subject of personal data protection, and it shall be the central body for the interpretation of the LGPD and the establishment of standards and guidelines for its implementation.

Other changes that deserve mention:

-      There is no longer any requirement that the Data Protection Officer (DPO) be an individual. Therefore, controllers will have more flexibility in relation to the implementation model of the function.

-      The text expresses the possibility of sharing personal health data for the provision of complementary health services.

-      The right to review decisions made on the basis of automated personal data processing procedures remains, but there is no longer any need for such review to be performed by an individual.

-      The possibility of sharing by the Government of personal data has been expanded, including the possibility of transferring personal data based on contracts, agreements, or similar instruments.

The presidential decree will be subject to the process of conversion into law, whose deadline is up to 120 days, and may be fully approved, rejected, or even approved with amendments. We will continue to monitor the issue and provide those interested with all the clarifications and support necessary.

The full text of the presidential decree may be found at this link: https://bit.ly/2ET3IYb.

Category: Litigation

In order to avoid having Brazilian courts produce different decisions on a single issue and seeking to accelerate the resolution of multiple demands dependent on a review of the same legal matter, the Code of Civil Procedure of 2015 inaugurated the Ancillary Proceeding for Resolution of Repetitive Claims (IRDR), a procedure provided for in articles 976 through 987 of said law.

In summary, if there is a common question of law repeated in various cases, individual or collective, the incident can be initiated in order that, based on one or more cases, a theory is defined that must necessarily be adopted by the covered bodies in the other individual cases. Thus, when a controversy that deals with a repetitive right with the potential to generate contradictory decisions on the same subject is identified, an IRDR is allowed in order to avoid risk to equal protection and legal certainty.

At the time of the judgment of the case chosen as a paradigm, the court must broadly hear all interested parties before issuing a full decision that will serve as the adjudicatory standard for repetitive cases. Another important aspect related to IRDRs is the suspension of cases that deal with the same issue as that which will be adjudicated in the model case.

Pursuant to article 982, item I, of the Code of Civil Procedure, once an incident has been admitted, the reporting judge will stay pending individual or collective cases that are pending in state or circuit courts, as the case may be. Paragraph 3 of the same article provides that such a stay may be extended to all Brazilian territory if a request filed with the Federal Supreme Court (STF) or the Superior Court of Appeals (STJ) is granted. This request is submitted by the party itself that is the subject of the IRDR, by the Public Prosecutor's Office, or by the Public Defender's Office.

However, although the stay is provided for in legislation as a result of the introduction of IRDRs, after the proceedings related to the subject were put into practice, it was found that the courts began to loosen the rule of stay of the proceedings of all cases related to the topic which will be adjudicated in the model case. This is because, in certain cases, a stay could have serious consequences for the individual or collective proceedings already in progress, which would go against important principles of the New Code of Civil Procedure, such as a speedy trial, procedural economy, and standardization of decisions.

As an example, we shall analyze the appellate decision rendered in the record of the proposal to change Special Appeal No. 1.729.593-SP. Upon repeatedly adjudicating claims that deal with aspects related to the purchase and sale of real estate on the planned real estate units and controversies involving the effects on the delivery of the property, the São Paulo Court of Appeals chose a model case for the establishment of an IRDR and forwarded the proposal to change to the STJ. As a rule established by the Internal Rules of the STJ themselves, based on articles 256-I and 257, there is a stage of admissibility in the proceeding in which the panel must express its views on the case. This step is subsequent to recognition of the admission of the appeal as representative of the controversy.

In the present case, the STJ found that the legal issues raised are of great relevance because they involve effects of delay in the delivery of autonomous units under construction, which would show the broad nature of the controversies dealt with in the case. Therefore, the decision rendered in that judgment would apply to cases that deal with the same topic.

Although it recognizes that a stay of all cases that deal with the same subject may be one of the effects of the decision to classify the appeal as being a repetitive one, the Court considered it unfitting to adopt this measure in the case in question and, in a weighted manner, detailed the arguments that grounded such a decision to the effect that: (i) the paralysis of all cases in Brazil that deal with the subject could have an effect different from the speedy trial and legal certainty that the judgment of repetitive appeals seeks; (ii) a stay would prevent parties involved in the housing lawsuits from seeking a settlement, which would be a "wholesome initiative to end litigation"; and (iii) the potential risk of closure of activities on the part of the respondents should be considered due to the slowdown in the real estate sector, which would only be aggravated by the massive stay of a large number of claims on this issue.

In the wake of the arguments developed in the appellate decision, it is possible to observe the efficient performance of the Judiciary in facing issues that may adversely affect the useful result that is intended with IRDRs. It is therefore necessary for the procedure to comply with the principles of a speedy trial and a reasonable duration of the proceedings. In this sense, even the legal scholarship takes the position that a complete stay of the proceedings may lead to undue delay in resolving issues that do not relate to the legal matter debated in the ancillary proceeding and which could result in denial of the right to a reasonable duration of the proceeding.

In addition, a stay of related cases would be essential when reviewing a subject whose decisions have hitherto been in conflict with each other, which did not occur in the discussion dealt with in the appellate decision handed down in the record of the proposal to affect special appeal No. 1.729.593-SP. This is due to the fact that varoius points that would be subject to reviewing by the STJ already present understandings that have been applied by Brail’s courts of appeal, which reinforces the lack of necessity of a stay in mass since the risk that conflicting decisions would be issued while the judgment on the model case is awaited would be low.

A different situation, however, may be observed in the record of the proposal to affect Special Appeal No. 1.763.462-MG, in which case the STJ decided to stay all proceedings concerning whether or not a fine is to be imposed when the party is subpoenaed to submit a document relating to an alienable right because of the controversies generated regarding the application of Topic No. 705 of the STJ’s compiled list of topics for review and the provisions of article 400 of the Code of Civil Procedure.

This is because, according to the rule established in Topic 705 of the STJ, no punitive fine should be imposed in the event or production of a document relating to an alienable right. However, as provided for in the sole paragraph of article 400 of the Code of Civil Procedure, in the event of unjustified refusal to produce a document, the judge may adopt inductive, coercive, mandatory, or subrogatory measures for the document to be produced.

Under the justification of restoring legal certainty in relation to the issue in view of the uncertainties lingering over Brazil's courts, a stay in related cases was ordered so as to allow for a decision on the potential overruling of the STJ’s Topic No. 705, established in light of the provisions of the Code of Civil Procedure of 1973, in order for the controversy to be addressed according to article 400 of the Code of Civil Procedure of 2015.

Therefore, the STJ's stance in reviewing on a case-by-case basis, in the light of the scope of the institute of IRDRs itself, may be seen as beneficial. This is because the ancillary proceeding was thought of as a tool to expedite the judgment of similar cases in order to guarantee to litigants a more efficient resolution of their conflicts and also an effective means of eliminating controversial decisions handed down by the Brazilian courts of appeals in order that the judicial process provide the legal certainty necessary.

Category: Capital markets

The civil liability insurance for directors and officers, or D&O Insurance, was adopted in Brazil in the 1990s, still in a very incipient form, and has gained relevance over time, with the transformations of the Brazilian economy, specifically the policies of privatization at the federal level and the commercialization of securities of Brazilian companies abroad. However, D&O insurance has never been so much talked about as it is today. The figures published on Susep's website show that the claim levels of this type of insurance went from approximately R$ 38 million in 2013 to R$ 228 million in 2017, and by August this year amounted to R$ 148 million.

In parallel, according to the report by the CVM regarding sanctioning activity (April-June 2018), R$ 73 million were paid in fines imposed by the CVM in the first half of 2018. Of the trials conducted by the agency during the same period, 130 defendants were fined, 6 were warned, and 5 were disqualified, compared with 107 fined, 9 disqualified, and 7 warned throughout all of the year 2017.

This scenario is undoubtedly due to the various corruption scandals that have arisen in Brazil during the period, such as Operation Car Wash (initiated in 2014) and all its developments, Operation Zelotes (initiated in 2015) and Operation Weak Meat (initiated in 2017), which have resulted in civil and criminal consequences for companies and their officers and directors.

It is also important to highlight that, in 2017, Susep issued a new rule regulating D&O insurance, Susep Circular No. 553/2017, which included the possibility of coverage for fines and civil and administrative penalties imposed on insured persons. In the same year, Law No. 13,506/2017 was enacted, which raised the ceiling of fines applicable by the Central Bank and the Brazilian Securities and Exchange Commission (CVM) (in the latter case, to R$ 50 million).

In this context, D&O insurance and indemnity contracts have once again received enormous attention and have been an important instrument for protection of executives since, with the increase of oversight and supervision by government agencies and, consequently, civil and criminal sanctions, it was necessary to establish mechanisms to mitigate possible impacts on their assets.

Indemnity contracts are private instruments entered into between the companies and their officers and directors with the objective of holding them harmless from liability for having reached their decisions in good faith and in the company's interest. Thus, in order to be exempt from liability, the officers or directors must be informed, question, refuse to act in a situation that constitutes or may constitute a conflict of interest, and always act within the limits of the powers conferred on them by law or the bylaws.

In turn, D&O insurance, as a rule, is purchased by companies from insurance companies in favor of their executives (elected or hired).

Thus, it is noted that D&O insurance and indemnity contracts are complementary instruments, with the common objective of indemnifying third parties who may be adversely affected by regular acts of management by the officers and directors and, consequently, preserving the individual assets of such officers and directors.

To illustrate the complementary nature of these instruments, it should be noted that D&O insurance has deadlines to cover the acts of officers and directors and a maximum guarantee limit established in the policy, which may, in some situations, not ensure the coverage necessary for the officer or director or not be sufficient to indemnify all a company’s officers and directors. In these situations, the indemnity contract may cover the limitation on the payment of compensation to such officers and directors.

Because they may be freely agreed upon between the company and officers and directors, indemnity contracts may provide for compensation in situations not covered by D&O insurance, or even establish more rapid compensation procedures for the company to subsequently seek to have the advance made to the officer or director reimbursed by the insurer.

In addition, it is worth mentioning that the purchasing of D&O insurance may also be seen as a form of indirect protection of the company's equity, which is committed only to the payment of the premium in consideration for the coverage offered by the insurer. By entering into an indemnity contract, the company may assume up to the full financial risk of the officer or director.

Because the company assumes such risks, it is important that the indemnity contracts contain limitations on the duty to indemnify officers and directors, even though they are freely agreed upon between the parties. They must, for example, restrict themselves to indemnifying or holding their officers and directors harmless for unlawful wrongful acts performed in the regular exercise of their duties and not in cases of commission of any harmful unlawful act.

These contracts should take into account the company's structure, which is to say, its size, the effectiveness of its internal controls, its compliance rules, its risk management mechanisms, the composition of its board of directors, among other issues.

With regard specifically to publicly-held companies, the CVM had already manifested its position regarding indemnity contracts on a few occasions, wherein it admits their existence, but without establishing any requirements or necessary elements for their validity and effectiveness. However, on September 25, the agency published CVM Guidance Opinion No. 38 on the fiduciary duties of officers and directors covered by indemnity contracts entered into between publicly-held companies and their officers and directors.

In this opinion, CVM expressly provides "that it recognizes the value of indemnity contracts as an instrument for attracting and retaining qualified professionals" and "that public companies have an important role to play in relation to such instruments, in order to ensure that they are prepared and executed in accordance with fiduciary duties."

The indemnity contract should be a document balanced between "the company's interest in protecting its officers and directors against financial risks arising from the exercise of their functions" and "the interest of the company in protecting its assets and in ensuring that its officers and directors act in accordance with standards of conduct expected and required by law."

Therefore, expenses arising from acts by the officers and directors should not be subject to indemnification when they are: a) outside the exercise of their duties; b) in bad faith, fraud, gross negligence or willful misconduct; or c) in their own interest or those of third parties, to the detriment of the company's corporate interest.

In addition, companies must implement procedures to ensure that decisions regarding the payment of such indemnities be based on severance agreements that are created independently and always in the best interests of the company.

To do so, the company's management must include rules in the indemnity contracts specifying: a) the company's body that will be responsible for assessing whether the act by the officer or director falls within any exclusion from the scenarios allowing for indemnity; and b) the procedure to be adopted to recuse the officers and directors whose expenses may be indemnified in the process of evaluation of item (a) of the decision on whether or not to make payment of the indemnity.

Although applicable only to publicly-held companies, CVM Opinion No. 38 will certainly become a general guide to good practices regarding indemnity contracts to be entered into between all Brazilian companies and their officers and directors.

D&O insurance and indemnity contracts are important mechanisms for protecting executives, which provide greater peace of mind and security for the regular and good faith performance of their duties. 

Category: Litigation

In a recent judgment, the Third Panel of the Superior Court of Justice (STJ) ruled out the requirement to post bond by a foreign legal entity duly represented in Brazil and who seeks to file a lawsuit in Brazil.^[1]

In the specific case, the suit was dismissed without resolution on the merits by the trial court on the grounds that the plaintiff, a foreign company, had not posted bond, as provided for in article 835 of the Code of Civil Procedure (CPC) of 1973^[2] (current article 83, of the CPC of 2015). Article 835 provides that plaintiffs, Brazilian or foreign, who reside outside Brazil or who are absent in the course of proceeding, must provide sufficient security to cover the costs and legal fees of the party against whom the suit is brought, if they do not have real estate in Brazil that may serve as a guarantee.

At the appellate level, the Court of Appeals of the State of São Paulo (TJSP) upheld the dismissal of the case, stating that the bond was enforceable, since the foreign company was not duly represented in Brazil.

Against the decision, the foreign company appealed to the STJ claiming to have appointed a legal entity domiciled in Brazil, through the conclusion of an agency agreement, as its general agent, with powers including to bring lawsuits in defense of its interests.

The discussion of the precedent stems from the fact that the Brazilian procedural system, out of caution, requires the provision of security by foreign legal entities that appear as plaintiffs in a lawsuit if they do not have sufficient real property to support the procedural costs and potential charges, if they do not succeed in the suit, in order to bear the attorneys’ fees of the opposing party (fees for loss in suit).

This type of guarantee has a dual function: (i) to protect the defendant against any financial incapacity of the plaintiff to bear the costs of the proceedings and fees for loss in suit; and (ii) to prevent parties that are not domiciled, or have no real property in Brazil, from litigating before the Brazilian Judiciary without offering any guarantee against potential default, which places them in an excessively favorable position and, consequently, even stimulates abuse of the right to file suit.

In a judgment session held on August 21, 2018, the Third Panel of the STJ held that modification of the TJSP's understanding, following the opinion of Justice Moura Ribeiro, who wrote for the Court, and who commented that there was "no reason that would justify fear with respect to potential liability of the claimant for fees for loss in suit, thus not justifying application of the provisions of article 835 of the CPC/73.” The Justice concluded by stating that the plaintiff is duly represented by an agency domiciled in Brazil which “may be liable directly, if it is unsuccessful in the claim, for any charges resulting from loss in the suit."

Finally, the Justice who drafted the opinion pointed out that, according to the wording of article 88, I, sole paragraph, of the CPC of 1973 (article 21, I, sole paragraph, of the CPC of 2015), a foreign legal entity with an agency, subsidiary, or branch established in Brazil is duly domiciled in the Brazilian territory.

Still on the subject, the CPC of 2015 expressly provides for three cases for waiver of the security: (i) when there is an international treaty or agreement that dispenses with it, a novelty brought about by the legislator in the new code; (ii) execution based on extrajudicial enforceable instruments; (iii) in compliance with a judgment and in a counterclaim (article 83, paragraph 1, I to III).

The prevailing understanding, however, is that the list of article 83 is not exhaustive and admits, for example, that provision of security may be dispensed with in a suit to domesticate a foreign judgment (STJ, Special Court, SEC 507/EX, opinion drafted by Justice Gilson Dipp, decided on October 18, 2006); in a search and seizure action (STJ, 4th Panel, Special Appeal V No. 660.437/SP, opinion drafted by Justice Cesar Asfor Rocha, decided on November 4, 2004) and in cases in which the foreign person appears as "creditor of the defendant in a related action" to the proposal (STJ, 3rd Panel, Special Appeal REsp No. 6.171/SP, opinion drafted by Justice Waldemar Zveiter, decided on December 18, 1990).

^[1] STJ, 3rd Panel, Special Appeal REsp No. 1.584.441/SP, opinion drafted by Justice Moura Ribeiro, decided on August 21, 2018.

^[2] The special appeal was lodged under the aegis of the CPC of 1973.