Publications

Category: Real estate

It is enough to observe some of the most pulsating cities today to see that entrepreneurial creativity seems to be inversely proportional to available urban space. Proof of this are the various projects around the world with new ways of making better use of the rooftops of buildings or raised slabs.

Some of them add to the economic use of rooftop slabs the ambitious proposal to rethink the function of buildings in the urban context. This is the case of the Bosco Verticale in Milan, a building covered in trees that, in addition to serving as an architectural reference, functions as a natural air-conditioner, reducing the temperature of the units by two to three degrees celsius. In the same area, green spaces, top floors of buildings intended for agriculture, forests, and living spaces emerge in an attempt to combat current problems such as pollution and global warming. There are countless companies that install and operate urban farms on top of buildings in cities like Boston and Chicago (USA), Toronto (Canada), Shanghai (China), and Rotterdam (Holland).

This idea for financing the green economy has also boosted the solar energy market. In New York, for example, where the public is sensitive to environmental issues, the high price of electricity, coupled with tax incentives and financing possibilities, has significantly increased the demand for solar panels in buildings, either individually or through the creation of solar condominiums for the production of alternative energy. Formats like these are present in large quantities, for example, in Los Angeles (USA), Maputo (Mozambique), and Hamburg (Germany).

Another sector in which the players are coordinating and that must undergo major transformations is urban air transport. Thanks to the relatively new phenomena of drone delivery, something that has hitherto been seen as futuristic is already happening in cities in China, and also in Helsinki (Finland) and Lugano (Switzerland). It is estimated that, in two to three years, such equipment will take the urban airspace of cities such as Los Angeles, London, and Singapore. Companies in the industry are investing hundreds of millions of dollars in building an infrastructure network of vertiports, drone landing sites on the tops of buildings in various cities around the world.

The demand has been so great that buildings reserve in advance their top floors for this purpose. The proposal of vertiports is to create a hub of connectivity between the area where they will be installed and the rest of the city. They will serve as logistics points for product distribution and reception of passengers and promise to add to the building a value that goes well beyond the use of the landing platform for the personal benefit of the building’s residents. Busy air traffic in cities seems to be a reality closer than one might think.

The above examples are proof of an increasingly disputed, and in that same measure, more valuable urban space. Giving a new economic use to a portion of a previously unused property, in addition to adding value to the property, intensifies the fulfillment of its social function as an integral part of an ordered city.

This concept is in no way alien to the Brazilian legal system, which, through Law No. 13,465/2017 (previously covered by Presidential Decree No. 759/2016), definitively regulated the property rights of top floors (slab right), a type of surface right intended to legalize irregular settlements due to the numerous cases of informal housing in urban centers in Brazil and the evident need to attribute value to these properties as a measure to integrate them into the formal city.

The slab right imposes a in rem right to the level that puts over or under a base construction by opening a separate enrollment in the real estate registry, which allows the owner of the slab, for example, to offer it as a guarantee for a line of credit. The new property will have an individualized registration with the city government and, with this, it must collect taxes and submit plans for municipal approval, thus becoming a computable area in the records of the municipality and subject to urban administrative rules and planning guidelines. Thus, due to its regularization, the new property-slab becomes more secure and has greater market value, generating a gain for all agents involved: the owner/taxpayer, the municipal power, and society as a whole.

Excepting here the possible legal comments on the system, the slab right serves as a tool for the owner of a property to individualize its slab for use, without the law restricting the form or purpose of that use. The legal provision also establishes that the owner may individualize the slab over its property, even when keeping the title thereto. So it is possible that the owner of the slab and the base-construction be the same person.

Now, would not the system also work as a way of generating value in the above examples of use? Would it be possible to think of the slab right as an accelerator of opportunities in this current scenario of new demands and dynamic solutions?

Undoubtedly, a great obstacle to bringing this into effect arises from the actual operation of the slab right. A priori, the slab must have access independent of the base construction, have its usage plan submitted for municipal approval, and its taxpayer individualized. For its institution, it also depends on the granting of a public deed, collection of transfer tax, and recording in the respective enrollment of the base-construction property. In the case of a recent creation, the real estate registrars still have little familiarity with them, in addition to divergent and non-consolidated understandings regarding the requirements for their registration, which gives rise to a subjective approach on the occasions in which slab rights are effectively created.

A long path still needs to be walked for the slab right to serve as an effective tool. Nevertheless, the creation of a law governing this modality alone evidences a change of mindset regarding the use of urban space and the importance of having this urban space be integrated into the formal city.

This approach is a no-return path. We live in the era of density, verticality, and growing concern with the sustainability of the urban environment. Enabling life in these centers necessarily requires meeting new demands, sometimes through innovative and multidisciplinary measures, which may be promoted to the status of "solutions" only when their implementation is economically viable. It is to be concluded that as important as thinking up solutions for the urban demands of the present time is the development of tools able to put into operation the model of the city that we want to build.

Category: Labor and employment

Incentives linked to shares are part of the essence of the business model of startups. The most common are stock option plans, restricted stock units (RSUs), restricted shares, phantom stock, and phantom stock options.

This article deals specifically with stock option plans, instruments through which a company gives certain employees the right to acquire part of its stock (stock options) after the expiration of a vesting period and for an exercise price potentially more advantageous than what was set at the beginning (strike price). The plans may also restrict the sale of the shares acquired (or part thereof) for a certain period (lock-up).

The vesting period is that between the beginning date and the date after which the beneficiaries may purchase the shares/exercise the options. During this period, beneficiaries may lose their options if they resign or are terminated for cause. The exercise of the options after vesting may also be conditioned on or accelerated upon the occurrence of some event (such as investment rounds that result in contributions by investors).

The strike price is the amount to be paid to exercise the option. It is set when the company grants the options and must be calculated taking into account the fair value of the company at that time.

If the company appreciates during the grace period, the beneficiary will acquire the shares. Otherwise, the options will expire and the beneficiaries will lose them. This is the risk inherent in this type of incentive.

The greater alignment of interests between employees and founders/partners, preservation of the company's cash flow, the potential to maximize gains in liquidity events, the ability to attract and retain talent and executives, the spreading of a feeling of ownership, and non-application of labor and social security charges are factors that drive the expansion of stock option plans among startups.

However, the use of this instrument requires caution, since structuring and implementing it in an incorrect manner may transform the benefit into salary, exposing startups and employees to labor, social security, and tax liabilities.

For startups, this means an additional potential cost with labor and social security charges of approximately 66%. For beneficiaries, it represents an additional potential cost with income tax of up to 12.5%.

Such care is also essential for startups in investment rounds, as labor, social security, and tax risks can negatively affect decisions by potential investors with little appetite for legal risks.

What then are the main requirements that should be observed by startups?

For labor and tax authorities, the exposure of beneficiaries to financial risk and the existence of onerousness are essential if the plan is to be deemed legal.

Financial risk may be demonstrated both by the opportunity cost (because the options will only be exercised if the value of the shares is greater than the strike price) and by the exposure to financial loss.

Onerousness requires that employees effectively disburse their own funds to exercise the options and acquire the shares, either by paying an exercise price fixed based on the value of the shares at the beginning, or by means of payment of an amount for the acquisition of the options themselves.

In this context, startups and their employees may expose themselves to risks with the implementation of stock option plans that establish exercise prices that are substantially lower than the fair value of the shares at the beginning, with financing mechanisms for the payment of the strike price, or that allow the receipt only of the difference between the value of the shares and the exercise price (cashless exercise) or, further, if they do not impose periods of restriction on the sale of shares.

In the coming weeks, we will address the other incentives linked to shares, such as RSUs, restricted shares, phantom stock, and phantom stock options.

Category: Litigation

The exhaustive list of cases for filing interlocutory appeals provided for in article 1,015 of the Code of Civil Procedure (CPC) was the subject of a recent review by the Superior Court of Justice (STJ) in the judgment of Special Repetitive Appeals No. 1.704.520 and No. 1.696.396, which occurred on December 5, 2018.

On that occasion, the Court voted, in a majority opinion, on the admissibility of interlocutory appeals against decisions that are not expressly provided for in the CPC if exceptional urgency is found in the review of the subject matter of the case, thus mitigating the exhaustive nature of the cases listed in article 1,015.

Justice Nancy Andrighi proposed that it is possible to immediately file an interlocutory appeal against decisions not listed in article 1,015 of the CPC when there is a need for an urgent judgment, that is, when uselessness of a future examination in the context of an appeal is found.

Even though the STJ itself had previously acknowledged the suitability of interlocutory appeals based on an extensive interpretation of the list set forth in article 1,015 of the CPC, as in the case of decisions relating to jurisdiction (Special Appeal No. 1.679.909), the stance proposed by Justice Nancy Andrighi went a step further, stating that the mitigation of the exhaustive nature of the list does not depend on an extensive or analogical interpretation of the express cases in which an interlocutory appeal may be filed, but only on the need for immediate judgment.

Until then, some courts also accepted the filing of interlocutory appeals against decisions not listed in article 1,015 of the CPC, albeit as a minority position and on an exceptional basis. However, the new stance set by the STJ in the judgment of Special Repetitive Appeals No. 1.704.520 and No. 1.696.396 reflects an understanding of the matter still little accepted by Brazilian case law and by a significant portion of legal scholars.

The understanding set forth by the STJ, therefore, is a notable inflection point in the topic of the exhaustiveness of the list of article 1,015 of the CPC and should still be the subject of a wide debate in the legal community. It is necessary to observe, above all, the reaction of the lower courts to this understanding on the matter.

Category: Corporate

Law No. 13,818/2019, published on April 25, amended articles 289 and 294 of Law No. 6,404/1976 (the Brazilian Corporations Law) and brought in important changes to the criteria previously required for the publication of corporate documents.

One of the changes introduced by Law No. 13,818, which entered into effect on April 25, is the waiver of publication of the company's management documents provided for in article 133 of the Brazilian Corporations Law, including the financial statements of closely-held companies with shareholders' equity of less than R$ 10 million and less than 20 shareholders. Since 2001, this measure was only waived for closely-held companies with shareholders' equity of less than R$ 1 million, an amount that has not been updated in almost 20 years.

Law No. 13,818 also provides for exemption, as of January 1, 2022, of the publications in the Official Gazette ordered by the Brazilian Corporations Law, such as call notices, minutes of meetings, financial statements, and so on. In this sense, the law determined that "publications must be made in a newspaper of wide circulation published in the locality in which the company's headquarters is located, in a summary form and with simultaneous disclosure of full copies of  documents on the same newspaper page on the Internet, which shall provide digital certification of the authenticity of the documents kept on a separate page issued by an accredited certification authority under the Brazilian Public Key Infrastructure (ICP-Brasil)."

In addition, Law No. 13,818 establishes the criteria allowed for publication of short-form financial statements.

Therefore, the innovations introduced give companies more flexibility and reduce the bureaucracy and maintenance costs of corporate governance, especially for smaller companies.

Category: Litigation

In a decision handed down at the end of last year in Special Appeal No. 1.639.035/SP, the Superior Court of Justice (STJ) established a paradigmatic precedent by reinforcing the theory allowing for the objective extension of arbitration clauses to transactions involving a series of related contracts, where the main contract contains an arbitration clause, even allowing for the setting aside of valid forum selection clauses found in the ancillary contracts.

Origin of the case

The origin of the case is a loan agreement, which Paranapanema S.A. entered into with Banco UBS Pactual S.A. (currently Banco BTG Pactual) and Banco Santander Banespa S.A. (now Banco Santander S.A.), through which it received approximately R$ 100 million from each of the financial institutions.

The agreement provided for the discharge of the company's debt with the banks in one of two ways: (i) payment in Brazilian currency; or (ii) payment in kind through the Company's common shares, to be issued in a capital increase. Paranapanema opted for the second form of payment and, in order to guarantee the transaction, the parties also entered into swap contracts that, in summary, would ensure a minimum return to creditors if, during a pre-established period, the shares were valued at an amount lower than that which was contractually fixed.

While the financing agreement contained an arbitration clause, the swap contracts contained forum selection clauses, electing the courts of the city of State of São Paulo as having jurisdiction to hear and settle any conflicts arising therefrom.

When a dispute arose regarding the payment of the additional amount provided for in the swap contracts, Santander initiated an arbitration proceeding against Paranapanema and BTG before the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC) - CAM-CCBC Proceeding no. 17/2010 - seeking an order directing Paranapanema to pay the difference between the market value of the shares in a given period and the value of its debt claim.^[1]

Unsatisfied with the arbitration award, which ordered it the payment of the amount claimed by Santander, Paranapanema filed an annulment action seeking to nullify the award rendered, in accordance with article 32 of Law no. 9,307/98 (the Brazilian Arbitration Act), alleging that there were no arbitration clauses in the swap contracts and, as such, the arbitral tribunal did not have jurisdiction to rule on the case.^[2] In other words, in Paranapanema’s view, the matter should not even have been submitted to arbitration, since the swap contracts under discussion (which were the basis of the claims made by Santander) did not contain valid arbitration clauses and instead conferred exclusive jurisdiction to the courts of São Paulo.

In the annulment action, the 18th Civil Court recognized that there had been a violation of the principles of impartiality and independence in the formation of the arbitral tribunal and ordered the annulment of the arbitral award. However, it dismissed the argument of lack of jurisdiction of the Tribunal raised by Paranapanema. In an appeal, the 11th Chamber of Private Law of the São Paulo Court of Appeals (TJSP) upheld the annulment of the arbitral award and recognized the connection between the loan agreement and the swap contracts, stating that: “[i]f the main loan agreement reflects a true sine qua non condition for the existence of those ‘swap’ contracts, which are mere annexes to it or ancillary agreements, the arbitration clause in the main contract extends to the related ancillary contracts.

Both Paranapanema and BTG appealed the decision rendered by the TJSP, bringing the controversy to the STJ, through Special Appeal no. 1.639.035/SP.

Judgment of Special Appeal no. 1.639.035/SP

In a majority decision, the 3rd Section of the STJ denied the appeal filed by Paranapanema and BTG.

In his vote, the Rapporteur, Justice Paulo de Tarso Sanseverino, emphasized that, in view of the “connection between the contracts entered into by the parties”, he accepted that the arbitration clause in the main contract extended to the swap contracts, “which are linked to a single economic transaction”. Justice Marco Buzzi and acting-Justice José Lázaro Alfredo Guimarães agreed with the Rapporteur’s vote.

By relying on the principle of “legal gravitation” (gravitação jurídica), according to which an ancillary contract follows the main agreement, the Rapporteur recognized that the arbitration clause in the main contract binds the parties to arbitration even in disputes arising from the ancillary contracts (including when such contracts contain a valid forum selection clause).

In this sense, the Rapporteur expressed his view that the inclusion of the forum selection clauses in the swap contracts would not have the effect of setting aside the “clear will of the parties to arbitrate conflicts arising from the legal transaction”, thus validating the position expressed by the TJSP.

Justice Luis Felipe Salomão captained the dissent, followed by Justice Ricardo Villas Bôas Cueva, arguing that, in line with the case law of the STJ, “related contracts, although joined by a causal link, do not lose the autonomy and individuality inherent to them.”

He emphasized the important role played by the principle of party autonomy in arbitration and the individuality of the legal relations created by each independent contract, ruling out the possibility of objective extension of the arbitration clause.

Justice Salomão concluded his dissenting opinion to the effect that extension of the arbitration clause to related contracts (especially in the case of contracts containing specific forum selection provisions) depends on an examination of the facts – in particular the "investigation of the parties’ will” – in order to determine whether the inclusion of a forum selection clause in subsequent agreements (when an arbitration agreement has been included in the original contract) may have been sufficient to "indicate the parties’ lack of agreement to solve their disputes via arbitration."

Final Considerations

In view of the decision, parties involved in complex transactions, governed by various contractual instruments, must be attentive to the way in which they express their will, therein clearly stating, if appropriate, their choice of whether or not to extend the arbitration clause contained in the ‘umbrella’ contract to the other contracts. Given that including forum selection clauses in the ancillary contracts may not be enough, they may have to include explicit reference to their desire to set aside the original agreement to arbitrate expressed in the main contract.

In any case, it is certain that the principle of party autonomy plays a very important role in arbitration, and that, when deciding matters related to the jurisdiction of an arbitral tribunal and the extension of an arbitration clause, the interpreter of the contract must always investigate the facts and nuances of the case and the relationship between the parties and the agreements they have entered into.

^[1] When signing the financing agreement, Santander and BTG entered into a parallel agreement, in which the former undertook to guarantee the settlement of Paranapanema's debt with the latter. As a result, Santander had settled Paranapanema's debt with BTG and assumed BTG’s credit. Santander had also initiated arbitration proceedings against BTG seeking to recover these amounts paid on behalf of Paranapanema and, therefore, included BTG in the arbitration against Paranapanema to avoid potentially conflicting decisions between the different arbitrations.

^[2] In the annulment action (lawsuit no. 0002163-90.2013.8.26.0100, filed before the 18th Civil Court of the Judicial District of São Paulo), Paranapanema also claimed that there had been a breach of the principles of impartiality and independence by the arbitral tribunal, since BTG and Paranapanema had not reached an agreement as to the appointment of a co-arbitrator and one had been appointed for them by the CAM-CCBC. Paranapanema alleged that, given that it was a multi-party arbitration and that the two (2) respondents had not been able to appoint their co-arbitrator, Santander should not have been allowed to appoint its own co-arbitrator.

Category: Tecnology

After 176 amendments were presented and various public hearings were held, the joint committee formed by senators and deputies to review the Executive Order (MP) 869/2018, which amended Law No. 13,709/2018 (General Law on Data Protection - LGPD), voted on May 7 in favor of approval of the wording proposed in the report by Deputy Orlando Silva, also rapporteur for the special committee that approved the bill that originated the LGPD.

With the wording approved by the joint committee, MP 869/2018 will now proceed to a vote by the Chamber of Deputies and, later, the Federal Senate. If approved, the text will follow for presidential signature and will be converted into law.

According to what was proposed in the report, the main changes to the LGPD will be the following:

Health area: with respect to the legal bases for the processing of personal data, including sensitive data, wording has been added so that, in addition to health professionals and health entities, health services may also process personal data for protection of the data subject's health. Regarding the prohibition of shared use among controllers of sensitive personal health data for the purpose of obtaining economic advantage, the wording proposed cites as an exception the provision of health services and pharmaceutical assistance, to the benefit of the interests of the data subjects and to enable data portability and financial and administrative transactions resulting from the use and delivery of health services. Also, very important wording has been added for health care operators, prohibiting the operators of these plans from processing personal data for risk selection in contracting with and exclusion of beneficiaries.

Data subjects' rights: The current wording of the LGPD provides that the data controller must report correction, elimination, anonymization, or blocking of data to the processing agents with whom they have shared it, for them to perform the same procedure. According to the proposed addition to this wording, the person responsible will not need to carry out such reporting in cases where this is demonstrably impossible or involves disproportionate effort. Regarding the right to review decisions made on the basis of automated data processing, the proposed wording provides for the review to be done by an individual, as provided for in regulations by the Brazilian authorities. These rules should take into account the nature and size of the processing agent or the volume of data in the processing operations.

Penalties: In cases of infringement of the LGPD, the proposed wording also adds the penalties of partial suspension of the operation of the database; suspension of the exercise of the processing of personal data; and partial or total prohibition on the performance of activities related to processing of data. These penalties will only apply in cases of repeat offenses. A paragraph was also added to provide that the amount collected via the fines applied be allocated to the Fund for the Defense of Diffuse Rights, provided for in the Public Civil Action Law and the law that created the Federal Management Council of the Fund for the Defense of Diffuse Rights.

National Data Protection Authority (ANPD): the ANPD's link with the Presidency of Brazil and its legal nature as a body of the federal public administration should be re-evaluated after a two-year term. Various attributions were also added to the ANPD, such as preparing guidelines for the National Policy for the Protection of Personal Data and Privacy; entering into commitments with processing agents to eliminate irregularities, legal uncertainty, or contentious situations; promulgating simplified and differentiated standards, guidelines, and procedures (including deadlines) for micro and small businesses to adapt; and ensuring that data processing for the elderly is carried out in a simple, clear, and accessible manner.