International debt collection

Litigation in Brazil – The Difficulties & Alternatives

As an attorney with a law firm in São Paulo, Brazil, despite the significant developments in Brazil in recent years, and the progress of our country, civil litigation and navigating the Brazilian legal processes can be difficult, time-consuming, and is s a far cry from an efficient process.


I always carefully explain to all of my clients, whether domestic or international, that due to the cumbersome, slow and costly bureaucratic process, commercial litigation should only be pursued when all other alternatives have failed. Most notably, regardless of the merits of a case, obtaining a judgment through a civil lawsuit can require anywhere between five to ten years, or even longer.

 
That said, Brazil has established an excellent regulatory and monitoring agency called the Conselho Nacional de Justiça, which 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, and despite this oversight, there is still a lack of management reform and a weakness in aiming for conciliation, mediation, and arbitration and alternative resolution methods throughout the legal system. There is also a lack of control in the number of frivolous lawsuits filed, which ultimately clogs the legal system and contributes to the delay of justice, with approximately 63.5 million pending lawsuits awaiting judgment. Further, there is a lack of regulation over which trial judgments can be appealed, which has led to excessive appellate filings, which further contributes to the delay.

  
Another important element to be considered before entering into litigation is the legal costs. Due to the length of time required to obtain judgment, the ongoing costs, and the ultimate risk that even after obtaining a money judgment, there is no guarantee of collection, litigation is generally not recommended on commercial claims less than USD $50,000.
 
In addition to legal fees, there are general costs which must be considered, particularly with foreign claimants, whereby all pertinent documents must be translated into Portuguese by an official translator, as well as 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, to 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. While judges have the ability to not require foreign plaintiffs to carry a legal bond, there is always a possibility that it will be required.  
 
Regarding legal fees, I often receive inquiries from companies abroad that are already involved in litigation in Brazil and suddenly realize they have paid hourly fees equivalent to almost 50% (or more) of the original claim value. As the ongoing and slow bureaucratic process requires significant legal work, in which significant legal fees may accrue a rigorous investigation should be performed of a defendant’s assets, operational status, as well as long term financial viability to pay a claim, prior to commencing 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 provides Brazilian attorneys motivation to resolve legal matters swiftly and encourages the avoidance of unecessary or lengthy legal processes.


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 are adept at understanding complicated legal issues and who encourage negotiation amongst parties. While costs for these these Chambers of Arbitration remain relatively high, resolution often comes quicker than through 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 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, and 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 initial negotiation strategy, rather than invest significant capital and risk a significant delay in time before payment is eventually made. Further, all efforts should be made to obtain signed acknowledgements of a debtor’s obligation as well as payment installment terms, which may ultimately expedite any future possible legal proceedings, should terms for payment not be upheld.


In Brazil, it is common practice for a personal guarantee to be used to support a company’s credit or debt obligations. However, due to local requirements as to the enforceability of personal guarantees, a local attorney is recommended to verify the legal terms, conditions and value of the guarantee. It is furthermore advisable 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, legal infrastructure, and cultural peculiarities that helps to to minimize expenses, particularly since substantial losses may have been incurred in a creditor not receiving a customer’s payment. In particular, this experience and know-how can provide foreign companies with a level of comfort not only in collection activities, but in initial work in establishing operations in Brazil and developing relationships with local vendors, customers, and suppliers.
 
Finally, it is highly recommended that prior to doing business with a new customer in Brazil, the financial and legal circumstances surrounding that customer should be thoroughly investigated with all contracts and other legal documentation properly reviewed by local counsel. This will  minimize potential problems and future misunderstandings, and will ultimately lead to a more positive and profitable experience in Brazil.

Fonte : Octávio Aronis, Attorney

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