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.