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.

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.

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.

When the Superior Court of Justice (STJ) decided at the end of last year to reinstate the bank freeze, or fiduciary assignment of receivables, which had been suspended by the court in a judicial reorganization case, it took into account the concept of capital goods provided for in article 49, paragraph 3, of the Bankruptcy and Corporate Reorganization Law (Law No. 11,101/2005, the “LRF”).

This legal provision deals with debt claims that are not subject to judicial organization, including those with a fiduciary guarantee. The final part of the article states that, during the 180 days of the stay period (article 6 of the LRF), capital goods essential to the debtor’s activity may not be removed.

The question of the essentiality of the goods in specific cases inevitably gave way to a discussion regarding the possibility of classifying receivables as capital goods, the possession of which should be assigned to debtor during the stay period by virtue of said provision.

Although the STJ has previously stated that receivables cannot be considered essential assets, the discussion was further elaborated in the special appeal in question (1.758.746/GO). The concept of essential capital goods was analyzed, and whether or not receivables could be included within it, given that this prohibition appears in the final part of article 49, paragraph 3, of the LRF, which served as a basis for companies in judicial reorganization to petition to the Judiciary to suspend bank freezes.

In summary, the appellants' petitions for “canceling bank freezes" lodged in judicial reorganizations were based on the need to maintain the source of production, the employment of workers, and the interests of creditors, which, in theory, would require the financial resources to be given as collateral via a fiduciary assignment to remain with the company under judicial reorganization to give it strength to overcome the crisis.

These arguments have always been strongly questioned, considering that receivables are not even within the assets of the company undergoing reorganization and, in the case of debt default, financial institutions, which already act as the fiduciary owner of the receivables, are entitled to immediate transfer of possession and ownership of the assigned receivables. The subject, therefore, has always generated controversy among scholars and judges.

Prior to delivery of the decision in Special Appeal No. 1.758.746/GO, and given the recurrence of the topic, Justice Aurelio Bellizzi had already indicated, in another case, the need to decide whether or not to categorize receivables that are subject to a fiduciary assignment as capital goods, emphasizing that this categorization could not be influenced by the essentiality of the goods, so as not to become something subjective, because, in fact, it should be objective.

By means of an appellate decision rendered in the special appeal, the STJ, in a unanimous opinion, finally set the criteria for classifying the assets of the debtor in possession as capital goods and, therefore, subject to the protection provided for in the final part of article 49, paragraph 3, of the LRF.

According to the decision, in order to be considered a capital good, the good must be in the possession of the debtor, it must be tangible, and its use cannot mean the vacating of the guarantee, such that, at the end of the stay period, it can be returned to the creditor.

Based on these assumptions, the STJ stated that a fiduciarily assigned receivable is not used materially in the productive process of the company in reorganization, since it is not a tangible asset, nor is it in the possession of the debtor. With that, he stated "the conclusion [was] peremptory that it is not a 'capital good’.” The Superior Court also concluded that "the term 'capital good' could not be interpreted as capable of rendering the fiduciary guarantee void.”

That being the case, based on its finding that receivables cannot be classified as capital goods, the STJ decided that the protection provided for in the final part of article 49, paragraph 3, of the LRF should not be applied to the bank freeze, and the guarantee must prevail intact, including during the stay period.

It is hoped that the new precedent of the STJ analyzed here will serve as a paradigm for the next cases in which the subject is presented, such that the case law will begin to be settled in line with the guideline of the Superior Court, thus generating greater legal certainty with respect to an issue that has hitherto been disputed.

However, even after delivery of the appellate decision in question, the São Paulo court rendered a decision to the contrary in the judicial reorganization of Livraria Cultura (case No. 1110406-38.2018.8.26.0100, in progress before the 2nd Court of Bankruptcy and Judicial Reorganization of the Central Civil Courts). In this case, an interlocutory appeal filed against the trial decision, upheld in limine by the appellate judge presiding over the appeal, is yet to be decided.

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.