As early as when Brazil was an empire, the Imperial Constitution of 1824, in Article 157, had the provision for a legal measure called a popular action (ação popular), which could be brought by any citizen regarding misconduct by public officials. The popular action provided in the 1824 constitution was an early version of one of the first Brazilian mechanisms to protect collective interests.
Federal Law No 4.717/1965
After the country became a republic, the popular action resurfaced in the Federal Constitution of 1934 with a broader spectrum – Section 113, No 38, issued any citizen legal standing to file a suit before the courts to seek nullification of acts harmful to the Brazilian State. However, it took until 1965 for the popular action to gain more relevance, when Federal Law No 4.717/1965 was enacted. This law regulated the popular action’s procedure and is in force to the present day to ensure that any citizen can seek remedies to prevent or end violations of certain collective interests, especially those pertaining to public administration.
In addition, as per Section 1, §1, of Federal Law No 4.717/1965, a popular action could be filed to protect public assets of economic, artistic, aesthetic, historic, and, since 1977, touristic value, which also showed some regard to specific types of collective rights.
However, when Federal Law No 4.717/1965 was enacted, there was little concern among law scholars as to the judicial protection of collective interests in Brazil. At that stage, the popular action was still seen as an instrument to protect the State’s rights rather than collective rights. José Carlos Barbosa Moreira was the first Brazilian scholar to visualise the popular action’s potential to serve the role of a legal remedy against violations of rights that were not held by any state or individual alone, but rather by the collective. He called these “superindividual interests” (interesses supraindividuais).
The problem was that the popular action was a mechanism that could only be filed against public officials and government bodies. And apart from the popular action (which was designed to nullify acts that were harmful to the Brazilian State) and some other scarce provisions particular to specific groups, Brazil lacked a legal recourse for the broader interests of the community, such as the protection of the environment, consumers, public services, civil rights, etc, which could be used against any kind of entity, public or private.
Leaps Towards the Current Scenario
Brazilian society changed a lot following the late stages of military government (1964–1985). Concerns about public participation in matters regarding civil rights and environmental issues resulted in laws that first granted the Public Prosecutor’s Office (Ministério Público) legal standing to file a public civil action (ação civil pública) to protect such rights.
Public Civil Action Act (Federal Law No 7.347/1985)
It was only in 1985 that Congress passed a bill regulating the contours of the Public Civil Action, when it enacted Federal Law No 7.347/1985 (the “Public Civil Action Act”) which – with some modifications over the last, almost 40 years – is in force to this day. According to the original dispositions of Federal Law No 7.347/1985, a public civil action may be filed to seek liability for damages:
Progressively over the years, Federal Law No 7.347/1985 has been amended to encompass the protection of other types of interests, such as:
In the same period, changes to the law were approved to secure the possibility of seeking preliminary injunction to avoid damages. A significant development relative to the popular action regime was the possibility to file a public civil action against any person or entity, public or private, who committed an unlawful act. However, to this day, only a handful of public offices and organised civil entities – which will shortly be analysed – have standing to sue for a public civil action.
Concerns over the defence of collective interests are such that the current Federal Constitution of 1988 explicitly states in Section 129, III that the Public Prosecutor’s Office has the institutional function of filing for public civil action to protect social and public assets, the environment and other diffuse or collective interests. Furthermore, the current constitution also grants, among the fundamental rights in Brazil, that civil associations may judicially defend the rights of their associates (Section 5, XXI), and the right to popular action and the Collective Writ of Mandamus (Mandado de Segurança Coletivo), as per Sections 5, LXIX, LXX and LXXIII.
Consumers Protection Code (Federal Law No 8.078/1990) and other acts
Many other legislative developments were implemented in the following years, the most sensitive being the enactment of the Consumers Protection Code – Federal Law No 8.078/1990 – which brought deep improvements to the Brazilian collective actions system. In fact, the Consumers Protection Code became applicable to all public civil actions pertaining to diffuse, collective and some individual interests. Moreover, the classification of admissible interests between diffuse, collective and homogeneous individual rights (as per Section 81 of the Consumers Protection Code) is used to this day. Other relevant advancements consisted in the possibility of public civil actions under the Child and Adolescent Statute (Federal Law No 8.069/1990 – Section 201, V) and the Administrative Improbity Act (Federal Law No 8.429/1992). The latter brought procedural rules for a specific type of public civil action designed to seek restitution and injunctions regarding misconduct by public officials or any third parties, including private companies, that caused damages to the public treasury or violated principles of public administration.
Federal Law No 12.016/2009 regulating the Writ of Mandamus
Following the constitutional provision of a fundamental right to the Collective Writ of Mandamus, Congress passed Federal Law No 12.016/2009 regulating the Writ of Mandamus (Mandado de Segurança), which included dispositions regarding the Collective Writ of Mandamus, a legal remedy against unlawful acts by public officials. As will be shown in more detail, it promises a very speedy trial and the possibility of preliminary injunctions to secure collective and homogeneous individual interests.
New Civil Procedure Code under Federal Law No 13.105/2015
In 2015, Congress approved a new Civil Procedure Code under Federal Law No 13.105/2015 (the “CPC”), which came into effect in March 2016. All types of collective action mechanisms are regulated by the CPC, within the boundaries of specific laws.
Modifications to the Administrative Improbity Act and authorisation for mediation in administrative matters
The Brazilian legislative landscape is constantly changing and the matter of collective interests’ protection is no exception. In more recent years, Congress has approved several laws that have had a significant impact on the public civil action regime and other collective mechanisms, such as deep modifications to the Administrative Improbity Act (as provided in Federal Law No 14.230/2021) and the authorisation for mediation in administrative matters (Federal Law No 13.140/2015).
The precedents system in Brazil – although not covered in this guide – has also had an important impact on the matter, particularly for businesses that operate within the country. For instance, with the Repetitive Demands Resolution Incident and the Repetitive Appeals System (CPC, Sections 976 and 1.036) courts can judge an appeal or decide on a question of law only once, and this decision will be obligatory to all cases within the jurisdiction of such court and other courts and judges that are hierarchically under it. Therefore, many scholars advocate that a holistic understanding of collective actions in Brazil can only be obtained through the study of the precedents system.
Draft Law No 4.441/2020, revoking Federal Law No 7.347/1985
There is a bill under review in Congress for a new Public Civil Action Law (Draft Law No 5139/2009) that would have a deep impact on the entire subject of collective actions. However, the proposed legislation came to a halt in 2010 and there is no indication that it will advance in the foreseeable future. The main legislative reform proposal being processed is Draft Law No 4.441/2020, which would revoke Federal Law No 7.347/1985, and make changes to other legislative acts.
Admissibility Based in the Category of Rights or Interests
As seen in 1.1 History and Policy Drivers of the Legislative Regime, collective interests’ protection mechanisms in Brazil derived from the notion of “superindividual” or “transindividual” interests, such as collective, diffuse and homogeneous interests. Different legal courses may be admissible depending on the presence of such interests and the nature of the rights under discussion. A court or a judge may dismiss a public civil action or other collective mechanism if convinced that the nature of the interest under discussion does not fall into the transindividual category.
According to Federal Law No 8.078/1990, Section 81, transindividual interests in Brazil are defined as:
Specifically, Section 1 of Federal Law No 7.347/1985 indicates the nature of interests that may be protected under the public civil action regime, as already listed in 1.1 History and Policy Drivers of the Legislative Regime.
On the other hand, class actions in the USA are primarily defined by the notion of a “class”, as provided by the famous Rule 23. Requirements for a class action are not focused on the nature of the matter or the classification of interests, but on the benefits of treating an issue collectively rather than individually. Therefore, a class action will be admissible if the following (explicit and implicit) requisites are fulfilled:
Comparing Legal Standing
Moreover, class actions in the USA can be filed by individuals as representatives of the class’s interests. In Brazil, under Federal Law No 7.347/1985 and other statutes, only a few entities have standing to file a public civil action or similar mechanism. These entities do so with “extraordinary” standing, meaning that such entities do not pursue their own interests, as they file the suit in substitution of the class of individuals. Therefore, individuals or private companies may not pursue such a legal course on behalf of their own interests through a collective action. The following entities in Brazil have legal standing to file a public civil action according to Federal Law No 7.347/1985, Section 5:
Other entities have legal standing for other collective mechanisms as substitutes, such as political parties with representation in Congress and workers’ unions, in the case of the Collective Writ of Mandamus (Federal Law No 12.016/2009, Section 21). As explained in 1.1 History and Policy Drivers of the Legislative Regime, any citizen has the standing to sue a popular action, even though this legal course has a limited scope.
Many countries also adopt the opt-in or opt-out systems. In the opt-in system, the individual who belongs to a class must expressly manifest their intention to be affected by the ruling. As per the opt-out system, the individual is subject to the future decision, unless they timeously manifest the desire not to be affected.
However, Brazilian regulation has a different approach to this issue. An individual is not bound to a final judgment in a public civil action if this does not benefit their interests. Only favourable rulings affect the individual, as the effects of a final decision in the Brazilian collective system depend on what is decided (res judicata secundum eventum litis). Therefore, if the public civil action is dismissed or deemed groundless, the individual may still file an individual suit – unless in matters of diffuse or collective stricto sensu interests (eg, environmental and cultural value issues). This model is vastly criticised by scholars as it does nothing or very little to reduce the volume of individual litigation and reduces the potential relevance of public civil actions as an instrument to effectively end disputes.
Therefore, the general rule is that the effects of a final decision in a public civil action vary depending on (i) the type of interests in play, and (ii) the grounds of the ruling. Under Section 103 of Federal Law No 8.078/1990, a final ruling only becomes res judicata (not subject to modification) with effect:
In 2021, the Brazilian Supreme Court (Supremo Tribunal Federal) deemed Section 16 of Federal Law No 7.347/1985, which provides that a final decision in a public civil action would affect only those within the court’s territory of jurisdiction, unconstitutional. Therefore, a final ruling in a public civil action will produce effect to anyone affected by it, regardless of where in Brazil the action takes place.
Individual Restitutions in Collective Actions
If a court finds a violation to homogeneous individual interests during a public civil action, the final ruling will not grant liquidated compensation to individuals. Rather, anyone affected may join in the proceedings so the restitution can be calculated by the court and paid by the defendant. As per Section 98, however, the enforcement may be collective if the defendant fails to pay or fulfil its obligations under the final decision.
Procedural Rules in Brazilian Territory
The 1988 Constitution provides that all procedural law is a matter of federal legislation. Therefore, the main body of applicable rules does not vary between Brazilian states and municipalities, except those rules related to matters of less importance to this guide, such as court costs, processing of appeals, etc.
This is not relevant in Brazil.
As previously outlined in 1.2 Basis for the Legislative Regime, Including Analogous International Laws, Brazilian Law provides for a system based more on the nature of interests, the different categories and the parties involved rather than the concept of class or group. Therefore, different statutes may apply to a case depending on the interests or rights at play and the parties involved in the dispute.
The main statues are Federal Laws No 7.347/1985 and No 8.078/1990. Together, they form a single system of public civil action, as Section 21 of the Public Civil Action Act states that the Consumers Protection Code is applicable to all transindividual rights, including those rights mentioned only by the Public Civil Action Act. Therefore, the procedural provisions stated within the Consumers Protection Code are not limited to consumers’ rights.
Other applicable laws, as indicated in 1.1 History and Policy Drivers of the Legislative Regime, are as follows.
The popular action’s main characteristics are discussed in 1.1 History and Policy Drivers of the Legislative Regime.
The administrative improbity public civil action was traditionally used as a much broader mechanism than the law’s wording would suggest, often interfering with public policies and government choices. In response to that structural problem and to implement other much-needed improvements, in 2021, Congress made changes to Federal Law No 8.429/1992. Among those changes, Section 17-D was introduced, clearly stating that the legal action under this law should be reserved to punish public officials and private parties which committed administrative misconduct. It would not be admissible to control the legality of public policies and the protection of social and public assets, the environment and other transindividual rights. From that point on, it seems that the administrative improbity public civil action lost much of its importance as a type of collective redress or class action per se. However, there is still a “cultural” acceptance of this legal course within its old boundaries, as this change was somewhat controversial and a significant number of lawsuits had been filed before said change, which cannot be ignored.
The Collective Writ of Mandamus is a type of summary procedure provided by Federal Law No 12.016/2009, which allows entities with legal standing (as explained in 1.2 Basis for the Legislative Regime, Including Analogous International Laws) to seek immediate remedy for violation by a public official of a liquid and certain right. This means that the plaintiff must provide all the necessary evidence before a judge or court along with the initial petition, since this legal course does not permit a trial phase to produce additional evidence. It is therefore a powerful mechanism, but with limited scope.
As previously stated in 1.1 History and Policy Drivers of the Legislative Regime, the Public Civil Action Act and the Consumers Protection Code provide a general clause for protection of any collective or diffuse interest (Section 1, IV, of the Public Civil Action Act). Other than this general provision, these laws expressly cover transindividual interests in numerous areas, namely:
Under other various legislations in force, other areas of law admissible in the public civil action regime include child and teenager protection, protection of the elderly, labour issues, etc.
However, Federal Law No 7.347/1985 (Section 1, sole paragraph) expressly excludes the admissibility of public civil action to discuss homogeneous individual rights in areas of tax, social security contributions and other pension funds.
Similarly, Section 1 of the Popular Action Act (Federal Law No 4.717/1965) sets forth a general clause for the protection of public assets – material or otherwise – including assets of economic, artistic, aesthetic, historic and touristic value. The areas of law admissible under this act do not have a statutory definition or limitation, but often include administrative law, regulatory law, public services, environmental issues, public contracts, etc.
The Collective Writ of Mandamus (Federal Law No 12.016/2009) depends on unlawful acts by public officials that violate transindividual rights of various natures (collective or homogeneous individual rights), provided that the legal course is consistent with the goals of entities with legal standing. However, the law does not predetermine the areas in relation to which the writ is admissible. The only limitations are provided in Section 1 and §2, namely, the Writ of Mandamus will not be admissible if habeas corpus or habeas data is admissible and the Writ of Mandamus is not admissible against commercial or management acts of public company officials or public service concessionaire officials.
There is no statutory definition as to what constitutes a collective redress/class action in Brazil.
However, a comprehensive description of legislation concerning collective action can be found in 1.1 History and Policy Drivers of the Legislative Regime and 1.2 Basis for the Legislative Regime, Including Analogous International Laws.
For information on this topic, see 2.1 Collective Redress and Class Action Legislation, in which the principal laws and regulations governing collective redress/class actions in Brazil are identified.
It is important to note that individuals (except for in the popular action) and companies do not have legal standing to file any collective action in Brazil. To start a legal course pertaining to transindividual rights, a person must provoke the public entities referred to in 2.1 Collective Redress and Class Action Legislation through a complaint, which will become an investigation and possibly a lawsuit. Another way would be to persuade a civil association with statutory goals to file a collective action that would protect the transindividual right in question.
As per Section 139, X of the CPC, a judge faced with multiple individual claims with the same background should notify entities with legal standing, especially the Public Prosecutor’s and the Public Defender’s Offices, so they can assess whether to file the befitting collective action.
Furthermore, as informed in item 1.2 Basis for the Legislative Regime, Including Analogous International Laws, the scope of class actions in Brazil tends to be determined by the nature of the matter at hand (object). This, in turn, will define the courts in which such claims may be brought – whether in specialised jurisdictions (eg, labour, electoral or federal courts) or in the residual state courts. Besides, as a general rule, cases are tried within the jurisdiction where the damage occurred. If the issue is local, the suit must be tried before the respective state court. Otherwise, if the damages are regional or national, the legal course will take place before the Federal Court.
Overall, the procedure for bringing a collective action in Brazil does not vary depending on the court’s location or jurisdiction, as procedural law is a matter of federal legislation. Also, as previously pointed out in 1.2 Basis for the Legislative Regime, Including Analogous International Laws, the CPC applies to all collective mechanisms where these do not directly contradict its provisions.
Special provisions for different types of legal course can be found in 2.1 Collective Redress and Class Action Legislation.
An entity with legal standing must bring a class action according to the respective law and file the suit before a court with jurisdiction. Each of the procedures listed in 2.1 Collective Redress and Class Action Legislation, however, may have specific requirements for the action to be admitted.
It is key to note that legal standing to file a collective action under Brazilian Law is not granted to individuals affected by a violation of their rights, but to specific entities as indicated under the law. This phenomenon is called “procedural substitution” or “extraordinary legitimacy”, which roughly means that legal standing is granted to a substitute rather than to the collective or to the right-holders themselves.
The substitutes that have standing to bring a collective action mechanism are outlined in 1.2 Basis for the Legislative Regime, Including Analogous International Laws and can be summarised as follows.
There is no statutory provision that establishes specific parameters for who belongs to a relevant class for the purposes of collective actions. As previously addressed, the Brazilian system of collective actions depends on the definition of the transindividual interests affected and does not rely on the formation of a class. For more information on this topic, see 1.2 Basis for the Legislative Regime, Including Analogous International Laws, in particular, the headings “Res Judicata” and “Individual Restitutions in Collective Actions”.
Any entity with legal standing may file a collective action without the need to obtain authorisation from class members. Furthermore, any one of the entities mentioned in 4.3 Standing that wishes to join a collective suit may do so as either a co-plaintiff or as an “assistant”, which allows such entity to produce evidence, appeal and take all the necessary measures to ensure adequate defence of the transindividual rights in question.
On the other hand, a person may join the collective action as a defendant or as its assistant. As per Section 113, CPC, two or more persons may litigate jointly in the same proceedings when:
Collective actions typically accept amicus curiae – Latin for “friend of the court”. As per Section 138, CPC, this type of third-party intervention is admitted when the matter discussed is specific to a field of knowledge or has a significant social repercussion. In these cases, courts may accept or invite the joinder of a person or legal entity that can contribute to understanding the facts of the matter or present a (not necessarily impartial) point of view. This provides different perspectives to the court and serves to legitimate decisions from a democratic standpoint.
Considering that plaintiffs act as substitutes for the collective and right-holders (as explained in 4.3 Standing),a lis pendens between two or more collective actions is characterised solely by the identity of the matters, with disregard to the parties. Therefore, the admission of interested parties is usually granted to avoid significant harm to fundamental rights like due process.
Regarding the possibility of the joinder of individuals seeking restitution, see 1.2 Basis for the Legislative Regime, Including Analogous International Laws, under the heading “Individual Restitutions in Collective Actions”.
Section 5, XXXV of the 1988 Constitution sets forth a general provision of broad judicial review as part of the fundamental right of access to justice. As a result, the courts are bound to hear practically every case filed.
All the steps of collective actions referred to in this chapter have been previously determined by the respective laws and, in a general way, by the CPC. Therefore, the existing legal provisions are sufficient to try a collective action from start to finish.
However, the judges and courts have the power to alter calendars and the order of trials to adjust the procedure to a dispute’s characteristics (Section 139, VI, CPC). Parties may also agree on calendars, admissible evidence, and other steps of the trial, provided that the matter in dispute admits settlement (Section 190, CPC). However, it is important to note that Brazilian law and courts adopt much stricter parameters than other jurisdictions to define which disputes can be settled by parties.
The CPC (Section 334) establishes a conciliation or mediation hearing that precedes the defence in an attempt to promote an amicable settlement of the dispute. This hearing is mandatory, unless both parties lack interest. However, it is common practice in Brazilian courts to dismiss this hearing, especially in collective actions.
Furthermore, Section 357, §3, CPC provides for a pre-trial hearing that may take place in complex disputes, in which all pending procedural matters are defined and the need for further evidence is decided.
Other case management powers held by the courts include filing a Repetitive Demands Resolution Incident (CPC, Section 976) and applying the Repetitive Appeals System (CPC, Section 1.036), as seen in 1.1 History and Policy Drivers of the Legislative Regime. The courts may also provide that a higher body within the court hierarchy decides on a specific and relevant matter of law that has great social repercussion, through the Jurisdiction Take-Over Incident (Incidente de Assunção de Competência – CPC, Section 947).
Case management powers are limited, however, as the right to appeal, to present evidence, to present a defence and other matters regarding public order and fundamental rights, may not be suppressed. At this stage, Brazilian scholars deeply disagree as to the extent of case management powers.
It is notoriously difficult to anticipate the length of proceedings in Brazil, but matters tend to take several years, considering all admissible appeals.
Various elements can influence the length of a case, including its innate characteristics provided by the applicable laws; the number of parties, assistants and amicus curiae involved; the need for further evidence (such as expert opinions and witnesses); the complexity of the dispute; the court in which it is processed; the number of appeals, etc.
The length of the proceedings also depends on the number of appeals filed against interlocutory decisions. The CPC provides that only some interlocutory decisions should be subject to appeals. This was a measure intended to ensure the swiftness of proceedings.
A public civil action or a popular action typically have a postulatory phase, when parties present their case to the court; a trial phase, when parties and the court may bring new evidence; and a final allegations phase. After that, the judge will produce the final award, which can be subject to appeal at a higher instance court (state or federal). Parties will still have the possibility to appeal to the Superior Court of Justice or the Supreme Federal Tribunal, in Brasília.
Some public civil actions reach a final decision in less than five years and others are ongoing after more than 20 years. Nevertheless, as explained in 1.1 History and Policy Drivers of the Legislative Regime, it is possible to file for an injunction to seek immediate relief for some aspects, such as the need to cease violations, which will typically be examined within a few days.
All in all, the Collective Writ of Mandamus is usually the fastest legal route since the presentation of evidence is very limited. Plaintiffs must ensure all evidence is already in place before filing this legal measure. Therefore, this proceeding is generally less time-consuming than the others.
As mentioned in 4.6 Case Management Powers of Courts, the 1988 Constitution warrants broad judicial review and access to justice as fundamental rights, which means the courts are bound to hear practically every case filed.
A judge or a court may dismiss a collective action before trial if convinced that it does not meet the requirements according to procedural law, such as a claim pertaining to a transindividual interest.
Also, Section 332, CPC, provides that a judge may summarily rule an action meritless even before hearing the defendant, if convinced that the claim does not require further evidence and is contrary to:
A court may decide that all cases within its jurisdiction pertaining to a matter that is subject to the Repetitive Appeal System or Repetitive Demands Resolution Incident must be suspended until a final decision is reached. This may cause a significant delay to affected cases.
The general principal in Brazilian procedural law is that costs and expenses (eg, court taxes, expert fees, etc) are advanced by the plaintiff or by the party that desires to bring evidence and must be paid in the end by the losing party. However, in securing access to justice, this principle does not entirely apply to collective actions.
According to Section 91, CPC, the Public Prosecutor’s Office, the Public Defender’s Office, the Federal Government, states, municipalities, and the Federal District are exempt from judicial costs. Additionally, Section 81 of the Consumers Protection Code states that the plaintiff in public civil action is not required to advance court taxes, expert fees or other expenses.
As a rule, the defeated party in a lawsuit is also responsible for the opposing party’s attorneys’ fees. However, this rule usually does not apply to class actions. The general rule concerning these legal courses can be summarised as follows.
This regime has been fairly criticised, as it does not impose on plaintiffs any regard for their chances of success or risk, which in turn provokes a flood of collective actions that have no merits. In 2018, this led Congress to add Section 27 to the Introduction to the Brazilian Norms Act (Decree-Law No 4.657/1942), which provides that any party may be condemned to restitute the other for unfair advantages or losses caused by a lawsuit or the conduct of the parties.
There is no specific procedure for pre-trial, non-judicial disclosure in Brazil.
Nevertheless, Section 381, CPC, establishes that the early production of evidence is admissible when:
Unlike many common law jurisdictions, Brazilian procedural law does not set forth full disclosure or discovery duties. However, Section 396, CPC, establishes that a judge can order a party or third parties to disclose documents or objects in its possession. Exceptions to this are if:
Rules of privilege apply to all communication between parties and their attorneys.
There is no distinction between ordinary judicial remedies and the ones applied in collective actions in Brazil. Overall, judges can impose affirmative or negative covenants (interim or not) as well as compensation for damages.
One exception is the provision of collective moral damages to be paid on behalf of the community. These sums are deposited into a fund administered by either the Public Prosecutor’s Office or members of the community themselves.
Settlements are generally admissible in collective actions in Brazil. However, the nature of the interests in dispute may not admit settlement, as the law provides that some rights are unnegotiable. For example, the right to compensate damage caused to the environment may not be waived by the Public Prosecutor’s Office, but the way the damages will be compensated or eliminated may very well be settled.
Both Section 5, §6, Federal Law No 7.347/1985 and Section 107, Federal Law No 8.078/1990 are examples of authorisations to entities with legal standing to sue to settle disputes by means of compensations and measures to cease violations to transindividual rights.
In public civil actions, these settlements usually take the form of Conduct Adjustment Terms (Termo de Ajustamento de Conduta) but this is not a requirement. It is possible to reach settlement in various forms, including outside of the case files. Nevertheless, if a collective action is already being processed, it is a good measure to request that the court homologates the agreement.
As indicated in 1.1 History and Policy Drivers of the Legislative Regime, since 2015 in Brazil, Federal Law No 13.140/2015 has expressly allowed mediation with public entities of the direct and indirect public administration. This law settled some very old discussions related to the possibility of negotiation within matters of public interest, which resulted in a real change of perspective on ADR mechanisms for transindividual rights in Brazil.
Nowadays, many consensual methods of dispute resolution flourish, even in fields where this would have been inadmissible a few years back, such as Civil Non-Prosecution Agreements under Section 17-B of the Administrative Improbity Act.
In addition, the boundaries of what are considered “unnegotiable rights” are constantly being tested and pushed, and this is a trending topic among scholars.
This was partially addressed in 1.2 Basis for the Legislative Regime, Including Analogous International Laws, under “Res Judicata” and “Individual Restitutions in Collective Actions”.
Final rulings in collective actions may be of any nature, depending on the boundaries of the claim that was filed. Judgment may never exceed a claim, as civil procedural law directly prohibits this. A final award should indicate compensations, sanctions and obligations, and will be enforceable through all legal means with no relevant distinctions from an individual claim. Entities with legal standing to sue can also seek enforcement if the defeated party does not comply voluntarily.
If an award grants the right to compensation for violation of homogeneous individual rights, the amount of individual compensation must be stipulated through a procedure of liquidation, which must be filed by the victim or their successors. The defeated party will have the right to defend itself in each individual liquidation procedure, but only regarding the victim’s relation to the facts and the amount of compensation, not the unlawfulness of facts or the harm caused.
However, to prevent an award from becoming effectless or ineffective, entities with legal standing to sue may also file for enforcement and restitutions if a one-year period passes and only a small number of victims file for liquidation of restitutions. Such sums will be reverted to a fund managed by federal or state boards with the participation of the Public Prosecutor’s Office, which will manage the reparation of harmed assets. Scholars refer to this mode of enforcement as “fluid recovery”.
Among the policy developments implemented by the National Council of Justice (Conselho Nacional de Justiça) in recent years, it is worth highlighting Resolution No 339/2020, Ordinance No 187/2023, and Recommendation No 76/2020.
Resolution No 339/2020
Resolution No 339/2020 sets forth the creation and operation of so-called “Collective Actions Centres”. With this, the administrative council of the Brazilian judiciary aims to map all collective actions being tried in the Superior Court of Justice, labour courts, circuit courts and state courts. The measure is important for collecting, standardising and disclosing data on collective lawsuits.
Ordinance No 187/2023
Ordinance No 187/2023, in turn, governs the National Register of Class Actions (Cadastro Nacional de Ações Coletivas), which provides statistical data on all collective legal proceedings.
Recommendation No 76/2020
Lastly, Recommendation No 76/2020 establishes guidelines for the handling of collective claims in the judicial system. The National Council of Justice recommends that judges notify the Public Prosecutor’s Office, the Public Defender’s Office, and, in so far as possible, other legitimate parties, so that, if appropriate, they can file the respective collective lawsuit. There is also a recommendation for all courts that have jurisdiction to try collective actions, in order to promote the resolution of conflicts on a collective level.
The main legislative reform proposal being processed in the Brazilian Congress with regard to collective claims is Draft Law No 4.441/2020, which (if it becomes law) will revoke Federal Law No 7.347/1985 and make changes to other legislative acts.
The bill regulates a new public civil action law and is yet to be voted by the Chamber of Deputies.
The new text purports to be applicable to all special collective protection procedures in Brazil. Additionally, it includes modifications to the parties who have legal standing to file the lawsuit, as well as new rules on jurisdiction to try the claims.
Finally, the bill’s draft expressly addresses the possibility of the parties themselves resolving conflicts through ADR.
Brexit did not have any significant impact within the scope of collective claims pursued in Brazil.
There is a growing number of proceedings pursuing liability for environmental damage. Lawsuits on this matter have already reached the Superior Courts, following an international trend. However, there are still few cases in which a company has been held liable for not complying with ESG practice guidelines.
In these legal disputes, the courts are being called upon to comment on and adopt appropriate measures to address such violations.
As such, several agents have resorted to the crucial mechanism of public civil action to urge the judiciary to order companies to restructure their internal safety policies and to adopt ESG-related guidelines.
Various public prosecution authorities, as well as civil society associations and institutes have filed lawsuits seeking damage repair and compensation associated with climate impacts, prompting the inspection and regularisation of operations and projects. Consequently, this has compelled companies to review their compliance policies associated with either environmental or social risk prevention.
All in all, the observance of ESG practices has increasingly taken hold of Brazilian courtrooms, largely due to the influence of international forces.
The Enforcement of Collective Rights in Brazil and the Capital Markets: What Has Gone Wrong So Far... and New Perspectives
The protection of capital market investors in the context of the Brazilian collective rights enforcement system
Broadly speaking, Brazilian Law provides three remedies for the jurisdictional enforcement of collective rights, outside the criminal sphere:
While the first two are specific tools for the safeguard of certain public interests, the ACP serves as an instrument to protect any kind of right that is common to a relevant group of people (including capital market investors), except for tax and social security matters. The public prosecutor’s office or other legitimated entities act in court as representatives for all individuals who fit into such group, and if a favourable ruling is rendered, each member of the group may individually enforce it.
A specific law establishes the applicability of ACPs in capital market issues and empowers the Brazilian securities and exchange commission (Comissão de Valores Mobiliários or CVM) to file the suit in the investors’ interests (Federal Law No 7.913/1989). However, even though the public prosecutor’s office and other public authorities – as well as some private associations – are constantly active in filing ACPs, especially in environmental and consumer matters, the use of such instrument in capital market issues has barely been seen. This can be explained, among other reasons, by the lack of an appropriate infrastructure within the relevant authorities (the CVM, for instance, lacks the resources to enable measures in other spheres beyond its own administrative jurisdiction, such as filing lawsuits before the judicial courts).
More recently, a few initiatives on the part of private associations have tried to change this scenario, with the filing of ACPs in the context of some relevant corporate scandals in Brazil (such as in the IRB and Americanas cases), but these remain as embryonic and isolated examples.
In addition, the Brazilian Corporate Act (Federal Law No 6.404/1976) allows – in some circumstances – shareholders with a minimum percentage of interest (which varies according to the value of the capital stock) to file derivative suits against officers, directors or the controlling shareholder. In such cases, the plaintiffs act as representatives of the company, to the benefit of which all revenues from the suit are to be delivered.
The growth of capital market arbitrations and a new template for “class action”
Since 2001, the Brazilian Corporate Act has allowed public-held companies to include arbitral clauses in their by-laws, to establish that all controversies between the company, its shareholders, directors, officers, etc, are to be ruled by arbitration. B3 (the Brazilian stock exchange) imposes the adoption of such clauses by all companies belonging to its strictest special segment of corporate governance (called the Novo Mercado). Therefore, in principle, if a shareholder intends to seek compensation for damage caused by officers, directors or controlling shareholders – without depending on an unlikely initiative by one of the ACP’s legitimated entities – the shareholder will probably have to knock on the golden doors of the arbitration courts. Considering the magnitude of arbitration costs, this intuitively prevents, at the very least, small investors from pursuing their rights.
Recently, however, huge groups of investors have joined forces to jointly file arbitrations to claim indemnification for their losses. An arbitration involving thousands of Petrobras shareholders against the company has recently acquired notoriety as the most relevant example of this trend. This phenomenon is currently also referred to as an example of a “class action-like” procedure, although the investors act in their own names and are not represented by someone else (as they would be in an ACP).
There has also been an increase in the number of derivative suits, including in arbitrations, although there is no record of any of these being successful. The recent increase in the number of litigation finance houses acting in Brazil is probably one of the reasons behind this.
The fact that all these disputes are being brought to arbitration poses a few inconveniences, to say the least. Firstly, arbitration was designed for individual disputes, so every case could be settled differently. From a capital market perspective, however, the possibility of different investors having their cases ruled differently is far from being ideal. Secondly, as a rule, arbitration is confidential, which also conflicts with capital market principles. Thirdly, the mechanisms for integrating third parties into the arbitration procedures provided for by the most in-demand arbitration institutions in Brazil are inadequate for the capital market reality.
Still with arbitration, but changing a few things
Despite the above-mentioned “inconveniences”, and mainly due to the very long duration of court procedures in Brazil, arbitration is still seen as an interesting and better alternative for corporate disputes in the country’s circumstances. The notorious CSN v Ternium case – which was brought before the courts and which discussed whether Ternium should issue a tender offer to Usiminas’ minority shareholders after acquiring shares of the controlling shareholders’ block of the company in 2012 – only had its merits ruled by the Brazilian high courts (Superior Tribunal de Justiça or STJ) in 2023 (that is correct, 11 years after it was brought before the courts!) and is still ongoing. It goes without saying that the dynamism of capital markets is incompatible with such long waiting periods. So, the rudder still points to arbitration.
Recent developments in the regulation of arbitration and arbitral institutional rules have tried to reduce the distance between the traditional arbitration model and capital market needs.
From the side of regulation, the CVM has enacted disclosure rules with respect to corporate arbitration involving the public corporation. Annex I of CVM Resolution No 80/2022 requires corporations to disclose the existence of a corporate arbitration that involves collective rights or issues that may affect the rights of third parties. The disclosure obligations also apply to key steps of the arbitration, such as intermediary decisions, relevant petitions filed by the parties, and settlements, among others.
Arbitration chambers have also tried to adjust to the new reality. One of the most in-demand chambers for commercial matters in Brazil, the CCBC Arbitration and Mediation Chamber, has issued Complementary Rule No 02/2023, establishing specific rules for corporate disputes. Such rules include the obligation to notify potential interested parties (such as other shareholders) that may want to join the arbitration with the original plaintiff.
It is possible that, as corporate disputes become more frequent and complex, the arbitration trend that is already under way will intensify.
Material problems which constrain the reach of private enforcement
Notwithstanding the increased use of arbitration for corporate disputes, the fact is that private enforcement in Brazil of investors’ rights continues to present many challenges.
In the corporate scenario, many of the rules and principles embedded in the corporation law make it difficult for minority shareholders to hold officers, directors and controlling shareholders liable.
With respect to officers and directors, a major hurdle is the fact that, according to the law, approval by the shareholders of the corporation’s financial statements releases officers and directors of all liabilities with respect to the fiscal year covered by the accounting documents.
As the rejection of financial statements and management accounts may have dire consequences for a corporation, including making it more difficult to access financing, in many cases shareholders prefer to approve the financial statements, even though this may mean losing the opportunity to hold managers liable for possible wrongdoing. In other circumstances, the controlling shareholder may approve the financial statements and management accounts in spite of a contrary vote by the minority, so as to shield their elected managers from liability.
The corporation law also fails to provide sufficient incentives for shareholders to pursue officers and directors for liability. If a shareholder manages to surpass all the obstacles imposed by the law and successfully file the lawsuit, they alone will bear the cost of a possible loss in court, but they will share with other shareholders the eventual benefits in case of a successful lawsuit. In other words, the corporation law does not provide an economic incentive for minority shareholders to file a lawsuit.
As for the lawsuits against controlling shareholders, although there is no exoneration of liability and the law establishes that the minority shareholder who obtains a favourable decision is entitled to a prize, in reality such incentives are ineffective. From a practical standpoint, the courts are overwhelmingly pro-controlling shareholders, with no good example of a case where the controlling shareholder was held liable for abuse of its powers. In addition, the STJ has precedent establishing that, if the controlling shareholder is deemed liable for abuse of its powers, it may escape liability by simply absorbing its controlled company through a merger.
As a result of all the practical difficulties described above, investors usually rely on arbitration or the CVM to seek damages for abuses committed by officers, directors and controlling shareholders.
The controversy of the (non)liability of the company towards the investors
One of the recent trending topics of corporate disputes is the possibility for shareholders to sue the company directly for damages caused by wrongful disclosure, similar to a Rule 10b-5 suit in the United States.
This is a controversial topic in Brazil because, unlike in other jurisdictions, there is no clear rule stating that a corporation must indemnify losses suffered by investors due to wrongful disclosure.
This issue has gained attention after several corporate scandals in recent years which involved, at some level, the disclosure of misleading information to the market. As mentioned previously, this led a huge group of Petrobras shareholders to jointly file for arbitration against the company, claiming indemnification for damages caused by the alleged misinformation. A few groups of shareholders from other companies later took the same route against their companies.
According to Brazil’s securities regulations, the issuer (including the corporation) has a legal duty to disclose relevant information to the market, and the Civil Code states that any failure to comply with a legal duty may lead to an obligation to indemnify. By joining these two sets of rules, investors have, with varying degrees of success, been suing corporations for failure to disclose precise information to the market.
While this is currently a developing trend, the issue of a corporation’s liability to investors has been one of the bases for the discussion of a reform of the corporate law to set forth clearer liability rules.
The CVM/OECD Report and Bill of Law No 2.925/2023
Due to the fragility of the enforcement framework in the capital markets, as explained above, the CVM conducted a study in partnership with the Organization for Economic Co-operation and Development (OECD), released in 2020, to propose changes to Brazilian laws to improve protection of minority shareholders.
The study identified barriers to the imposition of liability to managers and controlling shareholders, such as the exoneration of the liability of officers and directors due to the approval of financial statements and management accounts, the allocation of judicial costs to minority shareholders, the need for a minimum quorum of the minority shareholders to file suit against managers or controlling shareholders, among other obstacles.
These points were addressed by the new Bill of Law No 2.925/2023. This bill, if converted into an act, will end the exoneration of liability for managers, who will be subject to liability suits even if their accounts are approved.
The quorum of minority shareholders needed to file a suit against managers will be reduced in the public corporation to 2.5% of the corporate capital or a stake worth BRL50 million or more. In addition, the managers deemed guilty will need to pay the minority shareholders that proposed the lawsuit a prize of 20% over the condemnation penalty.
A similar criterion will be applied in the case of a liability lawsuit proposed against the controlling shareholders of a public company, where, according to the bill, minority shareholders own 2.5% of the corporate capital or a stake worth at least BRL50 million.
The bill also sets forth a new procedure of collective suit – similar to a “true” US class action – in which one investor is allowed to file an ACP representing all the other investors of the same class of securities.
Since the bill became public, this has become a hot topic. Many discussions on possible amendments to the bill are currently flourishing. However, regardless of any possible changes to its text and of any criticism that it may receive, if the bill is converted into an act, it is expected that the framework will change significantly and become a more effective regime for the enforcement of investors’ rights.
Brazilian law provides a diversity of collective actions for various issues such as environmental law, consumer law, securities law and collective rights in general. However, the law significantly limits the legitimacy to bring such collective actions, reserving this prerogative for the public prosecutor’s office, associations, and government agencies, among a few others. The limitations imposed by the law have created a distortion, in which collective actions are widely used for some matters, especially related to environmental and consumer laws, but are rarely used in other cases, in particular, to protect investors.
As a reaction to this, investors have started to use mechanisms to mimic collective lawsuits, as in the case of collective arbitrations involving corporate matters, in which (sometimes a huge number of) investors voluntarily join the same procedure to bring a suit as co-plaintiffs.
Despite this trend, the suits brought by investors have faced many challenges, some of which derive from the corporation law and its interpretation by the courts, which generally favour managers and controlling shareholders.
Given that Brazil’s case law is notoriously hostile to investors in their disputes against controlling shareholders and managers, the current government has proposed a new bill that aims to amend the corporation law and provide stronger protection for investors. One of these changes refers to the creation of a “Brazilian class action” for investors, which is expected to become an important tool for the protection of investors’ rights.