Brazil: Update From Brazil - New Civil Procedural Code

On 16 March 2015, after four and a half years of discussions in the National Congress, the final text of the New Brazilian Civil Procedural Code was sanctioned by President Dilma Rousseff. Law no. 13,105/2015, which establishes the New Code, will come into force on 17 March 2016.

The New Code is the government's attempt to provide faster and more effective administration of justice. In Brazil, a suit may often last over five years, or, if it is against the Government or a State-owned entity such as INFRAERO (the operator of many of Brazil's airports), more than a decade, mainly by virtue of the high number of appeals available to the parties.

The largest country in the southern hemisphere with a population of over 200 million, Brazil suffers from an excess of suits that clog the judicial system. According to the latest official data released in 2014, Brazil has 99.7 million active lawsuits, with a growth rate of approx. 3.4% new claims per year. The sheer volume of proceedings prevents decisions from being rendered within a reasonable time.

Following the end of military rule in 1985, rights of broad and unrestricted access to justice for citizens were implemented through the Federal Constitution and the Consumer Defence Code (CDC), which came into force in 1988 and 1990 respectively. However, the current Civil Procedural Code, which has been in force since 1973, has been unable to keep pace with the increase in litigation. Extremely formalistic and complex, the current Code underwent many amendments during the last 20 years. Despite introducing some important advances, these amendments also weakened the Code's structure and compromised its efficiency due to excessive formality and the variety of available appeals which they created.

The New Code attempts to simplify and expedite procedure as well as ensuring greater uniformity. It adopts well-established solutions applied in other countries with both common and civil law traditions. Particularly, the increased recognition of precedents from higher courts as a mechanism to ensure greater uniformity is a key new measure.

Accordingly, first instance judges and appeal courts will be bound by judgments rendered by higher courts. Although this may seem natural in the eyes of a non-Brazilian observer (especially of Anglo-Saxon origin), such provisions represent a true innovation in the system currently in force in Brazil. Currently, the judge has the right to freely decide according to his or her own conviction, as long as the decision is reasoned, that is, takes into account the laws in force and the facts of the case. This wide discretion often results in conflicting decisions on the same subject matter, undermining trust in the judiciary and multiplying appeals. It is hoped that the New Code will result in more consistent decisions and greater legal certainty, thus reducing the number of suits and appeals.

In summary, the major general advancements of the New Code are: (i) fine-tuning to better accord with the Federal Constitution 1988; (ii) establishing the supremacy of case law from higher courts; and (iii) introducing the possibility for a judge to strike-out proceedings at an early stage to avoid repeated and vexatious claims.

Effectiveness of the international aviation treaties

In addition to reducing the number of pending suits, it is hoped that the New Code will also provide the necessary framework for international treaties to which Brazil is a party to be more uniformly applied by Brazilian courts, thus also bringing greater legal certainty to international relations.

Article 178 of the Brazilian Constitution provides that treaties regarding international transportation signed by Brazil must be observed, subject to reciprocity. Thus, in principle, the Constitution already requires Brazilian courts to apply the Warsaw Convention (as amended) and the Montreal Convention 1999. Those familiar with Brazilian passenger claims will know that, in practice, the courts with very few exceptions apply the CDC, which provides for unlimited liability, in preference to the Conventions. This may be because judges are not familiar with the Conventions, or prefer to take a political position that favours the consumer.

Reinforcing Article 178 of the Brazilian Constitution, the New Code recognises, as regards Brazilian courts' jurisdiction, the provisions of international treaties in force in Brazil. Articles 13 and 24 expressly provide as follows: "Civil jurisdiction shall be governed by Brazilian procedural rules, subject, however, to the specific provisions in treaties, conventions or international agreements to which Brazil is a party"; and "A suit brought before a foreign court does not entail lis pendens and does not prevent the Brazilian courts from hearing the same cause and those connected thereto, subject, however, to any provisions to the contrary in international treaties and bilateral agreements in force in Brazil."

As a result, the New Code has, in theory, introduced a requirement that a treaty ratified by the Brazilian legal system – such as the Montreal Convention in force in Brazil from 2006) – should prevail, as it occupies the same hierarchical position as local statutory laws. Further, as the Convention contains specific provisions formulated for the aviation industry, it should not conflict with more general local legislation such as the CDC. Although it remains to be seen how the Brazilian courts will approach application of the Convention going forward, the inclusion of specific language in the New Code affirming its applicability is positive.

Convention claims awaiting judgment by the Supreme Courts in 2016

As the guardian of the Federal Constitution, the Supreme Federal Tribunal (STF) in Brasilia began to consider two combined leading aviation cases in May 2014 involving conflict between the CDC and the Warsaw and Montreal Conventions - Sylvia Regina Rosolem vs Société Air France and Ciontia Cristina Giandulli v Air Canada. The two cases relate, respectively, to indemnification of pecuniary damages resulting from baggage loss and the applicable limitation period for the purposes of bringing a civil liability suit due to international flight delay.

The first three STF Judges (who are called Ministers) noted that the Montreal Convention establishes special rules for a special type of contract between certain economic entities (airlines) and their clients. They accordingly voted in favour of application of the Convention, finding no incompatibility with the CDC since the lex specialis prevails over the lex generalis. Voting was suspended when Minister Rosa Weber requested the entire court file for review. With a total of eleven Ministers and three votes cast to date, the votes of seven Ministers are still to be rendered. The Presiding Minister only votes in the event of a tie to render a casting vote. The Court file was returned in December 2015 by Minister Rosa Weber, meaning that voting may be resumed at any time following the end of the summer recess on 1 February 2016.

Brazil's Superior Court of Justice (STJ) is also expected to address the applicability of the Warsaw Convention (as amended) to cargo claims later this year when it considers divergent jurisprudence in Unibanco AIG Seguros vs LATAM Airlines Group and Indiana Seguros S.A. vs. Federal Express Corporation. The STJ is responsible for standardising the interpretation of federal law throughout Brazil, and hears appeals where violation of constitutional provisions is not alleged (such claims falling under the STF's limit).

The STJ's Second Section of ten Ministers is divided into two "Terms" of five Ministers each (the 3rd and 4th Terms). The 3rd and 4th Terms "unify" divergent interpretations amongst Brazil's courts in respect of private, commercial and consumer law and – in exceptional cases – unify divergent interpretations within the Second Section itself.

In November 2015, the STJ's 3rd Term ruled 5:0 in Unibanco vs LATAM that a subrogated insurer's claim for cargo damage during international transportation in 2006 should not be limited by the Warsaw Convention (as amended) but should instead follow the "full compensation" principle enshrined in Article 944 of Brazil's Civil Code and Article 5 of the Brazilian Constitution (the date of loss was before the Montreal Convention 1999 came into force on 27 September 2006, so that the Warsaw Convention applied). The Minister leading the judgment concluded that it was not reasonable to concede favourable terms to the carrier and to limit compensation for damage which had not resulted from a risk inherent to the aviation industry (eg, a crash). The 3rd Term held that the limitation of liability for cargo contained in the Warsaw Convention (as amended) had originally been drafted in 1929 with a view to protecting a nascent aviation industry at a time when its economic outlook was uncertain and the risk of a catastrophic loss high. Given the significant advances in aviation safety, the five Ministers comprising the 3rd Term concluded that the aviation industry no longer warrants the "favourable treatment" afforded by Article 22(2)(b) of the Warsaw Convention (as amended) and reverted to the "full compensation" principle.

The fact that the provisions limiting a carrier's liability regarding cargo contained in Article 22 (2)(b) of the Warsaw Convention (as amended) had been revised by the Hague Protocol and Montreal Protocol 4 and are effectively replicated in Article 22 (3) of the Montreal Convention 1999 was not considered by the 3rd Term. This point rather undermines the argument that the cargo limit should be disregarded today on account of safety developments since 1929.

The 3rd Term's decision did contain one favourable aspect, however. In contrast to earlier instances which had applied the CDC, the 3rd Term concluded (correctly) that there was no consumer relationship between the carrier and the insured (an importer and distributor of electrical components) who was not the end-user of the cargo and sought profit. Accordingly, the 3rd Term held that the CDC did not apply.

LATAM filed a special appeal against the 3rd Term's decision on the basis that the five Ministers of the 4th Term had rendered a divergent decision (by 3:2) in Indiana Seguros vs. Federal Express. On similar facts, the 4th Term had ruled in May 2014 that a subrogated insurer's claim for cargo damaged by the carrier in 2001 was not governed by the CDC but indeed by the Warsaw Convention (as amended). The 4th Term noted that, having elected not to declare the cargo value, there was no question that the importer had agreed to limit the value of an eventual claim in accordance with the Convention.

The fact that the 3rd and 4th Terms of the STJ (Brazil's court of last resort for non-Constitutional matters) could reach such different decisions on two factually similar cases and, indeed, take such different approaches, certainly highlights one of the challenges of the New Civil Procedural Code – to deliver uniform jurisprudence and reduce the high number of appeals. The ten Ministers of both Terms will now vote to "unify" their conflicting decisions. The fact that they have effectively voted 7:3 against application of the Convention to date leaves little room for optimism. It will be interesting to see whether the New Code (specifically Articles 13 and 24 which affirm the applicability of the Conventions) will be taken into account.

Update From Brazil - New Civil Procedural Code

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Alexandre Lima
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