Brazil - The Strategic View - Competition Litigation 2016

Cristianne S. Zarzur and Ana Carolina C. Zoricic point out the role of the Public Prosecutor’s Office in the pursuit of competition damages claims as an effect of the length and cost of proceedings in Brazil

Contributing firm

1       Are there any particular sectors in your jurisdiction which tend to be a focus for competition damages actions? Why do you think this is the case?

The vast majority of damages lawsuits in Brazil relate to regional fuel retail cartels.

Many factors contribute towards the favourable environment for cartel-like behaviours in this specific sector, namely:

  • the fact that it is a homogeneous product;
  • regulatory barriers to entry into the sector;
  • a lack of substitute products;
  • atomised demand and a lack of buyer power;
  • similar cost structures;
  • stability of costs and demand;
  • market concentration (there is merely an appearance of market fragmentation, since most petrol station companies pertain to a small number of business groups); and
  • the active role of trade associations and unions in the standardisation and coordination of the practices of their members, etc.

In addition, both consumers and the Public Prosecutor’s Office have much greater access to price comparison and fluctuations than in other sectors, as prices must be publicly displayed.  By the same token, this transparency facilitates monitoring by the other cartel members.

Therefore, the greater number of damages actions in this sector is a natural result of its intrinsic characteristics, which facilitate a higher frequency of potentially unlawful events.  Furthermore, it could be attributed to the fact that most civil lawsuits in this sector are brought by the same State Public Prosecutor’s Office that will have investigated a cartel in the criminal sphere.

2       Who do damages claims tend to be brought by in your jurisdiction? (e.g. direct purchasers, indirect purchasers, end consumers?) If claims are not currently being brought by indirect purchasers and/or end consumers, why do you think this is?

The Brazilian Antitrust Law grants legal standing to “injured parties” to sue for damages arising from antitrust violations, without distinguishing between direct and indirect purchasers or end users.  In addition, any end consumer is entitled to bring an action against a cartel member under to the Brazilian Consumer Protection Code.  For this purpose, “end consumer” is defined as any natural or legal person who acquires or uses a product or service as an end user.

Besides individual claims that are regulated by the Civil Procedure Code, the Brazilian legal system provides for collective claims that may be pursued by governmental or publicly held entities and trade or consumer associations.

The State and Federal Public Prosecutors’ Offices are responsible for the majority of damages claims, which can mainly be attributed to the slowness of the courts and the high costs entailed in defending an individual claim.  In this scenario, the amounts eventually paid by the cartel members are allocated to a public fund to repair the damage caused, thus indirectly benefiting both directly and indirectly aggrieved parties.

Within individual claims, direct purchasers (who are normally also end consumers) make up the majority of plaintiffs.

The Brazilian Consumer Protection Code expressly allows indirect purchasers to recover damages from antitrust violators, all of whom are jointly and severally liable.

Although it is already possible to identify a trend to the contrary, we would attribute the low number of individual claims, especially claims brought by indirect purchasers and/or end consumers, to a lack of familiarity with antitrust issues, the fact that there isn’t a culture of seeking reparation for damages, besides the length and cost of proceedings, and uncertainty as regards the calculation of damages.

3       What approach are the courts taking to claims that originate from investigations or infringements arising out of the jurisdiction?

The Brazilian courts have jurisdiction for damage claims resulting from events occurring in the country.  In a claim involving consumers’ rights, any Brazilian subsidiary of a foreign company may be sued in place of the parent company based on the theory of apparent representation.

4       Do claimants favour your jurisdiction when they have a choice as to where to lodge a claim? Why?

No.  The length of the proceedings may prompt injured parties to file damages actions in jurisdictions other than Brazil.

5       In practice, are the courts generous to claimants when awarding disclosure, including pre-action disclosure?

The Brazilian antitrust authorities are very cautious as regards confidentiality, both in the course of administrative proceedings and afterwards, especially in relation to the leniency agreement and the identity of the applicant, leniency-related documents, and those obtained through search and seizure; however, the Administrative Council for Economic Defence (CADE) does not have the final word on the matter.  There is no provision such as that of European Directive 2014/104/EU, thus courts tend to grant broad access to these documents in individual or collective damages claims.

The Superior Court of Justice (STJ), the highest appellate court in Brazil for non-constitutional issues, recently granted a claimant access to the leniency agreement entered into within the hermetic compressors cartel investigation.  Besides limiting the confidentiality of the leniency agreement in time to the fact-finding phase of an investigation in the administrative sphere, the STJ ruled that all documents produced within the administrative procedure should be made available to the courts and that confidentiality of documents not directly related to the investigated behaviour, such as those containing trade secrets, will be analysed by the courts on a case-by-case basis.

In a case related to the bid-rigging cartel for the construction, fitting and maintenance of metro trains in São Paulo, a federal court granted the Attorney General’s Office access to the leniency agreement but not to the evidence resulting from the search and seizure.  The court of appeals extended the access to all documents, including those seized, to the Public Prosecutor’s Office.

6       How do the dynamics of a settlement really work in your jurisdiction? Is there a mechanism by which a "global settlement" can be approved/enforced?

In collective claims brought by public entities, such as the Public Prosecutor’s Office, defendant(s) may undertake to cease the violation and to pay a fine in exchange for a stay of proceedings through a consent decree (Termo de Ajustamento de Conduta – TAC).  However, this does not preclude the party from repairing damages in the event any individual claim is brought against it.  In individual claims, the parties have plenty of room to settle.  Private entities that are claimants in collective claims may also settle.

7       How long do damages actions take? What is the likely range of costs required to defend a claim?

Brazilian courts (as is the case in a number of other jurisdictions) are widely known for the length of their proceedings, especially due to a wide array of appeals and overloaded courts.  Damages actions may easily last more than a decade.  Specifically in relation to damage claims for antitrust violations, there are cases filed in the early 2000s still pending a final decision.

Court costs in themselves are not very high.  However, the length of the proceedings, combined with attorneys’ fees, may increase overall costs to such an extent that it discourages litigation in Brazil.  Damages claims also normally involve expert fees, which vary according to the complexity of the case.  As a rule, the losing party shall bear the winning party’s costs and legal fees (10% to 20% of the overall award of damages).

8       What funding options are available for (i) claimants and, (ii) defendants, in your jurisdiction?

There are no statutory provisions regulating third-party funding for either litigation or arbitration, and we are not aware of any occasion in which a claimant or a defendant has resorted to such a measure.

However, Brazilian law does provide for measures aimed at ensuring the constitutional right to access to justice by claimants or defendants who might otherwise be unable to afford it.  Parties that lack financial resources may be exempted from the payment of court costs and legal fees.  In addition, a public defender may be appointed to represent parties that cannot afford private counsel.

9        Do you anticipate any significant increase in damages actions in your jurisdiction over the next year or two? If so, where and why do you anticipate these increases coming?

Yes; however, the new Code of Civil Procedure, which entered into force in March 2016, is expected to reduce the costs and the duration of civil lawsuits.

10       In your opinion, what are the key changes (if any) required in your jurisdiction to improve the effectiveness of private enforcement of competition law?

Uncertainties related to the length of proceedings, statute of limitations and calculation of damages, as well as a lack of familiarity with antitrust issues and the fact that seeking reparation for damages is not part of the legal culture, constitute the main factors discouraging private enforcement of competition law in Brazil.  Thus, the key changes which are necessary include: defining when the statute of limitations period starts to run (i.e. whether it runs from the moment of infringement, from the initiation of the administrative proceedings, or from the final decision by the antitrust authority); drawing up guidance on how to calculate damages; and expediting the judicial process.  In addition, CADE continues to work on competition advocacy aimed at raising general public awareness of antitrust matters.

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