In a recent decision, the Brazilian Superior Court of Justice (STJ) established the position that, when the enforcement proceeding is terminated due to the impossibility of locating the debtor or seizable assets (i.e., when the case is declared statute-barred), the creditor cannot be ordered to pay loss fees.
This decision encourages the recovery of credits in Brazil, as it protects the creditor from the risk of a frustrated enforcement proceeding.
According to Brazilian procedural law, loss fees are payable to the lawyer of the winning party and are calculated on the updated debt in discussion. The Brazilian case law was divided, but there were courts that considered that such fees would be owed by the creditor in favor of the debtor’s lawyer, even though his/her credit had not been satisfied in such enforcement proceeding.
In other words, a frustrated enforcement could generate – in addition to the impossibility of recovering the credit itself – a debt for the original creditor, between 10 and 20% of the amount of the debt that was intended to be recovered. In high-value debt enforcements, the creditor’s risk exposure was relevant.
According to such decision, impose to the creditor the frustration in recovering the credit plus the loss fees would doubly benefit the debtor. Any objection or appeal by the creditor against the termination of the enforcement would be irrelevant, as the lawsuit is considered the result of the debtor’s conduct (default), and not the creditor’s.
