1.1.- Professor Peter Brews, of Duke University, asked me to make a presentation on the Brazilian legal environment for business, focusing on the workings of Brazil´s Judiciary and the difficulties encountered by foreign companies. He also asked me to present a list of common errors/misperceptions made by international capital whilst doing business in and with Brazil.
1.2.- In my view, most problems encountered by international companies doing business in our country derive from the very dangerous combination of ignorance with ethnocentrism. Accordingly, I chose to first address Brazil´s historical and cultural background, believing that, without this fundamental, it is impossible to understand the country´s legal structure and the business environment. This will be followed by an analysis of the Brazilian Judiciary, its structure and operation.
2.1.- Failure to appreciate a country´s cultural specificities can be quite costly in terms of an investment decision, in general, and in doing business, in particular. Of course, the legal framework of a country is intimately linked to its historical and cultural heritage. Neglect in the absorption of these elements comes with a high price tag. Recently, a major international company bought a privatised public utility based only on representations and warranties of the government. Such utility company had a high tax contingent liability which materialised after the acquisition. The buyers had neither availed themselves of a thorough due diligence nor of the usual apposite mechanisms of price retention. Surprised with the liability, the buyers made the second error in replying that they will not bother with the tax assessment. In this case, the buyers failed to appreciate that Brazil is a democratic society, in which the government is subject to the law in very much the same way as any other member of society. They believed that a representation of the government is above the law. They probably would not have made this mistake in their own country. Their ignorance and patronising attitude had a very high cost.
2.1.1.- In another occasion, a major European company merged with a large American organisation their respective subsidiaries in Brazil. Counsel for the US company prepared all documents in accordance with American law. European counsel agreed. They asked their subsidiaries to file the documents in Brazil at the Board of Trade. They were returned. The documents had to be adapted to Brazilian law and that affected the terms of the merger, which had to be almost entirely renegotiated. That took a long time, after which US and European counsel sanctimoniously agreed that Brazilian law was to blame. Another story involves the senior Latin-American counsel of a major US company, which position the lawyer had occupied for more than 10 years. His company had operated in Brazil for decades. The lawyer obtained translations into Spanish of contract documentation and was surprised that the Brazilian party demanded Portuguese versions. He had perhaps forgotten that Portuguese is the official language of Brazil. I could go on with many similar stories, but I think the point has already been made.
2.1.2.- The following is an effort to provide you with some cultural background which may be helpful in understanding the business environment of Brazil and, consequently, in minimising risks. It is my firm belief that MBA programmes today not only fail disgracefully in this regard, but rather make matters much worse in promoting the cowboy business ethics, according to which profit at all costs is the basic cannon as well as the ultimate truth and exclusive end of society.
2.2.- Brazil was discovered by the Portuguese 500 years ago next April 22, when a fleet of thirteen ships commanded by navigator Pedro Álvares Cabral arrived in the shores of what is now the state of Bahia. His expedition represented the official claim by Portugal of the lands apportioned to it by the Treaty of Tordesillas of June 7, 1494, between Spain and Portugal, mediated by Pope Alexander VI, that allocated rights of the discoveries. Spain was to receive the territories west of the Tordesillas line, as long as Portugal would acquire the lands to its east. In 1500, the population of Portugal was only approximately 1,100,000 people or 280,000 households. The country´s human resources were already overextended by the impact of the discovery by Admiral Vasco da Gama of the naval route to India in 1498 and the need to man trading stations in Africa, in India, in Malaga and subsequently in China and Japan. It is estimated that in the first half of the 16th century, 80% of Portugal´s male population was in colonial or trade service abroad.
2.2.1.- Portugal had become a nation state and a separate kingdom since 1139, with the Frenchman Henry of Bourgogne as its first king, had already expelled the moors from its territories in 1239, and successfully fought off Spain´s attempts of domination. Conversely, Spain only began a nation state at the end of the fifteenth century and expelled the moor only in 1492, the year Columbus discovered America. This situation determined the attitude of the two countries towards their new colonies: whereas the Spaniards continued the ruthless military campaign against the infidels, supported by a very militant catholic church, the Portuguese adopted an official policy of racial miscegenation.
2.3.- When the Portuguese arrived, in 1500, Brazil was inhabited by approximately 5 million native Brazilians, of numerous different indigenous peoples, who spoke languages now divided in four main groups. Upon disembarkation, the Portuguese were promptly met by waiting friendly Tupinikins. The predominant language group, also spoken by the Tupinikins, used in most of the coast areas and deep into the interior up to the Amazon and what is now Paraguay, Uruguay and parts of Argentina was the Tupi-Guarani, known in some areas in this language as “nhenhen-gatu”, or general language. The indigenous tribes called their land “pindorama” or land of the palm trees. They were basically hunter-gatherers, but also cultivated some basic crops, such as manioc, peanuts and cotton. They had a profound knowledge of and respect for the land, knew cartography, navigation by the sun and by the stars and had numerous musical instruments. The basic artistic manifestations were plumery art and body painting. Their botanical knowledge was profound.
2.3.1.- The native Brazilians were in constant warfare. It was speculated by contemporary European travellers that this was necessary as a means of population control. When the Portuguese arrived in Pindorama, the Tupi-Guarani Indians were asserting control of the coastal regions of the country. They had their own legal system, evidenced by extant lexics in the Tupi-Guarani vocabulary for lawyer, court, court-house, defence, sentence and other terms indispensable for the functioning of society. Violence within the tribes was practically non-existing. When it occurred, the aggrieved, or his/her family, would be authorised to redress the damage in the same manner as it was inflicted. Property was communal. The tribes were nomads, so as not to exaust the land, and thus there was no accumulation of riches. The ultimate sanction was a social penalty: exclusion from the tribe. Prisoners of war would be normally integrated into the tribes as labourers, but not warriors. In many tribes, the brave prisoners would be subject to ritual cannibalism.
2.4.- The Portuguese settled along the coast-line of the country, which they initially called the Land of True Cross. After approximately 20 years, the country started to be called Brazil, after its main produce, the Brazil wood, used as a red die. The origin of the name comes from the Italian Verzino through the French Brésil. The Portuguese promptly tried to impose their culture, including religion and laws, on the native population, as well as attempted to enslave it to be put to economic use. The native population almost immediately started a movement of civil resistance against the new order, by means of moving further inland. They resisted slavery to such extent that they did not hesitate to suicide immediately after capture, in great numbers. There are many extraordinary written accounts of how native Brazilians would die in such circumstances, including various after pronouncing the formula “I die” three times. By this movement of civil resistance, the Brazilian indigenous people not only refused an unjust law or practice of slavery, but also declined to accept the artificial frontiers imposed by alien powers. On both accounts they ultimately prevailed.
2.4.1.- Simultaneously, the Portuguese proceeded with understandable delight with their policy of miscegenation. There are accounts of some who had as many 60 wives, which gave them enormous political power. This is so because Brazilian indigenous peoples also had a policy of social co-optation.
They wanted to bring the European elements into their families. Thus, some of those Portuguese, such as the case of João Ramalho in São Paulo, could come up with Indian armies of up to 5,000 people, as long as the king of Portugal could only produce 2,000. In the native culture, the children of such parents were considered to be the same as their fathers, but they all spoke Tupi-Guarani. When São Paulo 
was founded by the Jesuits 466 years ago today, only a minute part of the population spoke Portuguese, which was taught by the priests in the college they started in 1554. Until 1640, the city of São Paulo had neither a set of the laws in force at the time, the Spanish Philipine Ordinations, nor any judges. An attempt to introduce a judge in 1611 year failed miserably, as the hapless official, Manuel Bravo, was received with arrows and returned to Europe.
In the 1640, the Jesuits were expelled from the land by the Paulista population, as they were perceived to interfere beyond reason with the local culture, in what they opposed the slavery of native Brazilians. Within this same period, the cleric Pe. Vieira, one of greatest intellectuals of his time, cited Aristotle in one of his memorable sermons to remind the congregation that “good laws are those which are obeyed” 
, in view of the generalised failure of compliance with those statutes that prohibited the slavery of Brazilian Indians.
2.5.- As the attempts to slave the native population failed, the Portuguese introduced African slaves in Brazil in such great numbers that they soon overtook the population of native Brazilians. They were brought from the regions that today make up the territories of Nigeria and Angola. The first group, which spoke Yoruba, was introduced in what is today´s Brazil the state of Bahia. The second group was introduced in what is presently the states of Rio de Janeiro and Pernambuco, the first in the centre-east part of the country and the second in the north-east. As a result of this geographical distribution and the resulting pocket of Yoruba in Bahia, there was a lack of continuity of the areas where Kimbundo was spoken. As a result, Brazil had in the early 1800s four general languages: one native, Tupi-Guarani; two African, Kimbundo and Yoruba; and one European, Portuguese.
2.6.- In 1807, General Junot, under the orders of Napoleon, invaded Portugal. The whole Portuguese court fled to Brazil. It was the first time a reigning European monarch crossed the line of the equator. The Portuguese court settled in Rio and brought about renewed prosperity to the country, in spite of a tragic trade agreement with Great Britain, signed in 1810. After the French were defeated at Waterloo, in 1815, the Portuguese court chose to remain in Brazil, elevated to the category of kingdom. In practice, there was for the first and only time in history a reversal of the role of colony and colonial power. In 1821, there was a liberal revolution in Portugal and the king chose to return to the country as a hostage. His crown heir remained in Brazil, and refused to accept the orders from the Portuguese parliament, and declared the country independent from Portugal. Brazil had then the only monarchy of the Americas up to 1889, when the Republic was proclaimed.
2.7.- During the second half of the nineteenth century, under Peter II, European immigration was encouraged, particularly from Italy, the country of his wife, and Germany, the country of his mother. European immigration was directed mostly to southern Brazil. Italians came in such great numbers that the only reason why Italian did not become the main national language is due to the fact that it did not exist as such. The Italians came from different areas of the peninsula and spoke diverse dialects. When they arrived in São Paulo, for instance, only one of three Paulistas spoke Portuguese; the others spoke Tupi-Guarani. The Italians found it easier to learn Portuguese and thus boosted its usage as a general language. As there were few good reference factors for Portuguese, the language spoken in São Paulo became very idiosyncratic.
2.8.- Slavery was only effectively abolished in Brazil in 1888, which was accomplished in a peaceful manner, no minor achievement for the country with the largest African population outside Africa. In 1831, however, slavery had already been abolished by law, but never put into practice, for lack of social acceptance, in spite of the very harsh penalties imposed, which involved the loss of liberty. This was yet another example of a law that “did not catch”. In this case, the law failed to be obeyed and enforced because it went against the prevailing economic interest of the agricultural society that characterised Brazil.
In this category, there were other laws enacted in response to external pressure, notably by the British. These were known as laws “for the English to see”, that is, not to be enforced.
2.9.- As a result of so many diverse ethnic influences, the Portuguese language spoken in Brazil today is very rich. It has approximately 10 thousand words of Tupi-Guarani in current use, together with about 3 thousand words of Kimbundo and 2,5 thousand terms of Yoruba. The language also has about twice as many sounds as Spanish, for instance, which facilitates the understanding of that language by Brazilians, whilst Spanish speaking people cannot understand Portuguese.
Very often, there are in Brazil choices of words from different origins such as for “bald”, which can be expressed as “calvo”, from Latin; “careca”, from Kimbundo; or “abayama”, from Tupi-Guarani. The same goes for witchcraft: “bruxaria” and “feitiço”, from Portuguese; “mandinga”, from Kimbundo; and “pagelança” from Tupi-Guarani. Other examples abound.
2.10.- After the proclamation of the Republic, Brazil had in the 20th century many ruptures of the rule of law. In the 1930s Brazil had a fascist regime led by a repellent dictator who was inclined toward the Axis powers. In 1941 and in early 1942, the Brazilian people massively demonstrated for entry into the war with the allied powers 
, which Brazil did in August of 1942, in response to this enormous demand. In the process, one expeditionary force of 35 thousand soldiers and aviators was sent to Italy, and a ferocious naval war raged in the South-Atlantic, which cost Brazil the loss of 98% of its merchant navy 
. Following the war, democracy was reinstated in 1945 only to be suppressed by a military coup in 1964, which started a regime that lasted until 1986, when the rule of law was again reinstated in the wake of a great popular movement. Brazil had become a very complex society with the largest Italian population outside of Italy, estimated at 37 million people (the city of São Paulo alone has more Italians than the combined populations of Rome and Milan) and the largest African population outside of Africa. Millions of ethnic native Brazilians, the majority of which integrated, live mostly but not exclusively in the centre and north of the country. In addition, there are numerous other nationalities, such as Arabs, Germans, Japanese, Koreans, Poles, in great numbers. Lastly, there is the phenomenon of widespread racial miscegenation, which has greatly contributed to the benign nature of our people and for its renowned tolerance.
3.1.- Brazil´s legal system has its roots in Roman law, with strong influence from various European sources, such as Portuguese (constitutional law), French (civil, commercial, company law), German (civil and criminal procedure) and Italian (criminal and labour) legislation. Some elements of US inspiration can also be found in the areas of competition; securities; environmental law; as well as in taxation. Unjust and/or impractical law is fiercely resisted by the civil society, in the best Tupi-Guarani tradition. Following the re-democratisation of Brazil in 1986, a constituent assembly was formed with the mission of enacting a new constitution, which task was accomplished in 1988. The Constitution of 1988 was, at very best, highly inadequate in time and space, and accordingly has already suffered 29 separate amendments. In the present federal administration only, the constitution has been amended by 19 different bills.
However, what is most striking about Brazil´s constitution is not the number of amendments it has suffered, but the reforms it will still have to undergo, before it becomes a rational platform for the rule of law, federative pact, political balance and economic activities.
3.2.- The 1988 Constitution divided the Judiciary in ordinary and specialised courts. As Brazil is a federation, the ordinary court system is established at the state and federal levels. The ordinary courts comprise civil and criminal benches and the specialised courts attend to labour, military and electoral cases. Appeals may be filed to second and third instances. At the top of the pyramid, there is the constitutional court, the Federal Supreme Tribunal. The Superior Tribunal of Justice (STJ), with 33 ministers, is the court of last resort for non-constitutional matters. All last resort tribunals are based in Brazil´s capital, Brasília. With the re-democratisation of the country and the adoption of the new constitution, Brazil became an increasingly litigious country, second only to the USA in terms of litigation. In 1997, 4 million suits were filed in the Brazilian courts. This number jumped to 5 million in 1999. The specialised labour courts alone tried 2.3 million cases in 1998. In the same year, the STJ decided 101,000 cases with published opinions, whereas the STF, with 11 justices, decided 52,000 cases.
3.2.1.- The 1988 Constitution allowed the Executive branch to legislate by means of decrees, Provisional Measures (MPs). In theory, those MPs should be enacted only in those cases of relevance and urgency and to be valid for only 30 days. However, in case Congress does not approve the law within 30 days, the administration is allowed to re-enact the measure. The current administration enacted 199 measures, which were re-enacted 3,336 times. For each MP, there are approximately 30,000 suits. Thus, the legislative effort of the FH Cardoso administration brought about, only in connection with MPs, 5,970,000 suits. Federal, State and Municipal governments have a policy of litigating in bad faith and never settling cases, as the interest of the respective administrations is put above that of the public´s. What counts is to procrastinate the obligation to pay to the extent possible, so that another administration will have to foot the bill. The State of São Paulo alone, in spite of having the reputation of one of the best managed in the Brazilian federation, has approximately of US$ 6 billion dollars of judicial indemnification in arrears, and the municipality of São Paulo, which does not enjoy the same reputation, US$ 1 billion. As the State of São Paulo refuses to pay those judicial awards, there were, in 1999, 1,103 requests for judicial intervention in the State´s executive branch, whose governor has resorted to evading summons!
3.3.- In spite of such numbers, the Brazilian judiciary has only approximately 10,000 first-instance judges and 200,000 active lawyers for a population of 150 million people. As in France, those judges are all civil servants subject to a public examination for qualification. Brazilian judges have benefited from continuing legal education programmes for more than 10 years. In the higher courts, 20% of members come from the legal profession as well as from the public prosecution service, another category of civil servants. More sophisticated judges and courts tend to be found in more economically developed federal states, where follow-up of the cases can be done by computers. At present, cases normally take from 3 to 5 years before conclusion. Discovery is extensive. Litigation is expensive and the discomfited party will pay full court fees and reimburse legal costs of between 10 and 20% of the value of the case. The judiciary system does not adopt the “stare decisis” doctrine and thus every case has to be tried individually, even if higher courts have already decided on the matter of law.
3.3.1. The states and the federal governments are the most frequent litigants, more often than not in the passive pole, as a result of the numerous attempts against the legal order, commonly in the economic area. Former President Collor, for example, attempted to eradicate inflation in the country by means of the outright sequestration of 80% of the financial assets of physical and juridical persons, rather than by fiscal policy. The expected result was a tidal wave of legal actions where his hapless government was most thoroughly and inexorably beaten.
3.4.- Recently, the prestigious newspaper, The Economist, published a feature 
stating that establishing a firm rule of law remains a challenge throughout Latin America; hailing the Brazilian judiciary of corrupt and inefficient and accusing lawyers as well as judges from benefiting from the creeping chaos in the judicial system. In reply to this article, I sent a letter to the editor on September 20, which was duly published 
, to the effect that the assertive that the Brazilian judiciary is both corrupt and inefficient not only fails to portray reality but is flagrantly irresponsible. I also wrote that the topic of corruption is insufficient to allow for generalisations and that efficiency of the courts is comparable if not greater to what is found today in the European Union. I also commented that the decision of the Brazilian Bar to oppose the “stare decisis” doctrine, equally not recognised by the ICJ or the WTO, comes out of concern for the prevalence of the rule of law, keeping into memory the sombre years of military dictatorship in the country. Furthermore, the domestic statistics speak strongly in favour of the Judiciary. Against the 4 million suits filed in 1997, there were fewer than 100 arbitration cases.
3.4.1.- As to efficiency, court proceedings in Brazil are faster than in most of continental Europe today. Lawyers can follow-up proceedings in all federal courts via computer and can file pleadings by the same means. In the most economically developed states, follow-up via computer as well as filings are also possible. Distribution of new cases is done by computers. Jurisprudence is immediately made available via computer as well as published in hard copies. The legal prosecution service or public ministry is both independent and quite effective. The Bar has a superb continuing legal education programme and conducts a thorough examination before new lawyers are admitted. The recent vilification of the Brazilian legal system undoubtedly has its roots in bad politicians who had their evil designs frustrated by the workings of the legal machinery.
3.5.- Brazilian courts have jurisdiction over defendants domiciled in Brazil and on disputes resulting from obligations to be performed in Brazil, as well as on matters arising from acts occuring in the Brazilian territory. Foreign companies having a commercial presence in Brazil are deemed to be domiciled in the country. Election of foreign law to govern local obligations is possible whenever there is no violation of Brazil´s public policies. This is not a common occurrence, however, as the proof of foreign law in a Brazilian court tends to be quite burdensome.
3.6.- Foreign sentences are ratified in Brazil by the STF upon the fulfilment of five requirements, as follows: 1) foreign court having personal and subject matter jurisdiction; 2) proper summons; 3) final judgement; 4) legalisation and sworn translation; and 5) compliance with basic principles. Ratification will be denied if Brazilian courts have exclusive jurisdiction of a mat.
Lawyer admitted in Brazil, England and Wales and Portugal. GATT and WTO panelist. Brazilian government ad-hoc representative for the Uruguay Round of the GATT. Post-graduation professor of the law of international trade.