Pay Up You Loser

We get it. Litigation can be expensive. If you lose, you’re stuck paying the judgment and your legal fees. At least that’s how it typically works in the United States.

Here, the general rule is that each party pays its own lawyer. Sure, this can be modified by a loser pay provision in a contract or by a specific statute. But the default rule is that each side pays its lawyer.

Brazil, however, is different. Besides whatever you agreed to pay your lawyer, you could also get stuck footing the bill of the other party’s lawyer. That is if you lose the case.

In Brazil, the losing party in a lawsuit may be ordered by the judge to pay honorários subcumbenciais, which can be up to 20% of the value of the judgment. What’s so unique about these fees though is who gets them.

With lawyer fee provisions in the United States, payment is made to the other party. With honorários subcumbenciais, payment is made to the other party’s lawyer (who keeps it). If the losing party doesn’t pay, it’s the winning party’s lawyer who has the right to sue for collection.

The goal of having honorários subcumbenciais is to discourage frivolous lawsuits by penalizing the losing party. The greater the financial risk, the more litigants will consider settling. Honorários subcumbenciais also have the effect of encouraging lawyers to only litigate cases with merit.

The next time you consider fighting it out in court, just remember that you might end up owing more than you bargained for.