Giuseppe Giamundo and Fernanda Leoni
The Federal Court of Auditors (TCU) has introduced a new methodology for calculating and imposing repayment obligations in its audits: the use of equity, especially in large cases, as a parameter for defining the amounts to be repaid by each party held liable in a given judgment.
In the case examined (the subject of Judgment No. 1,835/2024), the joint and several liability involved the companies that performed the contract and individuals to whom different levels of participation in the facts were attributed, as well as former managers of a state-owned company. This is a very common scenario among the defendants in TCU audits, involving individuals and companies with different levels of participation and financial capacity — both central aspects of this precedent.
The discussion of the case was based on an initial analysis in March 2023, when the case was first scheduled for judgment, which debated whether the provision in the sole paragraph of article 944 of the Civil Code could apply to cases examined by the TCU. That provision states that “if there is an excessive disproportion between the seriousness of the fault and the damage, the judge may equitably reduce the compensation”. At that time, it was deemed appropriate to set up a working group to assess the possibility of applying this rule to individuals, since they would have reduced ability to pay compared with companies and would deserve different treatment in certain situations.
Proportionality of the judgment
The results of this working group were presented in Judgment No. 1,370/2023, one of whose conclusions was the possibility of equitably reducing the repayment amount, focusing specifically on the level of seriousness or culpability of the conduct, but without a dedicated in-depth analysis of the disproportion between that fault and the damage, as referred to in the Civil Code provision.
Revisiting this discussion, Justice Benjamin Zymler, the reporting justice in both cases — the working group precedent and the case that led to Judgment No. 1,835/2024 — considered it appropriate to bring this proportionality perspective into the debate, especially in cases where the repayment ordered amounts to millions, if not billions, given the sense of injustice caused by judgments of this size against those with less capacity or even less participation in the conduct under review.
A very interesting premise of the reporting justice’s reasoning is that applying this new methodology would not reduce the debt, which would remain subject to full calculation and collection, including under the civil law rules on joint and several liability. The idea, in fact, is that collection would be directed, proportionally, at those with the greatest ability to pay the debt, avoiding the natural disproportion of amounts between individuals and companies — which is also consistent with the consequentialist duty set out in the current wording of the LINDB.
The reporting justice also argued that the equitable application of the debt does not compromise the general notion of joint and several liability, given that the TCU’s Organic Law grants the court the prerogative to establish joint liability among those responsible when ordering repayment, which includes the possibility of tailoring it to the particularities of the specific case.
It was also established that proportionality would relate only to the repayment of the debt. For financial penalties, the rule of assessing culpability remains, although in practice most TCU judgments do not have a very clear criterion for imposing the fine provided for in article 57 of its Organic Law.
Methods of analysis
Specifically regarding the methodology for achieving equity in the proportion between the seriousness of the fault and the damage caused, as mentioned in the sole paragraph of article 944 of the Civil Code, some techniques were evaluated. Although one calculation method was chosen for the case under review, different situations may require new methods of analysis, since the precedent deals above all with the possibility of opening the judgment to equity, which in turn is tied to justice in the specific case. In our view, therefore, the precedent establishes some general premises, but does not exhaust them.
The first of these techniques would be to consider macro data on the financial capacity of companies compared with individuals, estimating the average revenue of companies in the sector and the monthly per capita income of the richest 1% of the Brazilian population, in order to assess how many times greater the financial capacity of companies is compared with that of individuals and, from there, derive a number proportional to the judgment [1]. Another possible approach would be to consider the undue benefit obtained by the company, instead of its revenue, making the same comparison with the income of individuals [2].
For those responsible who have entered into some form of cooperation or leniency agreement, to whom the TCU commonly grants different procedural treatment, it was considered appropriate to establish that their joint liability would be limited to their share of the debt, always provided that this amount exceeds what was obtained from the wrongdoing. Therefore, each cooperating party’s share would be calculated based on the number of jointly liable parties, as long as it remained reasonable in relation to the undue benefit attributed to it.
In general, therefore, it can be said that the methodology for equitably imposing repayment suggested by the TCU, regardless of the technique adopted in each case, will be based on identifying the proportionality of the debt, assessing the proportion between fault and damage; on assessing the ability to pay of the party responsible, considering the premise that recovery of the debt generally does not fall to individuals; on applying the measure of equity assigned according to the situation assessed; and, finally, on limiting joint liability, but without reducing the debt.
The proposed judgment suggested by the reporting justice was approved by a majority of the TCU Plenary, with Justice Walton Alencar dissenting. The judgment contains three relevant indications for future cases — considering that the precedent has already begun to be applied in the following sessions, even before the full text of the judgment was released. The first is the collection of data on repayment orders and fines imposed by the TCU, with results presented to the Presidency every six months; the second is the assessment of possible impacts on cases already decided; and the third is a study on the possibility of making the recognition of disproportion between the seriousness of the fault and the damage caused to the public treasury a matter within the competence of the Plenary.
[1] The example in the opinion illustrates the reasoning better: “In 2017 (the latest year with available data), the 50 largest construction companies in Brazil had revenues of approximately BRL 36 billion, an average of BRL 720,779,000.00 per company1. This figure can be compared with the monthly per capita income of the richest 1% of the Brazilian population in 2023 (the latest year available) – BRL 20,664.00 per month or BRL 247,968.00 per year2. Thus, the company would have an ability to pay 2,906 times greater than that group of individuals (BRL 720,779,000.00 / BRL 247,968.00). Accordingly, the debt to be imposed would be BRL 141,939.10 (BRL 412,475,016.70 / 2,906)”.
[2] See: “Another way of measuring would be to compare the undue benefit obtained by the company in the contract with the individual’s income. In the specific case, the company obtained unlawful revenue of BRL 412 million over a five-year period (BRL 82.5 million/year). This unlawful revenue (debt) is therefore 88.7 times higher than the average annual salary of a member of the statutory board (BRL 82,495,003.34 / BRL 929,867.77) and 332 times the income of IBGE’s top 1% bracket (BRL 82,495,003.34 / BRL 247,968.00), indicating debts of BRL 4,649,338.85 (BRL 412,475,016.70 / 88.7) and BRL 1,242,394.60 (BRL 412,475,016.70 / 332), respectively”.
Originally published by ConJur (in Portuguese).
