UPDATE: Trial over application of either Selic rate or default interest of 1% per month

Update: On March 06, 2024, in 6 votes to 5, the Special Court of the Superior Court of Justice (STJ) concluded the judgment of Special Appeal No. 1,795,982, accepting the argument that the Selic rate should be used to update civil debts, as opposed to the model of monetary adjustment plus default interest of 1% per month. However, questions of public order were raised by Reporting Justice Luis Felipe Salomão and Justice Mauro Campbell requested to examine the case in chambers. The judgment is therefore stayed until Justice Mauro Campbell reschedules the case for judgment.

Trial over application of either Selic rate or default interest of 1% per month

In March 2023, the Special Court of the Brazilian Superior Court of Justice (“STJ”) initiated the trial of Special Appeal No. 1,795,982, which can affect millions of proceedings, given that it discusses the possibility of applying the Selic rate for the correction of civil debts, as opposed to the system of monetary correction added to the default interest of 1% per month.

The matter is expected to be resumed at the next trial session, scheduled for next Thursday, June 21, 2023.

The discussion revolves around the interpretation of article 406 of the Civil Code. According to the provisions, when not provided for in contract or by law, the default interest “will be established according to the rate in force for overdue taxes owed to the National Treasury”.

Therefore, the point of divergence is the application of the Selic rate or the default interest of 1% per month, as provided for in article 161 of the Brazilian Tax Code.

About the case

In the first part of the trial, on March 01, 2023, Justice Luis Felipe Solomon voted against the use of the Selic rate. He states: “for civil debts, the best criterion is the use of the official monetary correction index – which, as a rule, is in the table of the local court itself – added to the interest rate of 1% per month (or 12% per year), in the simple form, in accordance with the provisions of paragraph 1, article 161 of the National Tax Code“.  

The justice claimed that the Selic rate was not the appropriate criterion, given that the rate in question did not recover from the currency devaluation throughout the last 20 years, thus creating negative interest or negative default. For payment purposes, the Selic rate could lead to unjust enrichment, and stimulate the customary litigation, given that the debtor would be aware that their default would not lead to major consequences regarding their property.

In the second part of the trial, on June 07, 2023, Justice Raul Araújo, who had requested a review, diverged from Justice Solomon, and voted in favor of using the Selic rate. In Araújo’s opinion, there is no reason to impose a default interest rate of 1% per month on the debtor of civil debts.

In this regard, the justice stated that Article 406 of the Civil Code must be interpreted literally and, if there is no reference to the Brazilian Tax Code, a consistent application of rates both in public and private relations should prevail. According to Araújo, “the compelling logic is to keep to the letter of the law through the application of the same default rate as the payment of federal taxes [that is, the Selic rate]”.

It is worth highlighting that after Justice Raul Araújo’s vote, Justice Luis Felipe Solomon also requested a review to evaluate the arguments before the next trial session, which will take place next Thursday, June 21, 2023.

Given its importance, the outcome of the trial will affect virtually all ongoing civil proceedings that involve convictions or pecuniary debts.

Demarest’s Dispute Resolution team is available to provide any further clarification on this topic and other related matters.