On 30 October 2024 the claims asserted by Dutch claim foundation “Stichting Petrobras Compensation Foundation” against Petrobras were dismissed by the lower court of Rotterdam, the Netherlands. According to the court, shareholder claims governed by Spanish law are time barred and Brazilian and Argentine law does not provide a basis for shareholders to claim share price losses from a listed company. It is likely that this decision will be appealed.
Introduction
In 2018 I wrote an article (LINK) about the Dutch claim foundation “Stichting Petrobras Compensation Foundation” that commenced civil proceedings in 2017 in Rotterdam, the Netherlands against the Brazilian company Petrobras (Petróleo Brasileiro S.A. – Petrobras), certain Dutch (financial) corporations within the Petrobras group and various other defendants.
This foundation claims to represent the interests of Petrobras investors who traded Petrobras shares and other financial instruments on a non-US exchange before 28 July 2015. Its goal is to obtain compensation for the losses suffered by such investors as a result of the irregularities committed by Petrobras, its executives and its employees. Such irregularities would include bribery of officers, illegal inflation of assets and other issues currently being investigated by the relevant authorities.
As early as December 2014, a U.S. class action was initiated on similar grounds. This class action however only aimed to compensate Petrobras-investors that purchased Petrobras shares and other financial instruments on U.S. (NY) exchanges. In that sense, these two actions (the U.S. class action and the foundation’s action) can be considered to be complementary: one covered the U.S. market, and the other covers all non-US markets.
In January 2018 the U.S. class action resulted in a class settlement of USD 2.95 billion.
Course of the legal action
Somewhat against the expectations, the Dutch court accepted jurisdiction in a decision of September 2018 to hear the majority of the foundation’s allegations and also decided that the foundations proceedings would not be stayed as requested by the defendants.
What followed were extensive collective proceedings with numerous motions and submissions.
Although the court of Rotterdam ordered in an initial ruling of 26 July 2023 that Petrobras and its group company PGF acted unlawfully under multiple legal systems towards Petrobras investors, the court nevertheless held that more research was needed to answer the following two questions:
- Can shareholders under Brazilian law claim compensation for share price losses from Petrobras?
- Can shareholders under Argentine law claim compensation for share price losses and lost dividends from Petrobras?
Subsequently, additional expert reports were issued on these two questions of Brazilian and Argentine law.
Dismissal of shareholder claims
In an initial ruling of 26 July 2023, the Dutch lower court of Rotterdam already ordered that Petrobras' reliance on prescription of shareholder related claims that are governed by Spanish law succeeded. This led to a rejection of shareholder claims against Petrobras to the extent that Spanish law is applicable.
In a recent judgment (LINK) of 30 October 2024, the Dutch lower court of Rotterdam issued its final decision on the merits by also dismissing shareholder claims against Petrobras that are governed by Brazilian and Argentine law.
According to the court, under Brazilian law Petrobras shareholders cannot claim damages from Petrobras. Stock price damage is considered to be indirect shareholder damage that cannot be recovered from the company.
The court stipulated that there have been numerous attempts by shareholders in Brazil since 2014 to recover damages suffered from Petrobras. This has resulted in a significant number of rulings and the line of case law is clear. The expert studies show that there are 22 rulings by Brazilian courts in which Petrobras shareholders lost on this issue. There are no known rulings from Brazilian courts in which damages were awarded.
Although the Foundation argues that its arguments are different from those presented in the Brazilian proceedings, the court concluded that it is not up to the Dutch court to deviate from the clear line of the Brazilian court.
The court furthermore established that under Argentine law, it has not been shown that (most) shareholders can recover losses from Petrobras. There are some groups of shareholders who may be able to do so, but they are too small to play a role in this collective action.
Bondholders
The foundation's claims against Petrobras are, however, upheld (for the most part) as far as it concerns Petrobras bondholders whose claims are governed by Luxembourg law.
The court held that Petrobras acted unlawfully under Luxembourg law by publishing false, incomplete and/or misleading financial information and issuing Petrobras bonds based on that information.
The court also addressed the question of whether the requirements for a declaratory judgment under Luxembourg law would preclude the admissibility of the foundation's claims. The court’s final conclusion is that Luxembourg law does not impose such requirements. The claims on behalf of Petrobras bondholders, insofar as it must be assessed under Luxembourg law, are therefore granted.
Appeal
Both the foundation and Petrobras have the opportunity to appeal this decision and most likely will do so. I expect that some parts of the lower court’s decision, e.g. on Brazilian law, will be difficult to reverse in appeal.
