A Dutch court has entered a significant ruling in one of the long-running efforts by Petrobras investors to recover damages following the company’s bribery scandal. The Petrobras U.S. securities class action lawsuit settled in 2018 for $3 billion. Investors who purchased their Petrobras shares outside the U.S. were not part of that settlement, and these investors have pursued claims elsewhere, including in the Netherlands, where an action filed by a Foundation acting on behalf of a group of investors is pending. In a ruling last week, the District Court of Rotterdam rejected the Foundation’s claims under Brazilian and Argentinian law. The Court also ruled on bondholders’ claims under Luxembourg and Dutch law, as discussed below. The court’s judgment is subject to appeal. Petrobras’s October 30, 2024, filing with the SEC on Form 6-K describing the court’s judgment can be found here.

In the Netherlands court,  Stichting Petrobras Compensation Foundation has filed an action against Petróleo Brasileiro S.A., better known as Petrobras, the state-owned Brazilian multinational petroleum company headquartered in Rio de Janeiro, Brazil; Petrobras Global Finance B.V. (PGF); and certain other defendants. The Foundation claims that it represents the collective interests of investors not included in the U.S. settlement. The Foundation alleges Petrobras made misleading disclosures to its investors with respect to alleged bribery-related activities that came to light as part of an investigation known as Operation Car Wash. The Foundation seeks a declaration that Petrobras and the other defendants acted illegally toward these investors.  Further background concerning the Dutch action can be found here.

In its October 30 judgment, the District Court of Rotterdam rejected the Foundation’s claims under Brazilian and Argentinian law. The Court held with respect to the Brazilian law claims that all of the damages alleged by the Foundation qualify as indirect and cannot be compensated. The Court also ruled with respect to the Foundation’s claims under Argentinian law that the shareholders cannot claim compensation from the company for the damages alleged by the Foundation, and the Foundation has not demonstrated that it represents a sufficient number of investors who could, in theory, make such a claim.

With respect to the bondholders’ claims, the court found that Petrobras and PGF acted illegally under Luxembourg law and that PGF acted illegally with respect to Dutch law. However, the court further ruled with respect to the bondholders’ claims, that the Foundation will not be able to claim compensation within the Dutch collective action. Any compensation can only be filed by or behalf of the bond investors, who will need to prove all the elements necessary in order for Petrobras and PGF to be held liable.

The Court also confirmed its prior rejection of the claims against Petrobras International Braspetro B.V., Prime Oil & Gas BV (POG BV) and the former presidents of Petrobras, Maria das Graças Silva Foster, and José Sérgio Gabrielli de Azevedo, and the statute of limitations for claims under Spanish law.

The Court’s rulings under Brazilian and Argentinian law clearly are favorable for Petrobras. In its SEC filing, the company called the court’s action “a favorable judgment” addressing the Foundation’s “main arguments in the collective action.” The company stated that the court “broadly accepted Petrobras’ arguments” and “rejected the Foundation’s claims under Brazilian and Argentinian law.” These rulings are subject to appeal, and it seems likely that the Foundation would appeal.

Not all of the Dutch court’s rulings were favorable to Petrobras. The court did find with respect to the bondholders’ claims that Petrobras acted illegally under Luxembourg law and PGF acted illegally under both Luxumbourg and Dutch law. However, the court said that the bondholders cannot obtain compensation in the collective action proceeding, but must seek damages in new lawsuits “to be filed by or on behalf of” the bondholders. In its SEC filing, the company said it would defend against any bondholder compensation proceedings. It seems likely the bondholders or others acting on their behalf will pursue the compensation claims, especially given the court’s rulings that the Petrobras and PGF acted illegally.

The bottom line is that there is further to go here. The Court’s Brazilian law and Argentinian law rulings seem likely to be appealed, along with the other rulings against the Foundation in the Dutch Court’s judgment. It also seems likely that there will be further proceedings initiated to pursue the bondholders’ compensation claims. In other words, it could be a long time from now, if ever, before the Petrobras investors who purchased their Petrobras securities outside the U.S. could receive compensation, which stands in stark contrast with the position of U.S. investors, who are the beneficiaries of the $3 billion settlement entered in the U.S. more than six years ago.

Special thanks to a loyal reader for providing me with information and links relating to the Dutch court’s action.