The Petrobras Case – Decision of the United States District Court for the Southern District of New York - The biggest corporate litigation of Brazil shall be decided in Arbitration

(by Nikolai Sosa Rebelo)

The Petrobras case is the biggest corporate litigation ever in Brazilian history. The underlying dispute involve corruption of government officials, big companies and many Brazilian political parties. The case has domestic and international repercussion, reason being the case started in a court in the United States. Although we have many relevant facts to be interested in the merits of the dispute, here, our focus is only the arbitration issue. The part of the claims related to the purchase of securities in Brazilian stock market shall be decided in arbitration. At least this is what the American Court in charge of the case said in its decision of July 30^th of 2015 In re Petrobras Sec. Litig., 2015 U.S. Dist. LEXIS 99322, Fed. Sec. L. Rep. (CCH) P98,587 (S.D.N.Y. July 30, 2015).

The corporate bylaws of Petrobras has mandatory arbitration provision. It was included in 2002, because the company intended to have its shares traded in the level 2 of Coporate Governance of the Stock Exchange of Sao Paulo – BM&F BOVESPA. This is a requirement for corporations to participate of the top markets of BM&F BOVESPA. This was a matter of Brazilian law (Id.).

The Court heard two Brazilian top experts in corporate law to decide this issue. One was Professor Erica Gorga, who is a firm critic of arbitration in the corporate market. The other expert is Cantidiano. Cantidiano interprets that arbitration clause in corporate bylaws is valid under Brazilian Law.

In the battle of experts, the court was persuaded that the arbitration provision was allowed in Brazilian law. The Judge followed the reasoning of Canditiano that said that the Brazilian Law of Corporations has an express provision allowing the use of arbitration clause in companies’ bylaws (Id.). In addition, Brazilian scholars says that shareholders agree with the arbitration clause by the moment they buy stock of the company (Id.).

The court was not persuaded by the expert opinion provided by the plaintiffs. Their arguments were that (1) being a contract of adhesion, the arbitration is only valid if started by the “consumer”; (2) the arbitration provision should be approved unanimously by shareholders or alternatively does not bind shareholders who did not approve it; (3) the inclusion of the arbitration was void, because it was not properly included on the agenda of the meeting that approved it, in violation of article 124 of Brazilian Corporations Law (Id.). As response to those arguments, the defendant’s expert said that (1) the rule of contract of adhesion is only applied in case of unbalanced bargain (like consumer deals), which is not the case of a company’s bylaws; (2) the Brazilian Corporate Law does not include in the rule of unanimity the inclusion of arbitration provision and the Congress passed a law saying that all shareholders are bound by the agreement; and (3) that the agenda of the meeting expressly said that the meeting should deliberate on all the changes to the corporate bylaw to attend the requirements of corporate governance of level 2 of the Bovespa Rules and arbitration provision was one of those requirements (Id.).  

The defendant’s argument that was not accepted by the court was that all of the claims (not only the “Brazilian claims) should go to arbitration. The court said that the party is only submitted to arbitration on the dispute they agreed to arbitrate [Id. Citing AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986)]. In this case, the claims about securities purchase outside Brazil were not agreed in the arbitration clause, which was limited to the purchases in the Brazilian stock market (Id.).

However, we should expect new contend over this arbitration provision. Seems probable that some shareholders will try to strike the arbitration clause in Brazilian courts, based on the arguments of Professor Gorga. We should also expect anti-suit provisions from both sides in order to avoid court interference in the arbitration procedure and vice-versa.

The majority of corporate law scholars deems that arbitration in corporate bylaws is legal under Brazilian law, but we still have not a firm manifestation of Brazilian courts in this matter. The latest trends in the country’s jurisprudence are in favor of arbitration in general, but nothing is 100% when it comes to predicting results of legal disputes. Scenes from the next chapter will say if Petrobras case will go to arbitration.