The civil liability of the company, the controller and the administrator in light of the Petrobras case

In the first instance, the requests were judged entirely unfounded (that is, the merits of the dispute were faced) by the court of the 4th Federal Court of Florianópolis/SC. On appeal, the 3rd Panel of the Federal Regional Court of the 4th Region concluded that the minority shareholder could not even have filed the action, as he would be an illegitimate party to file a liability action against the controlling shareholder, based on article 159, § 7º , of the Corporate Law[2].

It seems to us that the ruling ended up mixing the civil liability rules for administrators, controllers and the company, granting identical treatment to these three different types of civil liability. Let's see:

[2] Art. 159. It is up to the company, upon prior deliberation of the general meeting, to take civil liability action against the administrator for losses caused to its assets. […]§7º The action provided for in this article does not exclude that which is applicable to the shareholder or third party directly harmed by an administrator's act.

Administrators (directors and advisors) are largely responsible for the success or failure of the company, with the important role of conducting business and managing assets. Precisely because they occupy a position of high relevance for the company, the Brazilian Corporation Law. imposes a broad set of fiduciary duties on administrators, who must guide their conduct by the maxims of diligence, loyalty, transparency and information.

As a general rule, the administrator is not personally liable for losses caused to the company as a result of a regular management act (article 158 of the Corporate Law), even if resulting from an incorrect business decision.[3]. However, sometimes the losses caused to the company do not result from mistaken managerial decisions, but from acts of imprudence, unpreparedness, misinformation, conflict of interests by the administrator, among other illegalities. In these cases, the company may take civil liability action against the administrators, aiming to recover its assets.[4].

[3] Statement No. 86 of the III Commercial Law Conference of the Federal Justice Council.
[4] EIZIRIK, Nelson. The Commented Company Law, volume 3: Articles 138 to 205. 2nd Edition, 2nd Printing. São Paulo: Quartier Latin, 2015. p. 182 and 183.

Liability action against administrators has received a lot of attention from the legislature. It has detailed regulation in articles 159 and 246 of the Corporate Law. and unfolds into social responsibility action (article 159, caput and §§ 1 to 5) and individual action by shareholders against administrators (article 159, § 7).

In social action, the process is filed in the name and benefit of the company itself. The aim is to hold the company's administrators responsible for the losses they caused to the company. For this reason, the compensation that is due is reverted in favor of society (article 159, § 5). In order for the social action to be filed, the matter must first be submitted to the general assembly, so that it can decide on the convenience and opportunity of the measure (article 159, caput)[5]. If the meeting approves the filing of the action, the administrators must be automatically prevented or replaced, even if the liability action ends up not being proposed[6].

[5] ADAMEK, Marcelo Vieira Von. Civil Liability of S/A Administrators. São Paulo: Saraiva, 2009. p. 308 and 309.
[6] CARVALHOSA, Modesto. Comments on the Law of Public Limited Companies, 3rd volume: Arts. 138 to 205. 6th Edition, 3rd Printing. São Paulo: Saraiva, 2015. p. 569. EIZIRIK, Nelson. The Commented Company Law, volume 3: articles 138 to 205. 2nd Edition, 2nd Printing. São Paulo: Quartier Latin, 2015. p. 186.

Eventual disapproval of the matter at a meeting, however, does not prevent dissenting shareholders from filing a liability action against the administrators. Article 159, § 4, of the Brazilian Corporation Law. allows shareholders holding at least 5% of the share capital to file a liability action on behalf of the company. In this case, there is no dismissal of the administrators[7].

Article 159 of the Corporate Law It also provides for another type of liability action against administrators: individual action by shareholders. In this case, shareholders act in their own name, and not in the name of the company. The objective is to compensate for the losses suffered as a result of acts carried out by administrators. Individual action does not depend on prior deliberation by the general meeting or the ownership of a minimum number of shares to be filed. The law only requires that the losses borne by the plaintiffs be direct — that is, they cannot be a mere reflection of damage caused to the company[8].

There is, however, no individualized list of what damages are considered “direct”. In general, jurisprudence understands that the devaluation of the company's shares on the stock exchange[9] It is an indirect loss, as it affects society first and, only reflexively, its shareholders.

The Corporate Law recognizes that the exercise of this directive power granted to the controlling shareholder is legitimate, and provides compensation for this. Controllers have the duty to use the power of control in the interests of the company, in favor of its purpose and social function (article 116, sole paragraph). Controllers cannot use their power to pursue personal ends, to the detriment of the interests of society or other interests that they have a duty to preserve[10], under penalty of personal and objective liability for abuse of control power[11].

The liability action against the controlling shareholder also has the nature of a social action. We seek compensation for losses caused to the company, so that the compensation goes to the company's coffers. Unlike what occurs in liability actions against administrators, however, the controller's liability actions were not meticulously regulated. Article 159 of the Corporate Law does not apply to this type of dispute, and it is therefore unnecessary to call a general meeting to deliberate on the proposition of the action[12].

[8] EIZIRIK, Nelson. The Commented Company Law, volume 3: Articles 138 to 205. 2nd Edition, 2nd Printing. São Paulo: Quartier Latin, 2015. p. 185.

[9] TJSP; Appeal nº 1052131-96.2018.8.26.0100. 1st Reserved Chamber of Business Law; Rapporteur: Judge Hamid Bdine. Judgment date: 06/03/2019.

[10] EIZIRIK, Nelson. The Commented Company Law, volume 3: articles 138 to 205. 2nd Edition, 2nd Printing. São Paulo: Quartier Latin, 2015. p. 187.

[11] CARVALHOSA, Modesto; KUYVEN, Fernando. Treatise on Business Law, volume III: Public Limited Companies. São Paulo: Revista dos Tribunais, 2016. p. 569.

[12] STJ; REsp nº 16.410/SP. Fourth Class; Rapporteur: Minister Sálvio de Figueiredo Teixeira. Judgment date: 14/12/1992. CARVALHOSA, Modesto; KUYVEN, Fernando. Treatise on Business Law, volume III: Public Limited Companies. São Paulo: Revista dos Tribunais, 2016. p. 1.055.

The issue of the company's own civil liability towards its shareholders is a cutting-edge topic in national corporate law. This type of civil liability is not expressly provided for in the Corporate Law. It is a doctrinal construction, inspired by the rules of the North American Security Exchange Act and based on the general rules of Brazilian civil liability and the theory of “presentation” of the corporation.

The discussion gained strength mainly in the Petrobras case, initiated after investigations by Operation Lava Jato revealed numerous corruption schemes involving its administrators and political agents, resulting in sharp drops in the price of the company's shares in Brazil and abroad. In 2014, several investors filed class action lawsuits in the United States against Petrobras, its administrators and controllers, seeking compensation for the damages they suffered as a result of the devaluation of their shares.

The various class actions filed against Petrobras were consolidated into a single proceeding in the Southern District Court of New York in February 2015 and submitted to judge Jed Rakoff for examination. The action ended up being extinguished in relation to Brazilian investors, as it was understood that those who acquired direct shares in the company on what was then called BM&FBovespa would be bound by the arbitration clause provided for in article 58 of its bylaws and, therefore, could only sue against the company in arbitration procedure initiated before the Market Arbitration Chamber[13]. Shortly afterwards, Petrobras signed a multibillion-dollar agreement with its foreign shareholders (ADR holders), disbursing approximately 3,4 billion reais to end the ongoing class action in the United States.[14].

A significant group of Brazilian shareholders of Petrobras – notably the investment funds Previ, Petros and Funcesp – formulated a request for the institution of arbitration before the Market Arbitration Chamber, seeking compensation, ultimately, due to the same events discussed in the class action American[15].

In short, supporters of the company's civil liability to its shareholders state that, for all legal purposes, administrators are not mere agents of the corporation, they are the corporate corporation.[16]. In this way, the illegal acts carried out by the administrators would be the responsibility of the company itself, which for this reason is civilly responsible for repairing the losses caused to shareholders, based on the theory of illegal acts.[17]. There are, however, strong arguments against this position, notably from those who argue that the Corporate Law. structured its own liability system based on the indirect liability of corporate agents, in which only administrators and controllers can be called upon to respond for shareholders' losses.

“Adherents of the company's civil liability to its shareholders state that, for all legal purposes, administrators are not mere agents of the corporation, they are the corporate corporation.”

[13] In Re Petrobras Securities Litigation (14-cv-9662). Judge Jed S. Rakoff’s Opinion on the Motion to Dismiss. Available at: , accessed on 1/2014/09662 .

[14] Nicolau Pamplona. Petrobras will pay R$3,4 billion to close investigations into corruption in the USA. Folha de São Paulo, September 27, 2018. Available at: , accessed on 1/2018/09.

[15] Petrobras confirms that funds requested arbitration to recover losses and says it will defend itself. Globo, November 15, 2017. Available at: , accessed on 1/28/11.

[16] LEÃES, Luiz Gastão Paes de Barros. The Civil Liability of Market Companies – Collective protection of investors in arbitration. In: CARVALHOSA, Modesto (Org.); LEÃES, Luiz Gastão Paes de Barros (Org.); WALD, Arnoldo (Org.). The Company's Civil Responsibility to Investors: Contribution to the modernization and moralization of the capital market. São Paulo: Quartier Latin, 2018. p. 56 and 57.

[17] WALD, Arnoldo. Seem. In: CARVALHOSA, Modesto (Org.); LEÃES, Luiz Gastão Paes de Barros (Org.); WALD, Arnoldo (Org.). The Company's Civil Responsibility to Investors: Contribution to the modernization and moralization of the capital market. São Paulo: Quartier Latin, 2018. p. 116 to 119.

Having made the above distinctions, it seems to us that, upon understanding that the minority shareholder could not have filed a liability action against the controlling shareholder, the Federal Regional Court of the 4th Region incorrectly applied article 159, § 7 of the Brazilian Corporation Law . to the case discussed.

According to the ruling itself, the investor made two different compensation claims: the first against Petrobras, based on the company's civil liability system towards its shareholders (general rules of civil law); and the second against the Federal Union, based on the special civil liability regime of the controlling shareholder, for abuse of control power. However, the decision applied the legal discipline of administrators' civil liability to decide both requests, ignoring that the procedural rules set out in article 159 of the Corporations Law the administrators' responsibility do not apply to this specific case.

In other words, the ruling did not pay attention to the peculiarities of each type of civil liability that exists, treating requests for liability from the company and the controlling company as if they were an action of individual liability against administrators. The matter is complex, there is no doubt about that. Therefore, good technique and greater care are required in the formation of precedent, both due to the potential for application (albeit in a non-binding manner) in countless other similar cases, and due to the importance of the institute in protecting investors and maturing the Brazilian market. .