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February 2021: Third Victory for Brazilian Oil Company in Consortium Dispute

February 2021

The firm’s Paris and London offices recently obtained a third decisive victory for one of our Brazilian oil and gas clients.

The firm’s client previously held a 30% interest in an oil project off the coast of Rio de Janeiro. Two other Brazilian oil and gas companies held a 30% interest and a 40% interest, respectively.

The latter company failed to contribute its share of some of the costs and expenses of the project and was removed from the project and required to transfer its 40% interest to the remaining two parties in equal shares – without compensation – pursuant to the mandatory withdrawal provisions of the parties’ Joint Operating Agreement, which followed the standard industry form issued by the Association of International Petroleum Negotiators (AIPN).

The three parties had also incorporated a special purpose company in the Netherlands to conduct some of the operations of the oil project.  The Shareholders Agreement for the Dutch company contained provisions related to and mirroring those of the parties’ Joint Operating Agreement.  In particular, following its removal from the project under the Joint Operating Agreement, the Shareholders Agreement required the defaulting company also to transfer its shares in the Dutch company to the remaining two companies in equal shares – again without compensation.

The validity of the relevant parts of the Shareholders Agreement was challenged by the defaulting company in an arbitration hearing in May 2020 before a tribunal made up of Melanie van Leeuwen, Timothy Martin, and Professor Dr. Arthur S. Hartkamp.  The defaulting company also sought, in the alternative, compensation for the loss of its shares in the Dutch company, which it valued at USD 200 million.

In an award issued in December 2020, the arbitral tribunal comprehensively rejected these claims and upheld the validity and effectiveness of the relevant contractual provisions of the Shareholders Agreement under Dutch law.  In practical terms, this meant that the defaulting company had been excluded from both the project (its interest in which it valued at USD 500 million) and the Dutch law company (its shareholding in which it valued at a further USD 200 million) following non-payment of a much smaller sum of around USD 20 million towards the costs and expenses of the project.

The arbitral tribunal also upheld our client’s claim for reimbursement of around USD 5 million towards the Dutch company’s costs and expenses, which the aggrieved company had refused to make, and which our client had made in its place prior to its removal from the Dutch company.