Page 332 - Annual Report 2020

6.7 Legal proceedings

The Group is involved from time to time in legal proceedings and On 13 April 2020, the 12th Federal Court granted a request made by
governmental investigations of a character normally incidental the states of Minas Gerais and Espírito Santo to allow R$100 million
to our business, including claims and pending actions against (approximately US$20 million) Interim Security (defined below)
us seeking damages, or clarification or prosecution of legal held on escrow with the Court to be used in implementation of
rights and regulatory inquiries regarding business practices. preventive measures and control and management of risks and
Insurance or other indemnification protection may offset the damages relating to the COVID-19 pandemic. The amount made
financial impact on the Group of a successful claim. available is in the process of being allocated to the healthcare
This section summarises the significant legal proceedings and systems in the state of Minas Gerais and the state of Espírito Santo.
investigations and associated matters in which the Group is Preliminary Agreement
currently involved or has finalised since our last Annual Report. On 18 January 2017, BHP Brasil, together with Vale and Samarco,
The timing of many of the legal proceedings and investigations entered into a Preliminary Agreement with the Federal Prosecutors’
has been delayed or is uncertain as a result of court closures Office in Brazil, which outlines the process and timeline for further
or delays in response to the COVID-19 pandemic. negotiations towards a final settlement regarding the R$20 billion
Legal proceedings relating to the failure of the Fundão (approximately US$3.7 billion) public civil claim and the
tailings dam at the Samarco iron ore operations in Minas R$155 billion (approximately US$28 billion) Federal Public
Gerais and Espírito Santo (Samarco dam failure) Prosecutors’ Office claim relating to the dam failure.
The Group is engaged in numerous legal proceedings relating Under the Preliminary Agreement, BHP Brasil, Vale and Samarco
to the Samarco dam failure. Given the stage of these proceedings, agreed interim security (Interim Security) comprising:
it is not possible at this time to provide a range of possible • R$1.3 billion (approximately US$240 million) in insurance bonds
outcomes or a reliable estimate of potential future exposures. • R$100 million (approximately US$20 million) in liquid assets
The most significant of these proceedings are summarised below. which was made available to the states of Minas Gerais and
As described below, many of these proceedings involve claims Espírito Santo for the implementation of preventive measures
for compensation for similar or possibly the same damages. and control and management of risks and damages relating
There are numerous additional lawsuits against Samarco relating to the COVID-19 pandemic
to the Samarco dam failure to which the Group is not party. • a charge of R$800 million (approximately US$145 million)
R$20 billion public civil claim commenced by the Federal over Samarco’s assets
Government of Brazil, states of Espírito Santo and Minas Gerais On 24 January 2017, BHP Brasil, Vale and Samarco provided the
and other authorities (R$20 billion Public Civil Claim) Interim Security to the 12th Federal Court of Belo Horizonte, which
On 30 November 2015, the Federal Government of Brazil, states was to remain in place until the earlier of 30 June 2017 and the date
of Espírito Santo and Minas Gerais and other public authorities that a final settlement arrangement was agreed between the Federal
collectively filed a public civil claim before the 12th Federal Court Prosecutors and BHP Brasil, Vale and Samarco. Following a series
of Belo Horizonte against Samarco and its shareholders, BHP Billiton of extensions, on 25 June 2018, the parties reached an agreement
Brasil Ltda (BHP Brasil) and Vale, seeking the establishment in the form of the Governance Agreement (summarised below).
of a fund of up to R$20 billion (approximately US$3.7 billion) Governance Agreement
in aggregate for clean-up costs and damages. On 25 June 2018, BHP Brasil, Vale, Samarco, the other parties
The plaintiffs also requested certain interim injunctions in to the Framework Agreement, the Public Prosecutors Office and
connection with the public civil claim. On 18 December 2015, the Public Defense Office entered into a Governance Agreement,
the Federal Court granted the injunctions and, among other which settled the R$20 billion (approximately US$3.7 billion) public
things, ordered Samarco to deposit R$2 billion (approximately civil claim, enhances community participation in decisions related
US$365 million) into a Court-managed bank account for use to Programs under the Framework Agreement and established a
towards community and environmental rehabilitation. BHP Brasil, process to renegotiate the Programs over two years to progress
Vale and Samarco immediately appealed against the injunction. settlement of the R$155 billion (approximately US$28 billion)
On 4 November 2016, the Federal Court reduced the R$2 billion Federal Public Prosecutors’ Office claim.
(approximately US$365 million) injunction to R$1.2 billion
(approximately US$220 million). Renegotiation of the Programs will be based on certain agreed
principles, such as full reparation consistent with Brazilian law,
On 2 March 2016, BHP Brasil, together with Vale and Samarco, the requirement for a technical basis for any proposed changes,
entered into a Framework Agreement with the plaintiffs to consideration of findings from experts appointed by BHP Brasil,
establish a foundation (Fundação Renova) to develop and Samarco and Vale, consideration of findings from experts
execute environmental and socioeconomic programs (Programs) appointed by Prosecutors and consideration of feedback from
to remediate and provide compensation for damage caused impacted communities.
by the Samarco dam failure. The renegotiation process remains outstanding as certain pre-
The term of the Framework Agreement is 15 years, renewable requisites established in the Governance Agreement are yet
for periods of one year successively until all obligations under to be implemented. The renegotiation term may be extended
the Framework Agreement have been performed. Under the for a further two years by mutual consent of the parties to the
Framework Agreement, Samarco is responsible for funding Governance Agreement. During the renegotiation period and up
Fundação Renova’s annual calendar year budget for the duration until revisions to the Programs are agreed, Fundação Renova will
of the Framework Agreement. The amount of funding for each continue to implement the Programs in accordance with the terms
calendar year will be dependent on the remediation and of the Framework Agreement and the Governance Agreement.
compensation projects to be undertaken in a particular year.
To the extent that Samarco does not meet its funding obligations The Interim Security provided under the Preliminary Agreement
under the Framework Agreement, each of Vale and BHP Brasil has is maintained for a period of 30 months under the Governance
funding obligations under the Framework Agreement in proportion Agreement, after which BHP Brasil, Vale and Samarco will be
to its 50 per cent shareholding in Samarco. required to provide security of an amount equal to Fundação
Renova’s annual budget up to a limit of R$2.2 billion
On 25 June 2018, a Governance Agreement (summarised below) was (approximately US$400 million).
entered into providing for the settlement of this public civil claim,
suspension of the Federal Public Prosecutors’ Claim for R$155 billion R$155 billion public civil claim commenced by the Federal
(approximately US$28 billion) (also summarised below) for 24 months Public Prosecutors’ Office (R$155 billion Federal Public
and a formal declaration that the Framework Agreement remains Prosecutors’ Office claim)
valid for the signing parties. On 3 May 2016, the Federal Public Prosecutors’ Office filed a public
On 8 August 2018, the 12th Federal Court of Minas Gerais ratified the civil claim before the 12th Federal Court of Belo Horizonte against
BHP Brasil, Vale and Samarco – as well as 18 other public entities
Governance Agreement. Ratification of the Governance Agreement (which has since been reduced to five defendants by the 12th
(2)
on 8 August 2018 settled this public civil claim, including the
R$1.2 billion (approximately US$220 million) injunction order. Federal Court) – seeking R$155 billion (approximately US$28 billion)
for reparation, compensation and collective moral damages in
relation to the Samarco dam failure.
330 BHP Annual Report 2020