Petrobras is a publicly-listed company active in the oil, natural gas and energy industry. More than half of its shares are held by the Brazilian State. Several legal entities that are part of the Petrobras group are established in the Netherlands.
In 2009, a criminal investigation was initiated in Brazil under the name of “Lava Jato” or “Operation Car Wash” regarding money laundering practices by criminal organisations. In 2014, this criminal investigation was broadened to include a cartel in the construction industry. It was found that participating construction companies and suppliers committed fraud/corruption by charging Petrobras - among other companies - a surcharge on top of the normal price, and paying from that a so-called “kick-back fee” to senior officers at Petrobras and senior officials at political parties during the time period 2004-2014. The news of the fraud led to a severe drop in the value of Petrobras’ shares and other financial products related to the Petrobras group. Investors also assert that pursuant to the fraud, funds have flown from Petrobras, decreasing the value of these investors’ investments.
Following the Petrobras affair and its financial impact, investors in Petrobras initiated several civil claims (civil actions) in Brazil and the U.S. Petrobras announced a US$3bn settlement in the U.S. in this regard earlier this year.
On 23 January 2017, the Foundation initiated a collective action in the Netherlands for Petrobras investors that purchased Petrobras’ shares outside of the U.S. On 23 January 2017, the Foundation initiated a collective action in the Netherlands for Petrobras investors that purchased Petrobras’ shares outside of the U.S. This is given by limitations imposed by U.S. decisions in securities litigation regarding foreign investors and investors in foreign securities. Such limitations first occurred with the U.S. Supreme Court decision in Morrison v. National Australia Bank, and the U.S. legal landscape regarding cross border securities class action is still being developed.
The Foundation alleges investors had losses with shares in Petrobras due to the corruption investigation in Brazil involving the company. In particular, the Foundation claims that the investors have been misled by Petrobras as the company covered up widespread fraud for years, while issuing shares and bonds on the basis of false information. Petrobras is of the view that Brazilian authorities recognize the company was a victim of the corruption scheme.
Judgement of the court
In last week’s judgement dealing with jurisdiction of the Dutch Court, the District Court Rotterdam ruled largely in favour of the Foundation by accepting jurisdiction.
The District Court considered that given that some legal entities belonging to the Petrobras group are established in the Netherlands, the Court has jurisdiction over these defendants on the basis of the main rule dealing with jurisdiction set out in Article 2 of the Dutch Code of Civil Procedure (DCCP).
In assessing whether the Court has jurisdiction over the other defendants, the Court held that the starting point is that Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters is not applicable, because the foreign defendants do not have a domicile in the territory of a EU Member State. Other international regulations in the field of jurisdiction are also not applicable to the present case. This means that the international jurisdiction of the Court should be assessed on the basis of the rules set out in Articles 1-13 DCCP - which rules are largely inspired by the aforementioned Regulation No. 1215/2012.
The District Court accepted jurisdiction based on Article 7 DCCP. Article 7(1) DCCP provides that if legal proceedings are initiated by a writ of summons and a Dutch court has jurisdiction with respect to one of the defendants (the so-called anchor defendant), then it has jurisdiction as well with respect to the other defendants who are called to the same proceedings, provided that the rights of action against the different defendants are connected with each other in such a way that a joint consideration is justified for reasons of efficiency. In this case, one of the anchor defendants - Petrobras Global Finance B.V. - is an entity which purpose is to raise capital through issuing bonds. The other anchor defendant - Petrobras Oil and Gas B.V. - is an entity which extracts and produces oil and gas in Africa. These entities are likely incorporated in the Netherlands for tax and financing purposes.
The Court found that the rights of actions against the different defendants are connected with each other as the (alleged) conduct complained of by the different defendants is part of the same body of facts and the Foundation asks for a declaratory decision against all defendants similarly and based on this body of facts. Consequently, the Court assumed jurisdiction on the great majority of issues raised by the Foundation against Petrobras.
However, the Court declined to accept jurisdiction over Petrobras (and other foreign defendants) regarding two specific accusations raised by the Foundation. The first accusation entails the initiating and carrying on with the largescale fraud, whereas the second accusation entails - more generally - the acting in violation of other applicable provisions, set out by the Foundation in its written pleadings. Even though the Foundation alleged that these accusations applied to most of the defendants, including the Dutch defendants, it did not in fact submit that and in which way the Dutch (anchor) defendants took part in the conduct complained of. Hence, these Dutch defendants could not serve as anchor defendants insofar as these specific accusations are concerned.
Finally, the District Court held that the arbitration clause in Petrobras’ Articles of Incorporation cannot preclude the Foundation from bringing a claim against Petrobras. The District Court held that - both under Brazilian and under Dutch law - this clause was not sufficiently clear to reach the conclusion that shareholders in Petrobras should have known, on basis of Petrobras its Articles of Association, that any disputes between Petrobras and its shareholders would be subject to arbitration. The Court also ruled that the Foundation - at least in this stage of the proceedings - provided sufficient clarity as to the existence and the identity of the Petrobras’ investors whom it asserts to represent.
The District Court assuming jurisdiction over a claim against foreign entities in a case that has a somewhat tenuous factual link with the Netherlands is in line with the generally flexible approach Dutch Courts adopt when deciding on their jurisdiction to rule over international disputes.
Specifically, regarding the Petrobras claim - as explained above - investors should be aware of the fact that the Dutch Court has held that it has no jurisdiction over two specific issues (most importantly the accusation that Petrobras initiated and carried on with the largescale fraud). As these two issues are not part of the Dutch action, limitation periods for claims based on these two issues are not barred by this action, which could have implications for investors choosing to opt-out from the collective action at some stage. These investors may find that their individual claims relating to these two specific issues have become time-barred.
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