Posts Tagged class action
Petrobas securities class action. Applicable law update: Dutch court holds under Rome II on lex causae in tort for purely economic loss. Place of listing wins the day (and leads to Mozaik).
Thank you Matthias Lehmann for flagging and reviewing the Rotterdam Court’s judgment late in January on applicable law in the Petrobas case. I had earlier reviewed the jurisdictional issues, particularly the application of Brussels Ia’s Article 33-34.
The case relates to a Brazilian criminal investigation into alleged bribery schemes within Petrobras, which took place between 2004 and 2014. The court first, and of less interest for the blog, deals with a representation issue, holding that Portuguese speakers cannot be represented in the class, for the Portuguese version of the relevant dispute settlement provisions, unlike the English translation, was not faulty.
Turning then to applicable law at 5.39 ff. Events occurring on or after 12 January 2009 are subject to the Rome II Regulation. For those before that date, Dutch residual PIL applies which the Court held make Brazilian law lex causae as lex loci delicti commissi: for that is where the alleged fraud, bribery and witholding of information happened.
For the events which are covered by Rome II, the court does not wait for the CJEU finding in VEB v BP and squarely takes inspiration from the CJEU case-law on purely financial damage and jurisdiction: Kronhofer, Kolassa, Universal Music. The court notes that the CJEU in these cases emphasised a more than passing or incidental contact with a State (such as: merely the presence of a bank account) as being required to establish jurisdiction as locus damni. At 5.47 it rejects the place of the investor’s account as relevant (for this may change rapidly and frequently over time and may also be easily manipulated) and it identifies the place of the market where the financial instruments are listed and traded as being such a place with a particular connection to the case: it is the place where the value of the instruments is impacted and manifests itself. It is also a place that meets with the requirements of predictability and legal certainty: neither buyer nor seller will be surprised that that location should provide lex causae.
Conclusion therefore is one of Mozaik: Brasil, Argentina, Germany, Luxembourg are lex causae as indeed may be other places where Petrobas financial instruments are listed. (At 5.49: Article 4(2)’s joint domicile exception may make Dutch law the lex causae depending on who sues whom).
(Handbook of) EU private international law, 2nd ed.2016, Chapter 4, Heading 4.4.
 NSWCA 243 Wigmans v AMP concerns the challenging application of fraus /abuse / vexatious and oppressive proceedings principles to multiplicity of proceedings. Fraus or abuse is not easily applied in civil procedure let alone conflict of laws context. See e.g. my critique of Pablo Star but equally other postings; search tag ‘abuse’ or ‘fraus’ should help locate them. Neither is the common law Aldi rule requiring claimants to bring grouped cases together easy to consider.
Following testimony given by executives of AMP in the (Australian) Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, five class actions were commenced within a short time of each other on behalf of shareholders in AMP who had made investments during periods of time in which it was said that AMP ought to have disclosed certain information to the market. Four of the five class actions were commenced in the Federal Court but were transferred to the Supreme Court. Two of the sets of proceedings then consolidated so that five became four. Each of the respective plaintiffs of the remaining four pending proceedings brought applications to stay each of the other sets of proceedings. AMP, whilst not filing a stay application, supported an outcome in which it would face only one set of proceedings.
Unclear principles on the issue have led to considerations of ‘beauty parades’ (which legal team might best lead the class action) as well as third party funding implications.
The primary judge ordered, pursuant to ss 67 and 183 of the Civil Procedure Act 2005 (NSW) and the inherent power of the Court, that the representative proceedings commenced by 3 of the 4 be permanently stayed. Each of these 3 fell within the definition of group member in the 4th, the ‘Komlotex’ proceedings. Ms Wigmans, one of the 3, made an application for leave to appeal that decision.
The issue in respect of which leave to appeal was granted (but appeal eventually refused) related to the principles applicable to applications to stay and counter-stay multiple open representative action proceedings.
The case therefore does not strictly relate to conflict of laws, rather to civil procedure and case management. However multiplicity of proceedings is clearly an issue viz conflicts, too (think lis alibi pendens; forum non etc.) hence I thought it worthwhile to flag the case; in which Bell P quotes conflicts handbooks; and in which 85 he expressly considers forum non and Cape v Lubbe. The House of Lords in that case had refused to stay proceedings which had been commenced in England where it was said that South Africa was the natural or more appropriate forum, in circumstances where it was held that the proceedings could only be handled efficiently and expeditiously on a group basis in England where appropriate funding was available. The lack of means available in South Africa to prosecute the claims required the application for a stay of proceedings to be refused.
An interesting case in which conflict of laws principles inspired domestic civil procedure rules, and where relevant considerations have an impact on e.g. the Article 33-34 Brussels Ia discussions.
Petrobas securities class action firmly anchored in The Netherlands. Rotterdam court applying i.a. forum non conveniens under Brussels Ia.
Many thanks to Jeffrey Kleywegt and Robert Van Vugt for re-reporting Stichting Petrobas Compensation Foundation v PetrÓleo Brasilieiro SA – PETROBRAS et al. The case, held in September (judgment in NL and in EN) relates to a Brazilian criminal investigation into alleged bribery schemes within Petrobras, which took place between 2004 and 2014. the Court had to review the jurisdictional issue only at this stage, and confirmed same for much, but not all of the claims.
The Dutch internal bank for Petrobas, Petrobas Global Finance BV and the Dutch subsidiary of Petrobas, Petrobas Oil and Gas BV are the anchor defendants. Jurisdiction against them was easily established of course under Article 4 Brussels Ia.
Issues under discussion, were
Firstly, against the Dutch defendants: Application of the new Article 34 ‘forum non conveniens’ mechanism which I have reported on before re English and Gibraltar courts. At 5.45: defendants request a stay of the proceedings on account of lis pendens, until a final decision has been given in the United States, alternatively Brazil, about claims that are virtually identical to those brought by the Foundation. They additionally argue a stay on case management grounds. However the court finds
with respect to a stay in favour of the US, that
the US courts will not judge on the merits, since there is a class settlement; and that
for the proceedings in which these courts might eventually hold on the merits (particularly in the case of claimants having opted out of the settlement), it is unclear what the further course of these proceedings will be and how long they will continue. For that reason it is also unclear if a judgment in these actions is to be expected at ‘reasonably short notice’: delay of the proceedings is a crucial factor in the Article 34 mechanism.
with respect to a stay in favour of Brasil, that Brazilian courts unlike the Dutch (see below) have ruled and will continue to rule in favour of the case having to go to arbitration, and that such awards might not even be recognisable in The Netherlands (mutatis mutandis, the Anerkennungsprognose of Article 34).
Further, against the non-EU based defendants, this of course takes place under residual Dutch rules, particularly
Firstly (Dutch CPR) Article 7(1)’s anchor defendants mechanism such as it does in Shell. The court here found that exercise of jurisdiction would not be exorbitant, as claimed by Petrobas: most of the claims against the Dutch and non-Dutch defendants are so closely connected as to justify a joint hearing for reasons of efficiency, in order to prevent irreconcilable judgments from being given in the event that the cases were heard and determined separately: a clear echo of course of CJEU authority on Article 8(1). The court also rejects the suggestion that application of the anchor mechanism is abusive.
It considers these issues at 5.11 ff: relevant is inter alia that the Dutch defendants have published incorrect, incomplete, and/or misleading financial information, have on the basis of same during the fraud period issued shares, bonds or securities and in that period have deliberately and wrongly raised expectations among investors. Moreover, at 5:15: Petrobras has itself stated on its website that it has a strategic presence in the Netherlands.
Against two claims ‘involvement’ of the NL-based defendants was not upheld, and jurisdiction denied.
Further, a subsidiary jurisdictional claim for these two rejected claims on the basis of forum necessitatis (article 9 of the Duch CPR) was not upheld: Brazilian authorities are clearly cracking down on fraud and corruption (At 5.25 ff).
Finally and again for these two remaining claims, are the Netherlands the place where the harmful event occurred (Handlungsort) and /or the place where the damage occurred (Erfolgsort)? Not so, the court held: at 5.22: the Foundation has not stated enough with regard to the involvement of the Dutch defendants in those claims, for the harmful event to be localised in the Netherlands with some sufficient force. As for locus damni and with echos of Universal Music: at 5.24: that the place where the damage has occurred is situated in the Netherlands, cannot be drawn from the mere circumstance that purely financial damage has directly occurred in the Dutch bank accounts of the (allegedly) affected investors – other arguments (see at 5.24) made by the Foundation did not convince.
Finally, an argument was made that the Petrobas arbitration clause contained in its articles of association, rule out recourse to the courts in ordinary. Here, an interesting discussion took place on the relevant language version to be consulted: the Court went for the English one, seeing as this is a text which is intended to be consulted by persons all over the world (at 5.33). The English version of article 58 of the articles of association however is insufficiently clear and specific: there is no designated forum to rule on any disputes covered by the clause. Both under Dutch and Brazilian law, the Court held, giving up the constitutional right of gaining access to the independent national court requires that the clause clearly states that arbitration has been agreed. That clarity is absent: the version consulted by the court read
“Art. 58 -It shall be resolved by means of arbitration [italics added, district court], obeying the rules provided by the Market Arbitration Chamber, the disputes or controversies that involve the Company, its shareholders, the administrators and members of the Fiscal Council, for the purposes of the application of the provision contained in Law n° 6.404, of 1976, in this Articles of Association, in the rules issued by the National Monetary Council, by the Central Bank of Brazil and by the Brazilian
Securities and Exchange Commission, as well as in the other rules applicable to the functioning of the capital market in general, besides the ones contained in the agreements eventually executed by Petrobras with the stock exchange or over-the-counter market entity, accredited by the Brazilian Securities and Exchange Commission, aiming at the adoption of standards of corporate governance established by these entities, and of the respective rules of differentiated practices of corporate governance, as the case may be.”
A very relevant and well argued case – no doubt subject to appeal.
(Handbook of) EU private international law, 2nd ed.2016, Chapter 2, almost in its entirety.
As I noted at the time, the long and the short of the case is whether the concept of ‘consumer’ under the protected categories of Brussels I (and Recast) is a dynamic or a static one; and what kind of impact assignment has on jurisdiction for protected categories.
On the first issue, Mr Schrems points to his history as a user, first having set up a personal account, subsequently, as he became the poster child for opposition to social media’s alleged infringement of privacy, a Facebook page. Each of those, he suggests, are the object of a separate contract with Facebook. FB suggests they are part of one and the same, initial contractual relationship. This one assumes, would assist FB with its line of argument that Herr Schrems’ initial use may have been covered by the forum consumentis, but that his subsequent professional use gazumps that initial qualification.
The Court suffices at 36 with the simple observation that the qualification as a single or dual contract is up to the national court (see inter alia the Gabriel, Engler and Ilsinger conundrum: Handbook, Chapter 2, Heading 188.8.131.52.a and generally the difficulties for the CJEU to force a harmonised notion of ‘contract’ upon the Member States), yet that nevertheless any such qualification needs to take into account the principles of interpretation of Brussels I’s protected categories: in particular, their restrictive interpretation. Whence it follows, the Court holds, that the interpretation needs to be dynamic, taking into account the subsequent (professional or not) use of the service: at 37-38: ‘il y a notamment lieu de tenir compte, s’agissant de services d’un réseau social numérique ayant vocation à être utilisés pendant une longue durée, de l’évolution ultérieure de l’usage qui est fait de ces services. Cette interprétation implique, notamment, qu’un requérant utilisateur de tels services pourrait invoquer la qualité de consommateur seulement si l’usage essentiellement non professionnel de ces services, pour lequel il a initialement conclu un contrat, n’a pas acquis, par la suite, un caractère essentiellement professionnel.’
The Court does add at 39-40 that acquired or existing knowledge of the sector or indeed the mere involvement in collective representation of the interests of the service’s users, has no impact on the qualification as a ‘consumer’: only professional use of the service does. (The Court in this respect refers to Article 169(1) TFEU’s objective to assist consumers with the representation of their collective interest).
On this point therefore the Court unlike the AG attaches more weight to restrictive interpretation than to predictability. (Bobek AG’s approach to the issue of dynamic /static was expressed more cautiously).
As for the assignment issue, the Court sides squarely with its AG: the assigned claims cannot be pursued in the jurisdiction which is the domicile of the assignee. That in my view de lega lata makes perfect sense.
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 184.108.40.206.
Interestingly enough the issue of inclusion of foreign victims in class action suits came up in conversation around our dining room the other day. (Our youngest daughter, 15, is showing encouraging signs of an interest in a legal career). In 2017 ONCA 792 Airia Brands Inc v Air Canada is reviewed excellently by Dentons here and I am happy to refer. (See also here for Norton Rose reporting on related cases – prior to the CA’s decision in Airia Brands).
The jurisdiction and ‘real and substantial connection’ analysis referred to Van Breda (which recently also featured mutatis mutandis in the forum necessitatis analysis in Cook).
Certification of global classes was part of the classic analysis of developments in international class action suits, which hit us a few years back when many EU states started introducing it. Airia Brands shows that the concerns are far from settled.
Belgium’s Lernout & Hauspie case recently entered a further stage in its civil law chapter. The case is part of Belgium’s (and especially Flanders’) collective memory as an illustration of what can go wrong when markets and investors alike are fooled by corporate greed. Is it world-famous, in Belgium: for those outside, Wiki should help.
Of interest to this blog is the recent judgment of the Gent criminal court on the civil chapter of the case: see my colleague proximus Stefaan Voet’s analysis here. Stefaan has helpfully translated the most relevant sections of the judgment, in particular the court’s rejection of the argument that the US opt-out class action settlement were contrary to Belgium’s ordre public. The court, in my view entirely justifiably, holds that Belgium’s Private international law act does not oppose recognition and enforcement. Of note is the extensive comparative reference which the court makes not just to existing Belgian law on class actions (the Belgian legal order can hardly oppose what it tentatively has introduced itself), but also to a European Recommendation on comparative class action law in the EU (a sort of Ius Commune idea).
Recognition and enforcement rarely makes it to substantive review in Belgian case-law. This judgment is one of note.
Kaynes v BP PLC. A good Canadian illustration of forum non conveniens to shareholder pursuit of non-disclosure.
With many conflict of laws classes fresh underway, it is good to be reminded of the classics. Forum non conveniens was at issue in Kaynes v BP, at the Court of Appeal for Ontario. There is a pending class action in the U.S. District Court, Southern District of Texas. The class in that proceeding includes current plaintiff and other Canadian investors who purchased BP securities on the NYSE.
The judgment has ample and concise background, please refer to it for same. The Court of appeal has now lifted a stay, previously put in place on forum non conveniens ground, in light of changed circumstance. The U.S. District Court judge ruled that as the moving party and his proposed Canadian class were members of the class represented by the lead plaintiffs, he was not entitled to now assert a separate class action based upon a claim that the lead plaintiffs had not pursued. Second, the U.S. District Court judge ruled that the moving party’s claim was time-barred under the Ontario Securities Act. Plaintiff and other members of his proposed class are free to pursue individual claims in the U.S. District Court (not already represented in the class action) based on Ontario securities law, subject to any defences BP may advance, including a limitations defence. (Note that the US court therefore holds limitations to be part of the lex causae, not lex fori).
Since the US court do not claim exclusive jurisdiction over the litigation, and given that if a case were to go ahead in the US, it would be subject to Ontario law, the stay was lifted.
The case is a good illustration that forum non conveniens is live and evolving, not static.