In a milestone development in the long-running Dutch collective investor action brought against Petrobras and related entities, a Netherlands court has ruled on the merits in favor of the Foundation bringing the action on behalf of investors, holding that Petrobras harmed investors by publishing misleading financial information. Though the case is not done – the Court will next consider certain legal issues pertaining to the investors’ claimed damages – the Court’s recent ruling is an important step in this significant and high-profile case. An English translation of the Court’s July 26, 2023, judgment can be found here. The July 26, 2023, press release of the International Securities Association & Foundations Management Company, the administrator of the Foundation brining the action, which summarizes the rulings in the Court’s judgment, can be found here.
The Dutch investor action relates to the massive Brazilian corruption investigation – known in English as Operation Car Wash – that, among other things, resulted in the Petrobras’s agreement to pay $853.2 million to U.S. and Brazilian authorities. The corruption investigation was also the subject of a U.S. securities class action lawsuit filed on behalf of Petrobras investors who bought Petrobras securities in the U.S. The U.S. securities class action lawsuit ultimately settled for $3 billion. A separate action on behalf of certain investors who purchased Petrobras shares on the Brazilian stock exchange remains pending in the Market Arbitration Chamber of the Brazilian exchange.
The action pending in the Dutch court was initiated in 2017 and is being pursued on behalf of investors who purchased Petrobras securities on the Brazilian stock exchange formerly known as Bovespa and now known Brazil Bolsa Balcão S.A. or B3, as well as on the Latibex Bolsa Madrid (Spain) and the Luxemburg Stock Exchange (Luxemburg) and other exchanges. The claims are being pursued on the investors’ behalf by Stichting Petrobras Compensation Foundation (SPCF). The Foundation seeks a declaratory judgment that the defendants misled investors by concealing the bribery scheme, publishing misleading financial information and deceiving investors.
The July 26, 2023 Judgment
On July 26, 2023, a panel of judges of the Rotterdam District Court entered an interim judgment in favor of the Foundation and against Petrobras on the merits of the Foundation’s claims on behalf of investors. The July 26 judgment follows the parties’ January 2023 oral argument on the merits of the Foundation’s claims.
In its judgment, the Court rejected Petrobras’s attempt to portray itself as a victim of the unlawful acts of its own corrupt executives. The Court said that “contrary to what is believed by Petrobras et al., the court holds Petrobras can be blamed for the fraud and for the published incorrect annual and quarterly figures.” The Court specifically held that the company could not evade responsibility for the actions of the corrupt executives and that “lack of supervision by several board members may be attributed to Petrobras as a company.” The court went on to say that “the fact that serious corruption occurs is undoubtedly a relevant fact and makes it impossible to say that the financial data is correct and complete.” In addition, the Court specifically found that Petrobras’s internal controls and anti-corruption policies were false.
With respect to the Foundation’s damages claims on behalf of investors, the Court found that “there is every reason to believe that the drop in the share price was in part cause by the revelations about the fraud” and that “it is sufficiently plausible that Petrobras investors have suffered damages as a result of Petrobras’ unlawful acts.”
The Court went on to say that for its next step in the proceeding it will seek guidance from the International Legal Institute in order to address the question, raised by Petrobras, whether the shareholders suffered direct losses as a direct result of the fraud and the ensuing share price drop.
Ever since the U.S. Supreme Court’s 2010 ruling in the Morrison case and the elimination in many cases of the availability of a U.S. forum for global investor claims, there has been an ongoing discussion whether the courts of another jurisdiction would emerge as the preferred forum for the resolution of global collective investor actions.
I have been watching the Petrobras investor proceedings in the Netherlands closely, for what the proceedings might mean in terms of the availability of the Dutch forum and the Dutch procedures for other global collective investor actions. The Dutch Court’s latest ruling represents a milestone event in the development of the Netherlands as a global forum for collective investor actions.
Even as the relative advantages of other possible jurisdictions have been discussed, I have consistently thought that the Netherlands represented the likeliest jurisdiction to emerge as a preferred forum. My views in this regard were reinforced by the action of the Amsterdam Court of Appeals to declare binding the massive €1.3 billion settlement in the Fortis action – the largest collective investor settlement ever in Europe.
Though this case still has further to go, and while the final outcome of the case remains to be seen, the court’s recent merits ruling in the case represents another significant step in the development of Netherlands as a forum for collective investor actions.