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12 December 2017
In a recently published judgment, the Amsterdam Court of Appeal ruled in favour of British Petroleum Plc (BP) in a securities class action initiated by the Dutch Association of Shareholders (VEB). VEB had initiated proceedings on the basis of Article 3:305a of the Civil Code, in which it sought a declaratory judgment regarding BP's liability towards investors who had bought, sold or held BP ordinary shares around the time of the Deepwater Horizon oil platform explosion in 2010.
BP filed a motion to dismiss the case due to a lack of international jurisdiction. The motion was granted by the Amsterdam District Court, whose judgment was confirmed by the Court of Appeal. The Court of Appeal's judgment is notable in determining the role of the Dutch courts as litigation venues in cross-border securities class actions.
Under the main rule of Article 4(1) of the recast EU Brussels I Regulation (1215/2012), the court of the EU member state where a defendant is domiciled has jurisdiction over the claim. However, several exceptions to this rule exist, such as special competence for claims that are based on tort. In these circumstances, a defendant can be sued before the court of the place where the harmful event occurred or may occur (Article 7(2) of the regulation). This covers both:
The determination of the place where a harmful event has occurred has proven to be a complex matter, particularly in cases of pure financial loss. The European Court of Justice (ECJ) has rendered different decisions in this regard in recent years and, as a consequence, litigating parties often differ in their interpretation of a court's competence. This is what happened in VEB v BP.
Both VEB and BP agreed that the harmful event did not take place in the Netherlands. In Kolassa v Barclays Bank (C-375/13), the ECJ highlighted that for claims based on "acts and omissions that constitute a breach of the legal obligations towards investors relating to prospectuses and information obligations", the place where the decisions regarding the investment arrangements proposed by the companies and the contents of the relevant prospectuses were taken will be considered the place where the harmful event took place.
However, VEB and BP differed in their interpretation of the place where the damage had occurred. VEB argued that the Amsterdam District Court had jurisdiction on the basis of Article 7(2) of the recast EU Brussels I Regulation. It based its argument on the ECJ's ruling in Kolassa, in which the ECJ had found the court of the member state in which the investor was domiciled competent, as – among other things – the financial damage had concerned an account of the investor which was with a bank established in the jurisdiction of the respective court.
Conversely, BP stated that the ECJ's ruling in Universal Music (C-12/15) applied. In this ruling, the ECJ had concluded that pure financial damage can confer jurisdiction on the court of the place where such damage occurred only where other circumstances specific to the case also contribute to attributing jurisdiction to that court.
The Amsterdam Court of Appeal confirmed that Universal Music should be interpreted as a further clarification of the scope of Kolassa. It considered the fact that the investors had held securities in the Netherlands as insufficient for establishing jurisdiction of the Dutch court in the absence of other connecting factors. The Amsterdam Court of Appeal concluded that VEB had failed to assert these other connecting factors sufficiently.
Sufficient connecting factors?
To date, the ECJ has provided no further guidelines on which connecting factors could be decisive for a sufficient connection. For that reason, the factual circumstances of a case are still up for diverse interpretation by the different courts of the EU member states.
The Amsterdam Court of Appeal flagged and weighted a number of circumstances in VEB. The case could give Dutch investors more insight on what factors prove insufficient for a close connection between a court and a harmful event.
The Amsterdam Court of Appeal considered it relevant that:
Nonetheless, these two factors combined still proved to be insufficient for a close connection with the Netherlands. The Court of Appeal considered that for listed issuers which globally serve investors – such as BP – the location of the bank or securities account should be considered unknown and unpredictable, as their investors could be domiciled anywhere and hold investments all over the world. The location of the investment account is also variable. Further, the court held that it was irrelevant that:
Was the Amsterdam Court of Appeal's decision correct? This cannot be known for certain without explicit guidelines from the ECJ. However, what is known is that the existing application of the aforementioned EU case law brings uncertainty for international investors.
It is questionable whether the existing situation meets the recast EU Brussels I Regulation's aim of strengthening the legal protection of persons established in the European Union by enabling:
The legal protection afforded to applicants and defendants should be a matter of balance.
The Amsterdam District Court considered it important that BP did not use Dutch banks or investment firms which offer investment accounts in the Netherlands. It also stipulated that the Dutch jurisdiction was not specifically addressed with information regarding the issue of BP's shares. The Amsterdam Court of Appeal seems to have agreed with this consideration.
Did BP have a legal obligation to provide information in respect of its investors in the Netherlands? The duty to publish inside information without delay is based on Article 17 of the EU Market Abuse Regulation (596/2014) and is linked to the jurisdiction where the shares are listed. As BP shares are not listed in the Netherlands, there is no direct requirement for it to meet the regulation's notification obligation.
However, the corresponding information must still be made available to all investors worldwide and made public via a press release. Once published, international investors should be able to act and rely on that information. In that respect, the factual circumstances of VEB are arguably more aligned with Kolassa than with Universal Music. Arguably, the Amsterdam Court of Appeal did not sufficiently address the ECJ's explicit consideration in Kolassa that "the issuer of a certificate who does not comply with his legal obligations in respect of the prospectus must, when he decides to notify the prospectus relating to that certificate in other Member States, anticipate that inadequately informed operators, domiciled in those Member States, might invest in that certificate and suffer loss" (Paragraph 56).
A similar line of reasoning can be found in Pammer v Hotel Alpendorf (Paragraph 92, C-585-08). The case shows that companies that sell products or services online and envisage doing business with consumers domiciled in one or more EU member states should be aware of the possibility of facing legal proceedings regarding these products or services in the customer's respective jurisdictions.
In light of the above, non-notification or incorrect notification in the Netherlands can arguably serve as a basis for a tort claim for the damage that Dutch investors have suffered as a result thereof (see Shevill ea v Press Alliance, C-69/93).
The Amsterdam Court of Appeal's decision is a setback for international investors. High legal fees abroad make it hard for smaller investors to seek recovery for their damages against large corporations that are internationally listed and located abroad. High litigation costs in other countries and the risk of incurring third-party costs could also prove to be a significant risk.
Second, investors have no certainty of being protected in their home jurisdiction while maintaining a diverse investment portfolio. Consequently, investors could be discouraged from spreading their assets internationally, which is one of the basic rules of prudent capital accumulation.
VEB must now decide whether it will take the matter to the Supreme Court.
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