Case law Developments in PIL Views and comments

The Law Applicable to Investor Claims: New Developments from the Rechtbank Rotterdam’s Judgment in Petrobas

On 29 January 2020, the Rechtbank Rotterdam (a Dutch court of first instance) ruled on the law applicable to claims by investors against the Brazilian company Petrobas. The case concerns the long-disputed localisation of financial or economic loss under Article 4(1) of the Rome II Regulation on the law applicable to non-contractual obligations. The Dutch court has added a new piece to the puzzle by adopting a market-based approach.


The claims of the investors are related to the so-called Petrolāo scandal (Portuguese for “big oil”, also known as “operation car wash” because it was first exposed by the owner of a car wash service with money exchange), which has shattered Latin America and involves well-known figures, such as the former Brazilian president Lula da Silva.

The allegations centre on money laundering and endemic corruption in Petrobas, which has led to a steep fall in its share price. The investors try to recoup their corresponding losses. The litigation has a global dimension given that Petrobas’ securities are listed around the world, including in Argentina, Germany, Luxembourg, Spain, and the United States (in the form of American Depository Receipts – ADR).


The proceedings before the Rechtbank Rotterdam had been preceded by litigation in the US, where the District Court for the Southern District of New York threw out the claims of investors who had bought securities listed outside the United States as early as 2015. After that, a Dutch foundation (“stichting“) was created to pursue the claims of these investors in the Netherlands. No Petrobas shares were traded there: The choice of venue was entirely attributable to the favourable attitude of the Dutch legal system towards collective actions. By a decision of 19 September 2018, the Rechtbank Rotterdam accepted international jurisdiction over the foundation’s claim against Petrobas. Now it had to decide over the applicable law to the claims of the investors’ litigation vehicle.

Application of Dutch law

The facts underlying the claim stretched over a period of ten years (2004-2014). Due to the inapplicability of the Rome II Regulation to events before 12 January 2009 (see Articles 31 and 32 and the CJEU decision in Homawoo), these were submitted to the Dutch Private International Law, more precisely to the Dutch Act on Conflict of Laws for Torts (Wet Conflictenrecht Onrechtmatige Daad – WCOD).

As Article 3(1) of WCOD refers to the place where the unlawful conduct occurred, the Rotterdam court ruled that Brazilian law applies to the entirety of the facts occurring before 12 January 2009.

Application of the Rome II Regulation

Events occurring on or after 12 January 2009 are subject to the Rome II Regulation. To determine the applicable law, the Dutch court looked to Article 4 of Rome II, the first paragraph of which refers to the country in which the damage occurs. Thus, the court was facing the well-known problem of locating purely economic loss.

Case law of the CJEU (Kolassa and Universal Music)

The court reviewed two decisions of the CJEU in Kolassa and Universal Music (leaving aside Löber). These cases concerned jurisdiction under the Brussels I bis Regulation but had to be consulted as well under the Rome II Regulation under the paradigm of parallel interpretation (see Recital 7 of Rome II).

In Kolassa, the CJEU had to determine the place where the damage occurs in case of investments made on the basis of a misleading prospectus. The CJEU had ruled that the damage occurred at the place of establishment of the bank managing the account from which the investor has payed the securities.

However, the Rotterdam court saw the importance of Kolassa as being severely limited by the decision in Universal Music. In the latter case, the court had held that the Kolossa decision was made in the specific context which gave rise to that judgment and that purely financial damage which occurs directly in the applicant’s bank account cannot, in itself, be qualified as a relevant connecting factor (CJEU, Universal Music, margin nos 37 and 38).

Market-Based Approach

The Rotterdam court in Petrobas instead preferred a completely different approach. In its view, the closest connection of the claim is with the place where the securities acquired by the investors are listed and traded offered. In the opinion of the court, it was there that the investors suffered property damage because their assets were directly affected by an unlawful act. The application of the law in force at this place would also serve the dual objectives of certainty and predictability because the law so identified would be foreseeable for both the issuer and the investors of the securities.

This “market-based theory” has been discussed for quite some time and enjoys strong support in the literature (see e.g. T Arons, (2008) Nederlands Internationaal Privaatrecht 481, 486; H Kronke, (2000) 286 Recueil des cours 245, 308-12; F Garcimartín Alférez, (2011) Law and Financial Markets Review 449, 453; Sarah Sánchez Fernández, El folleto en las ofertas públicas de venta de valores negociables (OPV) y responsabilidad civil: ley aplicable (La Ley, Madrid: 2015, p. 330–339)).


The market theory’s advantage is that it concentrates the applicable law in one country or – in case of dual listings – in a few jurisdictions. This is especially important in case of collective actions, which would be utterly unmanageable if each claim were governed by the law of the place of the investor’s bank account. While the market-based approach is clearly preferable from a policy perspective, it is less clear whether it can be justified under Art 4(1) Rome II, at least in its current interpretation by the CJEU.

First, it is doubtful whether the investors really suffer direct loss at the place where the securities are listed or traded. Investors usually do not purchase their securities directly on the exchange, but through intermediaries. It is also not sure that the sell them at the exchange after suffering loss – they can equally decide to keep them. The connection to the market where the securities are traded is therefore a more abstract one.

Second, it seems that the Rechtbank Rotterdam overly restricts the importance of the Kolassa decision. After all, this judgment arose from a case of wrong capital markets disclosure, which is  much more similar to the subject matter of Petrobas than the fact pattern in Universal Music, which concerned a failed calculation in a precontractual negotiation. Moreover, in both Kolassa and Petrobas, the investors had voluntarily paid the price of the securities, which afterwards declined in value, while in Universal Music the wrong information tainted the payment by the victim (on this point, see Johannes Ungerer, 24 (2017) Maastricht Journal of European and Comparative Law 448, 452).

In Kolassa, the CJEU decided implicitly against the market-based theory by ruling in favour of the localisation of the invidividual investor’s loss. The reasoning in Universal Music is not different on that point. The Rotterdam Rechtbank would therefore have done well to submit a question for a preliminary ruling, rather than simply trust its own opinion. Such a reference would have helped clarify the authorities of the CJEU in this currently uncertain area of law.

Applying Article 4(1) of Rome II has the further downside that the exception of Article 4(2) of Rome II must be respected, which results in the application of a different law to the claims of those parties that are domiciled in the same country as the defendant (in the case at hand: Brazilian investors). This illogical result could have been avoided by adopting the market theory under the escape clause (Article 4(3) of Rome II). Such an approach would however have its own problems because it could be seen as contradicting the need for a restrictive interpretation of the escape clause.


Overall, the market-based solution suggested by the Rechtbank Rotterdam could be a useful innovation for locating purely economic loss under Rome II. It would have been interesting to see how the CJEU will position itself in this respect. Unfortunately, the court has missed the opportunity to submit a reference for a preliminary ruling. Perhaps a recent submission by the Hoge Raad in the case VEB v BP concerning investor claims under Article 7(2) of Brussels I bis will bring some clarification for the Rome II Regulation as well.

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