No collective redress against foreign companies in cases of purely financial damage: Case C-709/19 VEB v. British Petroleum
The decision of the Court of Justice of the European Union (CJEU) in Vereniging van Effectenbezitters (VEB) v British Petroleum PLC (BP) plc, delivered on 12 May 2021, came as a major blow to Dutch claim associations suing foreign defendants before domestic courts. The CJEU ruled that Article 7(2) of Brussels I bis Regulation (Regulation No 1215/2012) must be interpreted as meaning that the direct occurrence of a purely financial loss resulting from investment decisions does not allow the attribution of international jurisdiction to a court of the Member State in which the bank or investment firm is located. This is true even if the investment decision was taken due to misleading information from an internationally listed company that was published worldwide. Only the courts of the Member State where a listed company must fulfil its statutory reporting obligations have international jurisdiction on that ground.
Background to the case
In the present case, VEB, a Dutch association for retail shareholders (the claimant), filed for a declaratory judgment under Article 3:305a of the Dutch Civil Code regarding the alleged liability of British Petroleum (BP) for disclosing information before and after the oil spill in the Gulf of Mexico in April 2010. BP’s disclosure resulted in a drop in its share prices, harming the investors (VEB) who had bought those shares from 2007 to 2010 through an investment account in the Netherlands. BP’s shares are, however, listed only on the London, Frankfurt and New York Stock Exchange. The Dutch Supreme Court made a preliminary reference to the CJEU to determine whether Dutch courts have jurisdiction over collective action and any individual claim filed later.
The CJEU’s judgment
The ruling of the CJEU addresses the challenges of localising purely financial losses (see para 30). The CJEU stressed that under Article 4 of the Brussels I bis Regulation, the general rule is that the courts of the defendant’s domicile have jurisdiction. An option with limited territorial jurisdiction exists in Article 7(2) of the Brussels I bis Regulation where a defendant may be sued in the court of another Member State at the place where the harmful event occurred or may occur. That concept of the ‘place where the harmful event occurred’ may not, however, be construed so extensively as to encompass any place where the adverse consequences of an event, which has caused damage actually arising elsewhere, can be felt.
However, Article 7(2) also requires that a close connection be established between the place where the damage occurred and the claimant’s domicile. The existence of a close connection aims to create certainty and prevent the possibility of the defendant being sued before a court of a Member State, which he or she could not reasonably have foreseen (see Recital 16 of the Brussels I bis Regulation).
According to the CJEU, the mere location of an investment account is not sufficient to establish close connection and enable international jurisdiction (paras 34 and 35). There must be additional decisive circumstances to establish this close connection, exemplified by the Kolassa case (C- 375 /13), where information was published and notified in the prospectus in the primary market (Austria) even though the defendant was not domiciled there. In VEB v British Petroleum PLC, the CJEU noted that the collective nature of the action, could not trigger the application of Article 7(2) exception (para 36).
In his case note on VEB v British Petroleum PLC, Prof. Matthias Lehmann applauds the judgment for enhancing predictability by localising damage in the place where the instruments are traded. However, the CJEU’s foreseeability argument is not entirely convincing. The CJEU argues that since BP did not have disclosure obligations in the Netherlands, it could not have predicted that it may be sued before Dutch courts (see para 35). Misleadingly, the judgment thereby overemphasises the disclosure obligations of the issuing company, as comprehensively assessed by Prof. Enrique Vallines in his blog post. He assessed the scope of the reporting obligations of listed companies under the Prospectus Regulation and Market Abuse Regulation, require the issuing companies to publish information to the public in general via the internet. In practice, this reporting information is thus available in all Member States, and, following the Court’s judgment, the issuing company should then expect litigation in any Member State. This means that any Member State, where the harm actually manifests itself, should have jurisdiction to hear the case because the reporting information is disclosed in all Member States. However, this runs the risk of derailing from the principle of certainty and predictability on which the Brussels I bis Regulation is based, due to increased chances of forum shopping.
Implications for collective redress
The outcome of VEB v British Petroleum PLC was to be expected, to the extent that the Court did not go into the details of collective redress. Unfortunately, the Court did not take up the analysis of the Advocate General (AG) Campos Sánchez-Bordona on the collective nature of the claim. The AG pointed out the absence of a specific provision in the Brussels I bis Regulation for the assignment of claims to a lead claimant or a consumer association in case of collective claims. He thereby confirmed that the Brussels I bis Regulation is not equipped to deal with collective redress claims. The wordings of the Brussels I bis Regulation cannot, however, be changed by the judges (para 95 of his Opinion).
The CJEU itself has already dealt with the assignment and consolidation of collective claims in its previous case law. In Maximilian Schrems v Facebook Ireland Limited (C‑498/16), the Court had argued that the assignment of claims of multiple claimants to the forum of domicile of the lead claimant would bring about fragmentation and multiplication of fora. Firstly, because the assignor does not transfer the contractual rights by way of assignment, the consumer forum for the initial assignor would persist. Secondly, it would be possible for the assignor to assign different rights following his consumer contract to different consumer assignees, creating several special jurisdictions in parallel (see para 106). Further, the Court had stated that this would also create a new forum for claimants who are not a party to a contract, thus establishing an additional forum, which is beyond the purview of the Brussels I bis regime (see para 110). Unfortunately, the Court did not take the opportunity in VEB v British Petroleum PLC to clarify further the issue of consolidation by way of assignment of collective claims. At the same time, it cannot be denied that any solution embraced by the Court would naturally have repercussions on the Brussels I bis Regulation.
The CJEU has always taken a stance of judicial self-restraint while interpreting the Brussels I bis regime and has tried to uphold the certainty and predictability principles of the regime (Burkhard Hess). Arguably, it makes sense, therefore, that the Court refrained from going into the details of collective redress in VEB v British Petroleum PLC. In his Opinion, AG Campos Sánchez-Bordona reaffirmed that it is not on the judges to legislate (para 95). It is ultimately the task of the EU lawmaker to amend the Brussels I bis Regulation and address the challenges posed by collective redress. The EU Parliament and Council avoided this issue when they recently enacted the Representative Actions Directive to clarify the rules of private international law. Recital 21 of the Representative Actions Directive explicitly provides: ‘this Directive should not affect the application of nor establish rules on private international law regarding jurisdiction, the recognition and enforcement of judgments or applicable law. The existing Union law instruments apply to the procedural mechanism of representative actions set out by this Directive’.
Interestingly, AG Campos Sánchez-Bordona pointed out that, looking at the Regulation, the possibility of centralising claims for victims who are located within the same Member State cannot be ruled out. In a case where all the relevant damage was found to have occurred in a single Member State, he argues ‘that the problems of territorial fragmentation arising from a strict application of Article 7(2) [the Brussels I bis Regulation] could be solved by arguments in support of a specialised court in a particular local jurisdiction’ (paras 94 and 95). In another ongoing case before the CJEU, Case C-30/20 RH v AB Volvo, AG de la Tour also discusses this issue of centralization of claims in specialized courts. He argues that the Member States can choose to centralise the handling of disputes (relating to anticompetitive practices) in certain specialised courts, subject to there being no detriment to the practical effect of Brussels I bis Regulation and to the principle of equivalence (para 125 of his Opinion). A specialised court will have greater expertise to deal with collective redress, and deal with its inherent complexity.
It is certainly possible that the VEB v British Petroleum PLC judgment will negatively affect associations like VEB, who often try to litigate against foreign defendants in the Netherlands, a hub of collective litigation. These actions are usually driven by the lack of availability of sufficient resources to file cross-border litigation. It is a disappointing outcome for Dutch claim associations as now Dutch courts have no jurisdiction for lawsuits brought by Dutch investors against a foreign defendant company not listed in the Netherlands.
In a broader EU context, the judgment does not offer a particularly surprising interpretation of Article 7(2) of the Brussels I bis Regulation. However, it does confirm the need for additional connecting factors, regardless of whether the matter is an individual or collective action. The case highlight that there is still a missing piece in the Brussels I bis Regulation regarding assignment of claims in collective redress. The issue of cross-border collective redress in EU is a tale of missed opportunities. Although the EU institutions have enacted the Representative Actions Directive after years of deliberations, there is still no provision which clarifies the rules of private international law in cross-border collective redress. It will be interesting to see how the interplay between the Representative Actions Directive and the Brussels I bis Regulation turns out in practice.