Petroleo Brasileiro S.A. (“Petrobras”), a Brazilian state-run energy company and arguably one of the world’s largest energy businesses has been mired in the largest corruption scandal in Brazilian history. An investigation dubbed “Operation Car Wash” by local Brazilian law enforcement authorities uncovered evidence that former Petrobras executives falsely inflated the value of various construction project for their own profit and that they paid kickbacks to various politicians. When news of the scandal reached the market, the prices of Petrobras’s securities plummeted resulting in large losses to a number of investors. For investors who purchased Petrobras’ American Depositary Receipts (“ADRs”) in the U.S., the options for pursuing a recovery were well-defined: they could either participate in a U.S. class action or file their own opt-out action (and indeed eligible investors who participated in opt-out actions have already received a recovery while eligible investors who remained part of the class will receive their portion of the class recovery in the coming months). The majority of Petrobras’s shareholders who purchased their shares on the Brazilian stock exchange, the BM&F Bovespa, elected to either pursue arbitration in Brazil under the auspices of the Brazilian Market Arbitration Chamber (“MAC”) and pursuant to the mandatory arbitration provision in Petrobras’s bylaws or to pursue a foundation action in the Netherlands. Despite a recent decision by a court in the Netherlands upholding its jurisdiction to hear the dispute, it is uncertain whether that decision will be upheld and whether damages will successfully be pursued and recovered.
On January 23, 2017, the Dutch Foundation the Stichting Petrobras Compensation Foundation (the “Foundation”) filed an action before the Rotterdam District Court in the Netherlands against Petrobras, Petrobras Global Finance B.V. (“PGF”), Petrobras Oil & Gas B.V. (“POG”), Petrobras International Braspetro B.V. (“PIB”) and various related individuals (collectively “the Defendants”). The Foundation’s case is seeking a declaratory judgment  that the Defendants unlawfully acted against investors by concealing fraud and publishing incorrect, incomplete or misleading financial information during the fraud period (the “Dutch Action”). In response to the Foundation’s complaint, the Defendants disputed the Dutch Court’s jurisdiction to hear claims filed against them on both the grounds that 1) the court lacks jurisdiction over Petrobras and the individual defendants, and 2) that Article 58 of Petrobras’s bylaws require all disputes between Petrobras and its shareholders to be arbitrated in front of the MAC.
In a somewhat surprising development, on September 19, 2018, the Rotterdam District Court issued a decision holding that the Netherlands has jurisdiction to hear the Dutch Action. The court’s decision on jurisdiction over Petrobras is narrow and there is still a lot of uncertainty regarding the ultimate outcome of the Dutch Action because there are two levels of appeal available to Defendants. The District Court asserted jurisdiction over Petrobras on a narrow ground and its decision regarding the enforceability of the arbitration provision in the bylaws is contrary to the decisions of courts in Brazil and the U.S. that have addressed the identical issues. As a result, it is by no means certain that the District Court’s decision will hold-up on appeal.
The Rotterdam District Court concluded that it has jurisdiction over Petrobras on the basis of Article 7(1)  of the Dutch Civil Code of Procedure which provides that if a Dutch court has jurisdiction over one defendant, then it can assert jurisdiction over all other defendants who are called to the same proceedings if the claims are so closely connected that joint consideration is justified for reasons of efficiency and avoiding disparate judgments. PGF, POG, and PIB are all private limited liability companies registered in the Netherlands and it was foreseeable that the Dutch court would assert jurisdiction over those entities. However, despite three Dutch entities being named as defendants, Petrobras contested jurisdiction on the grounds that the allegations against Petrobras differ from those made against the three Dutch entities. Petrobras also argued that the facts giving rise to the alleged damage occurred almost exclusively in Brazil and that to the extent that PGF worked with Petrobras to jointly issue securities, an individual analysis of jurisdiction with respect to each investor’s claim (and whether they purchased securities that were offered by PGF) would be necessary. The Court disagreed and found that because the Foundation was seeking a declaratory judgment concerning the unlawful acts of the defendants and not the Defendants’ liability to any investor, that the claims were all legally connected for the purposes of establishing jurisdiction. The District Court concluded, “[l]egally too, it is a single situation, as the Foundation has requested a declaratory judgment over the unlawful actions of the respondents…” The subtext of the court’s decision is that this conclusion is only applicable because it is an action for a declaratory judgment and it is possible that a more thorough and individual analysis could be necessary for any claims seeking damages. It is also possible that the appellate court in the Netherlands could disagree with the District Court’s analysis and determine that an individual analysis is necessary at this stage in order to determine whether the claims are connected closely enough to grant jurisdiction over Petrobras.
After assessing jurisdiction over Petrobras, the Rotterdam District Court assessed whether its jurisdiction was precluded because of the arbitration clause in Petrobras’s bylaws. The District Court ultimately concluded that the arbitration petition in Petrobras’s bylaws did not preclude the Foundation from pursuing a declaratory judgment in the Netherlands. The Court called into question whether there was a valid agreement to arbitrate any dispute between shareholders and the Company and found that the text of Article 58 of Petrobras’ bylaws did not meet the requirements under Brazilian law for valid and enforceable arbitration agreements.
The Brazilian law on corporations, law number 6.404 of 1976 (as amended in 2001), provides that a corporation may include a provision in its bylaws that requires any dispute between shareholders and the corporation to be resolved via arbitration and Petrobras adopted such a provision in 2002. Article 58 of Petrobras’s bylaws arguably requires all disputes with Petrobras to be resolved by arbitration in front of the MAC.
Leading Brazilian scholars have opined that shareholders manifest their consent and agree to arbitration bylaws of a company when they purchase shares of the company on a date after the bylaw was enacted. Brazilian courts have upheld the validity of Article 58 on a similar basis. In a case filed in 2014 by Mr. José Wianey Adami against Petrobras and the Federal Union (the Brazilian government), Mr. Adami alleged that the arbitration provision was invalid because his express consent to the arbitration agreement in the bylaws was necessary. The district court disagreed with Mr. Adami’s position and dismissed his complaint on the grounds that a valid and enforceable arbitration agreement existed between the parties. Mr. Adami appealed but the Fourth Circuit Court of Appeal upheld the District Court’s decision finding that the bylaws were publicly available to all existing and potential shareholders and that there was no requirement for any investor to purchase Petrobras’s shares but rather the shareholder purchased shares of their own volition and thereby tacitly agreed to submit any dispute to arbitration. Similarly, a group of large institutional investors filed arbitration claims against Petrobras and the Federal Union in 2016 and the Federal Union objected to the arbitration (again contesting the validity of Article 58 of the bylaws). The Federal Union filed a claim for injunctive relief before the federal courts in São Paulo. The district court and appellate court in São Paulo initially found in favor of the Federal Union but the claim was appealed to the Superior Court of Justice (the final arbiter of all disputes) and earlier this year the Superior Court of Justice found that the arbitration provision was valid and that the MAC alone has jurisdiction to determine whether the Federal Union is subject to the arbitration. Judge Jed S. Rakoff, the U.S. District Court Judge who presided over the U.S. Petrobras actions, also concluded that shareholders who purchased shares on the BM&F Bovespa were subject to arbitration. In his Decision, Judge Rakoff wrote, “The Court [was] persuaded that, under Brazilian law, Petrobras’ arbitration clause is valid and enforceable against purchasers of Petrobras securities on the BOVESPA.”
Despite the findings of Brazilian and U.S. Courts, the Rotterdam District Court held that the arbitration provision was not enforceable. The Court based its decision on the fact that the translation of Article 58 of the bylaws that appeared on Petrobras’s website from 2004 – 2014 was incorrectly translated into English and read as follows: “It shall be resolved 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….” The correct translation of Article 58 specifically references that a dispute should be resolved by arbitration, “It shall be resolved by means of arbitration, 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…” The Court found that the lack of the specific reference to resolving the dispute by arbitration in the website translation meant that shareholders were not required to arbitrate their disputes. The Court discounted the decisions of the Brazilian courts noting that the Brazilian courts reviewed the Portuguese language version of the bylaws and that they were not tasked with determining whether the English language version was enforceable. The Court also disputed that there was any concrete information to suggest that the U.S. Court’s opinion was that the arbitration clause was valid. The Court’s analysis leaves open a number of questions, including, whether a translation supersedes the original.
There are two levels of appeal available to Petrobras and so whether the Netherlands has proper jurisdiction over this dispute remains to be finally determined. Even if jurisdiction is upheld on appeal, the courts will still need to assess the merits of the dispute. The merits will also likely require that the Dutch courts apply Brazilian law. Because foundations can only pursue declaratory actions, any decision on the merits in this case can only result in a declaratory judgment. After any declaratory judgment is reached, investors would be left hoping they could negotiate a settlement or they would be required to file individual actions for damages. Petrobras could once again challenge the jurisdiction of the Netherlands in each case. Ultimately it could be quite some time before the Dutch action against Petrobras reaches a conclusion and it is too soon to tell whether the Netherlands will be a viable forum for recovery for any Petrobras investors.
 The Stichting Petrobras Compensation Foundation v. Petroleo Brasileiro S.A., et al..
 Under Dutch law, Foundations are not permitted to file claims for damages. Foundations can only pursue a declaratory judgment. Any claims for damages need to be filed by each individual investor either via a joint complaint (joinder) or through an individual complaint.
 The Court also reviewed other grounds for establishing jurisdiction under the Code of Civil Procedure but did not find that those grounds gave rise to jurisdiction in this case.
 See Judge Rakoff’s findings in In re Petrobras Securities Litigation, 116 F.Supp. 3d 368, *387 (USDC SDNY Jun. 30, 2015).