Share lease products
Test cases
New Supreme Court ruling


The Dutch Supreme Court recently ruled on a number of outstanding questions regarding what is known in the Netherlands as 'the share lease affair'.(1)

The court approved the use of a general formula to determine whether the financial burden for a private investor under a share lease agreements was unacceptably heavy -an important test when calculating the total damages to be paid by the financial institution that sold the share lease product. The court further ruled that collateral benefits gained in relation to share lease products must be accounted for when calculating damages.

Share lease products

Share lease products were popular in the Netherlands from the early 1990suntil the beginning of 2000 (with a reported market value of €6.5 billion). These products allowed private investors to use borrowed money to invest in shares.

The recent court ruling dealt with a residual debt agreement for a private investor. During the term of a residual debt agreement, the private investor pays interest on the loan that he or she has taken out. When the loan term ends, the shares are sold and the proceeds are then used to pay off the loan. The surplus is paid out to the participant. If the proceeds are insufficient, the participant ends up with a residual debt.

When the stock markets plummeted in 2001, many private investors ended up with significant residual debts. Some parties started civil proceedings against the financial institutions that sold share lease products and a large number of the claims were settled (for further details please see "Share lease dispute put to the test (and to rest?)" - but not all.

Test cases

On June 5 2009 the Supreme Court ruled in three test cases that financial institutions offering share lease products have a special duty of care to warn potential participants of the financial risks related to such products. In particular, financial institutions should clearly warn of the risk of residual debts. Furthermore, financial institutions are obliged to investigate the financial means of the potential participant (which they failed to do so in most cases). If the participant cannot meet the potential financial obligations, the financial institution is obliged to advise him or her not to enter into the agreement.

Violation of this three-pronged special duty of care obliges the financial institution to pay full compensation to the private investor - that is, the remaining debt, periodic instalments paid (if any) and paid interest.

New Supreme Court ruling

The Supreme Court has now decided on two questions that were left open by the test cases.

Calculating the financial burden
In the test cases the Supreme Court ruled that if the financial institution failed to meet its duty of care, and the private investor was unable to meet his or her obligations towards the financial institution under the share lease agreement, the financial institution would be liable not only for the residual debt, but also for instalments and interest paid.

However, the court gave no guidance on how the financial institution might have established whether the private investor was financially able to meet the obligations arising from the share lease product.

In the case at hand the Court of Appeal had developed a general formula to answer this question. This formula determines whether the participant's income has dropped below a certain standard, calculated by reference to information from the National Institute for Family Finance, as a consequence of entering into a share lease agreement. The Supreme Court approved the use of this formula, provided that it leaves room to account for the individual circumstances of the private investor.

The approval of the general formula will make it possible to settle a large number of the claims that still have not been finally resolved.

Offsetting benefits obtained against damages
Where one and the same event for which someone can be held liable results in both a loss and a benefit, the benefit must, to the extent that this is reasonable, be accounted for when establishing damages. This rule on the deduction of benefits is laid down in Article 6:100 of the Civil Code. The Supreme Court typically answers the question of whether both the loss and the benefit resulted from 'one and the same event' rather narrowly.

In this case the private investor had entered into five consecutive share lease agreements. The court had to determined whether the profits gained from three share lease agreements, and the losses incurred from the other two, resulted from 'one and the same event'. This question is of practical relevance because many claimants entered into several share lease agreements in a row. Some of these agreements were profitable, while others were not.

The Court of Appeal answered the question in the affirmative, provided that less than one year had elapsed between the expiry of the profitable agreement and entering into of the (loss-making) agreement. It reasoned that the continuing lack of knowledge of the participants, as a consequence of the violation of the duty of care, can be considered as 'one and the same event'.

In the cassation appeal the claimant argued that the Court of Appeal had failed to recognise that only acts, omissions or factual developments can be considered an event. It maintained that continued ignorance caused by a violation of the duty of care is not an event according to Article 6:100 of the code, and that the special duty of care exists only during the pre-contractual phase and ends when the share lease agreement is entered into. The claimant further argued that the Court of Appeal had failed to clarify what the special duty of care would entail after signing the contract, and why the financial institution should warn the private investor or investigate his or her financial position after the contract had been signed.

The Supreme Court upheld the decision of the Court of Appeal. It reasoned that there was a coherent group of similar transactions concluded within a specified timeframe, during which the financial institution repeatedly violated its duties of care towards the private investor. In respect of one and the same participant, this accounted as 'one and the same event' under Article 6:100 of the code which could cause both damage (in the event of a non-profitable agreement) and benefits (in the event of a profitable agreement). Consequently, the benefits should be offset against the damages.

For further information on this topic please contact Robert Verburg at Clifford Chance LLP by telephone (+31 20 711 9000), fax (+31 20 711 9999) or email ([email protected]).


Dutch Supreme Court, April 29 2011 LJN BP4012 (vdH./Dexia).