Procedurei Types of action availableClaim bundling
Under general rules of Dutch law, claims can be assigned to a third party, which can then commence proceedings and sue for damages in its own name. This practice of bundling claims is common in the Netherlands, for example, in the context of cartel damage claims. The claims are usually brought by a claims vehicle in its own name, having obtained a large number of claims through an assignment from parties that have allegedly suffered loss as a result of, for example, a cartel.Collective actions
Article 3:305a of the Dutch Civil Code enables representative organisations to bring a collective action. Under the current law representative organisations may not file claims for damages. The New Legislation removes this restriction. Subsectionii further discusses the collective action currently provided by Dutch law and the proposed changes.Collective settlements
In the WCAM Dutch law provides for a mechanism that facilitates the implementation of collective settlements. This mechanism is outlined in subsectioniii.ii Collective actionsInitiating proceedings
An association or foundation may bring a collective action to protect the interests of a defined group of interested parties or public interests. The representative organisation can file a collective action on its own initiative. To have standing in court, a number of requirements must be met. The representative organisation must have the objective of protecting the relevant interests according to the objective clause in its articles of association. In addition, the association or foundation must show its ability to sufficiently protect the interest of the parties on whose behalf the action is instituted. This is commonly known as the criterion of representativeness test. Before initiating the collective action, the representative organisation must have tried to achieve the required result through negotiations.
In a collective action, the representative organisation represents all persons in whose interest the claim is filed, including but not limited to any persons who are associated with, or members of, the representative organisation.Procedural rules
Except for a claim for damages, any form of relief may be sought, including declaratory relief on liability, rescission or the specific performance of a contract, injunctive relief or the annulment of a legal act. A declaratory judgment establishing liability can be followed by individual damages claims.
The collective action is covered by the normal rules of Dutch civil procedural law.New Legislation
As stated earlier, the New Legislation broadens the scope of the current collective actions so as to enable collective actions for damages on an opt-out basis for domestic claimants, and on an opt-in basis for foreign claimants. The New Legislation also introduces stricter criteria for representative organisations with regard to governance, funding and representativeness. These criteria apply for collective actions for damages claims as well as for other collective actions. According to the New Legislation, the court will decide early in the proceedings whether the representative organisation meets the relevant criteria and whether the action is fit to be dealt with through collective proceedings.
Within two days of filing the claim, the representative organisation must enter the matter into a central register for collective actions. The entry in the register triggers a three-month period during which other representative organisations can file alternative competing collective actions that are based on the same event. If more than one representative organisation files a claim for the same event, the court will appoint a lead claimant, called an 'exclusive representative', to represent the interests of the whole class. After the court appoints a lead claimant, the claimants can opt out of the collective action.
The court's decision regarding the appointment of an exclusive representative, the definition of the class and the scope of the claim must be notified to all members of the class. This notification will also indicate that Dutch claimants have the opportunity to opt out of the collective action and that foreign claimants can opt in. However, at the request of a party to the class action, the court can rule that the opt-in mechanism also applies to Dutch claimants. The minimum period for opting in or opting out is one month.
The New Legislation includes a 'scope rule', which provides that the collective action must have a sufficiently close connection to Dutch jurisdiction. As this provision is especially important in the context of collective actions with an international character, this issue is discussed further in Section IV.
In addition, the New Legislation contains a transitory provision and only applies to claims for damage-causing events that have occurred on or after 15 November 2016.Damages and costs
The representative organisation may not have a financial interest in the claim. It may, however, derive its funding from third parties to achieve the objectives set out in its articles of association. This means that a third-party litigation funding entity or law firm can provide funds to that organisation to finance a collective action.
In principle, attorney fees can be negotiated between the representative organisation and the attorney without any particular restrictions. However, that freedom is somewhat restricted by the Dutch Bar Association's Code of Conduct (DBACC), which provides that 'an attorney may not agree to charge a proportionate part of the value of the result obtained'. Hence, contingency fees are not permitted. Furthermore, the DBACC provides that 'an attorney may not agree that he will only charge for his services upon obtaining a specific result'. Therefore, attorneys are not allowed to agree to not receiving a fee unless a specific result is obtained. However, charging fees at a higher rate if the case is successful is allowed.iii SettlementThe WCAM
A collective action could end up in a class settlement certified by the WCAM procedure. However, to be entitled to a WCAM procedure, it is not required that a collective action be filed first. The WCAM enables parties to a settlement agreement to jointly request the Amsterdam Court of Appeal (the Court) to declare the settlement agreement binding. The agreement must be concluded between one or more potentially liable parties, and one or more foundations or associations representing one or more groups of persons for whose benefit the settlement agreement was concluded (together, the 'interested persons'). If the Court declares the settlement agreement binding, the agreement binds all persons covered by its terms, unless such person decides to opt out in writing within a certain time period after the binding declaration. The opt-out period is determined by the Court, but is at least three months.
So far, the Court has issued nine final decisions within the framework of the WCAM, namely in:
- DES and DES II (regarding personal injury allegedly caused by a harmful drug);
- Dexia(regarding financial loss allegedly caused by certain retail investment products);
- Vie d'Or (regarding financial loss allegedly suffered by life insurance policy holders as a consequence of the bankruptcy of a life insurance company);
- Vedior (regarding financial loss allegedly suffered by shareholders as a consequence of late disclosure of takeover discussions);
- Shell, Converium (both regarding financial loss allegedly suffered by shareholders as a consequence of misleading statements by the company in a certain period);
- DSB Bank (regarding possible damages claims on the bankrupt estate of a bank owing to the bank allegedly violating its duty of care towards the customers); and
- Ageas (regarding financial loss allegedly suffered by shareholders as a consequence of misleading statements and a failure to provide sufficient information on strategic decisions).
In each of these cases, the Court declared the settlement agreements binding. It further found the settlements reasonable and affirmed the representativeness of the representative organisations.
The procedure of reaching a binding settlement under the WCAM is as follows:
- settlement: a settlement is concluded with one or more organisations representing the interests of claimants;
- binding declaration: the Court may declare the settlement binding upon all relevant claimants, 'known' and 'unknown', on an opt-out basis; and
- binding settlement: upon the binding declaration, all beneficiaries are automatically bound to the settlement unless they opt out.
The beneficiaries are not initially a party to the settlement. However, after the Court issues the binding declaration, each beneficiary is, by virtue of the binding declaration, automatically deemed to be a party to the settlement, unless he or she submits an opt-out statement before the deadline. If a group of persons is excluded from the settlement, the binding declaration does not diminish their rights in any way. The binding declaration cannot be invoked against them, and they are free to pursue their claim in court without the need to timely issue an opt-out statement. Excluding a certain group of persons from the scope of beneficiaries under a settlement is different from the situation where a certain group of persons is included in the scope of beneficiaries under the settlement but is not awarded any compensation. In that case, the binding declaration can be invoked against these persons: they will need to opt out in time to be able to pursue their claim in court.
One or more associations or foundations that, pursuant to their articles of association, promote the interests of, and are representative of the beneficiaries (representative organisations) can conclude a settlement. The WCAM stipulates that the Court must deny the binding declaration of a settlement if the representative organisations are not sufficiently representative with regard to the interests of the beneficiaries. The Court actively ascertains whether this requirement is met. The test as to whether a representative organisation is sufficiently representative is, hence, a discretionary test applied by the Court on the basis of all circumstances of the matter. This representativeness can be derived from several factual circumstances and that not one circumstance is decisive. In the Dexia and Ageas case, the Court looked at the statutory objects of the foundations and associations involved, the number of participants or members, the activities of these foundations and associations apart from filing the WCAM request, such as their websites, mailings to interested persons, activities in the media, and earlier activities in the field of litigation in connection with the issues that were covered by the settlement. Furthermore, the Court assessed whether the representative organisations sufficiently guaranteed the legal interests of their members, in line with the Dutch Claim Code (this is a soft law that applies to foundations and partially to associations acting in a collective action or in WCAM proceedings).
In the Probo Koala case, the Court declared the claims of the foundation inadmissible because the interests of the potential claimants were insufficiently safeguarded. The claims that were filed by the foundation had already been prepared by the Ivory Coast organisations. The foundation was too dependent on these organisations and could not convince the Court that compensation awarded to potential claimants would not be granted to the Ivory Coast organisations.Terms and conditions of the settlement
The settlement is a private agreement between private parties and as such, in principle, the parties are free to agree on the terms and conditions. That said, the settlement is not intended to only govern the legal relationship between the compensating parties and representative organisations, but ultimately to govern the legal relationship between them and a large group of future parties: the beneficiaries. In deviation from the main rule of interpretation of contracts covered by Dutch law that hinges on the parties' intentions, a settlement - which binds parties that were not involved in the conclusion of that settlement - will need to be interpreted more objectively.Procedural rules
Once a settlement is reached, the parties may jointly request the Court to issue a binding declaration. Until now, a binding declaration has been requested - and issued - in nine cases.
The WCAM limits the options of the Court to either issue or altogether refuse a binding declaration. In practice, the Court issues interim judgments to indicate whether or not the settlement, in its view, passes the test and allow the parties to submit one or more amended settlements accordingly, before issuing a final judgment.
The Court's decisions cannot be appealed unless a binding declaration is refused (which has never happened, although the Court has indicated in some cases that it would only declare the settlement binding after being amended) and then only by all petitioners jointly to the Supreme Court of the Netherlands on limited grounds of material procedural errors or breach of law.Petition
The compensating parties and the representative organisations submit a joint petition to the Court, together with the settlement, in which they request the Court to issue a binding declaration.Notification
Notification of the persons for whose benefit the settlement agreement is concluded is crucial, both at the stage of the litigation aimed at obtaining a binding declaration, as well as after the binding declaration has been issued. The WCAM provides for direct notification of interested persons known to the petitioners, as well as for public notification, through announcements in newspapers, of interested persons whose identity is unknown to the petitioners. Insofar as foreign unknown interested persons are concerned, the Court may order announcements in relevant foreign newspapers, as is demonstrated in Shell and Converium. In Ageas, the Court took the same approach but also allowed foreign and domestic shareholders to be notified of proceedings via email if they had registered with the claimant organisations that were a party to the settlement. The Court only required more formal notification for those shareholders for whom a confirmation of receipt had not been obtained.Judicial review
A settlement needs to meet certain mandatory statutory requirements in order to qualify for a binding declaration. These requirements may be divided into two categories: on the one hand, more 'technical' requirements (such as a description of a damage-causing event and the group of beneficiaries), essentially pertaining to information that is necessary for a standardised settlement, and 'substantive' requirements, which enable the Court to determine whether the terms and conditions of the settlement provide sufficient safeguards for the interests of the beneficiaries to justify a binding declaration (such as 'reasonable compensation', see the following paragraphs, and the representative organisation being sufficiently representative).Reasonableness test
The WCAM provides that the Court will refuse the binding declaration if the compensation awarded in the settlement is not reasonable, having regard to, among other things, the extent of the damage, the ease and speed with which the compensation can be obtained, and the possible causes of the damage. In determining whether the amount and terms of the compensation awarded in the settlement are 'reasonable', the Court may take into account all circumstances of the case - whether they arose before or after determination of the amount of compensation and before or after the settlement was reached. In DSB Bank, the Court also took into consideration that it is both in accordance with the law and in the interest of the parties involved that the number of opt-outs is as limited as possible.
'Reasonableness' of the settlement has many aspects. The first aspect discussed here is the reasonableness of the criterion by which it is determined whether a person is included in the group of interested parties. The Court will not easily decide that a certain group was wrongly excluded from the settlement. Obviously, if a group is excluded from the settlement, the binding declaration will not diminish their rights in any shape or form, that is: the binding declaration cannot be invoked against them; and they still have standing in court, without the need to issue an opt-out statement in time.
The type of exclusion described in the preceding paragraph is different from the situation where a certain group is included in the settlement, in the sense that it is covered by the description of interested persons potentially eligible for compensation, but is not awarded anything. In that case, the binding declaration can be invoked against this group and these persons need to opt out to still have standing in court. In such a case, the Court will fully test whether such limitation is reasonable.
The concept of 'reasonableness' also refers to the amount of compensation awarded in the settlement. It is an implied starting point of the WCAM that the settlements may differentiate between different groups of eligible parties on the basis of the expected strength of their claim in court. In addition, the Court in Dexia held that a settlement is the outcome of negotiations in which all parties have made concessions based on the perceived strength of its legal position and perceived interest in having the matter resolved outside of court. As a consequence, a settlement will normally not result in full compensation of the losses as originally presented by the claiming parties. The Court held that this in itself does not make a settlement unreasonable.
In the Shell case, the Court held on multiple grounds that the compensation granted was not unreasonable. It referred to the broad support the settlement had met - both from institutional investors and from shareholders' associations. The Court also referred to two favourable opinions of US scholars that were filed by the petitioners, which indicated that the settlement was somewhat better for the beneficiaries than the average of settlements in comparable cases. The Court furthermore took into account that the alleged misleading statements had not given rise to any litigation outside of the US, which suggests that it was uncertain if an award in a non-US court could be obtained that would be better than the compensation awarded in the settlement.
In Shell, no question arose about unequal treatment of shareholders in different jurisdictions, as the shareholders were actually treated equally in all jurisdictions. However, there may be international cases in which the settlement differentiates between parties residing in different countries, on the basis that their claims have a different value under the laws that apply in each of their cases.
In Converium, just as in Shell, the settlement only regarded non-US shareholders. The Court found that the proposed non-US settlement amount was considerably lower than the US settlement amount. However, it held that despite this difference the amount of compensation was not unreasonable. The Court ruled that the difference between the US and non-US settlement amount was justified given the fact that the legal position of the US shareholders differed from the legal position of the non-US shareholders. According to the Court, the non-US shareholders were excluded from the US settlement, and it would be very difficult for them to get compensation outside the US, whereas it was improbable that they would get compensation in the US. Also, the non-US shareholders could opt out and start individual proceedings.
In the Converium case, the Court ruled that despite a considerable lawyers' fee of 20 per cent, the amount of compensation as included in the settlement was not unreasonable. As most preparatory work had been done by US lawyers, the Court took into account US standards of what is common and reasonable in judging what a reasonable fee is. The Court found that it was sufficiently established that according to such standards, the fee was not unreasonable.
In its first interim decision in Ageas, the Court did not declare the settlement binding but allowed the parties to present an amended settlement. The Court considered the distinction made between 'active' and 'non-active' claimants for purposes of awarding compensation unreasonable, but it did eventually allow a uniform compensation of for active claimants. In its interim decision, the Court also considered that in the case of capped total compensation, the reasonableness towards certain shareholders whose loss is more plausible (buyers), should be considered in light of the greater part of that amount potentially going to others whose claim is unlikely to succeed (holders). Although the court emphasised the difficulty holders would have to successfully bring a claim, it did eventually approve the amended settlement agreement that still compensated holders. The Court also emphasised the importance of clarity in the release obtained by the potentially liable party under the settlement agreement.Binding effect
A binding declaration by the Court transforms the settlement into a binding settlement, meaning that all beneficiaries - known and unknown - are bound by it unless they expressly opt out within a certain time period. The opt-out format of a binding settlement hence makes the playing field more transparent: if a binding declaration is obtained, the compensating parties will, after the opt-out period, know who may still sue for damages.
An opt-out notice can only be submitted after the binding declaration has been issued by the Court. The duration of the opt-out period is set by the Court, normally three to six months after publication of the binding declaration.
The parties can stipulate in the settlement that the compensating parties are jointly entitled to terminate the settlement in case of a certain percentage of opt-outs. The percentage can be agreed upon in the settlement - the WCAM does not specify which percentage must be met.