Costs and insuranceAward of costs
May the courts order the unsuccessful party to pay the costs of the successful party in litigation? May the courts order the unsuccessful party to pay the litigation funding costs of the successful party?
Under Dutch law, the unsuccessful party in the proceedings pays the court fees and costs of representation of the successful party (article 237 of the Dutch Code of Civil Procedure (DCCP)). However, these costs are awarded on the basis of a fixed scale that does not cover the actual costs incurred but only a significantly lower amount, most often totalling no more than a few thousand euros. Only in very exceptional circumstances may the legal costs incurred be compensated in full. This may happen in certain disputes relating to intellectual property rights, or in the case of an abuse of process by one of the parties. In such rare cases, it is not impossible that the courts order the unsuccessful party to pay the litigation funding costs of the successful party. However, we are unaware of any example in which that has happened.
Notably, in proceedings involving mass (tort) claims a different regime applies. Article 1018L, paragraph 1 of the DCCP provides that when the claim is found to be manifestly unfounded, the court may deviate from article 237 of the DCCP. In such cases, the representation fees of the successful party that are to be borne by the unsuccessful party can be increased by a factor of up to five, unless such would be contrary to standards of fairness. Article 1018L, paragraph 2 of the DCCP further provides that the unsuccessful party in mass (tort) proceedings may, if so claimed by the successful party, be ordered to pay reasonable and commensurate court fees and other costs that the successful party has incurred, unless such would be contrary to standards of fairness.
The Netherlands Arbitration Act does not contain provisions for the recovery of costs. Unless the parties have agreed on arrangements in this regard, the arbitral tribunal may allocate costs in the way it deems fit. By way of example: the arbitration rules of the Netherlands Arbitration Institute (NAI) provide that the unsuccessful party shall be ordered to pay the costs of the arbitration, except in special events at the arbitral tribunal’s discretion (article 57(2) of the NAI Arbitration Rules).Liability for costs
Can a third-party litigation funder be held liable for adverse costs?
Dutch law does not contain statutory provisions relating to a third-party litigation funder’s liability for adverse costs. Unless the funding agreement stipulates otherwise, the third-party litigation funder will not be liable for such costs. In practice, given the relatively low costs involved, third-party funders may well agree to cover adverse costs for Dutch state court proceedings in the funding agreement.Security for costs
May the courts order a claimant or a third party to provide security for costs? (Do courts typically order security for funded claims? How is security calculated and deposited?)
Dutch law provides that a court may order a claimant to provide security for costs (article 224 of the DCCP). However, the practical implications of this provision are limited, given that it only applies to claimants who reside in a state that does not have a treaty regime for the enforcement of Dutch state court judgments, who will likely have insufficient assets in the Netherlands to cover an adverse costs order, and whose access to court is not effectively precluded by an order for security for costs. Dutch law does not provide a basis to order a third party, such as a third-party litigation funder, to provide security for costs. Dutch law does not provide any specific rules on the provision of security for costs by arbitral tribunals. The Netherlands Arbitration Act grants the tribunal wide-ranging authority to order interim measures (article 1043b of the DCCP), which includes the possibility to request security for the costs of proceedings and legal assistance. The Netherlands Arbitration Act does not prescribe any conditions that must be fulfilled for an order for security for costs to be granted. In their decisions on requests for security for costs, tribunals have assessed the following three factors:
- whether the other party’s financial situation has deteriorated (or is expected to deteriorate) since the conclusion of the arbitration agreement;
- whether this deterioration occurred wilfully or not; and
- whether the applicant no longer has the security that it previously had (see, eg, NAI 30 August 2013, Case No. 4025, Tijdschrift voor Arbitrage 2015/24, paragraph 41).
An additional factor that tribunals should, in our view, take into account is whether the order for security for costs effectively precludes the claimant from presenting its claim to the tribunal, that is, whether the claimant can reasonably comply with the order.
If a claim is funded by a third party, does this influence the court’s decision on security for costs?
The mere fact that a claim is funded by a third party is by itself not a relevant consideration in the context of the court’s decision on security for costs. Article 224 of the DCCP only provides for the possibility to order security for costs against claimants who reside in a state that does not have a treaty regime for the enforcement of Dutch state court judgments, who will likely have insufficient assets in the Netherlands to cover an adverse costs order, and whose access to court is not effectively precluded by an order for security for costs.Insurance
Is after-the-event (ATE) insurance permitted? Is ATE commonly used? Are any other types of insurance commonly used by claimants?
ATE insurance is available in the Netherlands. However, it is rarely used, as the potential costs associated with an adverse cost order in Dutch court proceedings are limited. A more popular type of insurance – mainly among consumers – is legal expenses insurance. This type of insurance covers the costs of legal proceedings, and usually covers costs of future disputes only and is, therefore, contracted before a dispute has arisen.