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Market trends and climate

Market trends and climate

What is the general state of the securities markets in your jurisdiction, including any notable trends and recent transactions?

The Netherlands has seen three key trends from a legal perspective:

  • an increase in the number of class actions brought in The Netherlands relating to securities, mainly due to the favourable legal climate for class actions;
  • a legislative proposal which will make the climate for class actions even more favourable by making it possible to claim monetary damages; and
  • the rapid growth of crowdfunding, initial coin offerings and fintech.

Regulatory framework and enforcement

Legislation

What is the primary legislation governing the offer and trade of securities in your jurisdiction (both primary and secondary markets)?

The offer and trade of securities on the primary and secondary market in the Netherlands is primarily governed by:

  • the Financial Supervision Act;
  • the Public Offers Decree; and
  • pursuant to Articles 5:32(1) and 4:91b(1) of the Financial Supervision Act, the rules of the trading venue on which the securities are traded (the so-called ‘rule books’).

Clearing, settlement and custody of securities – also known as the ‘plumbing’ of the securities market – are mainly governed by EU regulations (eg, the EU Over-the-Counter Derivatives, Central Counterparties and Trade Repositories Regulation (648/2012) and the EU Central Securities Depositories Regulation) and national Dutch law (eg, the Securities Giro Transfer Act).

Regulatory authorities and enforcement trends

Which authorities regulate the securities markets in your jurisdiction and what is the extent of their enforcement powers?

The securities market is supervised by the Dutch Financial Market Authority (AFM). The AFM has various enforcement powers. For example, if a supervised entity fails to comply with its obligation to make an prospectus generally available before it lists its securities on a trade venue pursuant to Article 5:2 of the Financial Supervision Act, the AFM can impose an order subject to an incremental penalty on the offering party (Article 1:79) or impose a fine (Article 1:80).

Further, as a rule, the AFM must publish said enforcement measures on its website (Article 1:97). The AFM can also oblige the party operating the trading venue on which the securities are listed to suspend the trade in said securities (Article 1:77d).

Have there been any notable public enforcement trends, including any key recent actions?

Aside from formal enforcement measures (eg, imposing fines), the AFM also has informal enforcement measures. For example, it can issue guidelines on statutory provisions or have an instructive conversation on compliance standards with a supervised entity. These informal measures have no legal status and, as a result, can be ignored by the supervised entity. However, practice shows that supervised entities tend to act in accordance with the AFM’s informal enforcement measures.

A notable enforcement trend in this respect is that the amount of informal enforcement measures continues to strongly outweigh the amount of formal enforcement measures by a factor that over the past few years fluctuates between five and 11.

Courts

Court system

How is the court system structured in your jurisdiction? Are there any specialist courts with jurisdiction over securities-related actions?

The Dutch civil court system consists of 11 district courts, four courts of appeal and the Supreme Court. Civil securities-related actions are initiated by summoning the defending party by writ to appear before the competent district court. Jurisdiction between the various district courts (and between the various courts of appeal) is established in accordance with the Dutch rules on relative competence as laid down in the Code of Civil Procedure. There are no courts in the Netherlands specifically designated to handle securities-related disputes between civil parties. Nonetheless, the Amsterdam District Court has the most experience with securities-related actions. Therefore, a claiming party usually attempts to bring the action before this court.

For administrative proceedings pursuant to measures taken by (for example) the AFM, the Rotterdam District Court of is the designated court of first instance. The Trade and Industry Appeals Tribunal is the designated court for appeals.

Procedure

What rules govern court procedure? Are there any provisions specific to securities cases?

The district court procedure is governed by the Code of Civil Procedure (DCCP) and further detailed in the Rules of Procedure in Civil Cases for district courts. These rules apply to all civil summons cases, including securities cases. In addition, the Civil Code and the DCCP contain rules in respect of class action proceedings and class settlements proceedings. There are no procedures specific to securities cases.

The governing rules in administrative proceedings are provided by the General Administrative Law Act.

Appeals

What rules and procedures govern the appeal process?

The civil appeal procedure is governed by the DCCP and further detailed in the Rules of Procedure in Civil Cases for the courts of appeal. These rules apply to all civil summons cases, including securities cases. There are no specific procedures for securities cases. The administrative appeal procedure is governed by the General Administrative Law Act.

Recent case law and litigation trends

Have there been any notable recent cases involving private securities claims or trends in private securities litigation?

Dutch law is unique among civil law jurisdictions by facilitating court approved settlements which are generally binding on each individual injured party, regardless of their nationality or place of residence – including (for example) US or Cayman Islands residents – unless these parties opt out in time. This is known as the ‘class settlement procedure’.

Regarding the Dutch class settlement procedure, a recent notable case involved the Fortis securities litigation.

In 2007 Belgian banking and insurance group Fortis raised €13.4 billion from investors to finance its part of the ABN AMRO takeover. Shortly after the rights issue, Fortis collapsed and needed assistance from the Dutch, Belgian and Luxembourg state, resulting in various securities class actions.

In 2016 Fortis’s legal successor and several Dutch and Belgian representative parties jointly requested the Dutch court to declare their proposal for a settlement generally binding. As of now, it is the largest settlement ever presented to the Dutch court with the request to declare it generally binding.

On 13 July 2018 the court decided on the settlement proposal and provided further guidance on whether the settlement agreement may differentiate between (groups of) injured parties in respect of the settlement amount. One of the claiming entities, the Dutch Investors' Association (VEB), had bargained an additional fee of 25% for individual injured parties that are VEB members, so-called ‘active claimants’. Other injured parties represented by the VEB that were not members would not receive the additional fee. 

The court ruled that there was no justification for this additional fee (and therefore considered said fee not reasonable) as these active claimants, aside from their membership costs, had not incurred any material costs (eg, litigation costs), contingency fees or success fees to justify additional compensation.

Nonetheless, the court declared the settlement agreement generally binding because rejecting the parties’ request would have too far reaching consequences and thus be unacceptable.

This case demonstrates that the Dutch court will review any differentiations made in compensation between (groups of) injured parties very critically.

Court approach to securities cases

Would you consider your jurisdiction to be a more claimant-friendly or defendant-friendly forum for securities litigation?

The Netherlands is a more claimant-friendly forum for securities litigation. This is because claimants in Dutch class action proceedings – which is usually how civil litigation regarding securities is initiated – need not disclose the identity of the injured parties that they claim to represent. There is no class certification procedure. Further, the Dutch settlement procedure facilitates court-approved settlements, which are generally binding on each individual injured party. Court fees are low and the cost award for the unsuccessful party is based on a court-approved scale of costs, which is usually a fraction of the actual incurred legal costs, especially in larger, more complex proceedings. This has created an attractive climate for claiming parties to litigate in the Netherlands.

Cross-border litigation

How do the courts in your jurisdiction address cross-border securities litigation?

In cross-border securities litigation the Dutch court must assess whether it has jurisdiction pursuant to either an international treaty or convention, the Brussels I Regulation (recast) or, absent any of these, Dutch international private law. The Amsterdam Court of Appeal case law in class settlement proceedings shows a highly pragmatic approach when determining its international jurisdiction based on the Brussels I Regulation. For example, in the Converium class settlement proceedings, less than 2% of the individual injured parties resided in the Netherlands. Nonetheless, the Amsterdam Court of Appeal considered that it had jurisdiction in the class settlement proceedings on the basis of the Brussels I Regulation and Dutch international private law.

Claims

Causes of action

Which causes of action can be asserted by claimants in relation to the offer and trade of securities and which are most commonly asserted?

The most common causes of action relating to the offer and trade of securities asserted by claimants are misrepresentations or omissions regarding information that was provided to them by the issuer. Depending on whether the claimant is a professional party or a consumer, it may invoke the statutory rules on misleading advertising or the statutory rules on unfair commercial practices, respectively. These rules shift the burden of proof with respect to the correctness of the information from the claimant to the defendant.

Directors’ and officers’ liability

In what circumstances and to what extent can directors and officers be held liable for misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities?

Usually, the company (ie, the legal entity) will be qualified as the publisher of misleading advertisements or as the trader of unfair commercial practices. In these cases, directors and officers can then be held liable only if a serious personal blame can be attributed to them for not preventing such misrepresentation or omission. However, if directors or officers qualify as publishers of misleading advertisements or traders of unfair commercial practices, they can be held liable under the respective rules and no serious personal blame is required to establish liability.

In administrative proceedings, directors and officers can be held liable if they directed the offence. No serious personal blame is required.

Can liability be limited in any way?

Directors and officers cannot exclude their liability. However, often their company will indemnify them and take out directors and officers insurance.

Secondary liability

In what circumstances and to what extent can secondary actors (eg, attorneys, auditors and underwriters) be held liable for misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities?

Secondary actors can be held liable on the same grounds as issuers if they can be classified as a publisher of the misleading advertisement or as a trader with respect to the unfair commercial practice. Lead managers that are involved in the drafting and distribution of a prospectus might be classified as such. In addition, case law demonstrates that lead managers can be liable for not correcting misleading statements from the issuer during a press conference in an initial public offering book building process. Auditors may also classify as publishers or traders. Attorneys are less likely to be classified as such; however, attorneys and auditors can be held liable if they have not acted as a reasonably competent attorney or auditor.

Can liability be limited in any way?

Liability cannot be limited.

Eligible claimants

Who may file securities claims? Are there any restrictions on foreign claimants? Who are the most common claimants (eg, pension funds, institutional investors)?

Any security holder at the time of the misrepresentation or omission can file securities claims. Both claims by buyers and holders of shares in the relevant period are accepted. There are no restrictions on foreign claimants. Claimants are usually represented by professional claiming entities or the Dutch Investors' Association (VEB) and the Consumentenbond.

Pleading and evidentiary standards

What pleading and evidentiary standards apply to securities claims, including with regard to:

(a) Proof of reliance on the relevant misrepresentation, omission or other fraudulent conduct?

Investors must assert that they relied on the misrepresentation or omission. Reliance is assumed relatively easily, especially in case of retail investors. This reliance can be indirect (ie, not requiring the investors to have actually read the misleading information themselves).

(b) Proof of loss causation?

Claimants must prove that the misleading information caused damages (eg, a drop in securities prices). They must therefore filter out unrelated price movements.

(c) Materiality requirements?

Not every omission or misrepresentation classifies as an unfair or misleading commercial practice or as misleading advertising. An omission or misrepresentation classifies as ‘unfair’ or ‘misleading’ if it can be reasonably assumed that the omission or misrepresentation, considering the whole context, has a material impact on the investment decision of an average investor.

(d) Scienter requirements?

Misrepresentations create civil liability if the party responsible for the misrepresentation knew or ought to have known about the misrepresentation.

(e) Any other requirements, standards or considerations?

N/A.

Disclosure

What pre-trial disclosure/discovery mechanisms are available to support claims, if any?

Dutch law provides for the possibility to obtain documents. This possibility is much more restricted than (for example) US discovery. No fishing expeditions are allowed; the parties must be very specific in their request for documents.

Dutch law also provides for the possibility to depose witnesses, both before initiating proceedings –so-called ‘preliminary witness hearings’ – and during the proceedings. Witness hearings are more restricted than (for example) US depositions. Contrary to US depositions, witness hearings under Dutch law take place before a court and the topics for the witness hearing must be specified beforehand and should be relevant for the claim.

Shareholders and some other stakeholders may also file a petition requesting the Enterprise Court to order an investigation into the management and affairs of the company if there are “sufficient grounds to doubt as to whether the company is pursuing a proper policy or a proper course of affairs”. The investigators will write a report on their findings, which will be made available to the parties involved in the proceedings before the Enterprise Court and these findings are usually sufficiently thorough to be used as a factual basis for a liability claim.

What rules and standards govern non-disclosure of documents on the grounds of professional privilege or other confidentiality considerations?

A request for disclosure of documents can be denied if there are compelling reasons to deny such request – for example:

  • a statutory duty to keep information confidential;
  • a contractual duty; and
  • professional privilege.

Witnesses must answer all questions and generally cannot refuse to answer even if the answer would reveal confidential information. There is an exception for attorneys and other persons that hold professional privileges.

Interim relief

What interim measures are available to claimants in securities cases?

Preliminary injunctions and preliminary attachments are available. These are not specific to securities cases.

Statute of limitations

What is the statute of limitations for filing claims?

Damages claims generally have a statute of limitations of five years. Claims for the nullification of a transaction based on the rules on unfair commercial practices have a statute of limitations of three years.

Defence

Defences

What defences are available to defendant issuers and broker-dealers?

Depending on the claim, defendants have several defences at their disposal. These defences are not limited to the context of securities litigation.

Substantive defences can relate to, among other things, whether:

  • investors were informed incorrectly, insufficiently or in an otherwise misleading way;
  • such alleged wrongful act is attributable to the defendant;
  • the alleged breach is intended to protect investors;
  • the investors have actually suffered the claimed damages; or
  • the alleged wrongful act is causally relate to the damages claimed.

Formal defences can relate to, among other things:

  • the competence of the court;
  • applicable law;
  • a lack of the required representativeness of the collective claim entity (in case of class action proceedings); and
  • the limitation period of the claim.

Preliminary actions

What preliminary procedural mechanisms are available to defendants to counter claims, if any (eg, motions to dismiss)?

Defendants can raise procedural issues which will be decided on before the start of the main proceedings (eg, the jurisdiction of the court). There are no specific procedural mechanism for securities cases.

Damages and costs

Damages

What rules and standards govern the calculation and award of damages?

Damages calculations and awards depend on the basis of the claim (eg, tort or breach of contract). Generally, the amount of compensation is determined by comparing the actual situation after the tort or breach of contract with the hypothetical situation that would have arisen without the tort (ie, after proper performance of the contract).

Are damages capped?

Damages are generally not capped or mitigated. If awarding the full amount of damages would have unacceptable consequences (considering the specific circumstances of the case and the defendant), the courts may mitigate the amount of damages, but no less than the amount that is covered by insurance.

Are punitive damages allowed?

Under Dutch law, the courts cannot award punitive damages.

Other remedies

Are any other remedies available?

Instead of damages (in cash) one can claim proper performance of the contract or compensation in kind (eg, the claimant can demand the transfer of shares).

Costs

Who bears the costs of proceedings? Can this burden be shifted in any way?

Each party bears its own costs of proceedings. The winning party will be awarded some compensation for the cost of the proceedings, but these costs are calculated using a fixed table for liquidated costs and will generally concern only a fraction of the actual costs incurred.

How are costs calculated? Does interest accrue on costs?

Costs are calculated at the time of the verdict using fixed liquidated costs for each procedural document and court session. Interest on these costs accrues after the judgment in accordance with the statutory rate of interest.

What rules and procedures apply to the provision of security for costs?

Normally no security for costs is provided. However, a defendant confronted with a claim from a foreign claimant can ask the court to order the claimant to furnish adequate security for the costs (cautio iudicatum solvi).

Class actions

Are class actions or any other collective proceedings available for securities claims in your jurisdiction? If so, what is the procedure for their formation and what benefits do they afford claimants? Are class actions formed on an opt-in or opt-out basis?

The Netherlands is a favourable regime for class actions.

First, it is possible for claims organisations to initiate a class action if they claim to protect the interests of individual injured parties that are sufficiently similar (ie, a court must be able to render its judgment on the claim without having to take into account the specific circumstances of each individual injured party, such as damages and prescription). Such proceedings will result in a declaratory decision that the defendant acted unlawfully or breached a contract (it is not possible to claim damages). No strict requirements exist as to claims organisations. For example, it is not required to identify any and all individual claimants that the claims organisation represents. Further, adverse cost orders are highly limited. A currently pending legislative proposal will make it possible to also claim damages in a class action.

Second, if a settlement is reached, the Act on Collective Settlement of Mass Claims makes it possible to declare such settlement generally binding for all individuals that suffered damage, unless these individuals opt out. The settlement is considered to be binding for all individuals that suffered damage, irrespective of where they live and irrespective of whether they actively pursued damages or not. This not only benefits these individuals (that do not have to negotiate a settlement themselves), but also the defendant (that has the certainty that it will not be involved in lengthy litigation proceedings anymore).

Litigation funding

Availability

Is public or third-party litigation funding available in your jurisdiction? If so, what rules, standards and procedures apply?

Public funding

State subsidised legal aid for private individuals with a low income is available. The solicitor will receive compensation from the state and the individual must make a personal contribution. The amount of the contribution depends on the individual’s income.

Third-party funding

Third-party funding (TPF) is allowed under Dutch law and has been used in mass claims to fund claim vehicles. With regard to individual claims, TPF is not particularly widespread, but a market seems to be emerging, especially during the past few years. Several (local and international) TPF parties are active in the Netherlands.

Currently, there are no specific Dutch legislative or regulatory provisions for TPF. However, with respect to mass claims, a proposal for an update of the non-binding Claimcode 2011 contains several new provisions regarding TPF. These provisions aim to ensure that claim vehicles operate independently with regard to its funder and prescribe a minimum level of transparency with respect to compensation mechanism.

Insurance

Is insurance available to cover the costs of litigation?

Several insurers offer legal aid insurance. Almost 50% of the private individuals have taken out such insurance. Legal aid insurance is also available for companies. In practice, legal aid insurers will provide the legal aid themselves using their inhouse lawyers. Such insurance can be taken out only before the dispute has arisen.

Settlement

Rules and procedure

What rules and procedures govern the settlement of securities litigation?

Like any other agreement under Dutch law, settlement agreements are governed by the Civil Code (DCC).

In addition, the Act on Collective Settlement of Mass Claims makes class settlements possible.

In a class settlement procedure, the parties (ie, one or more representative claims organisations and the defendant) jointly request the Amsterdam Court of Appeal to declare the settlement generally binding. However, parties are not obliged to initiate a class settlement procedure – only whether they intend to have it declared generally binding. The class settlement procedure is embodied in the DCC and the Code of Civil Procedure (DCCP). Essentially, the procedure is as follows.

First, the claiming and defending party jointly request the Amsterdam Court of Appeal – the court that is exclusively designated to handle class settlement procedures – to declare the settlement agreement generally binding on each injured party that falls within the scope of the settlement agreement. In addition, parties must provide a pre-binding notification to each known individual injured party that falls within the scope of the settlement agreement (Article 1013(5) of the DCCP).

Then, the Amsterdam Court of Appeal will hear all of the parties that appeared in court.

Subsequently, the Amsterdam Court of Appeal will review the settlement agreement and must reject any request to declare the settlement generally binding where any of the circumstances mentioned in Article 7:907(3)(b) of the DCC apply (eg, if the court considers the proposed settlement amount unreasonable).

If the court declares the settlement agreement generally binding, each known injured individual party must be notified in a post-binding notification (Article 1017(3) of the DCCP). The notification must contain, among other things, the settlement agreement and the period during which the individual injured parties can free themselves from the consequences of the settlement agreement by opting out (Article 7:908(2) of the DCC).

At the end of the opt-out period, it can be established which individual injured parties are bound by the settlement agreement (Article 7:908(1) of the DCC). In practice, a very small percentage of individual injured parties exercise their right to opt out. Usually, the defending party will stipulate the right to terminate the settlement agreement if the opt-out amount exceeds a certain predetermined percentage of the settlement sum.

Lastly, the settlement sum must be distributed among the injured parties that did not opt out and are bound by the settlement agreement. It is not uncommon that a separate foundation, with an independent board of directors will distribute the settlement sum. At this stage, the defending party usually is no longer involved in the process.

Prevalence

How common are settlements in securities-related cases?

Settlements in securities-related cases occur fairly frequently in the Netherlands. This is mainly because such cases often involve large-scale losses which can be settled by what is known as the ‘class settlement procedure’. This procedure facilitates court approved settlements which are generally binding on each individual injured party, regardless of their nationality or place of residence – including (for example) US or Cayman Islands residents – unless they opt out in time. This procedure has created an attractive climate for claiming and defending parties to resolve disputes involving large-scale losses.