“All animals are equal, but some are more equal than others”. This is probably the most famous sentence from George Orwell’s Animal Farm. Sixty-two years after its first publication (on 17 August 1945), the Court of Appeal in Amsterdam had to decide whether this also applies to the beneficiaries of a collective settlement under the Act for the Collective Settlement of Mass Claims (Wet collective afwikkeling massaschade or “Wcam” for short).
Fortis Group was a Dutch/Belgium insurance and banking combination. In 2007, it launched a hostile bid, together with RBS and Santander, to acquire ABN Amro Bank N.V. The consortium of the three banking groups would divide ABN Amro among themselves. For its part, Fortis would pay € 24 billion. This was, at the time, equal to half of Fortis’ market value. Fortis emitted new shares to an amount of € 13.4 billion to finance the take-over. A prospectus was issued on 25 September 2007. A press release called the Trading Update of 21 September 2007 an integral part of the prospectus. Both the prospectus and the Trading Update contained information on Fortis’ exposure to subprime mortgages.
The ABN Amro acquisition proved more than Fortis could stomach. Its solvability became precarious. On 26 June 2008, Fortis announced a number of measures to support its solvability. No interim dividend would be paid. In the whole of 2008, Fortis would only pay divided by the issuance of shares. Fortis made a new public offering in the form of an “Accelerated Bookbuilding Offer” amounting to € 1.5 billion. Fortis introduced a so-called “relief and divestment program” for an amount of € 3.5 billion. It also announced an offering of other capital market instruments amounting to € 2 billion. In the weekend of 27 and 28 September 2008, it became clear that state aid was inevitable to keep Fortis in business. The governments of Belgium, Luxembourg and the Netherlands agreed to inject new capital into Fortis to the tune of € 11.2 billion in exchange of a 49% interest in Fortis’ banking activities in these countries. The financial markets were informed in a press release on 29 September 2009 before the opening of the markets.
This transaction did, however, not have the result that the three governments had in mind. On 3 October 2008, an announcement was made that the Dutch government took over all Dutch activities of Fortis for an amount of € 16.8 billion. The trade in Fortis shares was suspended. Three days later, on 6 October 2008, Fortis made an announcement that its Belgium banking activities would be transferred to the Belgium government, who, in its turn, sold them to BNP Paribas.
This chain of events led to a plethora of litigation. It was claimed that:
- The information that Fortis provided in among others the prospectus and the Trading Update was wrongful and caused damages to former shareholders;
- The measures that were announced on 26 June 2008, should have been made public in an earlier stage and the late publication caused damages to former shareholders;
- That the information that Fortis made available between 28 September 2008 and 3 October 2008 was incorrect and incomplete.
On 14 March 2016, Fortis’ legal successor Aegeas reached a settlement with a number of claim organisations. Subsequently, the parties to the settlement agreement filed a petition with the Court of Appeal in Amsterdam so as to declare the settlement agreement binding on the members of the ‘class’ (essentially the shareholders that the claim organisation purport to represent and to whom the settlement agreement provides an entitlement to compensation). This petition was filed under the Wcam. In its decision of 16 June 2017, the Court of Appeal arrived at the conclusion that the settlement agreement cannot be made binding on the class. Under the Wcam, the Court of Appeal must test whether the settlement is reasonable for the members of the class. In this case, the Court of Appeal finds that this test is not met. There are two reasons for that.
One is that the settlement agreement makes a distinction between Active Claimants and Non-Active Claimants. The Active Claimants stand to receive more from the settlement pot than the Non-Active Claimants. The total settlement pot contains € 1,203,700. The settlement pot is, however, divided in two boxes. One box (“Box 1”) holds € 795,900,000, which is available to compensate the Active Shareholders. The other box (“Box 2”) contains € 407,800,00. That amount is available as compensation to the Non-Active Shareholders. There are roughly three Non-Active Claimants for each Active Claimant. The compensation that is available under the Settlement Distribution Plan of the settlement agreement gives different amounts of compensation to Active Claimants and Non-Active Claimants. The compensation that the Settlement Distribution Plan gives to a Non-Active Claimant for the same event is rought two-thirds of the compensation offered to an Active Claimant.
All in all, the amount in Box 1 should be sufficient to pay all claims of the Active Claimants. It is estimated that Box 2 will be sufficient only if no more than 25% of the Non-Active Claimants claim compensation under the settlement agreement.
Aegeas and the claim organizations defended the distinction between Active and Non-Active Claimants on the basis that ‘free-riding’ should be avoided. The activities and actions of the Active Claimants make compensation possible. This should result in a premium. The Court of Appeal rejected this argument. It finds that the legislative intent and case law of the Supreme Court demonstrates that potential claimants are encouraged to await collective redress and settlement, rather than needing to take action themselves. The argument based on ‘free-riding’ is at odds with this position. Also, upholding this argument, might in the Court’s view, lead to a race to the court house, which should be avoided.
Another reason that the Court of Appeal does not find the settlement reasonable is the amount of compensation that some of the claim organizations receive. In total, they would get € 45 million. This represents 3,6% of the total settlement amount. However, the Court of Appeal compares the compensation that will go to the claim organizations with their actual cost. It becomes clear that for some of them, part of the compensation does not cover actual cost, but rather boils down to a payment into their war chest. The Court of Appeal recognizes the important role of claim organizations in collective redress. It does not have an issue with the payment of compensation to claim organizations. However, given that the compensation exceeds the actual cost, the Court finds that the claim organization have raised the impression that they have an own interest in the settlement. This raises doubts as to whether the interests of the Non-Active Claimants have been taken into account in the result of the negotiations between Ageas and the claim organizations. The Court of Appeal has the impression that their interests have been subordinated to the own interests of the claim organizations and their supporters (the Active Claimants).
The Court of Appeal has afforded the opportunity to Aegeas and the claim organizations to amend the settlement agreement so as to account for the findings of the Court. Whether they will do so remains to be seen. Aegeas and the claim organizations told the Court that this was the best deal that could be achieved.