Extract taken from 'The Securities Ligation Review – edition 5'
Private enforcementi Forms of action
Standard securities claims based on contract or tort are initiated by individual investors before the civil courts. Any form of relief may be sought, such as damages, specific performance of a contract or annulment of a contract.Class actions
The Dutch Civil Code allows for the possibility of class actions. Dutch law, however, has a different approach to class actions when compared with common law jurisdictions such as the United States. Under Dutch law, only a representative organisation (in the form of an association or foundation) can start a collective action, and only to protect the interests of a defined group of interested parties or public interests. Such a representative:
- does not have its own interest in the litigation;
- does not represent the parties in a formal sense; and
- is currently not allowed to claim monetary damages.
As a result, collective actions are used to pursue a declaratory judgment establishing the basis for liability (e.g., a declaration by the court that the defendant committed a tort or breached a contract). On the basis of such a declaratory judgment, parties may claim damages in individual proceedings.
On 16 November 2016, a legislative proposal (the Proposal) was introduced in the Dutch parliament, proposing to amend the existing collective action which would permit representative organisations to claim monetary damages (see Sections II.iii and IV). On 25 January 2019, after several amendments, the Second Chamber of the Dutch parliament adopted the Proposal, and it is currently being discussed by the First Chamber. The Proposal is expected to enter into force in 2019. The Proposal contains a transitory provision and only applies to claims for damage-causing events that have occurred on or after 15 November 2016.ii Procedure
General securities claims are not subject to a specific procedure, and therefore follow the standard civil procedure. Dutch civil procedural law consists of a written phase in which parties define their positions and, as a general rule, submit all evidence at their disposal that supports their claims. Specific requests to the court (e.g., to hear witnesses or for a neutral expert to be appointed by the court) should preferably already be included at this stage. The written phase is followed by an oral phase, after which, in principle, the court will come to a judgment or allow witness examination or appointment of an expert.Discovery
Dutch civil procedural law does not provide for discovery comparable to that of the United States, but it does provide for a limited possibility of discovery in cases where a party needs a specific piece of evidence. Parties may request the court to order the opposing party or a third party to hand over or grant access to such evidence.
The court will only order the opposing or third party to share the information if the following conditions are met:
- the requesting party has a legitimate interest in receiving the information;
b the information requested is specific (to avoid 'fishing expeditions');
- the information requested relates to a legal relationship to which the requesting party is a party; and
- there is no compelling reason to deny the request.
The settlement of civil disputes does not require any judicial involvement or review. It is common practice for Dutch courts to suggest, and even recommend, that parties settle their dispute among themselves, even during hearings. If both parties agree to do so, they can disclose to the court the terms of their settlement, upon which the court will make an official transcript of their agreement. This transcript can serve as a title of enforcement if one of the parties does not adhere to the agreed terms of the settlement.
The Proposal amending the legal framework for the collective action aims to make reaching settlements in this type of collective action more attractive (see Sections II.i and IV).
There are no rules regarding the reimbursement of attorneys' fees in settlements.The Dutch Act on the Collective Settlement of Mass Claims (WCAM)
A collective action could result in a class settlement certified by the WCAM procedure. The WCAM provides parties to a settlement agreement the possibility of jointly requesting the Amsterdam Court of Appeal to declare the settlement agreement binding. To be entitled to initiate WCAM proceedings, it is not required that a collective action has been filed first. If the court declares the settlement agreement binding, all parties and the persons entitled to compensation are automatically bound by the settlement, unless they opt out in writing within a certain period after the binding declaration. The opt-out period is determined by the court, but it is at least three months.
Parties are free to agree on the terms and conditions of a class action settlement. However, to qualify for a binding declaration a settlement agreement must:
- meet certain 'technical' requirements (e.g., describe the events that lead to the damages and describe the beneficiaries of the settlement); and
- provide sufficient safeguards for the interests of the beneficiaries to justify a binding declaration (such as 'reasonable compensation' and a representative organisation being sufficiently representative).
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 and the remuneration structure of representative organisations.
In cases of mass damages, there is a specific procedure to facilitate pre-litigation settlement. The district court can order a hearing to explore settlement options in such cases. This can be requested by the responsible party or representing organisations, or by them jointly.iv Damages and remedies
Under Dutch law, as a starting point, the damage has to be determined on the basis of a comparison between the actual situation the aggrieved parties are in and the situation the aggrieved parties would have been in if the event causing the damage had not taken place. The amount of damages to be paid in respect of contractual and non-contractual claims in the Netherlands can be limited by the requirements of reasonableness and fairness.
The difficulty in relation to securities claims is that, in principle, under Dutch law, the claimant must prove the causal relationship between the actions of the defendant and the losses suffered. On the one hand, this can prove difficult for investors, because their investment decision is usually based on many different factors and most of these factors are difficult to prove. On the other hand, it may often also prove difficult for a defendant to present a defence showing that no causal relationship existed. Case law shows that a relatively high standard applies to the defence showing that the causal relationship is absent. In relation to large-scale financial losses, where the defendant is usually not aware of the individual circumstances of the investor, the Dutch Supreme Court formulated a rule that supports the investor in proving the causal relationship by taking the existence of that relationship as the starting point. Even though the burden of proof is not reversed, the issuer must give concrete facts and circumstances to prove that there was no causal relationship.