On 27 November 2015, the Dutch Supreme Court ruled that a decision on the question of relativity can be obtained in a collective action (ECLI:NL:HR:2015:3399). The concept of relativity in Dutch law concerns the protective scope of a rule and entails that non-contractual damages can only be obtained if the rule that has been violated is intended to protect the victim from the loss incurred by him.
The Supreme Court confirmed that in a collective action the individual circumstances of the members of the collective are, in principle, not relevant. Therefore, a judgment on relativity can be obtained in a collective action even if it is questionable whether some of the individuals forming part of the collective fall within the protective scope of the rule allegedly violated. However, a judgment on relativity is not possible if it is clear from the outset that the collective as a whole (i.e. every individual represented in the collective action) falls outside the protective scope of the rules.
It is established case law that banks, given their role in modern society, not only have to observe a duty of care to their own customers, but also towards third parties. The judgment deals with the latter, and concerns the bank’s role in a Ponzi scheme in the Netherlands. The founder of this scheme was declared bankrupt in 2005. The participants targeted the founder’s bank for breach of its duty of care. Their reasoning behind this was that the bank should have known that the unusual transactions concerning this bank account could be detrimental to the rights of the participants and that the bank failed to observe its duty of care towards the participants by not investigating further.
Collective actions in the Netherlands
The participants did not act individually, but together in a foundation (the Stichting Belangenbehartiging Gedupeerde Beleggers). Dutch procedural law grants foundations and associations the right to initiate proceedings in the interests of a group of stakeholders as a ‘collective’ (a collective action). There is one important limitation in collective actions in the Netherlands: it is not possible to claim damages (article 3:305a of the Dutch Civil Code). This does not preclude a collective from, for example, seeking a declaratory judgment that the tortfeasor acted wrongfully towards the stakeholders. The stakeholders can then pursue compensation in an individual action for damages or – most likely – by way of a collective settlement.
This limitation affects which aspects of liability can be dealt with in a collective action. In 2005, the Dutch Supreme Court ruled in its Safe Haven-judgment (ECLI:NL:HR:2005:AU3713) that in a collective action the individual circumstances of the members of a collective are, in principle, not relevant (one must ‘abstract’ from the specific circumstances of the members). In 2009, the Supreme Court clarified that questions regarding damage, causation and contributory negligence do not belong in a collective action (in the WorldOnline-judgment, ECLI:NL:HR:2009:BH2162). It was still unclear, however, whether questions regarding the protective scope of the rule allegedly violated could be dealt with in a collective action or not. The Dutch Supreme Court has now shed some light on the extent to which the relativity requirement can be addressed in collective actions.
The 27 November 2015 judgment
The claimant in asked for a declaratory judgment that:
- the bank acted unlawfully towards the participants;
- this act was attributable to the bank; and
- the participants in the collective and the damage incurred fell within the protective scope of the standard violated (i.e. the duty of care towards third parties).
The bank defended itself by stating that the participants should have known that the scheme was too good to be true and therefore could not invoke the bank’s violation of its duty of care. This reasoning is based on a legal doctrine (the ‘in pari delicto’-doctrine), which states that there is no right to compensation for a person who has acted negligently.
The High Court of The Hague ruled that the limitation in article 3:305a DCC meant that a judgment on relativity could not be obtained in a collective action. According to the High Court, such issues can be addressed in individual actions for damages following the collective action.
The bank appealed this judgment and argued that a positive declaratory judgment on relativity could not be given, since all participants of the collective fell outside the protective scope of the duty of care. The bank argued that the participants, by recklessly taking part in the scheme, could not rely on the protective scope.
The Supreme Court dismissed the bank’s appeal and ruled that the circumstances put forward by the bank could not be addressed in a collective action. As individual circumstances are, in principle, not relevant in a collective action, a collective judgment on relativity can be given even if the requirement of relativity is not met in respect of some of the individuals represented in the collective action. Taking individual circumstances into account in this regard, according to the Supreme Court, would unacceptably limit the effectiveness of collective actions. However, a positive judgment on relativity cannot be given if it is clear from the outset that the requirement of relativity has not been met in respect of all individuals forming part of the collective. The Supreme Court did not see enough evidence for this conclusion.
It is now for the High Court to assess the evidence of the bank’s knowledge of the unusual transactions.