On July 7th, 2014, the Dutch Minister of Security and Justice published a draft of a bill (the "Draft") to amend the Dutch group action (article 3:305a Netherlands Civil Code et seq.) which is aimed at introducing a collective claim for monetary damages. Under the current regime, no monetary damages can be sought on a collective basis. Before sending the bill to Parliament, the Draft will be subject of a consultation process, which invites scholars, practicing lawyers, companies and representative organisations to give their views. This ND Alert summarises the Draft and its background.
Under the current regime, a group action can be brought by a foundation or association with full legal capacity which, according to the objects as contained in its charter, acts in the furtherance of the similar interests of other people. Foundations and associations which meet these requirements will hereinafter be referred to as "special interest organisations". The authority of a special interest organisation to bring an action is derived directly from the law and not from a legal act such as a power of attorney or mandate given by individual members of the group, or an assignment of their individual claims.
This means under the current regime that:
- the members of the group are not parties to the litigation;
- the special interest organisation does not act on their behalf in the legal sense but rather acts for their benefit;
- the special interest organisation acts for all persons who fall within the scope of the definition of the group and not only for the benefit of its members or contributors (unless the action is expressly limited thereto);
- a judgment rendered in a group action has only res judicata effect as between the special interest organisation as plaintiff and the defendants;
- individual group members wishing to base their claim on a judgment obtained by a special interest organisation awarding the relief sought, still need to sue the defendant for damages on an individual basis;
- the group action is not exclusive: before and after the group action has been adjudicated, members of the group can sue individually and also other special interest organisations can bring a claim;
- all kinds of relief except for monetary damages may be sought.
A settlement between the special interest organisation and the defendant as such does not bind the members of the group. However, since 2005 a collective settlement agreement between a special interest organisation and the defendant can be submitted to the Amsterdam Court of Appeal for approval. If approved, the settlement agreement will bind all persons who are eligible beneficiaries of the agreement, unless they opt out. Although this mechanism has been available for some time now, special interest groups argue that in many cases they lack sufficient means to force a defendant to settle. They believe that if a collective monetary damages action were available to them, they would have more leverage to force the entity they believe is liable to negotiate a settlement. During its former session, Parliament showed it was susceptible to this plea and in 2011 it asked the government to come up with a proposal to allow collective damages claims.
The downside of a collective damages action is the risk of abusive claims. In addition, a collective damages action would increase the administrative burden of the judiciary, as courts would be forced to look into the individual amounts of damage the victims suffered.
The Draft aims at amending the group action in a way that defendants are brought to the negotiation table more easily. In this approach, the entire proceedings are aimed at the parties reaching a settlement. The court can only award collective monetary damages under strict conditions and only as a last resort. At the same time, abusive claims must be avoided. To this end, the first amendment of the group action raises the threshold requirements that a special interest organisation must meet in order for its claim to be admissible. For example, it must have enough expertise with respect to the claim it intends to bring and it needs to adequately represent and safeguard the interests of the persons that belong to the group on whose behalf the action is brought. In addition, the size of the group must be sufficient to justify the use of the collective damages action. If other, more effective and efficient means to get redress are available, the action will not be admissible.
In addition, there are limitations as to the members of the group, the location of the event that caused their loss and the location of potential defendants: a collective claim for monetary damages can only be brought in case either most of the group members are domiciled in The Netherlands, the event has occurred in The Netherlands, or the defendant has its domicile in The Netherlands.
If the above conditions are met, and after the parties have submitted their complaint and defence papers, the court can give its judgment on the liability of the defendant.
If liability is found to exist and a defendant is still unwilling to enter into settlement negotiations, the proceedings will enter into a new phase in which the collective damages sought are at issue. If the court then finds that the defendant is liable, a hearing will be held, at which the court is expected to help these parties in reaching a settlement, which if reached, the Amsterdam Court of Appeal may then declare binding. In this phase, mediation might also be used in order to reach a collective settlement. The court may also give a decision on outstanding legal points.
If the parties are not (yet) able to reach a settlement, the court may invite parties to submit a proposal for a collective settlement, based on damage-scheduling. The court may again refer parties to mediation in order to discuss any divergences in their proposals for a collective settlement.
As alternative for mediation, or if the mediation was not successful, the court can also establish a scheme for collective redress itself. This scheme may be based on the proposals submitted by the parties. In order to safeguard that the scheme is an effective mechanism, the court may ask the members of the group to submit a statement of participation. The ultimate goal of the proposed collective damages action is to come with a scheme/settlement agreement based on damage-scheduling which will result in collective redress of the parties involved or to have this settlement agreement declared binding by the Amsterdam Court of Appeal.
The Draft gives rise to numerous issues and questions, which as a result of the consultation process will no doubt be brought to the attention of the Minister of Security and Justice. To what extent the Draft will be amended before it is put to the floor, remains to be seen.