Collective or Class Actions and Claims Aggregation in the Netherlands

The Dutch legal system is well known for its progressive and increasingly popular possibility to seek redress for collective damages. The introduction of the Netherlands Commercial Court in 2019, which allows parties to litigate in English, may increase claimants’ interest in the Netherlands for the settlement of international commercial disputes.^[2] Currently, four different legal mechanisms can be used to claim collective damages: a collective claim brought by a foundation (stichting), association or public entity representing a common interest;^[3] the transfer of individual claims to a foundation initiating proceedings in its own name (also known as assignment of claims);^[4] a collective settlement procedure under the Class Actions Settlement Act 2005; and since 1 January 2020 a collective settlement procedure under the Settlement of Large-scale Losses or Damage (Class Actions) Act, which is the regime applicable to collective actions relating to events having occurred from 15 November 2016 onwards. The Class Actions Settlement Act will continue to apply to events occurring before that date.

All mechanisms offer a solution for those cases in which a large number of injured parties suffer damages as a result of the same or similar behaviour of another party or parties. This allows for redress where the losses suffered by each individual party do not exceed the costs of initiating individual proceedings. In this event, the parties who suffered damages would usually not lodge a claim or initiate negotiations if it were not for the collective redress mechanisms offering them a solution to seek damages or settle their claims without having to go through lengthy and expensive individual proceedings. Such mechanisms are accordingly in particular interesting for parties seeking compensation for cartel damages. The collective redress mechanisms are also beneficial for defendants, as these enable them to settle various damages claims at once without having to face multiple distinct settlement negotiations or proceedings in court. This chapter provides a deep dive into the different mechanisms, their limitations, the 2020 reform by means of the Settlement of Large-scale Losses or Damage (Class Actions) Act, the – so far – limited effects of that reform and the potential implications of Directive 2020/1828 on the mechanisms currently in place.

Collective claims and public interest claims

The Dutch Civil Code (DCC) provides a legal basis for organisations (or public entities) having legal capacity, to act for the common interests of parties who have suffered mass damages (a collective), provided that the organisation has the statutory aim of promoting the collective’s interests.^[5] Previously, an important limitation to such proceedings was that it could not be used to claim monetary compensation.^[6] Most claims initiated by representative organisations were accordingly requests for declaratory judgments establishing liability for unlawful behaviour, whereas in cartel damages cases, the unlawfulness of the behaviour (not the liability for damages) is typically already established by the cartel decision of national or EU competition authorities. So far, there is no substantive case law on collective claims and public interest claims relating to cartel damages.^[7]

The representative organisation bringing a collective claim need not be Dutch, but following the implementation of the Settlement of Large-scale Losses or Damage (Class Actions) Act, it must have sufficient nexus with the Netherlands (see the later paragraph ‘The reform of the Settlement of Large-scale Losses or Damage (Class Actions) Act’). Its statutory purpose must cover the interests at stake, which may be both idealistic (for example, the protection of the environment) or material (for example, the protection of investment losses). The representative organisation should also have actually developed certain activities to protect said statutory interests and it should have attempted to resolve the dispute out of court. To meet the latter requirement, it suffices that two weeks have passed after a mere attempt to enter into discussions.

Proceedings may be initiated in any district court in the Netherlands, but the case may be referred to another court if another collective claim concerning the same facts is already pending at such other court. Some courts have in the past also assessed whether the representative adheres to the principles of the claim code (soft law) before deciding whether to admit the collective claim.^[8]

A collective claims proceeding initiated by a representative organisation does not involve the injured parties or entities whose interests it promotes. The injured parties are not party to the proceedings and can equally not prevent a representative organisation from filing a claim.^[9] The collective claim does not affect the possibility of the injured parties being represented from claiming damages in court either. A declaratory judgment establishing liability can, however, be used by injured parties to initiate their individual compensation claims in court, despite the declaratory judgment being binding upon the representative organisation and the defendant only (since the injured parties were not a party to the proceedings). The declaratory judgment can then serve as proof of liability, following which the individual damages proceedings will generally be faster, cheaper and less extensive. The mechanism is thus particularly attractive for claimants whose individual damages are limited in scope.

A downside of the mechanism of the collective action by means of a representative foundation is that an exoneration of the defendant may potentially also have a (negative) effect on the injured parties who were not a party in the representative proceedings and who seek to lodge their own compensation claims in court. The alleged defendant could then attempt to rely on the exonerating judgment as a defence in the separate individual proceedings. To resolve this downside of the mechanism, the DCC provides an easy opt-out of the effects of any such judgment for injured parties by simply contesting the effects of the judgment.^[10] The opt-out grants those who do not want to participate in the proceedings the possibility to withdraw from the proceedings after the designation of the exclusive representative.^[11] There are no formal requirements to the opt-out, so that a declaration stating that one does not want to be bound by the effects of a representative judgment would suffice.

Assignment of claims

The DCC also entails a mechanism on the basis of which claims can be transferred to another party (by way of the legal mechanism of assignment of the claim).^[12] This means that the original claimant loses its ownership over the claim and accordingly its right to pursue the transferred claim in court or to invoke it against a third party. This property-law transfer of the claim is distinct from the contractual question of whether the party to whom the claim is transferred actually ‘buys and pays’ for the claim already upon transfer or only in the event the subsequent damage proceedings are successful. Despite the mechanism not being designed to redress mass damages, it is widely used for said purpose through the bundling of claims in a special purpose vehicle, such as a foundation (stichting).

Ever since the entry into force of the 2014 EU cartel damages directive and its implementation in Dutch law in 2017,^[13] multiple claims vehicles have been established for the purpose of pursuing cartel damage claims in Dutch courts. Claim vehicles seek to bundle claims of purchasers of products allegedly affected by a cartel and lodge cartel damages claims in their own name. They hire their own lawyers and experts, write their own submissions and carry the costs of the proceedings either themselves or through third-party funding. Individual claimants having assigned their claims to a claim vehicle are in principle not involved in the procedure. The assignment of the claim to the claim vehicle, however, does not relieve the claim vehicle of having to prove and substantiate each individual claim, as well as the legal transfer of each claim.^[14]

Collective settlement procedures

The Class Actions Settlement Act

The Class Actions Settlement Act applies to claims relating to events that occurred prior to 15 November 2016 and provides a legal basis for a group of injured parties to conclude a settlement agreement with the party or parties causing mass damages, using the help of a representative.^[15] The representative of the interests of the injured parties, usually a special-purpose foundation (stichting), can conclude a settlement agreement with the party or parties causing the damage, which can then be declared generally binding on the basis of the Class Actions Settlement Act by the Amsterdam Court of Appeal. Following that declaratory judgment of the court, the agreement applies to the entire class of parties injured by the single event, including those who were not involved in the conclusion of the settlement agreement.

The Class Actions Settlement Act provides a way out for injured parties not wanting to be bound by the settlement agreement. This is known as the opt-out mechanism. If a party does not want to be part of the collective, he or she may within a certain period of time set by the court (which must be at least three months), indicate that he or she does not want to participate in the settlement agreement. A reason to opt out could be to keep open the possibility of conducting individual negotiations or to lodge individual claims in court. It should be noted, however, that individual proceedings may be suspended at the request of the defendant until the court has declared the settlement agreement generally binding.^[16]

The Class Actions Settlement Act can provide a useful tool for parties suffering damages who do not have the means to initiate individual proceedings, as it guarantees a prospect of compensation within a foreseeable time should the court declare the settlement generally binding. The mechanism can, however, also be unfavourable for those who do have the means to initiate proceedings, as they too will be bound by the settlement agreement and will be dependent on the representative conducting the negotiations. Those parties will have to make sure they opt out on time, while running the risk that their individual proceedings will be stayed. The party or parties causing the damages on the other hand can benefit from such stay, while having the chance to settle multiple damages claims at once, rather than dealing with numerous individual proceedings.

Since its entry into force in July 2005, the Class Actions Settlement Act has been applied in several occasions. Nine class settlement agreements have been declared binding on the basis of the Class Actions Settlement Act since its entry into force. None of these cases concerned cartel damages claims, but rather claims from large numbers of consumers having suffered relatively low-value damages (as opposed to larger cartel damages claims from business customers).^[17] The settlement mechanism is well known outside the Netherlands and has been used even in cases that lack a strong connection to the Netherlands. The Amsterdam Court of Appeal (having exclusive jurisdiction to declare collective settlement agreements binding) has in the past accepted jurisdiction when only few injured parties were based in the Netherlands. The Shell and Converium cases^[18] are among the most well-known cases to that effect.

In 2004, it emerged that Shell had overstated its oil reserves. As soon as the lower oil and gas stocks were announced, the share price fell causing damage to investors. Shell eventually settled the case, covering damages of institutional investors in many jurisdictions in relation to securities traded on any stock exchange (but the New York Stock Exchange) between 8 April 1999 and 18 March 2004. The Amsterdam Court of Appeal declared the settlement binding on 29 May 2009,^[19] being the first international application of the class settlement mechanism. The court’s jurisdiction was based on the nationality of one of the defending Shell entities rather than the nationalities of the investors, thereby opening up the possibility for foreign aggrieved parties to seek damages in the Netherlands on the basis of the Class Actions Settlement Act.

Another interesting case illustrating that the Amsterdam Court of Appeal is willing to accept jurisdiction in cases that have a limited nexus to the Netherlands is the Converium case.^[20] The Converium decision was prompted by a dispute concerning a decline in share value following the IPO of the Swiss Converium Holding AG, having its shares registered on the Swiss stock exchange and derivatives on the American stock exchange. The alleged wrongdoing and harm occurred outside the Netherlands. In addition, none of the potentially liable entities and very few of the interested parties were domiciled in the Netherlands. However, the Amsterdam Court of Appeal accepted jurisdiction, implying that even without any interested party having domicile in the Netherlands, the Amsterdam Court of Appeal could potentially have jurisdiction as long as a Dutch foundation would represent the interested parties in the Dutch proceedings. From 2020 onwards, not many new precedents are to be expected given the entry into force on 1 January 2020 of the Settlement of Large-scale Losses or Damages (Class Actions) Act, which applies to collective actions relating to events having occurred from 15 November 2016 onwards. Claims relating to events that occurred prior to 15 November 2016 will still be settled in accordance with the Class Actions Settlement Act.

Limitations of the Class Actions Settlement Act

Despite its successes, a significant drawback of the Class Actions Settlement Act is that it assumes that the parties involved can reach a settlement, where in practice this may be difficult should the parties have fundamentally different views on the question of liability.^[21]

Some criticism has also been made as regards the opt-out mechanism under the Class Actions Settlement Act. Aggrieved parties must already decide whether to opt out at the beginning of the settlement procedure when they do not yet know what the results of the settlement procedure would be. Another implication of the opt-out has to do with trying to get a better understanding of the scope of the case. The opt-out system does not allow defendants to distinguish between parties who have proactively chosen not to opt out because they want to participate in the proceedings and parties who fail to opt out because they are simply not interested in or aware of the case. This could affect the negotiations between the representative and the alleged defendant, as the defendant will, as a result, not know how many parties are likely to execute the settlement agreement and seek payment under the settlement agreement.

It is against the background of critiques such as the ones mentioned above that the reform of the Settlement of Large-scale Losses or Damage (Class Actions) Act was introduced.

The reform of the Settlement of Large-scale Losses or Damage (Class Actions) Act

On 19 March 2019, the Dutch Senate adopted the Settlement of Large-scale Losses or Damage Act, which entered into force on 1 January 2020 and applies to collective actions relating to events having occurred from 15 November 2016 onwards.^[22] The Settlement of Large-scale Losses or Damage (Class Actions) Act amends the provisions relating to collective claims (Article 3:305(a) DCC) and introduces specific rules for collective actions in Articles 1018(b) – 1018(m) DCCP.^[23]

As a result of the reform, representative organisations can seek financial damages in collective claims proceedings, thereby opening the possibility for monetary compensation claims. To streamline different class actions, representative organisations are required to register their writ in a central register.^[24] It is not required that the writ states all the names of the parties the representative represents: a reference to the website stating the names of parties suffices.^[25] So far, 30 writs have been registered, none of which relate to cartel damages claims.^[26] Should multiple representative organisations register writs relating to the same event and involving similar factual and legal issues, they will be referred to the same court,^[27] provided the representative is admissible.^[28] The different proceedings will then be consolidated and the court will appoint one exclusive representative that it believes is most suitable to litigate on behalf of all the representative organisations. The court, in doing so, takes into account the size of the collective whose interests are being represented, the size of the financial interests of the represented parties, the other activities of the representative and the previous activities of or collective claims initiated by the representative.^[29] Parties represented by a foundation that is not chosen as the exclusive representative, can bring their claims to the chosen one. Under certain conditions, the court can decide that there will be more than one representative.^[30] These conditions are, for example, the existence of different types of interests or victims. This might, for example, be the case with respect to cartel damages, which may have affected both direct purchasers of cartelised products, as well as indirect purchasers of cartelised products. In such event, the direct and indirect purchasers might have conflicting interests when it comes to for example a passing-on defence. In such cases, the appointment of two representatives might offer a solution.

The admissibility criteria for representatives initiating proceedings are stricter following the reform. The representatives should not only have a supervisory body, they should also have appropriate and effective mechanisms for participation or representation in the decision-making of the persons whose interests are pursued by the claim, as well as sufficient means to pursue a claim and an accessible internet page with information on the representative.^[31] The latter should include information on the representative’s experience and skills in relation to initiating collective proceedings, among other things such as the articles of association of the representative.^[32] Board members of the representative may not pursue a profit via the representative.^[33] Similarly, the control over the claim and procedure should rest with the representative to a sufficient degree and not with the third-party funding litigation,^[34] as that could negatively affect the interests of the injured parties.

Furthermore, the representative should prove that given the circumstances, he has made sufficient efforts to amicably resolve the claim.^[35] This is, however, not likely to significantly hinder admissibility, as it suffices that two weeks have passed after the defendant has been asked to enter into discussions. In a judgment for preliminary relief proceedings,^[36] the court also confirmed that the requirement to attempt an amicable solution does not hinder admissibility if consultation between the parties could not reasonably have contributed to resolving the dispute.^[37]

The Settlement of Large-scale Losses or Damage (Class Actions) Act also prescribes that the claim should have a sufficient nexus with the Dutch jurisdiction.^[38] Previously, the representative foundation bringing a collective claim could also be established by largely foreign claimants, claiming damages for something that occurred in another jurisdiction.^[39] With the Settlement of Large-scale Losses or Damage (Class Actions) Act, the legislator introduced the nexus rule in order to prevent a pull-in effect of foreign parties.^[40] The Boskalis case forms an example of this tightened admissibility criterion. In this case, the preliminary relief judge ruled that, even though Boskalis was based in the Netherlands, the circumstances of the case related mainly to activities of Boskalis’ Indonesian subsidiary, so that no sufficient nexus with the Dutch jurisdiction could be established.^[41] In particular, the court held that a sufficient nexus to the Dutch jurisdiction could not solely be established on the basis of the Dutch nationality of the parent company when relevant circumstances of the case related to the activities of its foreign subsidiary.^[42] Boskalis could accordingly not serve as an anchor defendant in this case. Some authors believe that the local nexus requirement affects operation of the Brussels I-bis Regulation and is therefore in conflict with European law.^[43] The legislator, however, expressly formulated the requirement as an admissibility requirement and not as a matter that relates to the jurisdiction of the court, which indeed is a matter of private international law.^[44]

The court will always review whether the admissibility requirements are fulfilled. Should the court decide that the claim is admissible and the representative has standing, national injured parties get the chance to opt out (similar to the mechanism applicable under the Class Actions Settlement Act). Those parties will then not be bound by the judgment rendered in the proceedings between the defendant and the exclusive representative appointed by the court. Foreign injured parties will, in principle, not be bound by the judgment, unless they opt in after the appointment of the exclusive representative.^[45] National injured parties will accordingly have to determine whether they want to participate in the collective procedure or whether they believe they may have better chances initiating individual proceedings or assigning their claims, in which event they should opt out. Foreign parties that want to participate in the proceedings must, in contrast to national injured parties, opt in to be represented in the collective action.^[46] As a result, foreign interested parties are not involved in any proceedings whatsoever unless they opt in. This is in line with the European Commission’s advice for an opt-in mechanism (rather than an opt-out) mechanism for foreign collective damages claims.^[47]

After the appointment of the representative, the court will order the parties to try to settle the case.^[48] The rationale of the measure is to incentivise defendants more strongly to enter into settlements (in comparison to the regime under the Class Actions Settlement Act pursuant to which claimants had no chance of seeking monetary compensation in a class action when settlement negotiations failed to succeed). The mechanism accordingly introduces a threat for the defendant of the court awarding monetary compensation should settlement negotiations fail.

If settlement negotiations turn out successful, the parties must submit the settlement to the court for approval. If not, the court may settle the collective claim. In doing so, the court has the discretion to first ask the exclusive representative and defendant to submit collective claims settlement proposals. When settling the collective claim, the court will take into account such proposals (provided these have been submitted) while determining the compensation in categories where possible, so that the amount of compensation is reasonable for each subgroup of injured parties.^[49] As the court will accordingly decide on the damages awarded to each subgroup, this can also be seen as a ‘forced settlement’. As such a ‘forced settlement’ could have far-reaching consequences, another opt-out possibility was eventually included in the legislative proposal that entered into force. If the proceedings end with a court decision in which the court establishes a collective settlement that (certain) injured parties do not perceive beneficial, those injured parties now have a second chance to opt out of the collective settlement.^[50] Injured parties accordingly have a first possibility to opt out at the beginning of the proceedings,^[51] as well as an additional possibility to opt out when the court establishes a settlement agreement.^[52] This could be to the detriment of defendants seeking to settle as many claims a possible while going through the settlement procedure.

Potential effects of the reform

The Settlement of Large-scale Losses or Damage Act regime enables individuals and entities that incurred damages following the same events to collectively claim monetary compensation in court. The two-staged approach (a collective proceeding to obtain a declaratory judgment on liability and the individual proceeding to seek monetary compensation on the basis of said declaration) no longer has to be followed to obtain damages, as judges can now decide on the question of liability and the quantum of damages in a single procedure.^[53] Though this could bring benefits, there are also some nuances that deserve attention. For example, it may be difficult for the exclusive representative to align the different views of all parties it represents, which could potentially lead to disputes among claimants.

Another element of the Settlement of Large-scale Losses or Damages (Class Actions) Act that could potentially affect its attractiveness, is that claimants face the risk that they will not get a (for them) sufficient amount of damages rewarded, as the court will award reasonable amounts of compensation to different categories of injured parties. This may render the mechanism less attractive for commercial claim vehicles even in a scenario in which they would be admitted.

It also remains to be seen how widely used the Settlement of Large-scale Losses or Damage Act will become, for cartel damages claims in particular. For instance, the more stringent admissibility criteria could prevent the Settlement of Large-scale Losses or Damage (Class Actions) Act from becoming a success. Although it is still too early to draw any conclusions, to date most cartel damages claims in the Netherlands are still initiated by (commercial) vehicles that have had claims assigned to them, rather than on the basis of the Settlement of Large-scale Losses or Damage (Class Actions) Act. This is not surprising, given that claim vehicles initiating proceedings based on the assignment mechanism usually have a profit motive so that they would be inadmissible under the Settlement of Large-scale Losses or Damage (Class Actions) Act. It is, therefore, unlikely that the Settlement of Large-scale Losses or Damage (Class Actions) Act will soon replace the assignment mechanism. That is, of course, unless a court would rule that commercial claim vehicles initiating proceedings based on the assignment mechanism would constitute a (potentially illegitimate) circumvention of the more stringent admissibility criteria that would apply to claims initiated under the Settlement of Large-scale Losses or Damages (Class Actions) Act. Any such court ruling could potentially render said claim vehicles inadmissible.

Potential implications of Directive 2020/1828

On 25 November 2020, Directive 2020/1828 on representative actions for the protection of the collective interests of consumers (the Directive) was adopted. The Directive aims to strengthen consumer confidence in the internal market and aims to prevent distortions of competition. The Directive regulates the binding nature of judgments resulting from collective actions in more detail. For example, consumers that participate in collective actions may not participate in the same type of collective actions in another Member State, nor may they bring an individual claim for the same claim against the same defendant.^[54] In addition, foreign consumers must always agree to representation in a class action (opt-in).^[55]

The Settlement of Large-scale Losses or Damage (Class Actions) Act in part already implements the Directive. Consequently, a complete overhaul is not required to transpose the Directive. However, the Directive introduces some additional criteria that still need to be implemented in the Netherlands. The requirements for litigation financing laid down in the Directive are, for example, more stringent than the rules laid down in Article 3:305(a) DCC. In particular, Article 10(2)(b) of the Directive requires that representative actions are not brought against defendants that are competitors of the funding provider or against defendants on which the funding provider is dependent. The Directive also requires the representative organisation to publish judgments on its website.^[56] In addition, Dutch representatives that wish to initiate collective actions in other Member States must be included by the Dutch Minister for Legal Protection on the so-called list of qualified entities, after meeting certain conditions.^[57] Most of these conditions are currently included in Article 3:305(a) DCC. Additional conditions include the requirement that the representative initiating proceedings is not bankrupt and that it has been active for at least 12 months prior to initiating the proceedings. The representative must also report its general funding sources on its website.^[58] The Directive must be transposed into national law by 25 December 2022 at the latest and its rules will apply from 25 June 2023 onwards.

Conclusion

In conclusion, the Dutch legal system for claiming mass damages is constantly evolving. The Dutch legislator is very active and constantly monitors and – if required – adapts the system in order to achieve the desired result. It is likely that the Settlement of Large-scale Losses or Damage (Class Actions) Act and the assignment of claims mechanism continue to exist next to one another, unless a court would rule otherwise. That does, however, not mean that cases litigated on the basis of claims assignment will not experience hindrance from the Settlement of Large-scale Losses or Damage (Class Actions) Act: commercial claim vehicles could be bound by other proceedings initiated by foundations under the Settlement of Large-scale Losses or Damage (Class Actions) Act until they opt out. When the claim vehicles subsequently install their individual claims, their cases are most likely to be suspended until the court has decided on the collective claim.^[59] Despite the claim vehicles having the possibility to request termination of the suspension, they will first have to wait one year before they can do so.^[60] The already lengthy cartel damages proceedings initiated by claim vehicles may accordingly become even lengthier as a consequence of the new reform.

Notes