Netherlands: Settling Collective Actions
With its wide options on collective redress, its progressive regime on third-party funding and its efficient courts, the Netherlands seems to be an increasingly popular jurisdiction to handle multinational matters of private enforcement. In the past decade, many high-profile follow-on cartel damages cases have been brought before courts in the Netherlands (e.g., cases relating to the Air Cargo, Elevators, Gas-Insulated Switchgear, Sodium Chlorate, Bitumen, Beer and Trucks cartels). As a result, private enforcement of competition law in the Netherlands is rapidly evolving. What is apparent, however, is that few follow-on damages claims are settled in or out of court in the Netherlands, much to the frustration of the Dutch legislator. The reasons for this seem to mainly relate to the overlap between the different Dutch mechanisms to collectively claim damages. This chapter provides an insight into the Dutch legal framework on collective redress, factors that potentially influence defendants’ willingness to settle cases, the role of courts in reaching settlements and the potential difficulties caused by the overlap of different collective redress mechanisms.
Legal framework on collective redress: different mechanisms
The Dutch legal framework for collective redress generally provides five different legal mechanisms to claim collective damages:
- a collective claim brought by a foundation (stichting), association or public entity representing a common interest;
- the transfer of individual claims to a foundation initiating proceedings in its own name (also known as assignment of claims);
- a collective settlement procedure under the Class Actions Settlement Act 2005;
- since 1 January 2020, a collective settlement procedure under the Settlement of Large-scale Losses or Damage (Class Actions) Act, which is the new regime applicable to collective actions relating to events having occurred from 15 November 2016 onwards; and
- injured parties may unite and initiate proceedings by jointly issuing a single writ of summons. In practice, this is mainly suitable for damages claims initiated by several entities within a group structure, as it requires the alignment of interests of all united injured parties.
To date, there has been no substantive case law on collective claims for cartel damages brought by an entity representing a common interest. This is most likely the result of the mechanism merely enabling claimants to claim a declaratory judgment, a ruling that the defendant had acted unlawfully, without the possibility to claim monetary compensation. This is different for cases involving assignment of claims, which is commonly used by claimants to claim monetary compensation in follow-on damages cases. The popularity of the assignment mechanism is due to its large economies of scale: by assigning (i.e., transferring) claims, Dutch courts can rule on a large set of claims in a single, though often lengthy, procedure and financial risks are limited for underlying parties that have transferred their claims. Nevertheless, the mechanism may raise questions, as it enables ‘claim vehicles’ with profit motives to claim financial compensation for damage they have not suffered themselves. These claim vehicles purchase claims from injured parties, who transfer their rights to claim damages in court to the claim vehicle. When a claim vehicle has a profit motive, one could question whether the interests of the underlying injured parties are adequately represented in the proceedings initiated by the claim vehicle or whether their interests become subordinated to the claim vehicle’s interests.
Recent Dutch legislation: collectively claiming monetary compensation
Until recently, it was not possible for claimants to collectively claim monetary damages in a single procedure. This changed with the Settlement of Large-scale Losses or Damage (Class Actions) Act that entered into force on 1 January 2020 and that applies to events having occurred on or after 15 November 2016. The new mechanism creates the possibility for a representative, usually a foundation, to claim monetary compensation for damage suffered by the injured parties it represents in a collective action before any district court in the Netherlands. Prior to this reform, these injured parties could only seek compensation by assigning their claims to claim vehicles or by initiating separate, individual proceedings after obtaining a declaratory judgment establishing liability. Interestingly, the reform was not intended to enable claimants to collectively obtain monetary compensation by litigating in court, but rather as an incentive for defendants to settle their disputes with claimants, the rationale being that lengthy and expensive court proceedings could be avoided. Against this background, a collective action issued by a representative is only admissible in court if the representative has first attempted to reach a settlement with the defendant, though an unsuccessful attempt will not hinder admissibility. It therefore remains to be seen whether this will affect the number and success rate of (attempted) settlements.
Cartel damages cases usually comprise a multitude of claims from different parties. One of the reasons why defendants in the past may not have appeared so inclined to settle cases is that given the scope of cartel damages proceedings, settling one individual claim would not resolve the remaining multitude of claims. A settlement could generally be attractive when it guarantees finality of a case, but with many dispersed claims of different claimants there is no such guarantee. Paradoxically, settling the case with one claimant might even lead to more parties initiating claims when they realise there might be something to gain. For claimants, on the other hand, engaging in individual lengthy negotiations in an attempt to settle a case may not have been very attractive when said claimants have limited bargaining power or limited financial resources. Consequently, transferring a claim might be a less cumbersome way to obtain financial compensation, for at least some claimants.
The Dutch legislator intended to resolve this with the reform, when it introduced the concept of an ‘exclusive representative’, a foundation representing the interests of many different injured parties and seeking monetary compensation through a collective action on their behalf, after attempting a settlement. The representative must register the collective action in a public register within two days of filing for a collective action. To date, 12 writs have been registered, none of which relate to cartel damages claims. The registration enables other potential representatives to file competing collective actions related to the same dispute during a period of three months, which the court can extend by an additional three months. If numerous representatives have filed a collective action relating to the same dispute, the court will designate the most suitable representative as the ‘exclusive representative’ based on several factors related to the case. The exclusive representative then has the task of representing the interests of all claimants that have not opted out, including those belonging to other foundations, in a collective settlement proceeding.
To avoid such settlement proceedings running parallel to proceedings initiated on the basis of other redress mechanisms, the reform envisaged the possibility to stay related (court) proceedings once a collective action has been initiated by an exclusive representative, the rationale being to prioritise the settlement procedure. This could be to the detriment of claimants that opted out of the settlement proceedings and that initiated their own proceedings, as they will have to await the settlement procedure before they can continue their own proceedings – although they may request to lift the stay of the proceedings after one year. In other words, such stay could potentially frustrate claimants’ proceedings that were initiated on the basis of other collective redress mechanisms, whereas defendants could benefit from a stay as it gives them the chance to settle multiple damages claims at once, rather than dealing with numerous individual proceedings. At the same time, there is also a risk for defendants. The reform envisages a second opt-out possibility for claimants at the end of the settlement proceedings, meaning the defendants would still face court proceedings should claimants not satisfied with the result of the settlement proceedings choose to opt out. Such claimants will not be bound by the settlement, even though they (via the representative) participated in the settlement proceedings.
One may wonder whether the reform will effectively replace the currently commonly used assignment of claims to claim cartel damages, especially given the stricter admissibility requirements for an exclusive representative compared to the admissibility requirements for claim vehicles initiating claims based on assignments. The legislator tightened the admissibility requirements with the reform to deter foreign claim vehicles with an insufficiently close connection to the Netherlands and with profit motives – often framed as ‘claim cowboys’ – from bringing their claim to the Netherlands and thereby posing an extra burden on the Dutch judiciary. The admissibility requirements for claim vehicles that have claims assigned to them are less stringent, thereby rendering this traditionally commonly used mechanism to claim cartel damages more attractive for (foreign) claimants and, potentially, retaining the status quo. That is, of course, unless a court would rule that commercial claim vehicles initiating proceedings on the basis of claims they were assigned 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 Damage (Class Actions) Act. Any such court ruling could potentially render said claim cowboys inadmissible.
Factors that may influence defendants’ willingness to settle
Defendants’ willingness to settle a case will always be dependent on the alternative scenario: the consequences of settling versus the consequences of extensive litigation. There are different factors that may influence defendants’ decisions on which course to follow.
The first relates to the compensatory nature of damages that can be awarded in Dutch courts. Unlike in the US, where proceedings that award up to hundreds of thousands of dollars in punitive damages are not uncommon, Dutch courts have no ground to award punitive damages. This increases the upside for defendants of waiting for a judgment as compared to settling, when claimants may request unreasonable amounts of compensation.
A second factor that could influence defendants’ decision on whether or not to settle has to do with the manner in which claimants fund their court proceedings. Competition law infringements often lead to scattered damages of relatively low value for the individual claimant, making the claims less attractive to pursue individually. Now that steps have been taken to provide claimants more opportunities to effectively claim damages through a collective action, claim vehicles increasingly see business opportunities. They buy claims from individual injured parties and attract investors from all over the world to fund their litigation, awarding them with success fees of up to 35 per cent of the final proceeds. The Dutch mechanism of assigning claims to another legal entity has largely enabled this litigation strategy. Consequently, resolving cartel damages cases is no longer a matter of which side has the deepest pockets: neither defendants nor claimants can out-litigate one another. As a result, defendants might reconsider any potential objections to settling, as claimants are increasingly incentivised to ‘get their money back’ and have acquired means to fund these proceedings.
The third and fourth factors potentially influencing defendants in their decision of whether to settle is brought forward by two authoritative judgments of the Court of Justice of the European Union (CJEU): the Skanska and Cogeco judgments, which respectively concern joint and several liability and limitation periods. Although these judgments were not rendered by a Dutch court, their influence extends to cases pending in the Netherlands.
In Skanska, the CJEU ruled that a parent company can be held liable by claimants if a subsidiary company commits an infringement, even when the parent company is not addressed by a competition authority’s decision and has not itself infringed competition law. The CJEU based this ruling on the principle of economic continuity and ruled that claimants can recover their damages from a legal entity that formed part of the same ‘undertaking’. This extends the possibility for claimants in the Netherlands to claim damages, as they can now also hold parties liable that were not addressed by a competition authority’s decision and that are not considered to have infringed competition law. The risk of more entities within an undertaking being summoned could potentially affect defendants’ decision on whether or not to settle a case in the Netherlands.
In Cogeco, the CJEU ruled that the Portuguese limitation period of three years was contrary to the principle of effectiveness of European law, as it did not leave room for suspension or interruption and because it could start running without the injured party being aware of its damage. In the Dutch CDC/Kemira case relating to the Sodium Chlorate cartel, the Amsterdam Court of Appeal adopted the CJEU’s reasoning from Cogeco. The Court of Appeal ruled that once an administrative appeal has been lodged against a cartel infringement decision, the claimants must be able to await the outcome of this appeal without the limitation period starting to run. This is another step in the direction of an increasingly claimant friendly regime. Consequently, chances decrease of claims being time-barred by the time extensive litigation ends. Persisting litigation through to the end could, accordingly, potentially become a less attractive scenario for defendants compared to settling a case.
A fifth and last factor that defendants may take into account when deciding whether, when and how to settle a Dutch collective action is of a more commercial nature: the reputational harm that extensive litigation can bring to a defendant. Settling offers an opportunity for defendants to keep the case confidential.
The court’s role in reaching settlements
Although it remains to be seen what the effects of the entry into force of the Settlement of Large-scale Losses or Damage (Class Actions) Act will be, the Dutch jurisdiction is generally a popular jurisdiction when it comes to claimants seeking compensation for cartel damages, given the different redress mechanisms. The attractiveness of the Dutch mechanisms causes a large pull effect from cross-border private enforcement cases and increases the burden on Dutch courts, with limited capacity, to handle these cases.
In 2005, the Dutch legislator adopted the Class Actions Settlement of Large-scale Losses or Damages Act, which offers the possibility of a pretrial hearing. This pretrial hearing intends to incentivise parties to settle cases, thereby reducing the number and duration of pending cases. During pretrial hearings, judges may inquire whether a collective settlement can be reached among the parties. Pretrial hearings also leave room for judges to discuss the further handling of the case. The aim of these hearings is to support parties in settlement negotiations so that they can conclude a settlement agreement themselves. In doing so, the judge has a facilitating and guiding role. The settlement agreement is not a judicial ruling, but can be laid down in an official report of the court, which has executorial status and is therefore legally enforceable and binding for the entire group of claimants.
In practice, parties scarcely make use of the possibility to have a pretrial hearing. Therefore, the Dutch legislator envisaged a more proactive role for judges in the new Settlement of Large-scale Losses or Damage (Class Actions) Act. After the appointment of an exclusive representative, the court will set a term for both parties to come to an agreement. If negotiations fail once again, the court itself establishes a scheme for collective compensation. The court informs all parties of the compensation scheme and gives them the possibility to opt out, should they believe they are awarded an insufficient amount of damages. This could be to the detriment of defendants seeking to settle as many claims are possible while going through the settlement procedure. The parties not opting out, however, will be bound by the compensation scheme the court puts in order. One could say that the new mechanism thus enables judges to ‘settle’ cases themselves.
Overlapping collective redress mechanisms: settlements less likely without finality
Given the different mechanisms available in the Netherlands to claim damages, claimants have several alternatives to settling cases with defendants. Whether ultimately a settlement will be reached will depend on the specific circumstances of the case and the attractiveness of a certain redress mechanism for a particular case. Reaching a settlement in the Netherlands can be difficult in cases that are very extensive and consist of a magnitude of claims. The available redress mechanisms make it unlikely that defendants will settle with individual injured parties: settlements with the one party may be final, but do not resolve claims from other claim vehicles and injured parties. In addition, it is often not possible for defendants in cartel damages cases to estimate their exposure. Claimants often wait to issue their claims until other proceedings have proven to be successful. This potentially renders it more attractive for a defendant to litigate in court, with a potential successful outcome, compared to what may appear to be never-ending individual settlement proceedings.
This could, however, be different for other types of cases in which defendants are familiar with all their claimants from the beginning of the proceedings, as was the case in the Converium settlement of 2012. In large-scale follow-on damages cases, this is not often the case. Not to mention that cartel infringements often lead to follow-on damages claims in different jurisdictions, potentially relating to the same products, which further complicates estimating the exposure for defendants. After all, courts have no obligation to compare these cases and to check whether other claimants in other jurisdictions have already presented the same damages claims. That is up to the defendants. The large scope of these follow-on cases thus renders planning, coordinating and managing settlements practically difficult. Consequently, one cannot exclude that litigation will continue to be the way forward, at least for some cases or in some jurisdictions, which could potentially affect the attractiveness of settling a case. Nevertheless, it cannot be ruled out that settlements with certain (groups of) larger claimants may nevertheless be attractive for defendants given this new mechanism.
In conclusion, there are several factors defendants are likely to take into account when deciding whether or not to settle a case. The Dutch legislator has tried to persuade defendants to settle with claimants for years, the latest attempt being the adoption of the Settlement of Large-scale Losses or Damage (Class Actions) Act that entered into force on 1 January 2020. In addition, claimants have gained (financial) means to claim damages, thereby increasing the equality of arms when it comes to the private enforcement battlefield. It is no longer individual claimants with little bargaining power, but rather representatives with sufficient financial means, that cartelists have to face in follow-on proceedings. This potentially makes it more attractive for defendants to settle cases. However, practice shows that, for the reasons set out in this chapter, cartel damages cases up until now continue to be often litigated in court rather than settled. Whether or not a defendant will ultimately settle a case will depend on the specific circumstances of the case and certain factors, such as the potential lack of finality of a settlement and the threat of potential new claims. It remains to be seen what the effects will be of the Settlement of Large-scale Losses or Damage (Class Actions) Act, but it is clear that the Netherlands has, in the past two decades, become a seriously attractive jurisdiction for both litigation and settlements.
1 Kees E Schillemans is a partner, Emma M M Besselink is a senior associate, and Eline M R H Vancraybex and Hannelore J Vanderveen are associates, at Allen & Overy LLP.
2 See, further, Kamerstukken II 2016/17, 34 608, No. 3, pp. 3–4.
3 Articles 3:305a–3:305d, Dutch Civil Code.
4 Article 3:94, Dutch Civil Code.
5 This could, for example, pose difficulties when direct and indirect purchasers collectively initiate proceedings by a single writ, as they can have different interests with regards to, for example, a passing-on defence, which is often issued by defendants in private cartel enforcement cases. Nevertheless, note that such difficulties may also arise when collectively claiming damages through one of the other mechanisms.
6 Kamerstukken II 2016/17, 34 608, No. 3, pp. 3–4, 10–11.
7 Article 3:305a(3), Dutch Civil Code
8 District Court of Midden-Nederland, 1 July 2020, ECLI:NL:RBMNE:2020:2780, Paragraph 3.4.
9 Article 1018e, Dutch Code of Civil Procedure.
10 Article 3:305a(7), Dutch Civil Code with Articles 1018c(2) and 1018m, Dutch Code of Civil Procedure.
11 Three out of 12 class actions relate to the diesel emissions scandal (i.e., a claim installed against Volkswagen on 16 March 2020, a claim installed against Daimler AG c.s. on 31 July 2020 and a claim installed against Fiat Chrysler Automobiles NV c.s. on 24 August 2020).
12 W H van Boom, ‘WCA WCAM WAMCA’, Tijdschrift voor Consumentenrecht en handelspraktijken 2019/4, p. 155.
13 It must, however, be taken into account that chances are that a large proportion of the individual parties have little or no interest in being bound by the proceedings. The commitment of these parties to actually provide evidence of the damage they suffered, which is required for the court to determine the amount of compensation, could therefore be rather low.
14 Article 1018m, Dutch Code of Civil Procedure.
15 Kamerstukken II 2016/17, 34 608, No. 3, p. 55.
16 W H van Boom, ‘WCA WCAM WAMCA’, Tijdschrift voor Consumentenrecht en handelspraktijken 2019/4, p. 157.
17 R M Hermans, ‘De oorzaken van het niet tot stand komen van collectieve schikkingen in massazaken’, in: M Holtzer, A F J A Leijten and D J Oranje (eds), Geschriften vanwege de vereniging Corporate Litigation 2014–2015, Deventer: Wolters Kluwer 2015, p. 363.
18 An example is CDC Cartel Damage Claims, whose objective is to obtain ‘optimum compensation for corporate antitrust damages’. They consider themselves to be the ‘pioneer and leader in obtaining antitrust damages in Europe’, www.carteldamageclaims.com, accessed 10 September 2020.
19 Court of Justice of the European Union (CJEU), 14 March 2019, C-724/17, ECLI:EU:C:2019:204 (Skanska); CJEU, 28 March 2019, C-637/17, ECLI:EU:C:2019:263 (Cogeco).
20 The CJEU thus considered the European definition of ‘undertaking’ to be the relevant one; not a national definition of what defines a legal entity.
21 Court of Appeal, 4 February 2020, ECLI:NL:GHAMS:2020:194 (CDC/Kemira).
22 The admissibility requirements for foreign claimants have only been tightened for foundations established under Article 3:305a of the Dutch Civil Code and not for claimants that make use of another mechanism for collective redress.
23 Bulletin of Acts and Decrees, 2005, No. 340.
24 As cartel damages cases are often extensive given the number of claims, judges in the Netherlands also tend to have regular case management hearings during which they discuss with the parties the course of proceedings, when settlements fail. During such proceedings, judges tend to deviate from the standard procedures, especially in terms of timing. It is accordingly not uncommon that judges grant longer periods of time to submit statements and deal with cases in a ‘staged approach’, during which different aspects of the case will be litigated in different stages of the proceedings. This is another example of proactive Dutch judges with a guiding role.
25 Articles 191(2) and 87(3), Dutch Code of Civil Procedure.
26 Article 1018i(2), Dutch Code of Civil Procedure.
27 Amsterdam Court, 17 January 2012, ECLI:NL:GHAMS:2012:BV1026 (Converium)
28 It is therefore up to the defendants to raise a defence regarding connexity and lis pendens.