Radical changes proposed to Dutch class action system
Draft Bill on redress of mass damages in a collective action, 7 July 2014
The Netherlands has one of the most sophisticated class action systems in Europe, and in the last decade this has frequently been used in financial disputes. The system currently allows consumer organisations and other interest groups to seek only declaratory and injunctive relief on behalf of a group of injured parties. Dutch law does not currently allow members of a group to claim damages on behalf of an entire class of injured parties, although Dutch law does currently provide for court certification of damages in class settlements, with an opt out mechanism. This is likely to change, with a new bill proposing a collective action for damages (the proposal). The new law, if enacted, is likely to put increased pressure to settle on a financial institution facing a mass claim.
Current class action regime
In Dutch law, there are currently two class action vehicles. Under the Collective Action Act consumer organisations and other interest groups can seek declaratory and injunctive relief. The organisation is not however allowed to claim damages on behalf of injured parties. The organisation has to be established, as a foundation or an association, specifically to protect such interests. To initiate a class action in respect of all injured parties the interests that are protected must be of a similar nature. As the injured parties are not part of the proceedings, the outcome has no direct effect on them. However, these collective actions set a major precedent for the position of the injured parties in subsequent individual proceedings.
Dutch law also provides for court certification of damages in class settlements. If, in a mass claim, a collective settlement is reached between an interest group acting on behalf of victims and the person held liable, the Amsterdam Court of Appeal can declare the settlement binding in relation to the entire group of victims under the Act on Collective Settlement of Mass Damage Claims (or WCAM). Victims can choose to opt out of the settlement if they do not agree. This means that, once the settlement is declared binding by the court, they are bound by it unless they choose to opt out. The WCAM, originally enacted for the DES case dealing with pharmaceutical liability, has proven to be a popular instrument for the settlement of securities actions and other financial disputes.
The proposal plans to lift the current statutory prohibition on representative organisations claiming damages. It envisages proceedings for damages being allowed to proceed where parties are not willing to enter into negotiations or where parties do not succeed in their efforts to reach a settlement. This new addition to the Dutch class action system would be considered to be the "big stick" that is currently unavailable in Dutch law. The class action vehicles as described above would continue to be available.
Under the proposed regime, legal entities which fulfil certain requirements (such as sufficient expertise regarding the claim, adequate representation, safeguarding the interests of the victims) can bring a collective damages action on behalf of a group of victims. The group must be of sufficient size to justify the use of this kind of action, and it can only be used if there are no other efficient and effective means to obtain redress. The proceedings are aimed at stimulating parties to come to a collective settlement agreement, guided in this process by the judge overseeing the proceedings. Only as a last resort will the court deliver a damages ruling.
The proceedings can consist of up to five stages:
Liability and settlement attempt
Court directed settlement attempt
If the parties are not able to reach a settlement, they will need to appear before the examining judge, to see whether they are able to reach a collective settlement agreement under the direction of the court. If the parties are able to do so, the proceedings will end.
If the parties are still not able to reach a settlement, the court may, at the request of one or both parties, deliver a judgment on the legal issues on which the parties disagree, if that judgment can assist with settlement.
Collective settlement proposals/mediation
Court rules on damages
Only if the intervention of a mediator has failed to lead to a settlement agreement will the court determine an arrangement based on damage-scheduling. The court may appoint an expert to advise the court on the damage-scheduling. The court may then summon injured parties to come forward as a member of the class (opt in). In this way the court can determine in advance how many of the injured parties will be bound by the arrangement. If the court finds that the number of participants is too small to justify an arrangement to be established, it may decide that no arrangement will be established.
A collective action for damages would mean a radical change in the Dutch class action system. If the court finds that the defendant has acted unlawfully and that there are sufficient grounds for liability during the first stages of the proceedings, the proceedings will end either with a settlement between the parties or a court ruling.1 Under the current system a party liable for damages may decide not to settle the case but instead opt to face claims by individual litigants. The new bill removes this option as the court would be allowed to make a collective damages ruling, subject to there being enough injured parties to justify a collective arrangement.
A prominent criticism of the proposal is that the original reason for the current statutory ban on representative organisations claiming damages, on behalf of the injured parties they represent, is still valid: questions of limitation, causation, quantum and contributory negligence need to be addressed on an individual basis.
The success of the WCAM is due to the fact that it allows parties to reach a settlement on the basis of their own assessment of the answers to these questions. As soon as a court needs to answer these questions, this requires a more thorough review than provided for in the current proposal. Review by a court of a collective settlement is something different to a judicial determination of causality, damages, limitation of action, whether the obligation to complain promptly has been complied with and contributory negligence in individual cases. The proposal fails to recognise that this kind of collection action is an instrument to be used when parties are not willing to enter into negotiations or when parties do not succeed in their efforts to reach a settlement. A defendant that is – for what ever reason – not willing to enter into negotiations is now being forced to settle the case, or otherwise submit a proposal for collective settlement without the court thoroughly reviewing important questions that need to be addressed on an individual basis.
There has been a lot of criticism of the bill, which is currently undergoing a consultation procedure. We will report further on any key developments.
1. This is unless the court summons injured parties to opt in and finds that the number of participants is too small.