Publication
14-07-2020

NEW ACT ON COLLECTIVE DAMAGE CLAIMS IN THE NETHERLANDS - US STYLE

On 1 January 2020, the Act on collective damages in class actions (Wet afwikkeling massaschade in collectieve actie) (Act) came into force. The Act makes it easier to litigate mass damages claims in the Dutch courts. This Act increases the possibilities for collective actions in the Netherlands, as a result of which this Act will have a significant influence on the litigation climate in The Netherlands, solidifying the position of the Netherlands as the go-to jurisdiction in Europe for bringing class action proceedings.

Since the 1990s, a claim organization that represents a certain group of similar interests can start a class action to obtain declaratory relief in The Netherlands. Such a claim organization can only be a foundation (stichting) or association (vereniging) with full legal capacity. The claim organization’s standing to bring a collective action is derived directly from law rather than from a legal act (e.g. a power of attorney or mandate from the individuals on whose behalf the claim is brought (the “class”), or an assignment of their individual claims). This means that the claim organization is a party to the litigation, while the individual members of the class themselves are not.

Until the Act came into force, Dutch law did not facilitate a class action for damages and only declaratory relief could be sought. Now that the Act has come into force, it is possible to bring a class action for collective damages.

Brief history of the Act

In July 2014, the Ministry of Justice and Security published a draft legislative proposal for a new collective action for public consultation. The proposal aimed to extend the scope of the current article 3:305a of the Dutch Civil Code (DCC) to enable collective actions for damages on an "opt-out" basis. The legislative proposal was met with considerable criticism from almost all stakeholders and interested parties. As a result thereof, the Minister decided to involve representatives of those stakeholders and interested parties in the drafting of a new Act. On 16 November 2016, the Ministry of Justice and Security published a fully revised legislative proposal and submitted it to Dutch Parliament. This proposal was subsequently amended on 11 January 2018 and on 29 January 2019 the Dutch House of Representatives approved the proposal. On 19 March 2019, the Dutch Senate approved the legislative proposal and on 1 January 2020, the Act came into force.

Scope of the Act

The Act applies to collective actions initiated from 1 January 2020 onwards that relate to events that took place on or after 15 November 2016. Under the Act, a collective action for damages can be brought on behalf of both consumers and businesses and can be based on any type of legal infringement that affects a class. The cause of the damage suffered is irrelevant. Based on this Act, breaches of contract, but also breaches of antitrust, securities or other laws can be pursued. As such, the Act comes into play when shareholders seek to recover losses as a result of corporate or accounting fraud, or when consumers want to jointly litigate cartel damage claims. The Act includes provisions that are intended to introduce checks and balances to prevent frivolous litigation. The main elements of the Act are described below.

Criteria for bringing a collective action

A claim organization has to meet several criteria regarding standing and admissibility before it can bring a collective action. Those criteria include:

  • (i) Not-for-profit: the claim organization must be not-for-profit; the objective of its founders must not be to make a profit by means of the claimant organization;
  • (ii) Good governance: the claimant organization in principle is required to have (a) supervisory board, (b) a mechanism for decision-making by the persons whose interests are represented, (c) sufficient financial means to fund a collective action, (d) a publicly accessible website which provides information regarding – inter alia - salaries paid to its officers, contributions claimed from class members (if any) and how to join the claimant organization and (e) sufficient experience and expertise for the class action;
  • (iii) Reasonable attempt to settle: a collective action will be denied unless the claimant organization has made a reasonable attempt to settle the case. This rule has become more or less a formality, because the Act provides that a letter that gives the defendant two weeks to respond will suffice; and
  • (iv) Sufficiently representative: claimant organizations are required to show that they initiate a collective action for a sufficient number of members of the affected class.

Furthermore, under the current Act, a collective action can only be brought if it has a sufficiently close connection to the Dutch jurisdiction. Such connection will exist pursuant to the Act if the following three conditions are met:

  • The majority of the individuals on whose behalf the collective claim is brought (the 'class') are Dutch resident; or
  • The defendant resides in the Netherlands; or
  • The events on which the collective action is based, occured in The Netherlands.

‘Motion to dismiss’ Dutch style introduced

Under the Act the collective action proceedings are still to be brought by means of a writ of summons.[1] The writ of summons should set out the facts on which the claim is based, the class of persons whose interests the claim organization seeks to protect and the factual and legal issues that are similar to all class members. The court will only go into the merits of the collective action brought, if and after the court has decided that the claimant organization meets the relevant criteria and that the action is fit to be dealt with through collective action proceedings. The court can decide that the collective action cannot proceed in case (i) the action brought does not raise sufficient issues of fact or law that are similar to a 'class', (ii) or the 'class' is too small or (iii) the financial interests that are at stake are too insignificant or (iv) the claim is prima face unfounded. This step is comparable to the “motion to dismiss” proceedings in the US.

The appointment of an "Exclusive Representative"

The Act introduces a system of appointment of an “Exclusive Representative” which is similar to the lead plaintiff system in the US. Within two days after the filing of the action, the claim organization has to register the class action in a central registry of collective actions, with a brief summary of the writ of summons. After the entry in the register the court will stay the proceeding for three months. In this three-month period other claim organizations can bring class actions for the same events. If multiple claimant organizations bring collective actions for the same events, the court will appoint an "Exclusive Representative" to represent the interests of the class. This Exclusive Representative will litigate the class action on behalf of the class. It is also possible that the court appoints more than one "Exclusive Representative". The other claimant organizations remain parties to the proceedings for the purpose of aligning all organizations’ interests.

Jurisdiction and scope

Despite the intention to appoint a specialized court which would have sole jurisdiction, something which was removed from an earlier version of the legislative proposal, under the Act, the normal rules on jurisdiction continue to apply. The rules of the Brussels I Regulation (recast) are applicable in international cases and determine the jurisdiction of the Dutch courts.

Dutch residents can "opt-out" – non-residents may “opt-in”

The Act provides individual parties with the opportunity to “opt out” on two separate occasions. Individual parties from the Netherlands that do not want to be represented in the collective action can opt-out after the appointment of the Exclusive Representative (‘first “opt out”-possibility’). The opposite goes in principle for non-Dutch parties. Those parties can voluntarily consent with their interests being represented in the class action (i.e. opt-in). The court's appointment of the Exclusive Representative, on the scope of the action and on the definition of the "class" must be notified to all members of the "class". Class members will be given at least a month to "opt-out" of the collective action by giving notice to the court registrar. The individual parties have a second opportunity to opt-out upon a collective settlement being reached and declared binding (‘second “opt-out”-possibility’). Those parties will have to pursue their actions individually by initiating legal action within six months after they have exercised their right to opt-out.

Res judicata – binding effect

As a general rule, a court decision granting or dismissing the collective action is binding on all members of the class who reside in The Netherlands and did not use their right to "opt-out" of the action. The same applies to members residing abroad who joined the collective action by opting in. The decision is subject to appeal to the Court of Appeal holding jurisdiction over the matter and, ultimately, to the Dutch Supreme Court.

What about the Act on collective settlement of mass damages (WCAM[2])?

The Act (WAMCA) should not be confused with the Act on collective settlement of mass damages (WCAM), which has been effective since 2005 and enables the Amsterdam Court of Appeal (which has sole jurisdiction) to declare collective settlements binding between defendants, claim organizations and other injured parties not represented in the proceedings (unless they opt-out). However, this act does not give claim organizations means to force the defendant to initiate settlement negotiations, something which the WAMCA aims to address.

[1] In the Netherlands, the writ of summons and statement of claim are combined in a single document (dagvaarding).

[2] Wet collectieve afwikkeling massaschade.

July 15, 2020