Dutch Claim Foundations open to foreigners, but for how long?
"The disclosure that Volkswagen installed devices to circumvent mandatory emissions regulations for its diesel engines has caused the Company's shareholders and bondholders to suffer billions of euros in losses.”
"The disclosure that Volkswagen installed devices to circumvent mandatory emissions regulations for its diesel engines has caused the Company's shareholders and bondholders to suffer billions of euros in losses. The Volkswagen Investor Settlement Foundation ("the Foundation") provides a non-litigation and no cost vehicle for Volkswagen investors worldwide to recover damages incurred on Volkswagen securities pursuant to the Dutch Collective Settlement Act." (PR Newswire)
In this same news flash one sentence in particular forms the topic of this blog:
"the Amsterdam Court of Appeals held that the Act can also be applied to resolve securities claims of non-Dutch investors against a non-Dutch company.
The Dutch system has a 'poldermodel' class action. The class action is based upon the Dutch Collective Settlement Act (the "Act"), and in particular on Article 3:305a Dutch Civil Code. The Dutch class action system works as follows: victims or even the company accused of wrongdoing ("Company") sets up a Dutch foundation which articles of association describes the group of victims it will represent and for what claims ("Claim Foundation"). In principle the Claim Foundation can sue the Company in court if the Company is not willing to settle. The Claim Foundation may request the court for various kinds of declaratory relief, such as a declaration of liability, but under current Dutch law cannot claim damages. At some point in time, even before proceedings have commenced, the Claim Foundation, acting on behalf of a group of victims in the same position (the "Class"), and the Company may reach agreement on a settlement. Following such agreement, the Claim Foundation and the Company may jointly request the Appeal Court of Amsterdam to declare the settlement binding upon the Class. The Class, including members living abroad, needs to be summoned to appear in court to afford them the opportunity to give their input on the settlement. Taking account of the input from the members of the Class, the Appeal Court makes its own assessment of the reasonableness of the settlement. The Appeal Court will thereby take into account how much foreign lawyers take home in success or contingency fees (Dutch lawyers are prohibited from receiving their fees out of the winnings).. Immediately after the Appeal Court has declared the settlement to be binding, the individual members of the Class have an opt out period that is at least three months. Each Class member who wants to opt out of the settlement must individually communicate that in writing to the addressee mentioned in the announcement of the settlement. Why should someone want to opt out? The reason is probably that a member thinks he can get a better deal from the Company. Class members that have not timely made an opt out declaration, are bound by the settlement and will only receive the amount stipulated in the settlement. Usually this is not a bad result and it could even be more than they would have received in a US class action, probably because of the litigation (and foremost discovery) costs and lawyers' fees (usually these fees are a substantial percentage of the payout) that have to be taken out of the payment to be made by the Company to the Class.
The Dutch class action has become increasingly popular as an efficient method to settle a claim for a large group of victims of which only a few or even none at all may reside in the Netherlands. In certain cases the Company does not even have an address in the Netherlands. Examples are the Shell case (2009; investors, many residing outside the Netherlands and even in the US, claimed compensation for the misrepresentation by Shell of its oil and gas reserves) and the Converium case (2012; investors also resided mainly outside the Netherlands complained about the misrepresentation of loss reserves by a Swiss insurance company). Why would the Company settle? The Company usually wants to quickly solve the problem. The problem disrupts the Company's organisation and there is continuous and unwanted publicity on its alleged wrongdoings for as long as a court case is pending. Claimants profit from the settlement because while their individual claims are simply too insignificant to justify them to commence individual proceedings, bundling their claims allows them to potentially recoup their losses and therefore makes economical sense. If the Company is not prepared to settle, the Claim Foundation will usually start proceedings on behalf of the Class and thereby increase pressure on the Company to settle. However, as noted, the Claim Foundation cannot yet claim damages. Interesting is that a change of law on this point is in the making. A draft to change Article 3:305a Dutch Civil Code was published for consultation in July 2014. It aims to change various things, suchas the introduction of the right for the Claim Foundation to claim damages, which would make it a much more powerful adversary for the Company and the introduction of a more active role for the court to force a settlement on the parties. However, the proposal at the same time wants to limit the access of foreigners to benefit from the Dutch class action system. The proposal intends to close this option for Claim Foundations that represent mostly foreign victims, or whose claim is against a foreign Company, or when the harmful event has not taken place in the Netherlands. The reasons is that with the new changes the Dutch Ministry of Justice fears that the Dutch court system will become congested because of the popularity of this Dutch class action. I will not go into the details here, but note there is significant opposition from practitioners against this proposal. We will have to wait and see what will be the outcome. I want pick out one issue that relates to the line quoted above and is relevant for future VW, Shell and Coverium like Claim Foundations. It is about the the fundamental question to whom you should make your court system available. Is it really so bad that the Dutch system offers a 'vehicle' and legal procedure to reach a quick settlement for the benefit of all parties involved, i.e. claimants and the Company? Would the answer be different if the ties with the Netherlands of the parties involved are minimal, or could it be accepted if there are no ties at all? Anyone can set up a Claim Foundation and as the law currently stands, that is sufficient as long as the Claim Foundation adequately describes the group and the claims in its articles of association.
The VW Claim Foundation, going after a settlement with VW because of Dieselgate, is a striking example. Many of the investors who belong to the Class as defined by the VW Claim Foundation will no doubt reside abroad. The headquarters of VW are in Germany and the securities in question are also mostly publicly traded abroad. At the same time class actions are pending in the US over Dieselgate, and probably proceedings are pending in other countries as well. Should the Dutch court system be available if these mostly foreign parties want to solve their dispute through a settlement that is binding upon the Class? Or must that venue be limited for situations where the ties with the Netherlands are much stronger. If so, how to define those ties? In doing so, it is necessary to stay within the limits of the laws of the European Union, including the Brussels Ibis Regulation 1215/2012 on Jurisdiction and Enforcement. Of course the more fundamental question is why that is necessary at all? Because of it costs? If that is the reason, we could easily raise court fees. One should also not forget that the Dutch economy earns money when such settlements are made with the help of Dutch lawyers and the Dutch court system. Does this system lead to a congestion at our courts? The national Claim Foundations are currently in the majority, so that this argument does not immediately seem a valid reason either. We have been a trading nation for longer than we can remember so why abruptly block a perfectly reasonable method of solving disputes with benefits all parties involved and particularly the Class members? The Dutch binding settlement option will likely increase the compensation for the Class, and is that not the primary purpose of the whole exercise? Luckily for VW and the VW investors the new law is still being debated. Probably our international outlook will ultimately prevail and decide the outcome of the debate, as it fortunately many times does.