Mass Claims Act Provides Additional Opportunities for Collective Redress in the Netherlands

By Evelyn Tjon-En-Fa, Annemetje Koburg

If the Mass Claims Act becomes law in late 2019, the Netherlands will be ahead of its neighbours on collective redress.

Collective Redress in the Netherlands

The question to what extent collective redress has been a matter of political attention in the Netherlands for many years.

The most recent development to answer this question is the Collective Settlement of Mass Claims Act (the “Act”), which was adopted by the Dutch Lower House of Parliament on 29 January 2019 and could enter into force as early as the latter part of 2019.

The Act aims to streamline and strengthen the possibilities for collective redress which are already in place under Dutch law. What is significantly new is that the court will be able to adjudicate a collective compensation claim. At the moment, such a collective claim for compensation cannot be served in civil proceedings.

In order to determine the amount of the damage, claimants still have to go to court individually or reach a settlement now. In addition, the Act provides that the court will appoint an 'Exclusive Representative’ as part of a coordinated process, in which the parties are explicitly offered the opportunity to try to settle the dispute between them.

If the Senate acts expeditiously, the Act can enter into force in 2019. In that case, the new regime will apply to events causing damage which occurred on or after 15 November 2016; which means companies must map out their risks properly[1]

An outline of The Act 

The Act complements the possibilities offered by the current rules and introduces some interesting new concepts. These are explained in more detail below.

Possibility of compensation and collective settlement of claims

The most striking element is the possibility for the court to adjudicate damages in the context of collective claim settlements. At present, a collective foundation or association can already submit almost any claim on the basis of Article 3:305a and [1]  of the Dutch Civil Code. What is relatively unknown is that a request can be made to annul or dissolve all contracts of affiliated consumers. This also directly triggers other legal consequences of dissolution or annulment, such as obligations to unwind, without the need for separate proceedings.

The only thing that a collective foundation or association is not yet able to do is to claim a concrete sum of money as compensation on behalf of its members (article 3:305a (3) of the Dutch Civil Code). The current regime offers 'only' the possibility to claim a declaratory statement that a party causing damage has acted unlawfully - or that he or she  is obliged to pay compensation to the affiliates on another basis. However, under the Act this will be different as it includes the possibility to claim compensation of damages.

Subsequently, in a second phase in a (new) procedure, under the Act, these affiliated parties will have to invoke the right to compensation, or reach a settlement. In such a follow-up phase, the parties will discuss whether and to what extent the injured party should bear the damage on account of its own wrongdoing. We know from previous examples, such as the share leasing cases, that this can be an essential point of discussion. Therefore, the Act is a crucial change in this respect. Stakeholder organisations naturally welcome the possibility of claiming damages as part of a collective procedure. During the consultation process of the draft Act (before the Act was submitted to the Dutch Lower House of Parliament), however, many critical comments have been made on this extension, because it opens the door to conditions similar to those in the US. For this reason, the Act devotes a great deal of attention to both the clustering of advocacy and the requirements that interest groups and claims foundations must meet.

Clustering advocacy – appointment of an Exclusive Representative

The Act introduces the appointment of an Exclusive Representative. This is to help streamline the collective action process and the method of appointment is set out in the Act  as follows:

  • All collective actions must be registered.
  • If more than one interest group comes forward in response to one damaging event, the judge then designates the organisation which he considers to be the most appropriate as the exclusive representative.
  • The exclusive representative shall litigate on behalf of all the representatives.
  • The other interest groups remain parties to the proceedings, so that coordination must take place.
  • In addition, there is an opt-out possibility for all parties, after appointment of the exclusive representative.

Requirements for the interest group To be admissible, interest groups will have to meet a number of requirements in terms of governance, funding and representativeness. For example, pursuant to Article 3:305a (new) of the Civil Code, they will have to appoint, among other things, a three-member board, a supervisory body and an accountant. In addition, the interest group must maintain a website, communicate with its members in various ways and demonstrate sufficient expertise. In addition to these admissibility requirements, the people behind the interest group may not make any profit.

High thresholds to starting a collective redress action

  • In addition to the fact that the interest group must meet precise requirements, the collective action is also subject to further requirements compared to a regular law suit. For example, it must be sufficiently plausible that submitting to the collective action is more efficient and effective than proceeding by way of an individual action. There are various ways to show that the collective action fulfils this criteria and these are set out in the Act as follows (1018c paragraph 5 of the Code of Civil Procedure):the factual and legal questions to be answered are sufficiently common;
  • the number of persons whose interests the claim seeks to protect is sufficiently large; and
  • if the claim also regards compensation, that these persons have a sufficiently large financial interest, either alone or together.

A further amendment, worth noting, which has been adopted, concerns the strengthening of the required close link between the mass claim for damages and the Dutch legal sphere.[2] This additional requirement is intended to prevent foreign parties, who believe that possible compensation would be higher in the Netherlands rather than in their own jurisdiction, from litigating in the Netherlands, if that is their sole reason for doing so. Additional circumstances must be put forward by the elective representative that indicate 'sufficient affiliation with the Dutch legal sphere'. Besides the fact that this creates a threshold for interest groups, this admissibility requirement makes it difficult to attract international class action litigation.

Further, a threshold to prevent ''nonsense claims'' was raised at the last minute (by amendment of 23 January 2019). This states that claimants can be ordered to pay a high level of the legal costs if the proceedings have shown 'concise defectiveness of the claim'- a test Dutch lawyers are familiar with from the law on sequestration3.  It is questionable whether this will have any deterrent effect in the case of large mass claims: the limitation imposed by the Act of a maximum of five times the liquidation rate means that any order for costs will still remain relatively modest, because the liquidation rate encompasses only a fraction of the actual legal costs.

Third Party Funding

The Netherlands is becoming an increasingly popular forum for joint claims for damages, for example, between companies in cartel damages cases. The provisions in the Act referred to above[3], concerning the requirement of a sufficient connection with the Dutch legal sphere and the possibility for the court to impose a higher order for costs in the event of a 'nonsense claim', were partly driven by the rise of third party litigation funding: a phenomenon originating from the United States and the United Kingdom, which is also taking root more and more in the Netherlands. A good example of this was the Fortis decision, a claim in which two interest groups were financed by third parties.

The legislator expressly anticipates an increase in third party litigation funding in the event of mass damages claims. In our opinion, this is correct. Professional funders can play an important role and provide a funding vehicle that ensures that the financial risks for a participating individual claimant will be limited. They can be more inclined to step in, as a result of which an interest group will be able to obtain sufficient 'critical mass' for collective action. These funders are also increasingly focusing their activities on the Dutch legal sphere.

Last limitations of old regime could be removed

The Act is a long-awaited but also controversial expansion of the way mass claims can proceed in the Netherlands.

The adoption of the Act by the Dutch Lower House of Parliament means that the last limitations of the old Dutch collective action regime have been removed. As a counterbalance to defendants, additional demands are made by imposing on the parties the appointment of an elective representative  and the condition to try for a settlement.

If the Act becomes law, the Netherlands will be ahead of its neighbours with regard to the collective redress possibilities the country can offer to claimants.

[1] Documents of the Dutch Lower House of Parliament 2018/19, 34 608, number 13. Amendment of Parliament Member Van Gent c.s. on the improvement of the transitional regulations.

[2] Documents of the Dutch Lower House of Parliament 2018/19, 34 608, number 12. Amendment of Parliament Member Van Gent c.s. on the strengthening of the required close link with the Dutch legal sphere.

[3] In line with the amendments, there are concerns which have often been expressed about the financing of collective redress actions in the context of collective action. See: Documents of the Dutch Lower House of Parliament 2018/19, 34 608, number 12 (close link) and Documents of the Dutch Lower House of Parliament 2018/19, 34 608, number 18 (costs of the proceedings).