NETHERLANDS – What is the connection between tulips, the late Rembrandt and collective settlements? They are Dutch export ‘products’. The Dutch have been exporting tulips to every corner of the globe since time immemorial. A unique exhibition of the works of the late Rembrandt van Rijn, a world-renowned Dutch painter that probably does not need introduction, took place in the Rijksmuseum in Amsterdam recently and drew tourists from everywhere to Amsterdam.
(queues before the entrance of the Rijksmuseum with, in the background, on the museum building, a self portrait of Rembrandt).
Collective settlements are perhaps less visible and they certainly do not draw the crowds that Rembrandt does. However, they are an interesting and an effective tool for litigants who want to settle mass damage claims, especially where the U.S. courts are no longer available for assistance. Since the judgment of U.S. Supreme Court in Morrison v. National Australia Bank [561 U.S. 247 (2010)], claims brought on behalf of so-called ‘foreign-cubed investors’ (foreign plaintiffs suing foreign issuers for losses on transactions on foreign exchanges) and ‘foreign squared investors’ (domestic plaintiffs against foreign issuers for losses on transactions on foreign exchanges) can no longer be brought in a class action in the U.S. That presents a problem for corporations who have dual or triple listings, for example in Amsterdam, London and New York, and who are sued for securities fraud. Part of those claims can probably proceed in a U.S. class action, but the claims relating to foreign investors cannot. Since the great majority of securities class actions result in either dismissal or settlement, it is very likely that the class action will settle once it has been certified. The defendant will then only be able to settle with the class that was certified. This means that its investors are left out of the settlement if they bought shares in the company in Amsterdam or London, especially if they themselves are domiciled outside of the U.S. That is not attractive to the defendant, who will want to buy ‘peace’ for good if and when it settles. In addition, securities legislation in certain jurisdiction may not allow the defendant to treat investors differently if they are essentially in the same circumstances.
In that case, the Dutch Act on the collective settlement of mass damages (Wet collective afwikkeling massaschade or “Wcam” for short) may provide a solution. After Morrison, the Wcam has been used on a number of occasions to settle securities claims with classes of foreign cubed or foreign squared investors. How does this work in practice? The defendant reaches out to an NGO in the Netherlands, which must be either an association (vereniging) or a foundation (stichting). In securities cases, this usually is the Vereniging Effectenbezitter (Association of Investors; “VEB”). The defendant and the VEB enter into a settlement that is the equivalent of the U.S. class settlement (or, if the case is unrelated to a U.S. class action, the settlement that they deem appropriate) It is, strictly speaking, not required to do this with an established NGO. It is technically possible to establish an association or a foundation specifically for the purpose (in other words an SPV). However, in practice an SPV may not do the trick, because the NGO must representative of the interests of the class. An SPV usually is not. However, sometimes the SPV is used to ‘manage’ the execution of the settlement next to an established NGO.
The defendant and the NGO then file a joint application to the Court of Appeal in Amsterdam in order to obtain a declaration from the court that the settlement is binding on the class, subject to ‘opt-out’. The court will assess, among other things, whether the settlement is reasonable, taking into account the scope of the damages, the ease and speed with which compensation may be obtained and the causes of the damages; whether the interests of the clause are sufficiently safeguarded and whether there is a mechanism for the independent assessment of eligibility for compensation under the settlement. If the court is satisfied that the requirements of the Wcam are met, it will issue a declaration that the settlement binds the class. It will also determine a time-frame in which class members may ‘opt out’ of the settlement.
The Wcam has proven to be a very effective tool also in international cases. It was, for example, used by a multi-national energy company, to settle the non-U.S. part of the class of investors in the reserves re-categorization issue. The Court of Appeal in Amsterdam has taken a very liberal view on its jurisdiction in these matters (some say a too liberal view) and will accept jurisdiction even if there is rather a small nexus with the Netherlands. Whether the settlement may be enforced abroad if a class member failed to opt-out, but is nevertheless seeking compensation of damages in full before a foreign court remains to be seen. In practice, however, most class members will usually happily take the settlement.
The Wcam may not only be used in securities litigation. Its scope is broader. To date, apart from securities, it has been used in a product liability case and in relation to financial products. The Netherlands do have a collective action, but to date that cannot be used for claiming monetary damages. That is, however, likely to change. The Wcam will probably be supplemented with a collective action for damages in the near future.
