New Dutch legislation on class actions: an update

On 19 March 2019 the Dutch Senate adopted the Act on collective damages in class actions, amending the Class-Action (financial settlements) Act (de Wet afwikkeling massaschade in collectieve actie, the “WCAM”). With this amendment, the WCAM will change considerably.

The WCAM allows parties to a collective settlement to file a request before the Dutch courts to declare a collective settlement generally binding. A collective settlement under the WCAM is a settlement of mass damages, negotiated between on the one hand foundations and/or associations that defend the common interest of a group of claimants (a representative entity) and on the other hand the party held liable to compensate the group for the damages. In this alert we will highlight the main changes in the new legislation.

Closely connected with the Dutch jurisdiction
Class-Actions can be brought before any District Court in the Netherlands. The WCAM introduces a ‘scope rule’ that serves to ensure that the collective action is sufficiently closely connected with the Dutch jurisdiction. There is a sufficiently close connection if:

• the majority of persons whose interests are protected have their habitual residence in the Netherlands;
• the defendant has its domicile in the Netherlands and additional circumstances indicate that there is sufficient connection with Dutch jurisdiction;
• the event or events on which the Class-Action is based, took place in the Netherlands.

Compensation of monetary damages
One of the key elements in the WCAM includes the removal of the prohibition for representative entities to claim monetary damages in collective actions. Under the present law, it is not possible to demand compensation through a Class-Action. Only claims such as declarations of law and dissolution of contracts could be invoked by the claimant. This changes dramatically under the WCAM. Another claim that specifically can be invoked is an order to the defendant to make the judgment public.

Stricter requirements for representative entities
During the consultation of the WCAM, many critical comments have been made about the expansion to monetary damages. According to some critics, the expansion would lead to “American claim states”, in which simple collective actions result in a compilation of many individual procedures. To prevent this, the Dutch legislator introduced strict admissibility requirements for representative entities (e.g. governance, funding and representation requirements). Requirements that these foundations and/or associations among others must have are:

• a supervisory body;
• appropriate and effective mechanisms for participation in or representation in decision-making;
• sufficient financial resources to bear the costs of legal proceedings;
• a general accessible internet page that provides all information of the legal entity;
• no direct or indirect profit motive of the directors of the legal entity.

Also, the representative entity must make notice of the Class-Action in the central register. This register shall be public assessable and show all pending actions. Because of these strict requirements, and in particular the obligation that directors cannot have profit motives, the legal protection of victims will increase under the WCAM.

Strict requirements Class-Action
Furthermore, the Class-Action itself must meet several requirements. For example, the claimant must make sufficiently plausible that a Class-Action is more efficient and effective than an individual claim. The Class-Action will be efficient and effective if:

• the legal questions to be answered are sufficiently common for the individual claimants;
• the number of persons whose interests are protected by the claim is sufficiently large;
• in the event Class-Action (also) claims for compensation, that these persons alone or jointly have a sufficiently large financial interest.

Exclusive representative
Until now it is quite common that different groups of victims separately file a claim for damages caused by the same event. The financial settlements of the Dexia security lease cases and the earthquakes in Groningen are examples of this. The WCAM introduces one exclusive representative as most suitable claimant to represent all claimants. The assessment of the exclusive representative will be based on:

• the size of the group of persons for whom the claimant is representing;
• the size of the financial interest represented by this group;
• other activities that the claimant performs for the persons whom he represents;
• previous executed cases of the claimant.

The non-exclusive representatives remain party in the proceedings, but can however not perform procedural acts. This will result in more centralized and efficient proceedings, because there is only one point of contact. For example, it is the exclusive representative that must send the received ruling to the central register.

Binding decision and opt-out
As soon as the exclusive representative has been appointed, the members of the class will be notified by the court. In the notice, the class member will be given the opportunity to “opt out” of the class action. The minimum opt-out period is one month. The members of the “class” who decide to opt out, cannot benefit from any future profits of the class action.

The judgement of the court will be binding for each party participating in the Class who reside in the Netherlands and did no use their right to “opt out” of the action. The individual persons can claim compensation under the conditions stated in de judgment whereby the settlement has been established. The persons that used their right to “opt out” can subsequently file an own claim at the competent court.

Conclusion
Dutch WCAM procedures have been unique to Europe and make the Netherlands an attractive forum for settling cross-border disputes. The new amendment in the legislation contributes to this. The establishment of one exclusive representative will give clarity to the mass-procedure. Also, it is finally possible to claim compensation of monetary damages. Because of this endless separate lawsuits will be prevented. The new legislation is expected to enter into force at the end of 2019.

Earlier, Damiën Berkhout and Philip ter Burg published an update article on collective action mechanisms. This article may be found here.

If you have questions about this alert on the amended WCAM or collective actions more generally, do not hesitate to contact us