In the Netherlands, it is possible for a representative entity to bring a "collective action" on an "opt-out basis" under article 3:305a of the Dutch Civil Code (the "DCC"). However, under the current provisions in Dutch law, the representative entity is not entitled to claim monetary damages. This limitation is likely to be removed in the not too distant future.
On 16 November 2016, a legislative proposal was submitted to Parliament, aiming to clear the way for collective actions for damages under article 3:305a DCC (the "Legislative Proposal"). This Legislative Proposal still needs to go through both Chambers of Parliament. We do not expect the proposal to be enacted before the general election, which is scheduled for 15 March 2017. The Legislative Proposal has been in the making for some time. It has been the subject of extensive formal and informal rounds of consultation before it was submitted to Parliament. If it is enacted in its current form, we expect that it will have a significant impact on the litigation climate in the Netherlands (and arguably in the rest of Europe).
Dutch Legislative Proposal of 16 November 2016 – Key Aspects
1. Brief history of the Legislative Proposal
In 2011, following a motion before Parliament, the Minister of Security and Justice was tasked with creating an effective and efficient means to enable consumers to claim damages. In July 2014, a draft legislative proposal for a new collective action was published for public consultation. The proposal aimed to broaden the scope of article 3:305a DCC so as to enable collective actions for monetary damages on an "opt-out" basis (which is currently not possible). During the public consultation, the draft proposal drew heavy criticism from almost all stakeholders and interested parties. In view of the criticism, the Ministry decided to involve representatives from the judiciary, the Bar, several consumer associations and a few other stakeholders in the process of drafting a new proposal. On 16 November 2016, the Ministry published a completely revised Legislative Proposal and submitted it to Parliament.
2. Overview of the Legislative Proposal
Like the original draft proposal, the current Legislative Proposal aims to amend the existing collective action based on article 3:305a DCC so as to enable collective actions for damages on an "opt-out" basis.
Jurisdiction and venue
Under the Legislative Proposal, representative entities will be able to file a collective action for damages with the District Court of Amsterdam, which is the only venue in which such actions can be brought within the Netherlands. In terms of international jurisdiction, the rules of the Brussels I Regulation (Recast) apply. In addition to the requirements set by that Regulation, the Legislative Proposal includes a "scope rule". Under the proposal, a collective action can only be brought before the court if it has a sufficiently close connection to the Dutch jurisdiction. The proposed text clarifies that such a connection is deemed to exist if any one of the following three conditions can be met:
- (i) The representative entity is able to show that the majority of the individuals on behalf of whom the collective claim is brought (the "class"), reside in the Netherlands; or
- (ii) The defendant resides in the Netherlands; or
- (iii) The event or events on which the collective action is based, took place in the Netherlands.
While the motion before Parliament in 2011 focused on consumer interests, the Legislative Proposal does not distinguish between types of actions. A collective action 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 Legislative Proposal includes provisions that are intended to introduce checks and balances to prevent unmeritorious litigation.
Standing to bring a collective action
Representative bodies have to meet certain criteria before they can bring a collective action. Those criteria include:
- (a) Not-for-profit: the representative entity must be not-for-profit; the direct or indirect objective of its founders and their successors must not be to make a profit "through the representative entity";
- (b) Criteria regarding the governance and funding: the entity must be able to show that it has both the experience and the expertise to bring collective actions, it must have a proper governance structure (in most cases including a supervisory board), it must involve members of the class in the decision-making process, it must have sufficient financial means to fund a collective action and it must be transparent about salaries paid to its officers and contributions claimed from class members (if any).
- (c) Reasonable attempt to settle: under the existing article 3:305a DCC, a collective action cannot proceed unless the representative entity has made a reasonable attempt to settle the case. In this context, the law also provides that a letter that gives the defendant two weeks to respond will suffice.
The admissibility of the collective action
Under the Legislative Proposal, the collective action commences through the submission of a statement of claim, which includes the facts on which the claim is based, the class of persons whose interests it seeks to protect and the factual and legal issues that are common to all class members. The court then reviews whether the representative entity meets the relevant criteria and whether the action is fit to be dealt with through collective action proceedings. If the action does not raise sufficient issues of fact or law that are common to a 'class', or the court considers the proposed 'class' to be too small or the financial interests that are at stake to be too insignificant, the court can decide not to let the collective action proceed.
The appointment of an "Exclusive Representative"
Within two days after the filing of the action, the representative entity needs to enter the matter in a central registry of collective actions, with a brief summary of the statement of claim. The entry in the registry triggers a three-month period, during which other representative entities can file alternative (competing) collective actions that are based on the same event or events. If there is more than one collective action based on the same event(s) entered into the registry, the court will appoint an "Exclusive Representative" to represent the interests of the class. In some cases, there can be more than one "Exclusive Representative". Although the other entity or entities remain in the proceedings as parties, the court will decide whether to allow each entity to file their own briefs. The court also decides on the precise scope of the action and the proper definition of the "class" (which is to be "narrowly described").
The court's decision on the appointment of the "Exclusive Representative(s)", on the scope of the action and on the definition of the "class" must be notified to all members of the "class". In the notice, class members will be given the opportunity to "opt-out" of the collective action by giving notice to the court registrar. The minimum opt-out period is one month. Notice will be given by post to those parties known to the court and the notice will also be published in one or more national daily newspapers. Depending on the nature of the case, the court may order that notice be given in other ways and/or in other languages. At the end of the opt-out period, the case largely proceeds like a traditional Dutch court case, with most of the arguments being submitted by way of written briefs and closing arguments typically being conveyed in an oral hearing.
As a general rule, a court decision granting or dismissing the collective action is binding on all members of the class who did not use their right to "opt-out" of the action. The decision is subject to appeal to the Amsterdam Court of Appeal and, ultimately, to the Dutch Supreme Court.
3. Key Concerns with regard to the Legislative Proposal
While the Legislative Proposal represents a significant improvement on the draft proposal that was published by the Ministry in July 2014, in our view it raises serious concerns.
Choosing a US-style "opt-out" model
In most cases, response levels to an opt-out notice are unlikely to provide the court and the litigants any insight into whether there is public support for the collective action. If only a few members of a large class opt out, that may be indicative of both very high and very low levels of support. People may not respond because they wish to remain included in the class or simply because they are not interested in the action. Case law in the US and elsewhere show plenty of examples of class actions that were litigated extensively and at great cost to both the litigants and the taxpayer, but resulted in settlements or court awards that remained undistributed because of the members of the class never came forward to collect their pay-outs.
This problem could be avoided by the Dutch government choosing an "opt-in" model for collective damage actions (as recommended by the European Commission in its Recommendation on Collective Redress of 2013). Alternatively, to reduce the risk of collective actions having little or no response rate at the end of litigation, some adjustments could be made to the "opt-out" model. In Australia, for example, in the context of "opt-out" class actions, the judge can decide to issue a "class closure order" to promote an early settlement. In such an order, all members of the "opt-out" class are invited to register within a certain period of time if they wish to share in the proceeds of a future class settlement. At the end of that period, the class is "closed". Those who did not register will not share in the proceeds. For both the plaintiff and the defendant, this provides some much needed insight into the actual size of the problem that is at the centre of their litigation (which, in turn, sets the stage for settlement discussions).
In our view, the Dutch legislator should not introduce a US-style opt-out model, but instead consider either an "opt-in" model or a hybrid version to allow class closure orders in "opt-out" cases.
The "scope rule"
The Dutch legislator has included a "scope rule", purportedly to prevent the bringing of collective actions that have little or nothing to do with the Dutch jurisdiction. However, under the proposed text an action is always deemed to have a sufficiently close connection with Dutch jurisdiction if the defendant is domiciled in the Netherlands. This could potentially attract global actions on an unprecedented scale.
In our view, exposing companies based in the Netherlands to global collective actions puts them at a very significant disadvantage vis-à-vis their foreign competitors. One and the same infringement could result in an order against a Dutch company to compensate customers around the world, whereas most foreign competitors will be exposed only to individual actions by those customers who come forward to pursue their right to compensation. In cases of joint and several liability, there may even be situations in which a Dutch company is more exposed vis-à-vis the customers of its foreign competitor than the foreign competitor itself is. Over time, this may harm the Dutch economy.
To extend the scope of "opt-out classes" so as to include members domiciled abroad, also creates another significant imbalance. For the defendant, the main advantage of the "opt-out" model is that it provides "closure". Once the court has ruled on the collective action and the decision has become final, all class members who did not opt out will be subject to the binding effect (res judicata) of that court decision. In theory, this provides the defendant with the benefit of certainty as to his ultimate liability. In practice, however, it is very doubtful whether the binding effect of a decision by the Amsterdam District Court in an "opt-out" collective action will be respected by civil courts in foreign jurisdictions that do not recognize the "opt-out" model. Thus, a defendant who prevails in the court in the Netherlands and obtains a full and final dismissal of a "global" collective action may well find himself exposed to individual actions in other jurisdictions, based on the very same facts.
Therefore, this aspect of the Legislative Proposal does not strike the right balance. In our view, the legislator should limit any "opt-out" action to class members who are domiciled in the Netherlands. Class members who are domiciled elsewhere could be allowed to join the action by "opting in", which is the model used in the UK, France and Belgium.
The "checks and balances"
Last but not least, we are concerned that the market will find a way round the "checks and balances" that are included in the Legislative Proposal. In its current form, the Exclusive Representative must be a not-for-profit entity. The direct and indirect objectives of its founders and their successors must not be to make a profit "through the representative entity". Yet, that very phrase leaves plenty of room for profit-making outside of the representative entity. It would appear that the proposal does not prevent a not-for-profit entity joining forces with a commercial litigation vehicle in bringing a collective action. We already see examples of joint ventures between ideological entities and commercial litigation vehicles in our current practice (e.g. the Dutch consumer association Consumentenbond, which frequently appears alongside a commercial litigation vehicle by the name of ConsumentenClaim). If the Legislative Proposal were enacted in its current form, would any of its checks and balances apply to the commercial litigation vehicle that engages in aggressive "book-building" practices alongside the Exclusive Representative?