Short Reads

Collective action on interest rate swaps dismissed by District Court

Collective action on interest rate swaps dismissed by District Court

Collective action on interest rate swaps dismissed by District Court

21.07.2016 NL law

On 29 June 2016 the District Court of Oost-Brabant (“the District Court”) dismissed a collective action concerning SME entrepreneurs who had entered into interest rate swap agreements with Rabobank.

(ECLI:NL:RBOBR:2016:3383).

The District Court ruled that the claims were inadmissible because the interests of the SME entrepreneurs were not sufficiently safeguarded and the action did not aim to protect similar interests.

Background of the claims

The action was initiated by ‘Stichting Renteswapschadeclaim’ (“the claim entity”) and concerned, among other things, Rabobank’s interest rate swap service provisions from 2005 to 2008. The claim entity submitted various claims, mainly invoking error, breach of contract and tort, arguing that Rabobank had not fulfilled its duty of care towards the SME entrepreneurs.

Requirements for the admissibility of a collective action

A collective action can be based on article 3:305a of the Dutch Civil Code. Under this article, a claim entity can start a collective action to protect similar interests of other persons if its articles of association promote such interests. The action needs to be preceded by consultations and the interests of the persons on whose behalf the action is instituted need to be sufficiently safeguarded. In its judgment, the District Court elaborated on these requirements.

The inadmissibility of the collective action brought by ‘Stichting Renteswapschadeclaim’

The District Court agreed with the arguments advanced by Rabobank that the claim entity had not sufficiently attempted to achieve the objective of the action through consultation. However, this reason alone was not enough for the District Court to dismiss the collective action. The District Court also ruled that Rabobank’s interests were not harmed, because it was apparent during the court hearing that the parties would not have reached a settlement anyway.

Rabobank further argued that the interests of the aggrieved SME entrepreneurs were insufficiently safeguarded. It stated that the claim entity had not complied with the Claim Code and was mainly commercially driven. The Claim Code is a self-regulatory document that provides guidelines for claim entities. The District Court concluded that the claim entity had not complied with the provisions of this Code and noted in particular that there was a concentration of power with the chairman of the entity. As a result, there were few safeguards in place to prevent the chairman from prioritizing his own personal interests above the interests of the aggrieved. The District Court therefore ruled that the collective action was inadmissible. Rabobank also argued that the action did not aim to protect sufficiently similar interests. This requirement can only be met when it is possible to rule on the collective claims in the same proceedings, without taking individual circumstances into account (ECLI:NL:HR:2010:BK5756). According to the District Court, the wrongfulness of Rabobank’s actions could not be assessed without taking the individual circumstances of each SME entrepreneur and the individual nature of Rabobank’s defence arguments into account. Also, the conduct of the different Rabobank branches was not sufficiently uniform. Therefore, the claims could not be dealt with collectively.

In short

This judgment is an important signal that collective actions cannot be used to resolve each and every mass damage case. Some cases – like this case on interest rate swaps – may not be suitable for collective adjudication. The judgment also reflects the development of increasing scrutiny towards the entities that bring collective actions. 

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