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"). It was amended in January 2018 and we expect the proposal to be enacted later this year. For the benefit of those readers who read this overview prior to January 2018, our comments on the amendments in the January 2018 Amendment Bill are displayed in italics.
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. On 11 January 2018, an Amendment Bill (Nota van Wijziging) several important further amendments.
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 scope
Under the earlier version of the Legislative Proposal, the District Court of Amsterdam was designated as the only venue in which collective actions can be brought within the Netherlands. After some reconsideration, the government decided to remove that designation through its Amendment Bill of 11 January 2018. Under the amended Legislative Proposal, collective actions for damages can be brought before any District Court in the Netherlands. The normal Dutch rules on local jurisdiction and venue apply. 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:
- 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
- The defendant resides in the Netherlands; or
- 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.
Earlier versions of the Legislative Proposal did not limit the size of the (opt-out) class in any way. Provided that the representative entity can show a sufficiently close connection with the Netherlands, the class could consist of individuals or legal entities residing anywhere in the world. As we reported previously , this could potentially attract global class actions on an unprecedented scale against defendants who are domiciled in the Netherlands. One of our main concerns was that this would put companies based in the Netherlands at a very significant disadvantage vis-à-vis their foreign competitors.
In its Amendment Bill of 11 January 2018, the government tried to address this concern. In line with our earlier recommendation, the amended Legislative Proposal now limits the "opt-out" action to class members who are domiciled in the Netherlands. Class members who are domiciled elsewhere are allowed to join the action by "opting in" (cf. similar legislation in the UK, France and Belgium). By way of exception, in cases in which foreign class members are relatively easily identifiable the court may order that the "opt-out class" does extend to those class members. On the assumption that the Dutch courts will apply that exception only in cases in which the vast majority of the class resides in the Netherlands, we consider this amendment to be a very significant improvement on the earlier version of the Legislative Proposal.
Standing to bring a collective action
The Legislative Proposal includes provisions that are intended to introduce checks and balances to prevent unmeritorious litigation.
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 is 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 reside in the Netherlands and did not use their right to "opt-out" of the action. The same applies to members residing abroad, who joined the collective action by opting in. The decision is subject to appeal to the Amsterdam Court of Appeal and, ultimately, to the Dutch Supreme Court.
Second "opt-out" opportunity in case of a collective settlement
The November 2016 version of the Legislative Proposal envisaged only one opportunity for class members to opt out of the collective action. Once the Exclusive Representative has been appointed, notification has taken place and the "opt-out period" set by the court has ended, all members of the class who did not use the opportunity to opt out of the collective action are effectively "locked in" for the remainder of the collective proceedings and are bound by its outcome. However, through the Amendment Bill of 11 January 2018 the government introduced a second opportunity to opt-out in case of a collective settlement. If in the course of the proceedings the Exclusive Representative and the defendant(s) reach such a settlement, the court will review it and, if the court approves the settlement, determine a second opt-out period of (again) at least a month. Class members who decide to opt out of the collective settlement will have to pursue their actions individually by initiating legal action within six months after they have exercised their right to opt out.
3. Key Concerns with regard to the Legislative Proposal
While the (amended) Legislative Proposal represents a significant improvement on the draft proposal that was published by the Ministry in July 2014, in our view it still raises some 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 that allows class closure orders in "opt-out" cases.
The "checks and balances"
Also, 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?
The transitional provision
Last but not least, we are concerned about the implications of the transitional provision that was introduced in the Amendment Bill of January 2018. The Legislative Proposal of November 2016 did not contain any transitional provisions. In the absence of such provisions, the default rule of Dutch law is that new legislative provisions take effect immediately after they have been passed into law. As a result, the new collective action regime could directly and significantly affect ongoing court cases. Representative entities that initiated collective actions under the existing regime would suddenly be subjected to the more stringent requirements that are included in the Legislative Proposal. In an effort to prevent undesired effects on ongoing court cases, the Amendment Bill of January 2018 decrees that the new provisions will apply only to collective actions that are filed after the Legislative Proposal is voted into law. The government is of course right to want to avoid a "moving of the goal posts mid-game", but the proposed transitional provision does not have the desired effect. The proposed transitional provision only protects court cases in which collective actions for damages under article 3:305a DCC have actually been filed. Yet, there are many mass damage cases currently pending before the Dutch courts, in which the claimant entities have not filed collective actions, but instead have purchased and "bundled" large numbers of individual claims and are pursuing those claims through regular court actions. The dynamics of those cases would be (unfairly) affected if, after the new legislation is passed into law, competing representative entities could file collective actions and seek to be appointed as the Exclusive Representatives in relation to the very same mass damage cases. Also, in some existing mass damage cases the defendants decided to pre-empt threatened collective actions by making voluntary settlement offers to all active members of the 'class'. The reasonable expectation of those defendants was that their decision to assume responsibility and offer compensation would maximize their chances of resolving the issue quickly and help protect their reputation. It would simply not be fair to those defendants if, after the new legislation is passed into law, they would become exposed to collective actions for damages on behalf of all passive class members who did not respond to the voluntary settlement offers. Therefore, in our view the transitional provision should prevent the new collective action regime from applying to any existing mass damage case, regardless of whether or not a collective action under article 3:305a DCC has been filed in relation to that case. Inspiration can be drawn from section 4 of the Belgian act introducing the ‘Rechtsvordering tot collectief rechtsherstel’ of 2014, in which it was decreed that the newly introduced consumer action for collective damages could be brought only in relation to mass damage events that occurred after the act's effective date.