Introduction and facts
A natural person (X) is the appellant in this case. He entered into two securities lease agreements with Groeivermogen N.V. in the late 1990s, which resulted in residual debts that X settled. In 2005, the Vereniging Consument & Geldzaken (VCG), together with various individual interested parties (allegedly aggrieved parties – belanghebbenden), initiated a collective action against Groeivermogen under the old Dutch collective action regime. In doing so, they sought declaratory relief (een verklaring voor recht) that Groeivermogen had breached contractual obligations and/or had acted wrongfully by breaching its duty of care. X was not a party to these proceedings. The Arnhem-Leeuwarden Court of Appeal declared by final judgment on 20 August 2019 that Groeivermogen had acted wrongfully.
The question in this dispute is what the consequences are of the declaratory relief granted in respect of the limitation period of individual claims, in particular X's claim. Does the granting of declaratory relief requested by an interest group (belangenorganisatie) cause a new limitation period to commence for the (alleged) claims of individual interested parties? The Court of Appeal found that a new limitation period had indeed commenced, for a maximum period of five years. In our view, this decision of the Court of Appeal is, in principle, relevant to any case in which declaratory relief is granted in a collective action, i.e. also insofar as the Act on the Settlement of Mass Damages Claims in Collective Action (Wet afwikkeling massaschade in collectieve actie – the WAMCA) applies.
Background: limitation in collective actions
The Supreme Court has handed down several judgments on limitation in collective actions. It found, for instance, that Article 3:305a of the Dutch Civil Code (DCC) serves to provide effective and efficient legal protection to individuals whose interests are represented by a legal entity (or interest group) as referred to in that provision. This implies that such a legal entity can interrupt the limitation period of claims of the individuals whose interests it represents, including a claim for damages, by bringing proceedings before the court under Article 3:305a DCC or by giving notice of default to the debtor. The interruptive effect of a collective action is not limited to claims for damages, but also extends to other claims, including a claim to set aside a securities lease agreement. Moreover, that interruptive effect applies to all individual claims related to the collective action, and thus also to claims by persons who have not joined the claimant legal entity. That interruptive effect appears to apply for the duration of the entire proceedings.
Court of Appeal’s judgment
The District Court had ruled that the claim had expired.
According to the Court of Appeal, it follows from the system of the law that, insofar as a collective action under Article 3:305a DCC has resulted in the granting of the declaratory relief requested by the interest group, a new limitation period commences for all related individual claims in respect of which the collective action had interruptive effect. This limitation period is equal to the original limitation period, subject to a maximum period of five years, starting on the day following that on which the judgment becomes final.
The Court of Appeal based this on three arguments. First, it must be taken into account that the collective action judgment serves as guidance for individual follow-up proceedings. Second, Article 3:305a DCC aims to provide effective and efficient legal protection to persons whose interests are defended by a legal entity as referred to in that provision. Third, the concept of a collective action aims to provide a real possibility to enter into negotiations on collective settlements. It is incompatible with the above that an interested party would retain the interruptive effect of the collective action only if that party commences individual proceedings within six months after declaratory relief in a collective action has been granted.
The Court of Appeal therefore did not find that the claim had expired.
On several occasions in the past, the Supreme Court has applied a broad interpretation of the law when it comes to possibilities of collectively interrupting the limitation period of individual claims. These judgments tend to focus on providing "effective and efficient legal protection". While we understand this rationale for protection, and even though the Court of Appeal's judgment does not seem incomprehensible to us, at least two caveats can be made.
Impact on defendants’ willingness to settle
First, the legal rule formulated by the Court of Appeal has a negative effect on the willingness to enter into a settlement with a concrete group of interested parties who, for example, have entered into a participation agreement with the interest group. Being able to achieve finality is usually an important factor for defendants when deciding whether to enter into a settlement. They will want as much certainty as possible that they will be rid of the dispute after the settlement. The wide scope for interest groups to interrupt the limitation period of underlying claims makes finality difficult to achieve: if such an opt-in settlement is reached, other interested parties may still bring a claim within the new limitation period. It may then be difficult to estimate how much it will ultimately cost to be rid of the dispute. The defendant is therefore less likely to be willing to enter into a settlement for the benefit of only part of the class. This seems inconsistent with the Supreme Court's case law in which it found that the aim of Article 3:305a DCC was also to promote collective settlements. An opt-in settlement is not permitted during proceedings under the WAMCA regime, incidentally.
Limitation period too long
Second, a new limitation period of five years for a claim for damages after the judgment in a collective action containing declaratory relief has entered into force is in any event too long in our view. In the case of a request for a settlement to be declared generally binding within the meaning of the Collective Mass Claims Settlement Act (Wet collectieve afwikkeling massaschade – the WCAM), a new limitation period of two years commences (insofar as the limitation period was not already longer). Article 7:907(5) DCC lists several moments at which this happens. It is apparent from the parliamentary history of the WCAM that a period of two years was deliberately chosen instead of a longer period. In the present case, a two-year period should also give an interested party sufficient time to bring a possible claim for damages after the judgment in which declaratory relief was granted has become final. Moreover, this would, on average, increase the likelihood that interest groups and defendants could reach an opt-in settlement.
In this case, the Court of Appeal found that the WAMCA temporally did not apply. The Court of Appeal did not address the relevance for cases governed by Article 3:305a DCC as it has applied since the introduction of the WAMCA and (now also) the Representative Actions Directive Implementation Act (Implementatiewet richtlijn representatieve vorderingen voor consumenten). One of the main changes introduced by the WAMCA is that an interest group can claim damages in a collective action. In principle, if a court decides on a claim in a collective action, all the interested parties residing in the Netherlands who have not opted out and all foreign interested parties who have opted in (both groups collectively: the narrowly defined group), are bound by that judgment. In that case, they cannot also claim damages in separate proceedings. To the extent that only declaratory relief is requested and granted, the limitation period of the related individual claims would recommence in accordance with this judgment of the Court of Appeal. In our view, however, that new period would apply only to persons belonging to the narrowly defined group. An earlier collective interruption of the limitation period would have interruptive effect with regard to other interested parties only if they performed an individual act of interruption within six months of their opt-out.
We understand that this case is now before the Supreme Court. While we do not consider the Court of Appeal's judgment to be incomprehensible, the question is whether the recommencement of the limitation period after declaratory relief in a collective action promotes collective settlements – and by extension, whether interested parties really benefit from a new limitation period of up to five years.