Class actions go Dutch
26 March 2012 | By Joanne Harris
12 December 2013
30 September 2013
9 December 2013
European Finance Litigation Review — February 2014: litigation concerning banks’ disclosure requirements and more
20 February 2014
28 August 2014
After the US barred certain mass securities cases, the Netherlands’ liberal attitude to jurisdiction is making it the hot destination for claims, says Joanne Harris
Over the years the US has become a world capital for class action litigation, with a whole sub-sector of the legal market relying on mass claims for their livelihood.
But since 2010, one category of litigant has been explicitly barred from obtaining redress for their losses in the US. In a landmark judgment in June that year the US Supreme Court ruled that securities cases where the claimants were not domiciled in the US, or where a US citizen had bought shares on a foreign exchange, could not be litigated or settled in the US.
Previously, despite a clause in the Securities Exchange Act limiting extraterritorial reach, various US courts had extended jurisdiction to these parties if losses or fraud had affected, for example, a company’s share price in the US.
The ruling, Morrison et al v National Australia Bank Ltd et al, was significant, and has sent those affected by the decision looking for alternative jurisdictions to settle claims.
“What this has created is a swelling of investors outside the US who are looking to other jurisdictions where possible to lay claims for securities fraud,” explains DLA Piper partner Richard Hans.
The leading contender as an alternative venue has proven to be the Netherlands.
In January, the Amsterdam Court of Appeal used the Dutch Act on the Collective Settlement of Mass Claims (Wet Collectieve Afhandeling Massaschade, or WCAM) to accept jurisdiction over the settlement of a securities class action involving shares in Zurich Financial Services (ZFS) subsidiary Converium Holding.
Converium was not the first time the act had been used, but in a step forward for international claims only a small number of the class members involved were domiciled in the Netherlands.
Thanks to the involvement of the Stichting Converium Securities Compensation Foundation, based in the Hague, and Dutch shareholders’ association VEB, there was enough connection to the country in Converium for the court to rule that its jurisdiction applied.
A similar settlement was enforced in 2007 involving energy giant Shell, but in that case one of the two Shell companies involved and a significant number of investors were Dutch. This made the court’s decision on jurisdiction much more straightforward, although the precedent set by Shell was a factor in encouraging the Converium parties to seek the declaration in the Netherlands.
The declaration meant that around 10,000 investors, both individual and institutional, who had lost money after investing in Converium stock outside the US shared $58.4m (£36.9m) - minus $11.7m (20 per cent) payable to US firms Bernstein Litowitz Berger & Grossmann, Cohen Milstein Sellers & Toll and Spector Roseman Kodroff & Willis who represented the foundation. In contrast, the 2008 US settlement declaration awarded a smaller number of US class members $84.6m.
The fact that the Netherlands is in the EU is one of the things helping to make the WCAM legislation attractive, says De Brauw Blackstone Westbroek corporate litigation head Ruud Hermans. De Brauw represented ZFS in the Converium settlement.
“The decision in court is a judgment that is covered by the Brussels regulation on enforcement of judgments,” Hermans explains. “This judgment should be recognised everywhere in the EU and even outside the EU. The idea is that if you file a petition here in the Netherlands and the court approves it, it’s binding everywhere in Europe.”
Countries in the European Economic Area (EEA), such as Switzerland and Norway, are also covered by the decision - an important factor, particularly in Converium, where there was a large number of Swiss-domiciled shareholders.
The willingness of the Dutch courts to make such a declaration puts the country in a strong position.
“The situation on a pan-European basis is that the Netherlands is the leader in this field,” says DLA Piper litigation partner Jean-Pierre Douglas-Henry. “There are other jurisdictions within Europe that offer collective action-type remedies, but none are as broad as the Netherlands offering. Most importantly, none have shown the willingness that the Dutch court has to enforce a settlement where the majority of litigants are non-Netherlands claimants.”
Allen & Overy litigation partner Brechje van der Velden agrees, saying the Dutch law is the only law in Europe available for use in this way.
“Converium shows that, once there are at least a few Dutch interested parties, you could practically create the required involvement in the Netherlands by incorporating a foundation,” she says.
Van der Velden adds that the binding nature of the declarations made in cases such as Converium provide certainty to both claimants and defendants, making the settlement procedure even more attractive.
Dutch lawyers are keen to reinforce the message that the legislation being used in these cases does not allow for class or collective action litigation. Rather, the cases coming to court are those where the parties have already bashed out a settlement and need to make it binding.
The court declaration ensures there will be no appeal against the settlement, and the class action defendants know they will not have to pay out any more cash. Class members have six months to opt out of the settlement if they wish.
The Dutch parliament is considering amending the WCAM legislation to clarify a number of aspects, including a clause ensuring associations or foundations established to agree a settlement sufficiently protect the interests of the parties they are representing.
This is intended to prevent claims being brought purely as a profit-making exercise - an important element in the wake of the court’s decision in Converium to award the US counsel their fees.
That aspect of the judgment has attracted considerable interest in the Netherlands. Dutch lawyers are unable to act on a contingency or conditional fee basis and such an award is unusual in the Netherlands.
The Amsterdam court stated: “In assessing the reasonableness of the American principal counsel’s fee it is possible, also under Dutch law, to take account of that which is customary in the US and is seen as reasonable. There’s cause to do so in this case, because the work was performed to large extent within the American legal system and by US law firms.”
The court noted that a similar proportion of fees had been paid out in the US settlement of the case, and the amount of fees did not mean that the compensation available for investors excluded from the US settlement was “unreasonable”.
However, the fee award looks unlikely to encourage US plaintiff firms to set up shop in the Netherlands.
“I’m not sure that more US lawyers will come here and open offices, but you can expect more activity from them in this field,” says Houthoff Buruma litigation partner Albert Knigge, adding nonetheless that he found the award “remarkable”.
“The fact that we have this settlement procedure doesn’t mean you’ll get more international collective cases in the Netherlands,” says Hermans. “Maybe we’ll see two or three cases a year, but that’s not enough to open an office in Amsterdam.”
Not everyone agrees.
“I think it’s ’watch this space’,” says Douglas-Henry. “There’ll be great interest paid by the US plaintiff firms to the Dutch market. I think we’ll see them opening representative offices or entering into alliances if the Dutch court or parliament shows an increasing willingness to extend its jurisdiction.”
The EU is also looking at the possibility of creating a union-wide system of collective action. A consultation was published last year by the European Commission suggesting that an EU system for collective redress, including in cross-border disputes, would be welcome.
In typical Brussels fashion, however, almost a year after the end of the consultation, little progress has been made. The European Parliament has voted in favour of the concept, but a formal proposal from the Commission has not yet been produced.
Better than nothing
Until progress on the EU front is made, the Netherlands is clearly well-placed to take the lead. More cases are in the pipeline - both Hermans and Knigge report that their firms have been contacted for similar issues already.
The amounts at stake may be less than aggrieved shareholders could expect from a US settlement, but at this time, anything is better than nothing.
For Scor Holding (formerly Converium Holding) Daan Lunsingh Scheurleer, partner, Nauta Dutilh
For Zurich Financial Services
Robert Polak, partner, De Brauw Blackstone Westbroek
For Stichting Converium Securities Compensation Foundation Jurjen Lemstra, partner, Lemstra van der Korst
For Vereniging VEB
Paul Coenen, head of legal
Pension funds and asset management companies in Liechtenstein, Germany and Switzerland
Jan Hendrik Crucq, Janssen Broekhuysen Advocaten