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On 19 March 2019, the Dutch senate passed the bill entitled Act on the Settlement of Mass Damages Claims in Collective Actions (WAMCA from the Dutch Wet afwikkeling massaschade in collectieve actie). The new law entering into effect on 1 January 2020 allows for claim compensation in collective actions, which was not previously possible. I will briefly discuss the existing situation in the Netherlands below and highlight the most important changes and consequences the new law brings in practice.
Previous situation
Under Article 3:305a of the Dutch Civil Code, a collective interest group could start legal proceedings aimed at protecting similar interests of other persons, as long as it represents these interests in accordance with its articles of association. The interest group may request a declaration finding that a defendant is liable for damages it caused, but paragraph 3 of this article prevents a claim for compensation from being filed.
The existing law allows a court to declare that a settlement between a collective interest group and a defendant have binding effect on a group. But if the parties cannot reach a settlement or the defendant is simply not prepared to settle, the law has no teeth to actually force the defendant to settle. As a result, individual victims have to start separate procedures for damage compensation. However, the threshold to starting such a procedure, including all the associated costs, can be high — certainly when damages to individual victims are limited, as in the case of dispersed damages — leading the party which caused the damage to initiate the compensation process.
WAMCA in a nutshell
The WAMCA does provide for the possibility of filing a collective action for damage compensation, providing the aforementioned missing teeth to the law. At the same time, the new law aims to make settlements more attractive and practical. For example, it improves the quality of collective interest groups by tightening admissibility requirements abd establishes better coordination of collective action procedures by appointing one exclusive representative to act on behalf of all claimants and interest groups.
Tighter admissibility requirements for interest groups
For collective interest organisations, stricter admissibility requirements apply in the field of governance, financing and representativeness under WAMCA. For example, they must have a supervisory body, sufficient financial resources and sufficient experience and expertise to start a collective action. Collective interest groups, for instance, may not be for-profit.
The collective action must also have sufficiently close links with the Netherlands’ jurisdiction, introducing a scope rule. Under WAMCA, a sufficiently close relationship exists when (i) a majority of the victims habitually reside in the Netherlands, (ii) the defendant is established in the Netherlands and additional circumstances indicate sufficient connection with the Netherlands’ jurisdiction or (iii) the event related to the claim took place in the Netherlands.
Procedure
The collective action starts with the collective interest organisation or plaintiff filing a statement of claim detailing the facts and grounds for the collective claim, identifying the group or class, among other details. The defendant can respond by means of a statement of defence. However, the matter will only be admitted after the court has ruled that (i) the plaintiff meets the admissibility requirements, (ii) the plaintiff has made it sufficiently plausible that filing a collective claim is more efficient and effective than filing individual claims and (iii) the collective claim does not summarily qualify as defective.
If several interest groups make a collective claim with regard to the same event, the judge will designate the most suitable organisation among them as the exclusive representative. This exclusive representative acts as a plaintiff representing all people belonging to the group of persons whose interests are represented in the collective action, the class or group, and also as a representative of other interest groups. The latter interest groups remain parties to the proceedings. Those in the class or group that decide they do not want to be represented by this exclusive representative may, within a period set by the court, give notice that they do not want to be bound by the outcome of the collective action, which is the first opt-out moment.
The court then prescribes a time period for the parties to try to reach a settlement. If and when a collective settlement is reached, some in the class or group may indicate that they do not want to be bound by the settlement. This second opt-out moment was not part of the original bill and was added after a consultation round. If the parties do not reach an agreement on a settlement, the case will go through the normal procedure in Dutch courts, but the court will rule, if necessary, to determine a collective compensation. In this case, the compensation may be determined in different categories, if necessary to meet existing differences among class members as much as possible.
The collective settlement agreement or the collective damage compensation determined by the court is binding on all class members living in the Netherlands that have not opted out, as well as on all class members not living in the Netherlands that opted in by consenting to the protection of their interests.
Entry into force and transitional law
The WAMCA applies to collective actions filed on or after 1 January 2020, the day the WAMCA enters into force, relating to events that took place on or after 15 November 2016.
Consequences in practice
According to its explanatory memo, the goal of WAMCA is to promote the efficient and effective collective compensation of mass damages claims. In doing so, it seeks a balance between the importance of fulfilling the rights of class members and the interests of defendants to be protected against ill-founded and frivolous mass damages claims.
Whether the law will actually achieve this goal remains to be seen. Now that it is also possible to claim compensation in a collective action, interest groups have at least an important stick to persuade defendants to reach a settlement. Defendants, on their turn, will mostly benefit from the stricter admissibility requirements for interest groups and a fixed point of contact in the form of the exclusive representative.
It is also difficult to say at present whether this law will lead to more collective actions. The initial fear of stimulating an American style litigation culture and a forum shopping effect attracting foreign interest groups seems to have been largely suppressed by the scope rule. That does not change the fact that the law can make it interesting for a large group of claimants to make a claim for compensation, even when the damage suffered by each individual party is only limited. Consider, for example, the case of a defective product with a very small value or a data breach that would give rise to a very small or immaterial compensation. It seems likely that collective interest groups will take action in these cases.
Businesses are therefore advised to check whether this change in the law can lead to an increase in collective actions against them and, if so, to prepare for it. For instance, to what extent are these collective actions covered by existing liability insurance? Many liability insurance policies have a ‘serial damage’ clause, stipulating that a series of related events is seen as a single event. This has consequences not only for the deductible, which in such case would be due only once, but also for the insured sum, which would also be limited to one time its value. If the value of the total collective claim exceeds the amount of the insured sum, this would have a major financial impact and possibly even consequences for business continuity. An insurance broker or agent may be able to advise on these scenarios.
Visit our Class actions page for more information and do not hesitate to contact us if you have any questions.
