On 19 March 2019 the Senate adopted the Bill on Redress of Mass Damages in Collective Actions (RMDCA). The RMDCA enables representative entities to claim monetary compensation on behalf of their constituents, which provides aggrieved parties with more effective means of redress. The RMDCA also introduces stricter requirements regarding the admissibility of representative entities and the scope of collective action proceedings, along with other procedural changes.
The RMDCA is expected to enter into force on 1 July 2019 and will apply to claims relating to events which occurred on or after 15 November 2016 (the date on which the bill was submitted to Parliament).
This article discusses the main features of the RMDCA.
Present collective action proceedings
It has been possible to file collective actions proceedings in the Netherlands since 1 July 1994. Pursuant to Article 3:305a of the Civil Code, foundations or associations with full legal capacity that aim to promote the similar interests of their constituents can instigate proceedings to protect these interests if:
- they represent the interests under their articles of association; and
- the interests are sufficiently safeguarded.
The abovementioned regime is bound by certain restrictions; most importantly, representative entities cannot demand monetary compensation on behalf of their constituents. Therefore, most collective actions are used to obtain declaratory judgments which confirm that one or more defendants has acted unlawfully and can be held liable for the resulting damages. Although in principle aggrieved parties can rely on the court's declaratory findings, they must still file a claim for damages in separate legal proceedings. The RMDCA addresses these limitations by directly enabling claims vehicles to seek monetary compensation in collective actions.
Requirements regarding the admissibility for representative entities form an important procedural element in Dutch collective actions. Representative entities must sufficiently safeguard the interests of their constituents in order to be admissible. Most of the new requirements under the RMDCA follow directly from the Claim Code,(1) a code of conduct for representative entities which sets out a number of elementary principles relating to good governance and transparency and sets requirements for the duties and working methods of the board of such entities on a 'comply or explain' basis. In short, representative entities must:
- have a supervisory body;
- enable their constituents to express their opinion on the decision-making process;
- have sufficient financial means to conduct a class action proceeding;
- offer transparency to their constituents by publishing information via a website; and
- have sufficient expertise and experience to conduct the proceedings.
The RMDCA introduces the so-called 'scope rule'. In order for representative entities to be admissible, a collective action must have a sufficiently close connection to the Netherlands. Such a connection is deemed to exist if:
- the majority of the class represented by the collective action resides in the Netherlands;
- the defendant resides in the Netherlands and additional circumstances indicate that the collective action is sufficiently connected to the Netherlands; or
- the event or events on which the collective action is based took place in the Netherlands.
Two days after a writ of summons is served on the defendants, representative entities must register their case with the central register for collective redress cases. From that moment, other representative entities can initiate collective actions relating to the same events within three months. During that period, the addressed court will stay the first proceedings.
Another new feature is the possibility for the courts to appoint so-called 'exclusive representatives'. If more than one claim for the same subject matter is registered with the central register, the court will appoint an exclusive representative from these entities to carry on the proceedings on behalf of (and in consultation with) the other claimants. The other representative entities will remain a party to the proceedings.
After the court has appointed an exclusive representative, it sets a period in which the involved parties must negotiate a settlement. If a settlement is concluded and declared binding, the court will set a second opt-out period. If the parties fail to settle their dispute, the proceedings will continue. During the proceedings, the court can order the parties to submit their view on the compensation amount to be determined by the court. Finally, in determining the compensation, the court must assure that the compensation amount is reasonable and that the interests of the constituents of the representative entities are sufficiently safeguarded.
Judgments in collective action proceedings are binding for all individuals who reside in the Netherlands, except for those who opt out within one month from the court's appointment of the exclusive representative. Individuals who opt out can pursue their claim only through individual actions.
Non-Dutch residents are not bound by a judgment unless they explicitly choose to opt in within one month from the court's appointment of the exclusive representative. In addition, the RMDCA allows the Dutch courts to determine that the opt out principle also applies to a clearly defined class of foreign aggrieved parties.
Litigation costs and lawyers' fees
The Netherlands applies a liquidated costs scheme for the reimbursement of lawyers' fees. Under this scheme, only specific acts and services of attorneys are compensated at a fixed (moderate) amount. Both the representative entities and the defendants therefore do not risk being ordered to pay considerable amounts for legal costs to the prevailing party.
By way of derogation from this principle, unless fairness dictates otherwise, the RMDCA allows the courts to order representative entities that file frivolous claims to pay up to five times the current fixed amount. Further, if the court ends the proceedings by ordering a collective settlement, it can order the defendants on the representative entity's demand to pay reasonable and proportionate court fees and other costs that the representative entity has incurred.
By allowing representative entities to claim monetary damages, the RMDCA will significantly improve the efficiency and effectiveness of collective action procedures before the Dutch courts.
The RMDCA also provides additional incentives for defendants to voluntarily settle collective damages claims. One of those incentives is the obligation for parties to test a settlement after the exclusive representative has been appointed. This could prevent costly and time-consuming (follow-up) proceedings, thereby relieving the Dutch courts from waves of additional lawsuits.
As for the admissibility of representative entities, the RMDCA contains a considerable number of new requirements compared with the current Article 3:305a of the Civil Code. However, in practice, the courts already consider most of these requirements through the Claim Code. Although the Claim Code has no official legal authority, the Dutch courts routinely rely on its principles as a standard to assess whether representative entities sufficiently safeguard the interests of their constituency. With the RMDCA, the legislature has now codified various principles in Article 3:305a of the Civil Code. Combined with other new requirements, such as the appointment of an exclusive representative, the RMDCA further enhances the quality, expertise and efficiency of representative entities.
The RMDCA's scope rule is helpful as it indicates the minimum requirements that must be met for the courts to take on international competence in cross-border collective redress cases.
The RMDCA embodies the next step in the Netherlands' shift towards a progressive class action climate and adds a new dimension to Dutch cross-border collective redress cases.
Endnotes
(1) The Claim Code entered into force in 2011 and was updated in 2019.
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