Dutch House of Representatives adopts draft legislation on Collective Action for Damages in the Netherlands

This week, the Dutch House of Representatives adopted the draft legislation on collective action for damages, including five amendments to the legislative proposal.

Last year, we published an update on the development of the legislative proposal, introducing the option of claiming monetary damages in a collective action on an opt-out basis.

Five amendments

The following amendments were adopted:

1. One of the admissibility requirements under the draft legislation is that the action must have a sufficiently close connection with the Dutch jurisdiction (the so called "scope rule"). This connection will exist if any of the following conditions are met: 

• if the majority of the individuals on behalf of whom the collective action is initiated reside in the Netherlands;

• if the defendant resides in the Netherlands; or

• if the circumstance(s) on which the collective action is based took place in the Netherlands.

According to the submitters of the amendment, this scope rule can lead to collective actions with hardly any connection to the Dutch legal sphere, because there is a sufficiently close connection if only one of these conditions are met. In addition, the submitters fear that this could lead to more collective actions against Dutch companies. Therefore, the submitters proposed that, if the connection is based on the condition that the defendant resides in the Netherlands, other circumstances should point to a connection with the Dutch legal sphere too. The court should assess whether this is the case. This could be the case if the revenue of a large multinational runs to a great extent through its Dutch subsidiary. 

2. The following amendment tries to protect the defendant against nonsense claims that are initiated, possibly with the help of third party litigation funders, and that prevent a careful representation of collective interests. At this time, third party litigation funding is not frequently used in the Netherlands. The Dutch government anticipates an increase in third party litigation funding. The legislative proposal includes the possibility for the court to ask the claim vehicle to substantiate that it has sufficient means to finance the collective action. In addition, the court will assess whether the claim vehicle has sufficient control over the claim. The funder may, for example, not decide if the claim vehicle should enter into a settlement. Finally, the court will establish that the claim is not prima facie unfounded. In order to prevent nonsense claims, the amendment provides that the court can order the plaintiff to pay five times the normal court approved scale of costs in the event that the claim does not pass the prima facie unfounded test. This cost order is still far from the "loser pays all costs-principle", but more than can be awarded under normal circumstances.

3. On the basis of the draft legislation, there is almost no transitory law. This means that a collective action for damages can be started on the basis of events that occurred before the draft legislation came into effect. According to the submitters, this widens the powers of the plaintiffs to use the collective action for damages, while the defendants could not have been aware of such a procedure. Therefore, the submitters suggested limiting the possibility to start a collective action for damages for events that occurred from 15 November 2016. This is the date of filing of the legislative proposal.

4. The draft legislation contains admissibility requirements. There are, however, exceptions for claims with an idealistic goal. The court can determine that these claims do not have to fulfil the requirement that the claim vehicle is sufficiently representative. In addition, the court can determine that such a claim vehicle does not have to fulfil the following requirements that:

• the board members of the claim vehicle have a non-profit motive;

• the claim has a sufficiently close connection with the Netherlands; and/or

• the claim vehicle has sufficiently tried to solve the matter amicably with the defendant.

The submitters found this undesirable and proposed that these requirements also apply to claims with an idealistic goal. By doing so, the collective action for damages is not open to claims by unrepresented claim vehicles with profit motive without a connection to the Netherlands. 

5. For claims with an idealistic goal and restricted financial interest, the draft legislative proposal makes it possible to claim damages for these claims. The submitters are of the opinion that it should not be possible to claim damages for these idealistic goal claims, as that is not the primary objective. These claims are aiming to prevent public abuse.

Next steps

The legislative proposal will need to go through the Dutch Senate. It is expected that the legislation will enter into force later this year.

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