The main rule for Dutch class actions is that foreign class members must actively consent to being represented by the lead plaintiff and to be bound by its outcome. Recently, however, a Dutch court for the first time has ruled that foreign class members must opt-out from a Dutch class action. Absent any action from their side, they will be part of the class action.
Does this decision create a risk for institutional investors based outside the Netherlands to be unknowingly or unwillingly drawn into a Dutch securities class actions without their knowledge or consent?
Our current analysis suggests the opposite, but it is currently uncertain how the Dutch courts will use their discretionary powers in this area.
The Dutch Collective Damages Act (“WAMCA”) has now been in existence for three and a half years and has made it possible to claim damages in class actions in the Netherlands.
According to the main rule, foreign class members can only join a Dutch class action if they “opt-in”. They are required to actively consent to being represented by the lead plaintiff and must express the desire to be bound by the outcome of the class action by filing a notice to the Dutch court.
The rationale behind the Dutch legislator’s decision to require foreign class members to opt-in, is to prevent Dutch class actions unintentionally obtaining a very wide scope that would affect the inefficiency of the proceedings.
If the opt-out principle were to be utilised, all foreign class members not undertaking action will automatically be included as part of the class action. This could potentially lead to very vast classes with huge amounts of unidentified, unknown foreign class members. Also, many of these foreign class members would probably not even be aware that they are included in the Dutch class action.
Dutch Court applies for the first time an exception on the opt-out regime
Dutch procedural law does cater for an exception on the opt-out regime. So far, however, all requests that were filed by various representative organisations to use the opt-out regime for foreign class members have been denied.
This changed with a recent interim decision of the Court of The Hague that was published on 6 June 2023.
A representative organisation called “Brein” filed an IP infringement action under the WAMCA for a declaratory judgement. No damages were claimed. The claimant organisation requested the court to apply the exception of the opt-out regime to foreign class members.
Brein pointed out that a very large number of its affiliates (artists, producers, distributors, publishers and media outlets) are located outside the Netherlands and are not prepared to send an opt-in letter to the court every time Brein files a WAMCA-procedure. Utilising the opt-in regime will therefore lead to Brein being unable to represent these foreign affiliates’ interests while these affiliates have never objected before to Brein representing them. Also, these foreign affiliates financially support Brein.
The court granted Brein’s request and confirmed that Brein’s reasoning was sufficient to make use of the exception on the main rule.
Airbus securities class action: request to apply the opt-out regime for foreign institutional investors
As is common with securities cases, the affected group of institutional investors generally consists of both Dutch and foreign investors.
We have, however, not seen many securities-related class actions in the Netherlands so far. To understand why there has been such a limited uptake of this type of Dutch class actions, please watch our webinar where we explain this in detail: WAMCA Webinar Recording
Currently, there are only two securities class actions pending under the WAMCA with both actions pending against Airbus SE. One of the actions was filed by the foundation “Airbus Investors Recovery Stichting” (“AIRS”).
AIRS did request the court to apply the exception of the opt-out regime for foreign investors. It claims that making use of the opt-out regime would be more efficient. AIRS also indicated that it is sufficiently clear who the foreign class members are. AIRS furthermore added that foreign investors would potentially not be able to file claims in their home jurisdiction due to a lack of jurisdiction of the local courts. Foreign investors could also potentially encounter difficulties in locating the appropriate court(s) because they could be unaware on which stock exchange(s) they purchased their Airbus shares.
The AIRS example clearly illustrates a precedent where a Dutch representative organisation has tried to persuade the court in a securities class action to apply the exception of the opt-out regime on foreign institutional investors.
The court still has to decide on this request.
Is there a risk for foreign institutional investors?
Does the recent decision of the court of The Hague in applying the opt-out regime to foreign class members create a risk for institutional investors based outside the Netherlands?
Whilst there is the potential risk that they could be unknowingly or unwillingly drawn into a Dutch securities class actions without their knowledge or consent, I do not consider that risk to be very high.
First of all, in the case of the representative organisation “Brein” is quite unique. The class in this action consists of affiliates of Brein, known to Brein by name and address. Additionally, these affiliates financially support Brein and have never objected to Brein representing them in the 10 WAMCA-cases that Brein has filed since the enactment of the WAMCA in January 2020. Finally, Brein did not claim damages on behalf of its affiliates.
This differs substantially from ad-hoc incorporated representative organisations in securities class actions (such as AIRS) that do not know who the foreign class members are, with no record of their names and addresses. In the case of AIRS they are also not paying affiliates of the foundation. Furthermore, it will be difficult for the court to establish whether or not foreign institutional investors wish to be represented by the claimant organisation and if they wish to be bound by the outcome of the securities class action. Finally, in securities class actions, damages are close to always part of the claim.
Using the opt-out regime for securities class actions will also create the exact situation that the legislator wanted to prevent: a very vast class with huge amounts of unidentified, unknown foreign class members for which it is uncertain whether they wish to be bound by the outcome of the action or not.
Therefore, I expect that the Dutch court will not quickly decide that in securities class actions the opt-out regime will be employed.
Secondly, even if a court would choose to make use of the opt-out principle in a securities class action, applicable statutes require that the claimant organisation must create publicity around the requirement to opt-out. I expect that the court will require the claimant organisation to publicise over a period of various months, in numerous media outlets and on other channels, announcements that institutional investors must opt-out from the class action if they do not wish to be bound. I furthermore expect that the court will determine a long opt-out period for these foreign institutional investors to provide sufficient time to obtain the required information for their internal decision-making processes. This will hopefully prevent that foreign institutional investors become unknowingly or unwillingly a part of a Dutch securities action.
Finally, Deminor monitors all potential collective securities actions outside the U.S., including Dutch collective securities class actions under the WAMCA. We regularly update our institutional clients via our Deminor Alert and Monitoring Service “DAMS”. If our clients would be required to make a decision to opt-out of a Dutch securities class action, we will inform our subscribed clients via DAMS.
If you would have any questions about this article, wish to discuss or would like to receive more information about DAMS, please reach out to Joeri Klein (joeri.klein@deminor.com)
Further reading:
Follow the links below for free access to our unparalleled Quantitative Analysis covered in the First and Second Editions of the WAMCA Whitepaper, uncovering the real impact of WAMCA in Dutch claims culture since the act’s passing:
- https://www.deminor.com/en/blog/two-years-of-wamca-a-quantitative-analysis
- https://www.deminor.com/en/news/three-years-of-wamca-a-quantitative-analysis/
