Does a recent judgement of a Dutch court usher in the end of commercially driven litigation initiated by claim foundations in the Netherlands? End of June a landmark decision was rendered by dismissing a claim of a Dutch claim foundation because of the commercial motives behind the foundation and the non-compliance of that foundation with the Dutch Claim Code.
Since numerous other claim foundations in the Netherlands are more or less similarly organized as the foundation that initiated the litigation that resulted in this landmark decision, this judgement can have far stretching consequences for these other Dutch claim foundations and the litigation initiated by them.
Background information
Only if certain requirements are met, Dutch claim foundations can initiate litigation on behalf of a class of interested parties to try to obtain a declaratory judgment on liability of the defendant. Dutch legislation prescribes that the claims pursued by the claim foundation shall however be dismissed if the interests of the class members are not sufficiently safeguarded. This open legal standard of “sufficiently safeguarded interests” provides judges a certain discretionary power to assess the motives of claim foundations.
In an action of the Dutch claim foundation “Stichting Renteswapschadeclaim” litigation for alleged misselling of interest rate swaps the defendants argued that the requirement of “sufficiently safeguarded interests” was not met in this case and that the foundation was not compliant with the Dutch Claim Code (a code created in 2011 with “best practices” related to the governance of claim foundations).
Although Dutch legislation does not prescribe that claim foundations must be compliant with the Claim Code, the legislative history regarding collective actions mentions that, besides numerous other aspects, the (non-)compliance of a claim foundation with the Claim Code can be taken into account by a court when assessing the fulfillment of the requirement of “sufficiently safeguarded interests”. So far the role that the Claim Code has played in Dutch case law when it comes to this assessment has been almost nonexistent. With the present judgement this situation may change dramatically.
Judgement of the Dutch lower court
In its judgement the Dutch court specified to deem the compliance of claim foundations with the Dutch Claim Code highly relevant when assessing the requirement of “sufficiently safeguarded interests”.
The court concluded that the foundation “Stichting Renteswapschadeclaim” was not compliant at all with the Claim Code
This conclusion was based on the following arguments.
- First of all, the court considered that the foundation “Stichting Renteswapschadeclaim” was founded by just one single person (the chairman of the foundation), with no other purpose than litigation and lacked a proven track record. The court also took into account that the chairman of the foundation is also the founder of other foundations such as the “Volkswagenaudiclaim” foundation. This illustrates, according to the court, that the decision to create the foundation “Stichting Renteswapschadeclaim” was at least (also) commercially motivated.
- The court also concluded that, regardless the fact that during litigation an additional board member was added and a supervisory board was installed, the foundation still was not compliant with the principles of the Claim Code and especially not with the principle that a claim foundation must have a “balanced” governance structure. According to the court, the role and power of the second board member seems to be limited when compared with the chairman who created the foundation.
- Also the two members of the supervisory board were not present at the court hearing and one of them only has limited knowledge of the Dutch language. Finally, the articles of association of the foundation do not stipulate anything regarding the remuneration of the chairman of the foundation nor does the supervisory board play any role in determining this remuneration, which are also clear violations of the Claim Code.
- The court drew as a final conclusion that an adequate system of “checks and balances” is absent within the foundation “Stichting Renteswapschadeclaim” and too much power is concentrated within just one single person: the chairman and founding father of the foundation. The court therefore ordered that the interests of the class members are not sufficiently safeguarded with regard to the claim asserted by the foundation and declared that just on this basis the foundation is inadmissible and the claim is dismissed.
Implications of this judgement
Dutch (claim) foundations are barred by law to aim to make profits. However, the initiating parties behind the claim foundations (law firms, funders, advisors) sometimes nevertheless attempt to use Dutch claim foundations for commercial purposes. As long as the interests of the members of the class are safeguarded sufficiently, the Dutch courts do not see a problem in such a construction. However, in this case it seems the court has taken a stricter approach than other courts in other more or less similar cases.
This decision shows a heightened attention for the interests of class members and especially those class members who contracted with the foundation that represents them.
It also shows that the principles of the Claim Code in the future perhaps will play a significantly more important role than before this judgement
Since numerous claim foundations in the Netherlands are more or less organized and set up in a similar way as “Stichting Renteswapschadeclaim” this judgement can have far stretching consequences. All these claim foundations, and those investors that contracted with these foundations or consider themselves part of the class represented by these claim foundations, should take heed of this judgement and its possible effects on the pending litigation initiated by these claim foundations.
If other Dutch courts follow the stricter approach applied in the case of the foundation “Stichting Renteswapschadeclaim”, the claims of these foundations will also be dismissed.
