Dutch doors wide open to Class Action Settlements

Class Action Settlements are binding even if the connection with the Dutch Legal sphere is minimal. With its (provisional) decision in the Converium case (Amsterdam Court of Appeal, November 12 2010, LJN BO3908 (Converium), the Amsterdam Court of Appeal has opened the gateway to class settlements in the Netherlands even further, stipulating that the Netherlands is an attractive alternative to class settlements in the US, especially since the Morrisson ruling of the US Supreme Court in summer 2010 (Morrisson v National Australia Bank, 561 US 2010).

The Converium case

The case concerned two Swiss reinsurance companies: Scor Holding AG (formerly known as Converium Holding AG) and Zurich Financial Services Ltd (ZFS). Until December 11, 2001 Converium was a subsidiary of ZFS. On that date ZFS sold all its shares in Converium through an initial public offering; Converium's shares were listed on the SWX Swiss Stock Exchange and American depositary receipts were listed on the New York Stock Exchange. Between 2002 and 2004, Converium announced several times that it had to increase its loss reserves. Consequently, Converium's shares declined in value and securities holders of Converium and ZFS initiated securities class actions in the United States against both companies. The US District Court for the Southern District of New York excluded from the certified class all non-US claimants that had purchased Converium shares on any non-US stock exchange. A settlement was reached with the certified group of claimants and approved by the District Court. The excluded claimants represented by the interest groups consisted of approximately 12,000 persons and companies, of which only 200 were Dutch residents or companies. The majority of the claimants were Swiss residents and companies. The remaining claimants were residents and companies from other EU member states and third states. The excluded claimants were represented by Dutch interest groups Vereniging VEB and the Stichting Converium Securities Compensation Foundation. They reached a settlement agreement with Converium and ZFS. Next, they asked the Court to declare the settlement binding pursuant to the Act on the Collective Settlement of Mass Claims (WCAM).

Ruling on jurisdiction

In court it was agreed that the Court would first decide on its jurisdiction in a provisional ruling. The Court ruled that it had jurisdiction in respect of all excluded claimants. In respect of Dutch claimants, the Court ruled that it had jurisdiction in accordance with Article 2(1) of the Brussels I Regulation, which stipulates that "persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State". In respect of claimants from other EU Member States and European Free Trade Agreement (EFTA) member states, the Court ruled that it had jurisdiction based on Article 5(1)(a) of the Brussels I Regulation and the Lugano Convention, which stipulate that "a person domiciled in a Member State may, in another Member State, be sued in matters relating to a contract, in the courts for the place of performance of the obligation in question". Once the settlement agreement is declared binding, it will be performed in the Netherlands, as the Stichting Converium Securities Compensation Foundation will be the entity distributing the relief set out in the settlement agreement to all excluded claimants from its Dutch bank account. Therefore, the obligation in the settlement agreement will be performed in the Netherlands. Alternatively, the Court ruled that it had jurisdiction in respect of claimants from other EU or EFTA member states pursuant to Article 6(1) of the Brussels I Regulation and the Lugano Convention, as the claims are so closely connected that it is expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings. Finally, in respect of claimants from third states (i.e. claimants from non-EU member states), the Court held that it had jurisdiction on the grounds that the interest groups were incorporated in the Netherlands and, as mentioned above, the settlement agreement was to be performed in the Netherlands by the foundation. By emphasizing the fact that the settlement agreement required the foundation to distribute the relief, the Court appeared to suggest that as long as a Dutch interest group was involved in executing the settlement agreement, no other connection to the Netherlands was required in order for the court to have jurisdiction to declare the settlement agreement binding. The ruling on jurisdiction is provisional. All interested persons have been notified and can submit a defense against the ruling. A definitive ruling is expected by summer or autumn 2011.

Implications

In previous newsletters we reported on developments regarding the Dutch rules on Class Action Settlements. We explained that Dutch law does not provide for a class action “American style”, but it does provide for a mechanism that facilitates the implementation of collective settlements. This mechanism is the Act on the Collective Settlement of Mass Claims (the Act is referred to in the Netherlands as the WCAM and I will use that name in this contribution as well). It is very interesting to find that the Court is fully aware of creating an alternative venue for international class settlements. In the Converium decision the Court mentioned the limitations of the US courts as a result of, among other cases, Morrisson, it discussed the Shell decision and whether the outcome of the Converium decision is comparable to the US settlement, thus reaching a global settlement for all involved parties. In the Shell decision (Amsterdam Court of Appeal, May 29 2009, LJN BI5744, JOR 2009, 197 with note of AFJ Leijten (Shell)) the Amsterdam Court of Appeal decided that the WCAM also provides a cause of action for non-Dutch claimants in the event that a substantial number of the shareholders are Dutch residents or companies and one of the defending entities is a Dutch company. In our January newsletter we reported about the Ahold decision (Hof Amsterdam, June 23 2010, JOR 2010, 225, with note of IN Tzankova (Ahold)) in which the Amsterdam Court of Appeal decided that – in principle – Dutch investors are bound by a worldwide class action settlement under American law, which has been declared generally binding by the American Court. With those judgments the Netherlands already positions itself in Europe as the forum outside the US to settle class actions. The Converium decision opens the Dutch doors to class action settlements even further, since the court is willing to declare class settlements binding even if the connection with the Dutch legal sphere is minimal.