As 2019 comes to an end, we are looking forward to the New Year with legal developments in the securities litigation world. As part of our ongoing commitment to be the leaders in covering global developments of interest for our institutional clients, we would like to highlight the new Dutch Act on Collective Damages Claims (Wet Afwikkeling Massaschade in Collectieve Actie; short: WAMCA). The WAMCA will finally enter into force on January 1, 2020 and complement the preexisting act on collective settlements of mass claims (WCAM). The WAMCA will cover collective damages actions for claims resulting from conduct that took place after November 15, 2016, the date that the legislative proposal was submitted to the Dutch Parliament. After various amendments, the WAMCA was finally approved in March 2019.
The WAMCA purports to add additional pressure on defendants by providing them with more weapons and expanding the pool of possible claimants. The law can be applied to all kinds of disputes, including securities litigation. Similar cases will be consolidated and one class representative will be appointed to represent the class. In the case of securities litigation, Dutch (resident) investors will have at least one month to opt out. Foreign investors interested in being a participant in the collective proceedings will have to actively opt into the case and are not automatically covered by the damages action, even if they fall under the definition of the class, unless the Dutch court determines that an opt-out procedure should apply. Hence, investors need to be informed about these proceedings and act according to their interests. However, the benefit would be that other than with the current WCAM proceeding which cannot cover damages, this new model would be able to cover damages for Dutch resident investors and all of those foreign investors who affirmatively opt into the procedure.
It is important to note, that a damages action based on the new WAMCA can only be brought by qualifying institutions as the law establishes various requirements for organizations that would like to pursue direct damages actions. For example, the Act provides that only not-for-profit organizations have the right to bring damages actions for a group of claimants, if the organization can show good corporate governance by having, e.g. a supervisory board, providing the represented members of the foundation a mechanisms for decision-making and having sufficient experience and expertise to represent a class. Hence, this is highly geared to benefit the various Dutch investor organizations interested in promoting their memberships and will not help more commercially oriented institutional investors who may seek to form a group to drive a case forward. Hence, the institutions which have in the past already advanced cases in the Netherlands will likely continue to do so even if an “organization-led” class action is pending for Dutch investors.
We expect that establishing jurisdiction in the Netherlands will be one main aspect in dispute, as either the majority of individuals on whose behalf the damages claim is being brought are Dutch, the defendant resides in the Netherlands, or the fraudulent conduct occurred in the Netherlands. Jurisdictional issues also arise under the still existing WCAM, but the Dutch courts have been very liberal in accepting jurisdiction in a few foundation cases against foreign companies such as Petrobras and Volkswagen, alleging fraudulent acts that were perpetrated by non-Dutch companies with some Dutch (financing company) connections.
Overall, the Netherlands continues to be a pioneer in resolving international securities cases resulting in recovery for harmed investors. The current WAMCA law seems modeled after the now repealed UK consumer rights act, which also provides for opt-out damages cases for UK resident investors, while allowing non-UK resident investors to “opt into” the class action procedure. As a result, we expect to see an increase in damages actions by Dutch-based membership organizations such as the VEB involving any potential fraudulent activity with a (remote) Dutch connection. We are skeptical about whether the interests of large institutional investors in recovering losses against non-Dutch companies are best served with membership-organization-led damages class actions in the Netherlands, which have no tolling effect on claims which should be brought in the place of incorporation or doing business of the defendant issuer company. However, we will continue to observe and monitor any developments as part of the European Commission initiatives pushing collective redress solutions forward in all European countries, not only for the benefit of private investors and consumers but also institutional investors, in the interest of having effective procedures to recover damages suffered as a result of European publicly listed corporations ignoring capital market laws.