November 11th, 2011

Continental European Legislative and Judicial Trends: The Dutch “Class Action (Financial Settlement) Act” (WCAM)

Posted at 1:00 AM ET

David Lewin, Managing Director
Contact

Introduction

The public consultation by the European Commission (EC) “towards a coherent European approach to collective redress (Brussels, February 4, 2011 SEC (2011) 173 final)” shows that the topic of “mass damages” is prominent on the European agenda. We take this opportunity to provide information on the current Dutch “Class Action (financial settlement) Act” (WCAM) (1), which came into force on July 27, 2005. The act prescribes that a collective settlement is a viable and successful way of resolving mass damage claims. This situation is different from that in the United States, for example.

The WCAM facilitates an agreement for settlement of mass damage claims in a specific situation. The settlement occurs between an organization representing the interests of those who have sustained a loss and the liable party (or parties). It can be declared binding by the Court of Appeal in Amsterdam (the sole court of jurisdiction for the Act) relating to the entire group of damaged/aggrieved parties.

Collective settlement of mass damage claims through the WCAM provides advantages and opportunities. It helps avoid a need for multiple proceedings with related, often substantial, litigation costs. It also provides a significant degree of certainty regarding the financial obligation of the defendants, including the (re)insurers of the claiming/aggrieved parties. Another advantage for the claiming/aggrieved parties is the opportunity to receive damages of a realistic amount in a shorter period of time, avoiding many years of protracted legal proceedings. The possible emotional burdens of extended litigation, uncertainty about both the extent of the legal costs and the outcome of the trial are all avoided. The WCAM is a good solution in many legal situations, ranging from cases of physical injury to cases of financial loss.

Overview of WCAM

The main thrust of WCAM is the fact that the payment/compensation agreement resulting from the decision of the Amsterdam Court of Appeal is binding upon the entire group of damaged/aggrieved parties. Reference is made to Article 7:907, Paragraph 1 DCC, which stipulates that it is imperative that the resulting agreement be concluded between one or more parties. These parties bind themselves to an agreement to compensate for the loss on one hand, and a foundation or association with full legal competence which, by virtue of its articles of association, represents the interests of the damaged/aggrieved parties, on the other hand. After reaching an agreement, the parties can  submit a joint request to the Amsterdam Court of Appeal to have it declared binding. The agreement must provide for the compensation of losses caused by a single event or similar events. The nature and size of damages for each individual damaged/aggrieved party will vary, of course. The level of payments awarded must acknowledge this variance.

A decision made by the Amsterdam Court of Appeal that an agreement is binding can only be justified if the interests of the damaged/aggrieved parties are clearly protected by the terms of the agreement. Article 7:907 Paragraph 2 CC states the minimum requirements that must be included in the agreement. Paragraph 3 mentions the circumstances in which the court will reject the application.

As the nature and size of damages for individual damaged/aggrieved parties often differ, the principal of using categories of loss (”damage scheduling”) is required. Damage scheduling requires that the appropriate category for a damaged/aggrieved party be determined. The agreement must include the conditions that must be met to qualify for compensation. The damaged/aggrieved party is then able to make a claim for damage compensation corresponding with the relevant category.

Article 7:907 DCC paragraph 3 concerns rejection of the application. Section b is of prime importance because it requires the Amsterdam Court of Appeal to — inter alia — investigate whether the amount awarded is reasonable for each category of loss. It mentions a number of elements for the investigation, such as the size of the damages to those individuals allocated to a certain category and the ease and speed with which payment can be obtained.

Opt -Out Facility

Basically, once the Amsterdam Court of Appeal has declared the agreement binding, it will no longer be possible for a damaged/aggrieved party to request compensation beyond what has been agreed upon. However, it is possible for a damaged/aggrieved party to withdraw within a specific period of time from the binding agreement. This is generally called an “opt-out facility.” Article 7:908 DCC, Paragraph 2 states that parties that make use of the opt-out facility remain fully entitled to make their own individual claim and commence proceedings if required. With a view of the impact of a binding agreement on the individual damaged/aggrieved parties, these parties are offered the opportunity to be heard in the proceedings leading up to the decision that the agreement is binding. This facility is offered to the damaged/aggrieved parties through their being summoned to join the proceedings through notices placed in one or more national newspapers. The party from which compensation is being claimed may make a request during the hearing to declare the agreement binding. They may request that pending proceedings concerning compensation agreement be suspended.

What If Liability Is Denied?

Although it is clear that the WCAM is inspired by the American “damage class action” procedure, the underlying principle is very different. Under the WCAM, the parties must first reach agreement, after which they may jointly ask the Court of Appeal to declare their agreement binding. A damage claim action procedure in the United States requires that a representative victim request the court to order the liable/defending party to pay damages to a group (the “class”). In the U .S. scenario, it may sometimes be very difficult for an agreement to be reached if, for example, the parties have a different view on legal issues. The defending party is generally not willing to agree to a settlement if it believes it does not have liability. If this is the case, then another mechanism comes into play - the collective right of action in accordance with Article 3:305a DCC, in existence since 1994. If essential legal questions need to be answered, an interest group may ask by way of a collective action to issue a declaratory decision on the issue. This court need not be the Court of Appeal in Amsterdam. Money claims are not possible under Article 3:305a DCC. This ability to ask questions helps in the clarification of legal issues. It also increases the willingness to enter into negotiations. (It may also strengthen the defending party’s denial of liability.)

Conclusion

The experiences with the WCAM demonstrate that it is a useful tool for redressing mass claims, for issues of personal injury or plain financial loss. As it involves reaching an agreement, it requires two willing participants, which is not always the case. The Dutch law on collective action is, therefore, of essential importance. It may be a necessary means for reaching a point where parties are eligible to enter into negotiations. The WCAM is a productive legal instrument, but it is not perfect. The Dutch Ministry of Justice and Security acknowledges this. It is exploring the possibility of furthering the success of the WCAM by proposing possible obligatory hearings early in the process or before the actual proceedings begin. This will further help resolve legal issues and also consider possible preliminary questions by the lower courts to the Dutch Supreme Court. We are not certain if this change will occur, but its implementation would enhance the success of the WCAM.

Note:

1. Article 7:907- 910 of the Dutch Civil Code (BW). Specific procedural requirements are dealt with in the Dutch Code of Civil Procedures (Rv - Art. 1013-1018).

Click here to register to receive e-mail updates >>

Read other legal updates from Guy Carpenter >>

AddThis Feed Button
Bookmark and Share


Related Posts