Collective redress in Europe

1. Collective redress in Europe Willem van Boom www.professorvanboom.eu

2. Contents of today’s lecture • USA class action • EU systems of collective redress • Dutch Collective Settlements Act (WCAM 2005) • Cross-border collective redress in Europe

3. Class action USA-style • ‘named plaintiff’ and ‘lead attorney’ petition the court • Aim: ‘certification’ of the ‘class’ • Clearly circumscribed group of individuals • Facts and points of law that are common to all (‘commonality’) • plaintiff & attorney must have ability to represent and ‘manage’ the class’ • In theory, after certification follows trial on the merits of the case • In practice, certificiation is often followed by a settlement and approval by court • Approved settlement binds all individals concerned • ‘Individual notice’ to class members concerning the right to opt out • Position of the defendant? Class can be certified whether he likes it or not

4. European models • Most legal systems have a system of group action by association/foundation for the benefit of multiple individuals • Prohibiting or demanding certain behaviour • Non-compliance sanctioned with penalty payments • But claiming compensation through such group action is considered to be more difficult • Why? Claims for compensation in tort or contract are considered individual rights • Individual requirements of liability, causation, damage etc. • Individual cause of action, individual summons, individual verdicts

5. But there is an increasing number of collective redress procedures • Aim: obtaining collective compensation for torts / breach of contract • Generic systems vs. Sector-specific systems • German securities test case Act (KapMuG) • Dutch Collective Settlement Act • Opt in systems • Individual claimants have to actively consent to being part of a group of litigants • The resulting court decision binds all the litigants in the group (res judicata) but not others • Opt out systems • Individual claimants have to opt-out if they do not want to be bound to the collective redress

6. Advantages and drawbacks • Opt-in leaves autonomous choice with individuals • However, where pursuing individual claims is risky and costly, there is little ‘choice’ • Opt-out is more efficient and saves costs for individual claimants and defendants • But who guarantees that individual claimants get a fair deal?

7. Debate in Europe • EU member states have their own systems • EU does not want a USA-type class action • Because it is fuelled by greedy lawyers • Because it stimulates compensation culture not business culture • But the EU does want an efficient system to compensate where wrongs are committed • But EU does not know how! • Latest debate paper: Public consultation “Towards a Coherent European Approach to Collective Redress” • Does the EU want a uniform procedure or a competition of procedures?

8. The NetherlandsWCAM 2005 • (allegedly) liable party negotiates a settlement for compensation of multiple injured individuals • The settlement is negotiated with a representative association / foundation (which does not need to have consent of individuals!) • The settlement is a contract • Parties can choose applicable law • Parties can insert damage schedules, an ADR system for conflicts with individual claimants • The parties to the contract jointly petition the Amsterdam Court of Appeal (CA) in a special petition procedure (not a summons procedure)

9. CA orders the petitioners to notify identifiable interested parties (the individual claimants) • Notification of identified individuals by means of ordinary mail or other method if court so orders • Announcement in newspapers • Interested parties are invited to submit arguments to the CA • CA can declare the settlement binding for all interested parties • CA hears all the evidence and tests fairness of the settlement: risks and benefits ‘in the shadow of the law’ • Settlement is always negotiated in uncertainty: individuals may or may not get higher compensation (or nothing!) if they litigate individually • If settlement is declared binding: • interested parties are notified; they are given a period to opt-out from settlement • If they opt out, they retain their individual claims for compensation • If they do not opt out, their original rights (if any) are extinguished but they keep the compensation from the settlement • The settlement can not be nullified (except for fraud)

10. Class action vs WCAM • USA class action starts with certification and ends with opt-out • After certification, the questions of liability and damages must be addressed • WCAM also ends with opt-out but starts with a totally voluntary settlement agreement • So the WCAM does not address the question whether there really is liability and what the individual damage is • By settling, this uncertainty is voluntarily transformed into certain obligations • (allegedly) liable party weighs the costs and benefits of the settlement against litigating all individual claims • Therefore: WCAM may not always work with ‘small claims’ • If individual claimants consider to opt out, they will have to weigh their chances: will they be able to get more compensation in an individual court case?

11. Cross-border collective redressConverium case (CA Amsterdam 2010) • IPO of Converium shares at Swiss Stock Exchange • USA securities regulations were violated (misleading investors) • Class action in NY USA; court denies jurisdiction for investors not residing in USA who had bought outside USA • Settlement according to Dutch law between liable parties and Dutch Association for Stock Investors, covering all non-US investors • Notifications to investors all over the world (either by letter or service) • The Netherlands : 204 letters • EU member states (EU Service Regulation): 2452 service documents • Non-EU member states party to the Hague Service Convention 1965: 8859 service documents, 365 registred letters • Various other regimes: 127 registred letters, 181 ordinary letters • Announcement in 19 internationa newspapers and 4 websites

12. Does the Amsterdam CA have jurisdiction to hear this petition and declare the settlement binding? • CA says yes and considers: • There is a need for a global settlement system outside USA for non-USA claims • This is a petition concerning a contract (the settlement) according to Dutch law which will be performed in NL • Therefore the competence of court is ruled by art. 5 Regulation 44/2001 on jurisdiction, recognition & enforcement of judgments in civil and commercial matters (Brussels I Reg.) • Moreover, some individuals have residence in NL (= art. 2) • Individual claims are connected, so art. 6 also applies • As concerns individuals in non-EU countries, Dutch national rules on jurisdiction declare the CA competent if one of petitioners is Dutch resident and the case has sufficient connection with NL

13. What will happen next? • Assuming court documents were properly served to individual claimants (at beginning & end), will other (EU) courts allow this cross-border collective redress ? • Would they assign res judicata effect (preclusive effect) to the Amsterdam CA binding declaration? • Is the CA binding declaration a ‘judgment’ pursuant to art. 32? • Is the mere fact that other EU member states do not have an opt-out system, sufficient reason to declare the Dutch decision ‘contrary to public policy’? (art. 34) • Free movement of judgments vs principle of autonomous choice of individuals • What if other EU MS introduce a similar system? • Competition, coordination or harmonisation?

14. Thank you for your attention! Willem van Boom www.professorvanboom.eu