On 5 February 2021, a seminar entitled ‘The Netherlands, a forum conveniens for collective redress?’ was organised by the Amsterdam, Maastricht and Tilburg Universities, together with the Open University. A brief account of the seminar will appear in the Dutch Journal on PIL, NIPR. Experts addressed procedural and private international law features in European and particularly Dutch mass claims.
One panel discussed PIL instruments needing rules on collective actions and settlements as featured in an earlier post on this blog. Another panel reviewed legal standing under the Directive on representative actions in the cross-border context (Directive 2020/1828) and was moderated by Ianika Tzankova (hereinafter, IT).
Paulien van den Grinten (PG) from the Dutch Ministry of Security and Justice, Axel Halfmeier (AH) from Leuphana University and Vincent Smith (VS) from BIICL participated in the panel discussion. Below follows a shortened record of their exchange.
IT: The Dutch approach to certification or admissibility in collective redress comprises two distinct questions:
- Who has standing to sue? The answer is: In general, designated and ad hoc entities that meet strict criteria (stricter perhaps than some of the criteria that the designated entities need to meet under the Directive in terms of governance, conflict of interest and financial capabilities); and
- Is the entity admissible? Note that both ad hoc established and designated entities are subject to the test that relates to their ‘admissibility’ in relation to the particular matter.
Since ad hoc entities play an important role in collective redress in the Netherlands also in the international context the question is, how the new Directive will impact the activities of these entities. One could think of several points that arise:
– When could Dutch ad hoc established and certified organisations be acknowledged before the courts of other Member State (MS)?
– The Dutch admissibility test seems to be more onerous than the Directive’s requirements. Will that impact the admissibility of foreign designated entities in the Netherlands?
– Will judgments in collective redress obtained by Dutch ad hoc established and court approved entities be recognised abroad?
Ad hoc Entities
IT: A central role in the Directive is given to so-called ‘qualified entities’. Perhaps we should first explain what ‘cross border’ and ‘designated entities’ mean in the context of the Directive…What is a ‘cross border action’ under the Directive? And what is a ‘designated entity’?
PG: Designated entity in the Directive refers both to entities designated in advance to be placed on the list and to the entities designated via acceptance by the court in a specific collective action.
AH: Cross-border action is defined in Article 3(7) Directive 2020/1828 and has nothing to do with other facts of the case. It is defined as a situation where a qualified entity sues in a MS that is not the MS in which that entity has been designated. For example, if a German entity files in the Netherlands against a Dutch company in the interest of Dutch consumers, this is a ‘cross-border action’.
IT: Apparently there was little support at EU level to incorporate the Dutch model of collective redress, where ad hoc entities play an important role, including in collective matters with an international dimension (Trafigura, Petrobras, VW, Salesforce, Shell, Fortis, Converium etc). The philosophy was to follow in that respect the Injunctions Directive, where only ‘designated entities’ placed on a list were given a role in cross border matters. What do you think of that approach?
VS: One of the major issues with this would be under the Brussels Ibis Regulation. If a national court (e.g. in Amsterdam) appoints an ad hoc entity then, under Brussels Ibis, although the judgment of the Dutch court is supposed to be recognised in all other MSs (and if there is no equivalent procedure, a MS has to provide one), judgments can be refused recognition on public policy grounds. So, a foreign judge could refuse to give full effect to the Dutch judgment, because the ad hoc entity (stichting) was not properly representative of the (international) class, and thus limit recognition (for example), for only Dutch residents were bound by the action, and not those in his forum State. The Directive avoids this by requiring recognition, but only for prequalified entities and only (outside the entity’s home State) on an opt-in basis.
PG: If the concept of recognition and enforcement under Brussels Ibis would be changed and become stricter due to the concept of a cross-border action under the Directive, that would have wide implications. This was surely not envisaged by the European legislator. The aim of limiting cross-border representative actions to actions started by entities placed on a list designated in advance was to prevent so-called ad hoc entities starting a representative action in another MS. The majority in the Council saw this as a way of protecting their courts. It had, however, nothing to do with a rejection of the Dutch national system with ad hoc entities as such. On the contrary, recital 28 of the Directive makes it clear that at a national level ad hoc organisations for a specific representative action designated by way of acceptance are allowed under Article 4 of the Directive. I do not see that courts in another MS could refuse the recognition and enforcement of a judgment resulting from such action based on public policy.
IT: How often (to your knowledge) have the ‘designated entities’ under the Injunction directive in your respective jurisdictions made use of their powers to file actions in cross-border matters? And do you think we should be optimistic about the role of these entities under the Directive?
PG: Not aware of any. We do not know whether claiming monetary damages in a representative action under the Directive will lead to more cross-border cases.
VS: (1) Not aware. In UK there are few designated entities; most consumer associations are campaigning bodies not equipped to litigate. The competition collective actions regime was amended in 2015 so that representative bodies no longer had to be pre-approved by the Minister before they could bring collective competition claims. Before then, only one organization (Which) had applied for designation under the previous (2002) regime, and had only brought one claim (unsuccessfully).
(2) One issue is the body’s objects (purpose). The likely candidates are mostly charities, the UK charities regulator requires them to adhere to their objects and many of them are limited to UK actions. In UK competition ‘class actions’ so far all the representatives have been individuals (with litigation funding). In contrast to other common law ‘class action’ jurisdictions, however, they have generally been individuals with significant practical/professional experience related to consumer protection. For example, the current Mastercard collective action is headed by a Chief Financial Services ombudsman.
AH: Cross-border actions are rare in Germany. A remarkable recent exception was the action brought by an Italian consumer association (Verbraucherzentrale Südtirol) against Volkswagen in the interest of Italian buyers of cars in the Diesel emissions scandal. However, this is not an injunctions action, but one brought under the German ‘model declaratory action.’ The German consumer association (VZBV) had used this instrument in their own action on behalf of German consumers but had explicitly refused to represent foreign consumers.
Pre-approved (Designated) Entities
IT: So, what you are all saying is that there is no reason to believe that the designated entities will be active in practice. That is not a cheerful news for consumers. However, there must be good reasons why the EU has done this. Let us explore the advantages and disadvantages of granting standing in collective redress in cross-border actions only to pre-approved (designated) entities.
PG: MS courts know that every entity from another MS starting a procedure before its courts meets the harmonised requirements for designated entities, thus making mutual recognition of such entities less problematic.
PG: MS of origin is best placed to test whether an entity meets the harmonized requirements.
PG: Some requirements are difficult to test in theory without a collective claim.
PG: It might lead to circumvention of national requirements, as they are stricter.
VS: Many such entities will need to amend their objects.
IT: The Dutch experiences with collective actions (25 years) show that there may not always be such pre-existing entities, when needed, willing to fund such actions in which case the ad hoc established ones fill in that gap. Absent such entities there might be an access to justice deficit.
IT: And what about funding of designated entities and of collective redress? Articles 10 and 20 of the Directive deal with that, the first one dealing with TPF and the second one with lifting financial restrictions for designated entities.
IT @ PG: You assisted the Dutch government with the Directive and must have some insight. Why are there two separate articles on a related topic? How are non-profit organisations supposed to file this type of (costly) action in their jurisdictions?
PG: The original Commission proposal contained an Article 7 on funding and an Article 15 on assistance of qualified entities. Even though Article 7 was deleted and Article 15 was redrafted, a new provision on funding was reinstated as Article 7, but became Article 10 (and Article 15 became Article 20) in the final text. The importance of Article 10 is twofold: for those in favour of allowing third party litigation funding for representative actions, Article 10 makes it clear that funding is allowed under the Directive on strict conditions. For those against allowing third party litigation funding for representative actions, the wording of Article 7 serves to restrict the conditions under which such funding is allowed. Still, the wording is opaque for those who did not participated in the negotiations. Especially the reference made to in Article 10(2)(b) that a third party funder may not fund a representative action against a defendant which is a competitor of the funder or against a defendant on whom the funder is dependent, gives rise to interpretation questions. What is the rationale behind these provisions? Recital 52 gives clues about the rule prohibiting the funding against a competitor. A trader acting in the same market is considered to have a conflict of interest “since the competitor could have an economic interest in the outcome of the representative action, which would not be the same as the consumers’ interest”. The concern of the European legislator was that the representative action might become an instrument to harm a competitor rather than serve the interests of the consumers. As regards the funder, who is dependent on the defendant the concern of the European legislator is the reverse: such funder might be so dependent on the defendant that its actions are based on the interests of the defendant rather than the interest of the affected consumers.
IT @ AH: what is the view and position on funding of designated entities in Germany?
AH: In Germany, the “Verbraucherzentralen” are maybe the most active designated entities, including their federal association, the VZBV. These are mainly government-funded. In particular, the VZBV received extra money and extra funding of staff to specifically bring the new ‘model declaratory actions.’ So, we are looking at entities that are formally private law associations, which are more like outsourced parts of the government administration. We will see whether this will create future conflicts of interests. Hitherto government financing has not stopped them from bringing cases against (partly) State-owned companies such as VW, but this action was politically supported. There are close ties between the VZBV and the German government.
IT: This is interesting, but this potential issue was apparently not addressed in the Directive. It looks like the focus on potential conflicts of interest in the Directive is entirely on actions that are TPF-ed. Correct?
PG: yes, this seems to be the case. The Directive is limited to actions by consumers for infringements of EU-instruments placed on the list of Annex 1. Representative actions under the Directive will be between a qualified entity as claimant and a trader as the defendant. With the exception of the GDPR, the government is not a likely party in such actions. Conflicts of interest regarding the government were not seen as a point of concern in the negotiations for most MS or the Commission/EP. However, for the Netherlands it was in fact, a point of concern both regarding the designation of qualified entities and financial support to qualified entities. This concerned the broad scope of the Dutch mechanism for collective redress which is not limited to consumer actions. In the Netherlands around 40 % of all representative actions are against the Dutch government as defendant.
Insight into the Negotiations
IT @ PG: What considerations brought us to where we are and what were the most controversial issues during these negotiations? I am puzzled by the fact that actual experience does not seem to count for much in such negotiations: the MS have on the one hand no or disappointing experiences with the system of ‘designated entities’ under the Injunctions Directive and there are better experiences under the Dutch regime, that allows both type of entities (for over 25 years). Did this play any role in the negotiations? What evidence was produced?
PG: At the start of the negotiations in 2018, some MS had a collective redress system in place, others were working on it and some MS did not have any mechanism for collective redress. Throughout the negotiations more MS started legislative projects on collective redress in various shapes and forms. The Netherlands had pending legislation when the negotiations started. In the preparation for Parliamentary process we unearthed many issues relevant to the Directive. Real experience was largely irrelevant in the negotiations – it was easier for us with a collective redress mechanism to indicate difficulties in the Directive. By the late 2019, the Dutch WAMCA had become law. The result of this was that the Directive and the Dutch WAMCA are compatible. The Directive leaves enough room to accommodate MS’s national systems, e.g. designating ad hoc entities as qualified entities and the possibility for both opt out and opt in mechanisms. For some other aspects the provisions of the Directive match those of the WAMCA perfectly, e.g. the court can reject a claim at inception if it is manifestly unfounded, can be found both in Article 7(7), of the Directive and in Article 1018c, par. 5 (c). Therefore, the WAMCA will be the Dutch collective redress mechanism under the Directive without having to change. However, we do have to provide for a procedure for entities to be placed on the list predesignated for cross border actions. The Article 10 funding provisions seem to be more detailed than the WAMCA. We may have to exclude competitors or someone dependent on the defendant to acts as funder.
AH: Little of the discussion about collective actions is evidence-based. ‘Abusive’ litigation seems unlikely. On the contrary, the experience in Germany shows that almost all such actions are well-founded and not frivolous. Even if we look at the empirical data in the U.S., we clearly do not find the ‘abuse’ scenario that is often painted on the wall.
IT @ PG: What were you most proud of in the negotiations? What were you most frustrated by, also in view of the fact that Dutch ad hoc spv’s seem to need to meet much stricter criteria than the EU ‘designated entities’ in terms of governance, conflict of interest and funding capabilities and yet they are being perceived as somehow of a ‘lower rank’ in cross-border matters? Who will be in charge in the Netherlands in appointing designated entities?
PG: The biggest achievement was European legislative result on collective redress at all, obliging every MS in Europe to have a collective redress mechanism for consumers. Making a distinction between national collective and cross-border collective redress brought a breakthrough in the negotiations. Accepting that for cross border cases we have to work with a list of entities designated in advance with harmonised criteria, meant that the Netherlands – and others, like Germany – could preserve their national system. Even though the harmonised criteria may look different or less strict than the criteria under the WAMCA, the rationale behind the criteria are very similar. There are practically no criteria in the WAMCA which do not meet one of the criteria in Article 4 of the Directive. E.g. the obligation in Article 3:305a (2) of the WAMCA to have a governance structure with a supervisory board can be seen as the implementation of the obligation in Article 4, par. 3, (e) to be independent and to prevent a conflict of interest. We intend to make the Dutch ministry of Justice and Security responsible for the list of entities designated in advance for cross border actions. One of the more difficult issues in the negotiations in the Council was that of the concept of standing of a qualified entity on the one hand and the civil procedural concept of the admissibility of a specific representative action on the other. To underline that distinction the Directive contains several references to the procedural autonomy of MS and the room for courts to perform an admissibility test in accordance with their national law, e.g. in Recital 12 and Article 7(3).
Non-Dutch Perspectives on the Directive – And on Dutch Collective Redress
IT: Apparently one can speak of ‘Dutch exceptionalism’ in the context of EU collective redress. Let us hear non-Dutch perspectives on the EU Directive and on Dutch collective redress.
IT @ AH and VS: What is your take on the issues? In view of the sectoral approach in your respective countries versus the Dutch horizontal one? Are there any other issues that you identify in that context?
AH: I think there are some open issues regarding the EU Directive’s rules on standing on the one hand and individual Member States’ rules on admissibility of collective actions on the other. For example, if Dutch law would be restrictive in allowing foreign designated entities to sue, this could possibly violate Article 6(1) of the Directive that basically requires Member States to accept cases brought by designated entities from other Member States. For example, if a designated entity from EU Member State X sues a Dutch company before a Dutch court, but with respect to that company’s activities in Member State X and in the interest of consumers in Member State X, I think that the Dutch court would have to hear the case. It is also interesting that the Directive in its Article 5(4) allows the defendant trader to raise objections against the legitimacy of the designated entity with regard to the Directive’s criteria. But the Directive is silent on the procedure in such a case: Should the action be stayed until the home Member State of the designated entity has decided about such concerns? With regard to Germany, the German government worked hard to avoid ad hoc entities in the Directive and has succeeded in this regard. But there may be some more room now for foreign entities to sue in Germany under the Directive.
PG: As regards AH’s example, I think a Dutch court would accept that this foreign entity has standing. Accordingly the new Directive is no different from the current one for actions to obtain injunctions, be it that the foreign authorities at least have had to apply the harmonised criteria in order to place this entity on the list. In that respect it offers a better safeguard than now. Furthermore, accepting legal standing does not mean that the admissibility of the specific claim cannot be tested by the court. E.g. the Dutch court may still check whether the claim brought by the designated entity sufficiently safeguards the interests of the claimants and whether the entity has means to finance the claim.
VS: UK experience with the sectoral regime for collective competition (anti-trust) claims is still young, but developing. However, there are some clearly emerging issues which will also likely arise when implementing and applying the Directive:
It is modelled on the (horizontally applicable) Canadian regime, so we have a model to follow for the tricky questions. Even though there are differences between the EU and Dutch regimes, the Dutch experience will still be valuable for MS courts wanting to find an answer to issues not expressly dealt with in the Directive or national implementing legislation. The Dutch regime has many similarities with what is required under the Directive and, I think is likely to be used as a model by others.
A ‘class’ action doesn’t work so well for non-economic loss (eg injury due to clinical negligence etc) due to widely differing circumstances, whereas the Dutch settlement element was set up to deal with exactly that situation.
A sectoral approach could lead to borderline cases — e.g. claims pretending to be about consumer law, when they are in reality competition law cases, which are not covered by the Directive.
Also, it may be difficult to tell in many cases whether a case is about breach of EU law or national law. For example, in the consumer protection and environmental protection fields, EU law is mostly contained in Directives which are then implemented by the MS. So, the ‘consumer’ (claimant) will only immediately see a breach of legal norms in his national legislation. For many, working out whether their claim is in fact based on EU law may be unnecessarily difficult.
PG: Yes, to me this is a key observation and is why we want the Dutch WAMCA to be our system under the Directive, meaning that there will still be only one system in the Netherlands.
Is the Directive a Threat to Dutch Cross-Border (Consumer) Actions?
IT @ all: To circle back at the beginning of our discussion, do you think that the limitation on standing to pre-approved entities in the new EU Directive is a threat to Dutch cross border (consumer) actions, what is your final word on that?
VS: In my view the ‘threats’ to cross-border actions by qualified entities are mainly that they do not have the experience in doing this and that their purpose may be national rather than international. The EU level umbrella bodies might be better placed (e.g. BEUC) but they would have to be recognized by a national authority (lots of applications for designation to the Belgian authorities in Brussels?). So, the most important aspects I think are willingness of national authorities to recognize the few international ‘entities’ who might want to do this – not specific to the Dutch situation, I think, and a willingness/expertise in acting cross-border.
PG: I agree. Let’s not forget that since the entering into force of the Injunctions Directive not a single cross border action was ever started in the Netherlands or elsewhere until last year’s action against VW. It is cumbersome and might be very expensive having to start a case in another jurisdiction, working with foreign lawyers etc.
AH: One of the areas in which the Directive is really a step forward is third-party funding of litigation. In Germany, there is considerable uncertainty after some court decisions that prohibited this as being immoral in relation to a certain type of consumer associations’ actions. We now have the language in Article 4(3) e of the Directive, which certainly is a compromise, but at least shows that TPF cannot be completely prohibited, but needs to be regulated and looked at in more detail. In general, I think that the Dutch courts will remain an attractive forum for cross-border collective actions, and I expect that the Netherlands will remain the innovation leader in this field.
IT: Thank you very much for sharing your views and insights on this fascinating and challenging topic.