On 13 July 2018, the Amsterdam Court of Appeals declared a € 1.3 billion settlement between Ageas (previously Fortis Bank) and its former shareholders binding under the Dutch Class Action (Financial Settlement) Act. This constitutes the largest settlement ever between a European company and investors, but the decision may have unexpected consequences for the revenue model of claim organizations in the future.

Over the course of 2008, Fortis Bank had to be partly nationalized by the Dutch State as a result of the economic crisis. Many investors lost their investments as a result. Afterwards, the aggrieved shareholders held Fortis (and its current legal successor Ageas) liable for damages, stating they were misled by the bank’s management about its economic position.

Dutch Class Action Act

The Dutch Class Action (Financial Settlement) Act (Wet Collectieve Afwikkeling Massaschade, WCAM) can be used in class action cases where a large number of injured parties are involved. The WCAM can also be used in transnational disputes. The Amsterdam Court of Appeals can assume international jurisdiction in such cases if at least a minority of the injured parties are located in the Netherlands. One or more Dutch foundations (stichting) or associations (vereniging) need to be incorporated to represent the class of injured parties. The claims organization(s) will then need to reach an out-of-court settlement with the liable party. The settlement must meet the requirements of section 7:907 paragraph 2 DCC, meaning that amongst others the event that caused the damage and the class of injured parties have to be described in the settlement terms and the payable amount have to be determined. The Court of Appeals will further determine whether the settlement amount is reasonable, if the interests of the injured parties are duly taken into consideration, and if the claim organization is representative of the class of injured parties.

If the settlement meets the requirements of section 7:907 DCC, the Amsterdam Court of Appeals can, at parties’ joint request, declare the settlement generally binding on all members of the class of injured parties. For a period of at least one year after the decision of the Court of Appeals, the members of the class can submit a claim to receive compensation according to the settlement. An injured party has the right to opt out within a predetermined period of time to pursue an individual claim. In the Ageas case, the opt out period was set at five months. Under the WCAM statute, also injured parties that were not part of the WCAM proceedings are entitled to payment under the settlement.

The Fortis Settlement Decision

In the case leading to the 13 July 2018 decision, the former Fortis shareholders were represented by five claim organizations, who reached the final € 1.3 billion settlement for the injured parties with Ageas as the legal successor of Fortis.

In 2017 the Court of Appeals had rejected an earlier settlement, mainly because it heavily favored shareholders that had joined a claim organization before 2015 over those that had not, awarding them a 50 percent premium per share. According to the Court of Appeals, these terms were unfair towards the shareholders that had not joined a claim organization. The court also remarked that the claim organizations that receive compensation appeared to have a personal interest in the settlement. In an interim decision on 5 February 2018, the Court of Appeals therefore ordered the claim organizations to render their expenses and compensations for the class action application.

The Revenue Model of Claim Organizations

One of the claim organizations involved was the Dutch Association of Stockholders (Vereniging van Effectenbezitters, VEB). Under the settlement, VEB will receive compensation of € 25 million from Ageas while the expenses of VEB for the class action application only amount to € 7 million. Under the revised 2018 settlement, the members of VEB do receive a 25 percent premium over shareholders that had not joined a claim organization. The members of the VEB pay an annual membership fee, but were not required to make additional payments in relation to the class action application. In light of this, the Court of Appeals stated that the additional premium for VEB members was unexplainable and unreasonable.

Under the Dutch Class Action Act, the court can only declare the entire settlement binding, or entirely reject it. It cannot declare a settlement partially binding. The Court of Appeals ruled that the amount received by the VEB members did not render the entire settlement unreasonable within the meaning of section 7:907 DCC. Given the considerations of the Court of Appeals regarding VEB, however, there is a chance the settlement would have been rejected if the VEB was the only claim organization involved. In light of this decision, future claim organizations will need to take a closer look at their revenue model before filing a class action application.