Since the U.S. Supreme Court’s decision blocking actions by non-U.S. investors related to securities in companies not listed in the U.S. and traded outside the U.S. (the “foreign-cubed-cases”), Morrison v. Natinonal Australia Bank Ltd., 130 S.Ct. 2869 (2010), the Netherlands has proven to be an attractive forum for bringing international securities class actions. The Netherlands’ attractiveness as a potential forum for these types of cases was further strengthened by a 17 January 2012 landmark decision of the Amsterdam Court of Appeal (“the Court”), in which the Court declared an international collective settlement binding in a case where none of the potentially liable parties and only a limited number of the potential claimants were domiciled in the Netherlands. That decision will likely be recognized by all European Members States, as well as Switzerland, Iceland, and Norway. The Netherlands is the only European country where a collective settlement may bind an entire class, albeit on an “opt out” basis. This makes the Netherlands an attractive venue for settling international mass claims.
Background of the Case
Converium Holding AG (“Converium”) is a Swiss reinsurance company (currently known as SCOR Holding AG). Converium was a wholly owned subsidiary of Zürich Financial Services Ltd (“ZFS”) until 2001, when ZFS sold all its Converium shares through an IPO. Converium shares were listed on the SWX Swiss Exchange and Converium ADSs were listed on the New York Stock Exchange. Converium’s share price declined after the company announced increases in its loss reserves in the period from 2002 through 2004. These announcements led to securities class actions in the United States against Converium and ZFS on behalf of a worldwide putative class. The United States District Court for the Southern District of New York (the “U.S. Court”) certified a class consisting of all U.S. persons who had purchased Converium securities on any exchange, as well as all persons - regardless of their residence - who had purchased Converium securities on a U.S. exchange (the “U.S. Purchasers”). The U.S. Court excluded from the class all non-U.S. persons who had purchased Converium securities on any non-U.S. exchange (the “Non-U.S. Purchasers”). The U.S. class action was settled and these settlements (the “U.S. Settlements”) were approved by the U.S. Court. Both Converium and ZFS then settled the potential claims of all Non-U.S. Purchasers with a Dutch foundation representing the Non-U.S. Purchasers (the “Non-U.S. Settlements”). The Non-U.S. Purchasers were predominantly domiciled in Switzerland and the U.K. Only a few were domiciled in the Netherlands.
The Court’s Decision
The Court’s decision on jurisdiction followed substantially the same line of reasoning as its important “Shell decision” of 29 May 2009. Shell c.s. / Dexia Bank, LJN BI 5744; NJ 2009, 506. In Shell, a Dutch/British entity had recategorized certain of its oil and gas reserves in 2004. The corporate entity reached a worldwide settlement with its shareholders, except for those in the U.S. The Court declared this settlement agreement binding on all shareholders throughout the world, giving full weight to its terms.
The Converium settlement goes one step further than the Shell settlement. In Converium, none of the potentially liable parties and only a limited number of the interested persons were domiciled in the Netherlands. While the Court emphasized the significance of a Dutch foundation representing the interested persons and having to distribute the settlement relief under the settlement agreement, the language of the opinion suggests that even without any interested persons domiciled in the Netherlands the Court could have jurisdiction to declare the settlement binding. In its earlier provisional decision, the Court explicitly referred to the limitations for the U.S. courts to do the same in securities and anti-trust cases as a result of the U.S. Supreme Court’s decision in Morrison v. National Australia Bank.
In Converium, a number of the defendants argued that the amount of the settlement for the Non-U.S. Purchasers under the Non-U.S. Settlement concluded by Converium was unreasonable, because the amount to be received by the U.S. Purchasers under the U.S. Settlements was relatively higher. The Court dismissed this objection on the ground that the legal position of the Non-U.S. Purchasers differed substantially from the legal position of the U.S. Purchasers, because the Non-U.S. Purchasers had been excluded from the class by the U.S. Court and no litigation by Non-U.S. Purchasers had been initiated outside of the U.S.
The same defendants also argued that the amount of settlement relief was unreasonable, because the fees for U.S. plaintiffs’ lead counsel, to be deducted from the settlement relief, were too high. The Court rejected this objection, holding that the work in connection with the settlement had been carried out for a substantial part within the U.S. by U.S. law firms and that what is considered customary and reasonable in the U.S. may be taken into account in applying the reasonableness test under Dutch law.
The Court also ruled that the requirement of “representativity” under Dutch law had been met because the Dutch foundation representing the interested persons had various participants and supporters, including shareholder associations and institutional shareholders, domiciled in Switzerland and the U.K., where most known Non-U.S. Purchasers were domiciled.
The Netherlands is the only European jurisdiction offering a procedure to declare a collective settlement binding on all class members on an “opt out” basis. Using the Shell decision as a precedent, the Converium decision confirms that the Court not only has jurisdiction to declare an international collective settlement binding on all class members, irrespective of their domicile, but also has the appetite to approve such settlements even if the parties to the settlement and the class members only have a limited connection to the Netherlands.
In theory, all EU Member States, Switzerland, Iceland, and Norway, will have to recognize the Converium decision. No case law has yet to address this issue and local law may impact the reception of the Convenium decision in other European countries.
The Converium decision strongly suggests the attractiveness of the Netherlands as an important venue for facilitating international settlements. This would appear to be the case whether the settlement arises from a class action and irrespective of the country in which the litigation took place.
If you have any questions or require further information, you may contact Ruud Hermans at email@example.com or Jan De Bie Leuveling Tjeenk at firstname.lastname@example.org, partners at the Amsterdam office of De Brauw (www.debrauw.com). The article is submitted by Rurik van Opstal, lawyer at De Brauw and currently on an internship at Quinn Emanuel, Los Angeles office.