i Sources of law
The sources of Dutch securities law can be divided into civil legislation and (public) financial regulatory legislation.
The relationship between the issuers of securities and investors is primarily governed by civil law. The main sources of civil law regarding securities in the Netherlands are:
- a the Dutch Civil Code (DCC), providing for, inter alia, the rules on contract, tort, causality and damages; and
- b the Securities Giro Transfer Act2, providing for the rules on ownership, custody and the administration of securities.
Financial regulatory law
The main sources of regulatory securities law in the Netherlands are:
- a the Dutch Financial Markets Supervision Act (FMSA) and the various decrees and regulations deriving from it include the majority of the regulatory rules that apply to the Dutch financial markets. Many of the rules contained in the FMSA follow from the implementation of European directives;3
- b the EU Market Abuse Regulation (MAR),4 which has been in force since July 2016. EU regulations apply directly in all Member States of the European Union. To avoid overlap with other contributions to this Law Review, we limit our contribution on this Regulation to a few highlights;
c the Act on the Supervision of Financial Reporting,5 which forms the basis of supervision by the Netherlands Authority for the Financial Markets (AFM) on financial statements of listed companies and their compliance with the rules on annual accounts as described in the DCC and the International Financial Reporting Standards; and
- d the Economic Offences Act, which criminalises certain violations of the FMSA and other legislation.
Apart from the above-mentioned legislation, a large number of guidelines in relation to securities have been issued by the AFM.
Lastly, a new Dutch Corporate Governance Code (CGC) was published in December 2016. The CGC contains principles and best practices on the governance of listed companies and their accountability to their shareholders in this area, and operates according to the ‘comply-or-explain’ principle.
ii Regulatory authorities
The Netherlands Authority for the Financial Markets (AFM) is responsible for conduct-of-business supervision on the Dutch financial markets, which aims, among other things, to foster orderly and transparent market processes, maintain integrity in the relationship between market parties and protect consumers. As such, the AFM is the main regulatory authority for the issuers of securities and other parties involved in the issuance of, or trade in, securities, including regulated markets and multilateral trading platforms located or operating in the Netherlands. The Dutch Central Bank (DCB) is responsible for prudential supervision of the Dutch financial markets and as such is less relevant for securities litigation.
In the event of a criminal offence (for instance, an offence under the Economic Offences Act), the public prosecutor is the enforcing authority.
iii Common securities claims
The most common securities claims concern prospectus liability and market abuse.
Prospectus liability (unfair or misleading information)
Prospectus liability claims can be based on various grounds. The FMSA and the EU Prospectus Regulation implementing the Prospectus Directive describe the information a prospectus should contain. Claims can be based on the provisions of the DCC, including the general tort provision, the prohibition on unfair commercial practices (for natural persons not acting as a professional only – i.e., private investors) or misleading advertising.
In case law, the criterion of the probable expectation of an averagely informed, careful-and-attentive ordinary investor was developed to determine whether information provided to potential investors gave an incorrect or misleading signal.6
Market abuse (e.g., insider trading, disclosure of insider information)
As of 3 July 2016, the 2014 EU Market Abuse Regulation (MAR) and the related Market Abuse Directive (MAD) replaced the 2003 EU Market Abuse Directive. MAR applies directly in the European Economic Area and includes rules on the disclosure of insider information and insider dealing. MAD has been implemented in Dutch law.
Because MAR is relatively new, no case law has yet been developed under this regulation in the Netherlands. However, a number of proceedings were held under the regime of the 2003 Directive. Most claims regarding market abuse concerned the use of insider information or companies failing to publish insider information.
The AFM is the designated competent authority for the purposes of MAR in the Netherlands. It has the power to impose administrative fines and penalties for infringements of MAR. The public prosecutor can impose criminal sanctions (e.g., fines and imprisonment) if the infringements qualify as economic offences.
Civil liability claims against regulators
Since 2012, the FMSA has limited civil liability of the regulators (AFM and DCB) to wilful misconduct and gross negligence.7 Because this provision in the FMSA is relatively new, very limited case law is available.8
Liability claims against advisers of issuers relating to, for instance, annual accounts or prospectuses, are rare in the Netherlands.
In 2000, the initial public offering (IPO) of internet company World Online (WOL) resulted in extensive losses for investors. The Dutch investors’ association VEB initiated legal proceedings against WOL, the joint lead managers (as well as the global coordinators and book runners) of the IPO – ABN AMRO Bank and Goldman Sachs Bank – and former shareholders of WOL for providing misleading information. The Dutch Supreme Court ruled that the lead managers were, alongside WOL, liable for the damage caused to the investors, because they did not prevent an unjustified positive image of the issuer from being presented to the investors in the days before the IPO.9
II PRIVATE ENFORCEMENT
i Forms of action
Standard securities claims based on contract or tort are initiated by individual investors before the civil courts. Any form of relief may be sought, such as damages, specific performance of a contract or annulment of a contract.
The Dutch Civil Code allows for the possibility of class actions. Dutch law, however, has a different approach to class actions when compared with common law jurisdictions such as the United States. Under Dutch law, only a representative (in the form of an association or foundation) can start a collective action, and only to protect the interests of a defined group of interested parties or public interests. Such a representative does not have its own interest in the litigation, does not represent the parties in a formal sense, and is not allowed to claim damages. 10 As a result, collective actions are used to pursue a declaratory judgment establishing the basis for liability (e.g., a declaration by the court that the defendant committed a tort or breached a contract). On the basis of such a declaratory judgment, parties may claim damages in individual proceedings.
On 16 November 2016, a legislative proposal was introduced in the Dutch parliament, proposing to amend the existing collective action so as to permit the representative organisation to claim damages (also see Sections II.iii, and IV, infra).
General securities claims are not subject to a specific procedure, and therefore follow the standard civil procedure. Dutch civil procedural law consists of a written phase in which parties define their positions and, as a general rule, submit all evidence at their disposal that supports their claims. Specific requests to the court (e.g., to hear witnesses or for a neutral expert to be appointed by the court) should preferably already be included at this stage. The written phase is followed by an oral phase, after which, in principle, the court will come to a judgment or allow witness examination or appointment of expert.
Dutch civil procedural law does not provide for discovery comparable to that of the United States, but it does provide for a limited possibility of discovery in cases where a party needs a specific piece of evidence. Parties may request the court to order the opposing party or a third party to hand over or grant access to such evidence. The court will only order the opposing or third party to share the information if the following conditions are met: (1) the requesting party has a legitimate interest in receiving the information, (2) the information requested is specific (to avoid ‘fishing expeditions’), (3) the information requested relates to a legal relationship to which the requesting party is a party, and (4) there is no compelling reason to deny the request.
The settlement of civil disputes does not require any judicial involvement or review. It is common practice for Dutch courts to suggest, and even recommend, that parties settle their dispute among themselves, even during hearings. If both parties agree to do so, they can disclose to the court the terms of their settlement, upon which the court will make an official transcript of their agreement signed by the judges. This transcript can serve as a title of enforcement if one of the parties does not adhere to the agreed terms of the settlement.
In July 2016, a draft legislative proposal on mediation was shared with the market for consultation purposes. This proposal aims to stimulate the use of mediation as a full alternative to solve (legal) disputes. It is uncertain whether this legislative proposal (or an amended version thereof) will eventually be adopted.
Furthermore, the legislative proposal introduced in November 2016 amending the legal framework for the collective action aims to make reaching settlements in this type of collective action more attractive (also see Sections II.i, supra, and IV, infra).
There are no rules regarding the reimbursement of attorneys’ fees in settlements.
The Dutch Act on the Collective Settlement of Mass Claims (WCAM)
A collective action could result in a class settlement certified by the WCAM procedure. The WCAM provides parties to a settlement agreement the possibility of jointly requesting the Amsterdam Court of Appeals to declare the settlement agreement binding. To be entitled to initiate WCAM proceedings, it is not required that a collective action has been filed first. If the court declares the settlement agreement binding, all parties and the persons entitled to compensation are automatically bound by the settlement, unless they opt out in writing within a certain period after the binding declaration. The opt-out period is determined by the court, but it is at least three months.11
Parties are free to agree on the terms and conditions of a class action settlement. However, to qualify for a binding declaration a settlement agreement must (1) meet certain ‘technical’ requirements (e.g., describe the events that lead to the damages and describe the beneficiaries of the settlement) and (2) provide sufficient safeguards for the interests of the beneficiaries to justify a binding declaration (such as ‘reasonable compensation’ and a representative organisation being sufficiently representative).12 The WCAM provides that the court will refuse the binding declaration if the compensation awarded in the settlement is not reasonable, having regard to, among other things, the extent of the damage, the ease and speed with which the compensation can be obtained, and the possible causes of the damage.
In cases of mass damages, there is a specific procedure to facilitate pre-litigation settlement. The district court can order a hearing to explore settlement options in such cases. This can be requested by the responsible party or organisations representing victims’ interests, or by them jointly.13
iv Damages and remedies
Under Dutch law, as a starting point, the damage has to be determined on the basis of a comparison between the actual situation the aggrieved parties are in and the situation the aggrieved parties would have been in if the event causing the damage had not taken place. The amount of damages to be paid in respect of contractual and non-contractual claims in the Netherlands can be limited by the requirements of reasonableness and fairness.
The difficulty in relation to securities claims is that in principle, under Dutch law, the claimant must prove the causal relationship between the actions of the defendant and the losses suffered.14 On the one hand, this can prove difficult for investors, because their investment decision is usually based on many different factors and most of these factors are difficult to prove. On the other hand, it may often also prove difficult for a defendant to present a defence showing that no causal relationship existed. Case law shows that a relatively high standard applies to the defence showing that the causal relationship is absent. In relation to large-scale financial losses, where the defendant is usually not aware of the individual circumstances of the investor, the Dutch Supreme Court formulated a rule that supports the investor in proving the causal relationship by taking the existence of that relationship as the starting point. Even though the burden of proof is not reversed, the issuer must give concrete facts and circumstances to prove that there was no causal relationship.15
III PUBLIC ENFORCEMENT
i Forms of action
Public enforcement of security laws is divided between the financial markets regulators (AFM and DCB) and the public prosecutor. In principle, the financial markets regulators enforce adherence to the FMSA. However, numerous violations of the FMSA are listed as economic offences, making them susceptible to criminal charges by the public prosecutor.
Public enforcement by the regulator (AFM)
To enforce compliance the AFM can take both informal and formal action:
- a The AFM regularly uses informal methods such as a entering into discussions about a (perceived) violation of standards or sending a warning letter. Such actions are not arranged for by law, but are common practice and are described in the enforcement policy of the AFM.
- b The AFM may impose the following administrative sanctions (among others) without prior judicial authorisation:16
• order a certain course of action to comply with the FMSA (instruction order);
• order a particular duty, backed by a judicial penalty for non-compliance;
• give an administrative fine; and
• withdraw or limit the licence of a financial undertaking.
The financial regulators may request information and seek access to business data and documents. In principle, everybody has a duty to cooperate with the financial regulators. The financial regulators and their employees are subject to a general confidentiality obligation regarding information obtained through their work under the FMSA. However, they may share information with, among others, the Consumer and Market Authority, the tax authorities and the public prosecutor.
Public enforcement by the public prosecutor
In the event of a violation of the Dutch Penal Code or in the event of an infringement of securities legislation that is classified as an economic offence, legal entities and individuals can also be prosecuted by the public prosecutor.
Collaboration between public enforcers
The financial regulators and other public enforcers (such as the tax authorities and the public prosecutor) can align criminal and administrative processes. This alignment of enforcement actions is based on a covenant aimed at the exchange of information between regulators and the alignment of enforcement, the latter to prevent unwanted interference of administrative law and criminal law. This is based on the principle of ne bis in idem.
Public enforcement can inspire a private enforcement claim.
Enforcement by the AFM
The AFM has the discretionary power to investigate and enforce infringements of the FMSA and other legislation. An enforcement action usually starts well before the determination of a violation by, for instance, an issuer. If the AFM suspects an infringement, it will request information and data from the issuer. Failure to comply with the request may lead to a periodic penalty until the request is met.
If the AFM determines there is a violation of the FMSA, it will send its findings to the defendant in question. The defendant will receive a report including the intention of the AFM to impose a sanction.
A defendant can object to an administrative sanction by the AFM; the AFM must then review its decision in full. If an objection is unsuccessful, a defendant can appeal to the administrative court of first instance. After a decision by the court of first instance, an appeal can be lodged with the administrative court of appeal.
Enforcement by the public prosecutor
Criminal prosecution concerning securities law is subject to the standard criminal law procedures before the district court (with a possibility of appeal).
The FMSA does not provide for the possibility of settlements for the AFM. However, one can argue that the AFM does, in practice, enter into informal settlements. The AFM may, for instance, use its discretionary powers to determine the amount of an administrative fine or the severity of an instruction (within certain limits). It may do so depending on the outcome of discussions with an institution.
The public prosecutor may decide to enter into a settlement with a defendant. A settlement may be entered into either before or after initiating criminal proceedings. Such settlements are not uncommon. In the past few years, we have seen an increase in settlements of large amounts by the public prosecutor, sometimes in collaboration with Dutch and foreign regulators.17
iv Sentencing and liability
The AFM may impose administrative fines after establishing a violation. The amount of the administrative fine imposed depends on the type and severity of the violation and can range from nothing to €20 million. An administrative fine may be doubled in the case of a repeat offence. Under the new MAR regime, the AFM can (after correct implementation in the Dutch Decree on Administrative Fines for the Financial Sector) also impose turnover-related fines up to a maximum of 15 per cent of annual turnover.
Irrevocable sanctions by the FMSA, such as an administrative fine or an instruction order, are published by the AFM.
The public prosecutor can request the court to impose a fine, imprisonment or both, depending on the violation and its severity.
IV CROSS-BORDER ISSUES
In relation to cross-border securities litigation, the general rules for cross-border litigation apply. The starting point is that a civil case can be brought before a Dutch court if the defendant has its domicile in the Netherlands (the Brussels I bis regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters).18 The Brussels I bis Regulation stipulates that a legal entity has its domicile at the place where it has its (1) statutory seat, (2) central administration or (3) principle place of business.19 However, there are a few alternative methods to establish jurisdiction before Dutch courts.
On the basis of the Brussels I bis Regulation, tort claims may be brought before the court in the place where the harmful event occurred.20 In this context, the Kolassa/Barclays Bank case before the Court of Justice of the EU (ECJ) is noteworthy.21 A consumer domiciled in Austria invested in certificates of Barclays (based in the United Kingdom) through an Austrian bank. Barclays Bank had also distributed a base prospectus in Austria. After the investment sum was largely lost, the investor initiated proceedings before an Austrian court claiming damages relating to the distribution of the prospectus. The Austrian court requested a preliminary ruling from the ECJ on its jurisdiction. The ECJ ruled that, on the basis of where the loss occurred, the Austrian courts had jurisdiction to hear and determine such an action, particularly because the alleged damage occurred directly in the applicant’s bank account.
Claims can also be brought before a Dutch court if parties contractually agree to do so.22
With regard to proceedings for the binding declaration of international settlements under the WCAM (see Section II.iii, supra), the Amsterdam Court of Appeal assumes jurisdiction rather easily, even if the case is not substantively connected to the Netherlands. In two WCAM cases, Shell 23 and Converium,24 the Court assumed jurisdiction with regard to the shareholders domiciled outside the Netherlands, but within the EU, Switzerland, Iceland or Norway, as their potential claims were ‘so closely connected’ to the claims of the shareholders domiciled in the Netherlands that it was ‘expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings’.25 Furthermore, the Court also assumed jurisdiction with regard to the shareholders who were not domiciled in the Netherlands, or in any other EU Member State, Switzerland, Iceland or Norway, because five out of six petitioners in Shell and two out of four petitioners in Converium were domiciled in the Netherlands.26
The decision by the Court on international jurisdiction in Converium implies that even if the case is not substantively connected to the Netherlands, but a minority of the interested parties are domiciled in the Netherlands, and one of the parties to the settlement is a Dutch entity (for example, a Dutch foundation (stichting) representing the interests of the alleged victims), the Court will assume jurisdiction.27
The WCAM was developed exclusively as a mechanism to offer the opportunity to give a wide effect to settlements reached. The international relevance of the Dutch mechanism for collective settlements has increased and the Netherlands may become a serious alternative for the certification of collective settlements involving non-US investors in non-US securities listed on a non-US stock exchange.28
V YEAR IN REVIEW
On 23 May 2016, Ageas and a number of representative organisations submitted a request to the Court of Appeal of Amsterdam to declare the global settlement agreement binding with respect to all securities litigation related to the former Fortis group for events that occurred in 2007 and 2008. These events relate, among other things, to the acquisition of parts of ABN AMRO bank. The total settlement amounts to approximately €1.2 billion. The public hearing before the Court of Appeal took place on 24 March 2017, and the Court of Appeal announced it would render its judgment on 16 June 2017.
On 25 April 2017, the district court of Rotterdam, the Netherlands, revoked the administrative fine for two former executive directors of Imtech who, according to the AFM, had violated their duty to disclose price sensitive information. The unusually high fines – in total amounting to €2.35 million – were revoked because the court found that the AFM had not proven beyond reasonable doubt that Imtech should have assumed the project under discussion would not continue.29
The table below provides an overview of the formal and informal AFM enforcement actions over the course of 2016. The numbers for 2015 are included for comparison purposes.
Enforcement/influence by the AFM (based on the 2016 annual report)
Formal enforcement action
Total formal enforcement measures
15 (€8.5 million)*
17 (€9.6 million)
Reports made to the public prosecutor
Informal enforcement action
Instructive conversations/letters on compliance with standards
Warning letters/warning discussions
* The number of fines imposed in 2016 is in line with the average number of fines since 2012. In 2016, the AFM mainly imposed fines for more serious violations occurring at larger companies. The most notable of these were the fines imposed on the four large audit firms for shortcomings in their auditing of financial statements. Two fines imposed for failure to comply with the obligation to publish a prospectus.
The total number of legal proceedings initiated against the AFM in 2016 amounted to 54. Rulings were issued in 40 legal proceedings. The rulings were generally favourable to the AFM (in 80 per cent of cases).30
VI OUTLOOK AND CONCLUSIONS
i Prospectus directive
On 30 November 2015, the European Commission released a proposal for a regulation on the prospectus to be published when securities are offered to the public or admitted to trading.
ii MiFID II and MiFIR
MiFID II31 and the Markets in Financial Instruments Regulation32 (MiFIR) will repeal and recast MiFID. Both came into force on 2 July 2014. Member States must adopt and publish the measures transposing MiFID II into national law by 3 July 2017, and must apply those provisions from 3 January 2018. MiFIR will also apply from 3 January 2018.
iii Class actions
On 16 November 2016, a legislative proposal was introduced in the Dutch parliament, to amend the existing collective action so as to permit representative organisations to claim damages. The proposal intends to facilitate collective redress in the form of a collective opt-out mechanism. It provides incentives to conclude the case with a class settlement. It is still uncertain whether the proposal will be adopted in its current form, or at all. The proposal in its current form provides for a wide-scope rule for admissibility of collective actions.
iv Exclusive jurisdiction for the district court of Amsterdam
On 10 April 2014, a legislative proposal was introduced, including a provision that would grant the District Court of Amsterdam exclusive jurisdiction over all cases concerning financial law, including securities law. The implementation of the provision was postponed because of a lack of clarity on the scope of the provision. A recent draft proposal of the Financial Markets Amendment Act 2018 again includes the provision, which means that the article will most likely become effective as of 1 July 2018.
1 Jan de Bie Leuveling Tjeenk and Dennis Horeman are partners at De Brauw Blackstone Westbroek NV.
2 Wet giraal effectenverkeer.
3 Including the Markets in Financial Instruments Directive (2004/39/EC), the Market Abuse Directive (2014/57/EU), the Transparency Directive (2004/109/EC) and the Prospectus Directive (2003/71/EC).
4 Regulation (EU) No. 596/2014.
5 Wet toezicht financiële verslaggeving.
6 The ‘Maatman criterion’. See, among others, Supreme Court 27 November 2009, ECLI:NL:HR:2009:
BH2162, NJ 2014/201 (VEB/World Online) and Supreme Court 30 September 2016, ECLI:NL:HR:
2016:2213 (Dutch State v. former Fortis shareholders).
7 Section 1:25d FMSA.
8 See for example: District Court of Amsterdam 28 January 2015, ECLI:NL:RBAMS:2015:276, in which the court ruled the DCB was not liable.
9 Supreme Court 27 November 2009, ECLI:NL:HR:2009:BH2162 (VEB/World Online).
10 J de Bie Leuveling Tjeenk and B van Heeswijk, ‘Class Actions in the Netherlands’, Class Actions Law Review (2017); T Arons and W H Van Boom, ‘Beyond Tulips and Cheese: Exporting Mass Securities Claim Settlements from the Netherlands’, European Business Law Review (2010).
11 J de Bie Leuveling Tjeenk and B van Heeswijk, ‘Class Actions in the Netherlands’, Class Actions Law Review (2017).
12 J de Bie Leuveling Tjeenk and B van Heeswijk, ‘Class Actions in the Netherlands’, Class Actions Law Review (2017).
13 Section 1018a Dutch Code of Civil Procedure.
14 Section 150 Dutch Code of Civil Procedure.
15 Supreme Court 27 November 2009, ECLI:NL:HR:2009:BH2162 (VEB/World Online).
16 For AFM enforcement figures, see Section V, infra.
17 See, for example, the settlement between Coöperatieve Rabobank UA on one hand and the DCB, the Dutch public prosecutor, the Financial Conduct Authority (United Kingdom), the Commodity Futures Trading Commission (United States), the American department of Justice and the Japanese Financial Services Authority on the other hand for €774 million in relation to the Libor and Euribor manipulation.
18 Section 4 Regulation (EU) No. 1215/2012 (Brussels I bis Regulation).
19 Section 63 Regulation (EU) No. 1215/2012 (Brussels I bis Regulation).
20 Section 7(2) Regulation (EU) No. 1215/2012 (Brussels I bis Regulation).
21 ECJ 28 January 2015, C-375/12 (Kolassa/Barclays Bank).
22 Section 25 Regulation (EU) No. 1215/2012 (Brussels I bis Regulation).
23 Amsterdam Court of Appeals 29 May 2009, ECLI:NL:GHAMS:2009:BI5744, JOR 2009/197 (Shell).
24 Amsterdam Court of Appeals 17 January 2012, ECLI:NL:GHAMS:2012:BV1026, JOR 2012/51 (Converium).
25 See Article 8 Section 1 of the Brussels I bis Regulation, see Article 6 Section 1 of the Lugano Convention.
26 J de Bie Leuveling Tjeenk and B van Heeswijk, ‘Class Actions in the Netherlands’, Class Actions Law Review (2017).
27 As a consequence, the Court also assumed jurisdiction on the basis of the predecessor of Article 7 Section 1 of the Brussels I bis Regulation and Article 5 Section 1 of the Lugano Convention.
28 R Hermans and J de Bie Leuveling Tjeenk, 'International Class Action Settlement in the Netherlands since Converium', in I Dodds-Smith, A Brown (eds.), The International Comparative Legal Guide to: Class & Group Actions 2017 (London: Global Legal Group Ltd, 2016).
29 District Court of Rotterdam 24 April 2017, ELCI:NL:RBROT:2017:3061.
30 Annual Report AFM 2016.
31 Directive 2014/65/EU.
32 Regulation (EU) No. 600/2014.