Legal finance in the Netherlands: WAMCA and beyond

Although the Netherlands is a relatively low-cost jurisdiction to litigate compared to, for example, England & Wales or Germany, it is not a cost-shifting jurisdiction, outside of certain exceptions such as claims under the WAMCA. This means that even if claimants succeed, they are unlikely to be able to recover their costs of bringing the claim from the losing defendant. Legal finance providers like Burford offer funding to claimants, offloading litigation costs so claimants won’t find themselves out of pocket when pursuing meritorious claims.

The Netherlands is actively trying to attract cases from across Europe, particularly those with a pan-European angle. Uniquely, the Netherlands Commercial Court has been set up to hear cases and deliver judgments in English. The Dutch courts are also willing to act pragmatically to accept jurisdiction to hear claims where an anchor defendant within a broader corporate group is domiciled in the Netherlands. For example, a large number of follow-on damages claims have been brought in relation to the Trucks cartel, with groups of claimants assembled from across Europe. 

Under Dutch law, claims can be assigned to a special purpose vehicle (SPV) that then brings the litigation. This enables claimants to transfer their claims to SPVs managed by legal finance providers, who can pursue the claims on their behalf. The assignment model provides a mechanism for claimants to monetize their claims and recover value from proceedings upfront. It allows claimants to receive immediate capital without having to wait for legal processes to resolve, enabling them to invest in other revenue-generating business activities. The assignment of claims to SPVs is particularly common in an insolvency context.

Despite the positive aspects, litigation is often slow, with the Dutch courts still trying to work through large case backlogs. That is particularly apparent with WAMCA claims. Since the regime came into force in 2020, nearly 100 claims have been issued, but no damages claims have been resolved, whether through a final damages award or settlement. Delays are expected in a new regime as early cases test new legal concepts. Once these initial cases establish clear precedent, it is hoped that later cases can be dealt with on a more expedited basis. Drawn-out litigation can make legal finance attractive to claimants, who would otherwise face protracted and expensive litigation.

Some of most common use cases of legal finance are addressed below.

Mass claims 

The WAMCA, which entered into force in January 2020, was a pioneer in the development of the European collective action regime. The Netherlands is now one of Europe’s leading jurisdictions for claimants seeking damages in mass damages cases. As other European jurisdictions implement the requirements of the Representative Actions Directive (RAD), courts and lawyers across Europe will look at the operation of the WAMCA over the past four and a half years to guide their local RAD regimes.

Legal finance is widely accepted as critical to the operation of collective actions for damages under the WAMCA. Representative organizations need to show that they have sufficient financial means to bring the claim and ensure the interests of the represented class are protected. That is typically achieved by the organization obtaining legal finance: Of around 20 damages claims issued as at the time of writing, nearly all have been financed through external legal finance. The Dutch court reviews financing arrangements when appointing an exclusive representative. So far, the court has been willing to approve, in principle, arrangements where the finance provider receives 10 to 25% of the claim’s proceeds. Although not yet considered by the court, it is generally accepted among claimant-side practitioners that the legislative intention behind the WAMCA is that the costs of legal finance will be recoverable along with other legal costs as part of the costs award from the defendant on success of the claim. 

Restructuring and insolvency claims

An increase in insolvency situations across Europe is expected after the end of Covid-related government stimulus packages for businesses. The Netherlands, as with many other European countries, is yet to see many of those so-called ‘zombie businesses’ enter into insolvency but there are warning signs that businesses may be beginning to feel the effects of a challenging economic climate. There has been an increase in high value corporate restructurings across the region, indicating that businesses may be tipped into formal insolvency processes in the near future.

External finance can be particularly attractive to insolvency practitioners looking to boost the pool of available assets for distribution by pursuing meritorious claims in circumstances where the insolvent estate is unable to pursue claims using its own balance sheet. These claims vary in nature but are often ‘claw back’ style claims or actions pursued against former directors. While the Dutch courts’ efficiency and costs regime is attractive, these claims can still be expensive, lengthy and require substantial amounts of expert and economic evidence. In the event claims are pursued against former directors, there may also be an enforcement component. Insolvency practitioners have finite pools of capital to obtain and distribute assets. Legal finance can support them in bringing claims, freeing up further budget to be used on tracking down other assets. Burford has a long track record of financing and recovering significant damages for estates across Europe.

The Dutch securities litigation space is also particularly active. Three of the five largest securities-related settlements ever recorded outside the US occurred in the Netherlands.

Steinhoff International Holdings NV, a Dutch corporation based in South Africa, faced a significant accounting scandal in 2017. The company disclosed accounting irregularities that led to a delay in releasing its audited financial statements. The CEO resigned, and an independent investigation by PwC revealed a €6.5 billion accounting fraud committed by the CEO and a small group of senior executives over nearly a decade. As a result, Steinhoff's share price plummeted by 90%, causing a loss of €12.6 billion in market capitalization.

Burford represented a shareholder group, including three of Steinhoff’s five largest institutional shareholders, in the settlement process. Once the parties agreed on settlement terms, Burford worked with its clients to collect the voluminous supporting documentation needed to submit their claims to the settlement administrator.

Ultimately, all of Burford’s clients’ claims were validated by the settlement administrator, ensuring they received their rightful share of the settlement proceeds. In contrast, other shareholder groups had a significant number of claims rejected due to evidentiary deficiencies or other issues.