Netherlands
The widespread use of third-party litigation funding in mass tort claims has gained additional support with the recent enactment of the Act on Redress of Mass Damages in a Collective Action (WAMCA). This development, along with the option to conduct proceedings in English before the Netherlands Commercial Court and enforce judgments across other EU member states under the Brussels I Recast Regulation, is making the Netherlands increasingly attractive for international mass claims.
Directive 2020/1828 on representative actions for the protection of consumers’ collective interests, which was implemented on 25 June 2023, further facilitates mass claims by claims organisations within the EU, including cross-border actions. The Directive includes provisions relevant to third-party litigation funders, emphasising the independence of claim organizations and the transparency of their financing.
In addition, AI is a big trend in litigation, especially since it is recognised as a product the new Product Liability Directive. In combination with the most recent AI Act, which was endorsed in May 2024 by the European Council, consumers and companies will have a new playing field when it comes to commercial (tech) litigation. The new AI Act ‘aims to protect fundamental rights, democracy, the rule of law and environmental sustainability from high-risk AI, while boosting innovation and establishing Europe as a leader in the field’. Breaching the AI Act will be fined by the new designated competent national authority. Consumers/users will also be able to lodge a complaint with the national authority about a breach of the Act by an AI system provider or displayer.
1. Is third party funding permissible for disputes?
Third-party funding is generally permissible for disputes in the Netherlands, both in state court litigation and in arbitration. Third-party funding involves a non-party, typically a private commercial fund with no prior connection to a dispute, agreeing to finance all or part of the costs of the proceedings in exchange for an agreed share of any damages awarded (and/or a multiplier of costs paid) in the event of a successful outcome. It is already widely used in class actions and its popularity is growing in traditional litigation and arbitration.
Please note that the Netherlands Arbitration Institute (“NAI”) introduced an ongoing obligation to disclose the identity of third-party funders in their request for arbitration (art. 8.2(k) NAI Rules 2024), the short answer (Article 9.2(f) NAI Rules 2024) or as soon as possible thereafter, under the newly updated 2024 NAI Rules. These rules fit within a larger trend on a European level, now that the European parliament proposed a directive for regulating third-party funding with the Representative Action Directive (“RAD”) in 2022, which has been implemented under Dutch law in June 2023 and imposes certain (information disclosure) obligations for funders in class actions for consumer protection.
2. Are lawyers able to work on a contingent basis in the jurisdiction and are there any restrictions?
Lawyers in the Netherlands are able to work on a contingent basis. However, there are some restrictions. Working with ‘no cure no pay’ or quota pars litis agreements is prohibited in the Netherlands under the Dutch professional rules of conduct for lawyers. Lawyers need to ensure that their fee rate is reasonable and at least cover the actual costs. Within these parameters, litigation lawyers can engage in conditional, contingency, or other fee arrangements. For instance, they might start with a lower hourly rate or fee that can be increased upon achieving a specific result (including based on the value of that result).
Although hourly rates are still commonly used, alternative fee arrangements such as fixed and capped fees, as well as success fees, are becoming increasingly prevalent in the Netherlands. While alternative fee arrangements are permitted, there are restrictions on the percentage of the success fee or uplift. The website of the Dutch Bar Association provides that there is a cap on the fee that a lawyer may charge the client in the event of a positive outcome in the case. The Dutch Bar Association mentions a maximum fee of 25% of the proceeds of the case for the client (or 35% if the lawyer also advances the external costs, see: Article7.10 Voda ‘vergoeding advocaat’). Furthermore, the Amsterdam District Court recently deemed a 27.5% success fee as excessive (see the Renault diesel case), stating that a range between 10% and 25% was more acceptable and in line with earlier case law (in the Fortis v Aegeas case at the Amsterdam Court of Appeal).
The above-mentioned restrictions generally do not apply to the third-party litigation funders, provided these funders do not serve as counsel representing the funded party.
3. Can the court or tribunal order one party to pay the other’s legal costs?
Yes, in the Netherlands, the court or tribunal can indeed order one party to pay the other’s legal costs. This is generally based on the principle that the unsuccessful party bears the costs of the proceedings, which can include court fees, bailiff’s costs, and costs of witnesses or experts engaged at the request of the court. In court litigation in the Netherlands, courts typically apply the liquidation rate (liquidatietarief). This refers to the standardised rates used by courts to determine the reimbursement of legal costs. These rates are established by the Dutch courts and provide guidelines for compensating attorney fees and other legal expenses that the losing party may be required to pay to the winning party in a lawsuit.
There are exceptions where the court may decide that the full legal costs should be reimbursed. This typically occurs in cases of abuse of procedural law or frivolous litigation, where one party has acted in bad faith or engaged in unnecessarily vexatious behaviour. For example, if a party has deliberately prolonged the proceedings or has introduced baseless claims, the court may order that the full legal costs be paid by the offending party. This serves as a deterrent against abusive litigation practices and ensures that the aggrieved party is not unfairly burdened by excessive legal expenses.
Moreover, in intellectual property cases, the court may also award full legal costs to the prevailing party. Under Dutch law, specifically in cases involving the enforcement of intellectual property rights, the winning party can often recover all reasonable legal costs from the losing party. This is intended to fully compensate the prevailing party for the expenses incurred in protecting their intellectual property and to promote the enforcement of such rights.
In arbitration in the Netherlands, it is customary for the unsuccessful party to be ordered to pay the costs of the proceedings. These costs include the fees and expenses of arbitrators, costs for witnesses and experts, and other reasonable legal expenses such as fees for legal representation and administrative costs.
In practice, this often means that the losing party bears the majority, if not all, of the costs of the proceedings, including lawyers’ fees. This follows the principle that the losing party must reimburse the winning party for the expenses incurred in pursuing their case.
4. Is insurance available to protect against adverse outcomes for funded litigation?
Yes, insurance is available in the Netherlands to protect against adverse outcomes for funded litigation. This is known as After The Event (ATE) insurance. However, it is not widely used, as the potential costs associated with an adverse cost order in Dutch court proceedings are limited. A more popular type of insurance – mainly among consumers – is legal expenses insurance.
Contact
Marie-Hélène Berghuijs Partner
Lennart Baijer Senior Associate
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