The Debate Intensifies on the Best Strategy to Recover Foreign Securities Losses
Recent doubts have been raised as to the effectiveness of Dutch Foundations, which have become an important vehicle in foreign recoveries. While Dutch Foundations have negotiated settlements in some situations, some foreign commentators have begun to question their utility.
A Dutch Foundation, also known as a “stichting,” can be established in the Netherlands to represent the interests of victims. It is capable of resolving claims against a defendant in the form of a collective settlement or by instituting a legal proceeding. The Foundation has an independent Board of Directors that guides its activities.
An investor can join a Foundation without becoming a party plaintiff. A Foundation can begin a legal proceeding in its own name in a Dutch court on behalf of its members. Institutional investors in the U.S. and elsewhere are often solicited to join a Foundation because, in order to establish its “representation,” the Foundation must demonstrate that it has many members from various jurisdictions. The Foundation can either bring a collective action for a determination of liability or it can begin a collective settlement proceeding. Under said settlement proceeding, a settlement can bar everyone from suing the defendant except those who opt out.
With investors facing uncertainty as to the risks of becoming party plaintiffs in foreign securities cases, the Foundation has become, in some instances, an excellent practical alternative. Foundations have achieved some notable settlements in Shell Netherlands, EADS, and Converium, for example. However, some foreign commentators have raised issues about the Foundation’s effectiveness – especially as to non-Dutch defendants (even though we understand Converium was not a Dutch entity). The commentators raise such issues as jurisdiction, damages, and the statutes of limitations.
While these are understandable concerns, a non-Dutch defendant faced with numerous suits in various foreign jurisdictions might well look at the Foundation as a way to practically resolve all disputes. Because of the Morrison decision, discussions as to viability of litigation vehicles in foreign courts will certainly increase as investors continue to search for ways to recover losses, which recovery (pre-Morrison) could have been achieved in the United States.
Our recent and extensive experience with foreign securities litigation leads us to conclude that Foundations can be effective vehicles for recovery.