Last Thursday, Deminor closed the registration for its new Arco case in view of the upcoming time-bar in January 2023. The Arco case, which commands much media attention, concerns an investor dispute in which 800,000 Arco shareholders are at risk of losing their full investment after Dexia’s bankruptcy in 2011. The investors allege among others that the contracts concluded with the Arco companies are null and void on the basis of fraud (or at least error).
This case will be the second Arco case led by Deminor. On November 21, 2021, the Dutch Speaking Enterprise Court of Brussels (the Brussels Court) declared Deminor’s first case inadmissible.
In the first Arco case, the plaintiffs were obliged to rely on Belgian judicial law, rather than on the Belgian class action law. This is because the Belgian class action law, as included in the Code of Economic law (CEL), is currently limited in scope and does not cover investment claims by aggrieved shareholders. This is set to change, because the new EU Class Actions Directive 2020/1828, which should soon be transposed into Belgian law, will extend the scope of Belgian class action law to cover financial instruments.
Unfortunately for the plaintiffs in this second Arco case, they cannot afford to wait until the entry into effect of this new law, because their claim would be time-barred before that happens. They too, therefore, have no choice but to bring this second action under Belgian judicial law, and, as a result, they face certain difficulties. In particular, the judgement of November 21, 2021 highlighted the procedural obstacles that plaintiffs often face when they try to bring a collective action before the Belgian Courts outside the legal framework of the Belgian class action law.
In this alert, we will highlight the most important procedural obstacles for collective actions under Belgian judicial law and discuss the effect that the first Arco case could have on the second one and vice versa.
Joinder of claims
First, plaintiffs must demonstrate that all their claims can be joined and that one writ of summons can be served for all plaintiffs together. In the first Arco case, the Brussels Court held that joinder is only possible in case of an “objection connection,” which it defined as “a substantive connection in the concrete facts, objects or causes of action of the various parties, which leaves one fearing that the lack of joinder will lead to partially divergent solutions.”
While this was not in fact an issue for the plaintiffs in the first Arco case, this often causes problems for collective actions because the “objective connection” criterion requires that the collective action be aimed at compensating damage suffered by a large number of plaintiffs based on the same harmful event, and that the same types of claims be brought. This pre-supposes that the damage suffered is the same for all the plaintiffs.
Contrary to what plaintiffs often believe, such objective connection is not always easy to prove. In securities mis-selling cases, for example, it is common for different prospectuses to be issued in different rounds and in life insurance cases insurance policies are almost always sold through different local insurance intermediaries. As a result, the circumstances in which plaintiffs made certain investments/purchased certain life insurance policies are often not identical, and the harmful event or claim may differ (slightly) from one claimant to another.
Individual burden of assertion and individual burden of proof
Second, plaintiffs must fulfill their individual burden of assertion and their individual burden of proof, even in collective actions.
The burden of assertion chronologically precedes the burden of proof and requires plaintiffs to assert all relevant facts, documents, persons and grounds for redress on an individual basis. In the first Arco case, the Brussels Court declared the case inadmissible on this ground. It stated that since the collective action brought by the plaintiffs was not a class action in the sense of the CEL, an individual “story” had to be brought for each claimant, identifying (i) what misleading information had been provided to him/her, (ii) when this information had reached him/her and (iii) to what extent this information had been a determining factor in the purchase of the shares. The Brussels Court concluded that the plaintiffs had brought one collective claim instead of asserting 2200 individual claims, and that this made an individual defense for the Arco companies and an individual assessment by the Court impossible.
The Brussels Court was also critical of the evidentiary file submitted by the plaintiffs and emphasized that a joint file of evidence does not suffice. It referred to the fact that the plaintiffs had failed to prove which plaintiffs had actually received or relied on particular evidentiary documents (such as undated letters, information brochures etc. without indication of addressees). A questionnaire that had been filled out by 1570 plaintiffs in an attempt to prove the systematic, structured and organized way in which the Arco companies had committed fraud, was rejected by the Brussels Court due to the “subjective nature” of this type of evidence, it being non-contemporaneous and also created by the plaintiffs themselves. For similar reasons, it dismissed witness statements by former employees who also held Arco shares.
Finally, the Brussels Court denied the plaintiffs’ request for production of documents based on article 877 of the Belgian Judicial code. This provision allows for a request for specific documents that are relevant to the case and that are in the other party’s possession. According to the Brussels Court, the plaintiffs had in fact requested statements, not documents, from the defendants and they had failed to demonstrate that the documents were in the defendants’ possession and relevant to the case. The Brussels Court was also critical of the fact that the plaintiffs had not made “any effort” to obtain the evidence themselves which rendered the request for document production disproportionate in the eyes of the Brussels Court. This highlights how difficult it can be to successfully request the production of documents in collective actions from banks or life insurance companies that are subject to information retention rules. These rules require such bodies to destroy certain information after a period of time, which makes it difficult to prove that they may still be in possession of the relevant documentation.
Strategy for the second Arco case
It will be interesting to see if and how these new plaintiffs will address the criticisms expressed by the Brussels Court in this second Arco case. After all, Deminor has also appealed the judgement in the first Arco case, so Deminor could stick to its initial strategy and trust that the Court of Appeal will overturn the first judgement.
Alternatively, the new plaintiffs could try and use the first judgement as guidance as they prepare their claims, and submit individual, particularized narratives for each plaintiff to ensure that the individual burden of assertion is met. This would, of course, significantly increase the workload, and the length of the writ of summons, but it might be worth the effort considering the risk of inadmissibility.
In terms of evidence, Deminor’s strategy will necessarily depend on the availability of evidence. An individual evidentiary file can only be put together for each plaintiff if each plaintiff is actually in possession of the required documentation. Nonetheless, there would be a significant strategic advantage to compiling individual evidentiary files. Contrary to a joint evidentiary file, which would attempt to prove systemic, structural and organized fraud, using individual, per plaintiff, files could avoid the problem of an all or nothing situation: while there would undoubtedly be a risk that certain plaintiffs’ claims would be rejected for lack of evidence, this would not necessarily mean that the whole case would fail, given that there might still be sufficiently substantiated claims to proceed.
The plaintiffs could also take up the Brussels Court’s suggestion to gather and present information such as the date of purchase, the type of shares etc. for each claimant, in order to show that they have done their own work to assemble and logically organize the required information. This could help the plaintiffs prove in a later phase that any request that they may wish to submit for document production by the defendant is indeed proportionate.
Lastly, because the first Arco case is still pending before the Court of Appeal, an interesting legal defense question arises if the new plaintiffs do indeed opt for the second strategy and try to do things differently. As the plaintiffs in the second case are not the same ones as the plaintiffs in the first case, tension could arise between the two groups of plaintiffs. Indeed, in the Court of Appeal, the plaintiffs of the first case will not have the option to adapt their claims along the lines suggested in the first instance judgment. They will be obliged to stick to their guns and request that the judgment be reversed. If the plaintiffs in the new second case follow the Brussels Court’s guidance and present their claims differently than the first group of plaintiffs, this would create an inconvenient precedent for the ongoing appeal proceedings.
We will continue to follow this case with interest. A new book is also on the way in which we will discuss the potential impact of the new Belgian Class Action Law on these types of collective actions. More information will follow soon!
For further information, please contact:
Werner Eyskens, Partner, Crowell & Moring
weyskens@crowell.com
