Volkswagen diesel emissions scandal: Damage recovery options for investors

A Dutch foundation was recently established aiming for a global settlement for investors in Volkswagen shares to recoup their losses following the Volkswagen diesel emissions scandal. Dutch law provides for a unique mechanism that could ultimately lead to a global settlement between Volkswagen and its investors. Considering the possibility of parallel class actions and collective settlements, investors are advised to seek counsel before committing or collaborating with any foundations or associations.

Background

In September 2015, the Volkswagen scandal and its effect on the world became apparent. Due to the scope and severity of the software manipulation by Volkswagen, the company has since seen a significant value drop and is faced with enormous costs already incurred and still to be incurred in the coming years. Consequently, many investors in Volkswagen are faced with serious losses attributed to the value of their shares. On 05 February 2016 the company even announced it would suspend publication of its annual report and push back its annual shareholder meeting. As of yet it is still unclear how damaging the scandal will be for investors.

Stichting Volkswagen Investor Settlement

On 26 January of this year, the “Stichting Volkswagen Investor Settlement” (the “Foundation”) was established in the Netherlands with registered office in Amsterdam. The Foundation’s chairman, Professor Huub Willems, is the former president of the Netherlands Enterprise Court at the Amsterdam Court of Appeal. According to its articles, the Foundation aims to represent Volkswagen investors who have a claim against Volkswagen, its actual policymakers or any affiliated entities. All investors that bought or held shares (or similar products) in Volkswagen or its affiliated entities in the period between 23 April 2008 and 04 January 2016 are sought to be represented.

The representation of investors might comprise a class action being initiated by the Foundation in the Netherlands or possibly even abroad. Said class action does not require investors to "opt-in". Since the Foundation is a representative body under Dutch law, it can represent the interests of all investors, and request that the Court issue a declaration to the effect that Volkswagen has acted unlawfully towards these investors. After such declaration investors, either individually or jointly, may seek damages through settlement or by commencing additional proceedings. The Foundation itself is not eligible to seek damages under Dutch law.

Global settlement based in the Netherlands

More importantly, however, Dutch law provides for the collective settlement of mass claims through its unique Class Action Financial Settlement Act (WCAM). The Foundation states to aim at opening a dialogue with Volkswagen in a spirit of mutual respect to find a reasonable and fair solution. Once a settlement has been reached between the Foundation and Volkswagen the WCAM provides the opportunity for the settlement to receive Court approval and make it globally binding (with the option for investors to opt out). This will provide investors worldwide with compensation for their losses and at the same time will allow Volkswagen to turn the page and focus on the future, while preventing years of costly litigation proceedings worldwide. Previous WCAM settlements with a substantial international scope include Shell (€389m), Converium (US $58m) and Vedior (€4.25m). The characteristic aspect of these cases was that the vast majority of shareholders were foreign shareholders, and the willingness of the Dutch courts to also assume jurisdiction over claims arising in instances where the link to the Netherlands was somewhat tenuous. The foundations representing the interested investors must, however, represent these foreign interested investors adequately.

The settlement envisaged by the Foundation follows on from a class action that has been brought in the United States (US). Following the Morrison decision by the US Supreme Court in 2010, the possibilities to sue non-US companies in securities matters in the US has decreased rapidly. Such claims can now only be brought on behalf of investors who purchased their shares on US exchanges. Consequently, a forum is sought that allows for a global settlement, or at least a settlement that will bind more than just US shareholders (eg European shareholders).

Consult before you decide to commit yourself

Parallel to the Foundation’s operation, class actions have been, or will be, lodged by different foundations in countries such as Germany and the Netherlands. This could lead to a "race to the courts" in different jurisdictions and aggrieved parties should seek legal advice before deciding to collaborate with such foundations.