Mondaq.com: United States: Going Dutch – Shell´s USD 450m Class Action Settlement

03 July 200703 July 2007

On April 11th 2007, Royal Dutch Shell plc (“Shell”) and a group of 51 European investors from 9 European countries with total shareholdings in Shell of over 1 billion shares, agreed to a settlement of approximately $450 million (£229 million) following claims by the investors that Shell had overstated its proven oil and gas reserves in the period 1997-2003. The unusual settlement (“the Dutch Settlement”) is subject to final approval (in respect of affected European and other “non U.S. persons”) by the Amsterdam Court of Appeals, a process which is likely to take 1-2 years. Compensation under the Dutch settlement is likely to be paid out some years later.

The investor groups include institutional investors such as pension funds as well as The Shell Reserves Compensation Fund, a settlement foundation for individual shareholders set up under Dutch law. Shell has continued to deny wrongdoing in the restatement of approximately 6 billion barrels of the reserves it had booked as “proven” with the Securities and Exchange Commission, the U.S. regulator. Despite this, the claims have led to the resignation of three top Shell executives, a restructuring of the dual-listed, dual-headquartered, two board organization and a thorough investigation by the SEC and European regulators1.

The Dutch Settlement represents the second largest securities class action settlement against a European company, behind Ahold’s $1.1 billion and ahead of Daimler-Chrysler’s $300 million deal. Interestingly, European investors were represented by American rather then European law firms – specifically: Grant & Eisenhofer PA, Schiffrin Barroway Topaz & Kessler LLP and Reus, Rolff & Targ LLP. Linda Kelly of the U.S. Chamber of Commerce’s Institute for Legal Reform2 suggests that this may be representative of a general trend: “The settlement really just illustrates the danger of the march in Europe overall toward U.S. style class action litigation models. With the American trial law firms who represented the European shareholders accumulating fees of $47 million, it’s no wonder the U.S. plaintiffs’ bar sees Europe as a huge untapped market.”

If the U.S. procedure settles on better terms than the Dutch Settlement, then the Dutch Settlement may be amended to include the better terms. The Dutch Settlement is contingent on the United States District Court for the District of New Jersey ruling that the U.S. class action does not include claims by “non-U.S. persons.” If the U.S. District Court rules that it retains jurisdiction over non-U.S. persons, then the Dutch Settlement is likely to be null and void and non-U.S. persons who are in the Class will be able to assert their claims as members of the U.S. class action.

In the context of the U.S. proceedings, Shell has recently proposed a settlement similar to the Dutch Settlement which is set to affect “U.S. persons.” This proposed settlement will be subject to approval by the U.S. District Court for the District of New Jersey.

Dutch Law

The Dutch Act on Collective Settlement of Mass Damages, as its name suggests, was enacted in 2005 to provide for the collective settlement of “mass damages.” In general terms, it provides for parties to a settlement agreement to request the Dutch Courts to declare a settlement binding upon a class of persons who have sustained the same or similar damages. The Dutch Settlement is the first time that this particular piece of Dutch legislation has been applied to settle securities law claims.

A number of features define the Dutch process:

(i) A settlement under the Dutch procedure has to be agreed between a paying party and a Dutch legal entity which has been set up to represent the interests of a class of persons intended to be covered by the settlement.

(ii) The legal entity referred to in (i) above is not “Court appointed” and there is no requirement that it have suffered damage by the alleged conduct.

(iii) A settlement need not be based on pending litigation but may be initiated privately by representatives of relevant parties.

(iv) Dutch court involvement is limited to declaring an agreed settlement binding upon a particular class of persons.

(v) The wrongdoer may initiate the whole process and may itself incorporate the relevant Dutch legal entity.

(vi) There is no procedure by which lawyers representing the class are paid out of the fund created to pay class members.

(vii) The decision of the Amsterdam Court of Appeals cannot be appealed by the members of the class. It can, however, be appealed to the Dutch Supreme Court by the parties to the Settlement.

(viii) It is not clear whether the Dutch process allows for “bust up” provisions – whereby a settlement is terminated where more than an agreed number of class members opt out of the settlement.

Legal Questions

The Dutch Settlement gives rise to a number of points of interest to those who may be defendants in international class action litigation.

(i) To what extent do the Dutch procedures trump or otherwise impact upon procedures that may apply in other European and non-European countries?

(ii) To what extent could U.S. class representatives who are not members of the class successfully challenge the Dutch Settlement, for example, to prevent the U.S. class from losing members?

(iii) To what extent can any decision by the Amsterdam Court of Appeals declaring a settlement binding have an effect on non-Dutch resident class members? It may be, pursuant to Council Regulation 44/2001 (22 December 2000), that the Dutch Courts have jurisdiction to bind class members resident outside of Holland but otherwise within the European Union, but query whether it could approve a settlement which attempts to bind class members resident outside the European Union.

(iv) What happens if the U.S. class action proceeds (notwithstanding the Dutch Settlement) and makes rulings/judgments that are inconsistent with the nature and effect of the Dutch Settlement? Conversely, what happens if the U.S. District Court approves the pending U.S. class action settlement but the Amsterdam Court of Appeals (and subsequently the Dutch Supreme Court) refuses to approve the Dutch Settlement?

As things stand, there are no clear answers to these questions and, in so far as the questions are addressed, the prospective decisions of the Amsterdam Court of Appeals and the United States District Court for the District of New Jersey (and the effects of them) are eagerly anticipated.

Conclusion

Huge securities cases such as the Enron fraud are not unique to the U.S. Significant fraud cases are occurring in Europe, and with these cases the potential for increasingly sizeable legal fees are tempting American plaintiff law firms to tap into the developing market for “U.S. style” securities litigation suits. Some have suggested that the Dutch Settlement “represents a milestone in extending U.S. style litigation to Europe.” For some years, American trial lawyers have worked to recruit European institutional investors as plaintiffs in securities class-action lawsuits. While they have had success in signing Europeans as clients, winning money for them has historically proved more difficult. It is too early to judge whether American plaintiff firms should, in fact, be rejoicing at the news of the Dutch Settlement but the ongoing interplay between the Dutch Courts and the United States District Court for the District of New Jersey in this class action merits close scrutiny.

Footnotes

1. The Financial Times Ltd, ‘Shell pays $535m to settle reserves lawsuits,’ 12/04/07.

2. The Wall Street Journal, ‘Shell Settles European Case,’ 12/04/07.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

http://www.mondaq.com/article.asp?articleid=49898

Relevant key U.S. Court Documents

http://www.shellnews.net/2007/royal-dutch-shell-reserves-litigation-may-2007.html

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