Deciding whether to settle is a critical decision for litigation funders, as shown by the UK collective action Merricks v MasterCard. This case led to a heated dispute between the funder and the Class Representative, and the tension still lingers.
In the Netherlands, WAMCA requires the Foundation to exercise “sufficient control” over the collective action, including the decision to settle. Courts can review and demand changes to funding agreements (LFAs) if there are concerns about the control they involve. This can impact funding, as strict requirements might discourage funders from supporting Dutch class actions.
In ASC/Google, the Amsterdam Court ruled that Google was right to argue that the LFA was invalid because ASC could only enter into a settlement if its lawyer considered it reasonable. ASC was permitted to modify the agreement. In the revised version, the requirement to follow the lawyer’s advice was changed to give ASC the final decision. The Court stated that it is not an issue that the updated agreement requires “consultation” with the funder, given the differing interests involved.
A few months earlier, in Vattenfall, the Amsterdam Court (with two different judges) issued a different ruling. Here, the LFA specified that the Foundation must follow legal advice from its lawyers regarding settlement, unless it has received advice from “another lawyer approved by the Funder for this purpose,” in which case it can choose not to follow the lawyers’ recommendation.
The Court rejected Vattenfall’s argument that this showed the Foundation lacked sufficient control. The fact that the Foundation generally must follow its lawyer’s advice regarding settlement and can only deviate if another lawyer has a different opinion does not mean the Foundation lacks proper control.
However, if the second lawyer disagrees with the first, the Foundation can make the final decision on its own, which could be detrimental to the funder. I do not think this is what the legislator intended. The legislative history only indicates that the funder shouldn’t have sole decision-making power over settlement agreements. It does not state that the Foundation should have sole decision-making authority.
It is reasonable for the Foundation and the funder to agree on a clause that designates independent arbitrators to make the final decision if they cannot reach an agreement on settlement. Although not significantly better for the funder than what the Court in Vattenfall allowed, this approach helps protect its interests.
The only safeguard the funder currently has, aside from a (favorable) second opinion, is based on the TikTok ruling, which clarifies that a clause in the LFA restricting the Foundation from making or accepting settlement proposals unless the funder recovers at least double the deployed capital does not conflict with WAMCA.
