DISPUTE RESOLUTION IN DENMARK – CHAMBERS GLOBAL 2020
Legal aid to minority shareholders’ class action suits
1. THE DANISH LEGAL SYSTEM
1.1. Under the Danish legal system, the decisions of the Danish courts are based on the claims and arguments made by the plaintiff(s) and defendant(s) as well as the evidence presented to the court by these parties. The three levels of the courts in the Danish legal system are represented by the district courts, the two High Courts and the Supreme Court.
1.2. In addition, resolving legal disputes before a tribunal outside of the State-established court system, i.e. arbitration, is recognised and practised in Denmark. Other methods of dispute resolution, e.g. mediation, are also employed. However, the developments elaborated below pertain to dispute resolution before the Danish courts.
2. LEGAL AID TO MINORITY SHAREHOLDERS´ CLASS ACTION LAWSUITS
2.1. The news of the money laundering scandal in Danske Bank, relating to its Estonian branch, has sparked activity in the field of dispute resolution in Denmark containing numerous interesting legal aspects. Recently, it was reported by various news media that the Department of Civil Affairs under the Ministry of Justice has denied legal aid for a group consisting of hundreds of minority shareholders in a class action lawsuit against Danske Bank and the bank’s former CEO.
2.2. When legal aid is granted, the State provides financial aid to cover the costs of the litigation process. The grant of legal aid is governed by chapter 31 in the Danish Administration of Justice Act (AJA). Pursuant to section 328 of AJA, the Department of Civil Affairs can grant legal aid provided the applicant fulfils the financial requirements further defined in section 325 of AJA and the applicant is found to have reasonable cause to conduct litigation. Where these aforementioned requirements are not fulfilled by the applicant, the department can also grant legal aid when the lawsuit is of principle or in the interest of the public or when the lawsuit is of significance to the applicant’s social or occupational situation (see section 329 of AJA).
3. REFUSAL OF GRANTING LEGAL AID IN THE CLASS ACTION LAWSUIT AGAINST DANSKE BANK
3.1. As set out in the press release of 21 September 2017, Danske Bank expanded its ongoing investigation into the situation at its Estonian branch since a root cause analysis concluded that several major deficiencies led to the branch not being sufficiently effective in preventing the branch from potentially being used for money laundering in the period from 2007 to 2015. The expanded investigation covered customers and transactions at the Estonian branch in that period.
3.2. Additionally, Danske Bank has requested for an external investigation report to be performed. From the report, it appears that the total flow of payments, when considering all customers (around 15,000 customers) covered by the investigation, amounted to around EUR200 billion.
3.3. Following the news of the money laundering scandal in Danske Bank, politicians have vowed a significant willingness to punish money laundering, e.g. by increasing the penalties.
3.4. Among others, the minority shareholders have commenced an opt-in class action lawsuit against Danske Bank and the former CEO of the bank. On the basis of information available on the website of the attorneys representing the minority shareholders, the minority shareholders claim liability for inadequate and deficient money laundering procedures in Danske Bank’s Estonian branch and insufficient disclosure of this information to the market.
3.5. Based on the same website of the attorneys of the Danske Bank class action, applications for legal aid to the class action lawsuit and the class action representative were to be delivered to the Department of Civil Affairs. Based on recent articles, inter alia, from the Danish financial news media Børsen, these applications for legal aid were denied by the department.
3.6. According to an attorney of the class action (as cited in an article from the Danish media AdvokatWatch), the Department of Civil Affairs referred to, inter alia, the conclusions of the external investigation report performed at Danske Bank’s request, in which neither the Board of Directors nor the former CEO of the bank was concluded liable. It is notable that the Department of Civil Affairs refers to conclusions of investigation reports ordered and paid by Danske Bank – the possible defendant – when assessing the possible outcome of the lawsuit.
3.7. It is worth noting that the Department of Civil Affairs a few years previously had granted legal aid to two class actions regarding OW Bunker A/S under bankruptcy and bankTrelleborg.
3.8. OW Bunker was declared bankrupt within a year after its IPO. The minority shareholders applied for legal aid to the Department of Civil Affairs in regard to a class action lawsuit which in its essence is based on prospectus liability as the shareholders claim that the information of the prospect was not true and fair.
3.9. Another previous class action in which the Department of Civil Affairs granted legal aid was to the minority shareholders of bankTrelleborg A/S. In short, the lawsuit was regarding whether the majority shareholder’s compulsory purchase of the outstanding shares from the minority shareholders was lawful and completed with adequate compensation.
4. CONCLUDING COMMENTS
4.1. The Department of Civil Affairs’ denial of legal aid to a class action against Danske Bank imposes potential hurdles to be faced by both clients and attorneys. Legal aid provides economic support for the endowed party which can be particularly important for minority shareholders. After the Department of Civil Affairs’ decision in the Danske Bank class action lawsuit, attorneys must be cautious when advising clients on the department’s practice for granting legal aid.
4.2. According to the attorneys representing the minority shareholders’ class action lawsuit against Danske Bank (as cited in an article from the Danish news media AdvokatWatch), the board of the class action representative has called for the decision of the Department of Civil Affairs to be appealed to the Danish Appeals Permission Board.