Many Toxic Clauses Unfavorable to Companies in Citizen Participation Trials and Pre-Litigation Evidence Disclosure
US-Style Class Action System Imported As Is... Japan Operates a Two-Stage Distinction
Experts Say Multiple Systems Mixed Like 'Jap-tang-bap,' Raising Questions About Effectiveness
[Asia Economy Reporter Seokjin Choi] The Ministry of Justice has announced plans to issue a legislative notice for the 'Class Action Act' that will expand the currently securities-only permitted 'class actions' to all fields, and the 'Commercial Act Amendment' that will expand the application of 'punitive damages'?currently stipulated in some special laws?to the general Commercial Act. This announcement has stirred unrest in the business and legal communities.
In particular, the class action bill, which combines the citizen participation trial system, securities-related class action system, and the American-style discovery (pre-trial evidence disclosure) system all at once, contains many elements unfavorable to companies in various aspects, raising concerns that it will significantly restrict corporate activities.
On the 24th, voices of concern emerged within the legal community regarding the bill, which was prepared as government legislation without sufficient public consultation, even though the necessity of institutionalizing class actions and expanding punitive damages was acknowledged.
Professor A, who specializes in civil law, said, "This bill mixes four different types of legal provisions?various special provisions under the Civil Procedure Act, securities-related class action system, citizen participation trials, and the discovery system?like a hodgepodge," adding, "It is uncertain how it will actually operate."
Professor A continued, "First, regarding the pre-trial evidence disclosure procedure, the opposing party must submit all evidence requested before the trial begins, which inevitably incurs significant costs for the defendant company in locating and organizing the evidence," and added, "In the U.S., failure to submit requested materials often leads to losing the case, so companies inevitably bear a heavy burden under this system."
He further noted, "This bill appears to be essentially the consumer class action law that the government has been promoting, just with the word 'consumer' removed," and criticized, "Introducing the citizen participation trial method, where ordinary citizens serve as jurors to determine facts, will inevitably be disadvantageous to companies and poses issues from the perspective of the right to defense."
Concerns were also raised about the effect of class action judgments uniformly applying to victims who did not actually participate in the trial.
Attorney B, who handles Japan-related litigation at a law firm, pointed out, "This bill thoroughly adopts the American-style class action model, but if the representative plaintiff who filed the class action performs poorly and loses, even victims who did not participate or were unaware of the lawsuit may be denied compensation."
He added, "Under the existing class action system, anyone involved in three or more class actions over three years could not serve as a representative plaintiff or plaintiff's attorney, but this Ministry of Justice bill does not impose such restrictions, raising concerns that frivolous lawsuits by professional litigants could harm consumers."
Attorney Koo Tae-eon of Law Firm Lynn said, "Without a litigation fund system to support it, it will be difficult to cover expert and appraisal costs incurred in actual litigation," and warned, "If a poorly managed class action affects even those who did not participate in the lawsuit, that would be problematic."
Unlike the U.S., Japan operates a two-stage class action system where consumer groups act as plaintiffs to obtain judgments confirming corporate liability for compensation, and individual victims then file separate lawsuits to confirm their claims.
The retroactive application of the new law to past cases was also criticized as problematic.
Former Seoul Bar Association President Kim Han-gyu pointed out, "The class action bill applies the newly enacted law to claims for damages arising from causes before the law's enforcement in its supplementary provisions," and said, "Even if the institutionalization of class actions is recognized as necessary, blanket retroactive application is problematic."
Attorney Kim Hyun, who supported the expansion of class actions and punitive damages during his tenure as president of the Korean Bar Association, said, "I advocated for the introduction of the existing system and was involved in proposing the bill, but the amendment was not solely aimed at companies," adding, "It was intended to impose punitive sanctions on illegal acts by anyone with power, including public institutions, but this bill seems somewhat like 'business retaliation' and discriminatory against companies."
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