Geonsanyeon: "Punitive Damages and Class Action Introduction Inevitable to Hit Construction Industry"

[Asia Economy Reporter Choi Dong-hyun] The Korea Construction Industry Research Institute argued that the construction industry could be significantly depressed if the punitive damages system and class action system, which were legislatively announced last month as amendments to the Commercial Act, are implemented, and called for postponing the introduction of the bill.

On the 28th, in a report titled "Impact of the Introduction of the Class Action System and Expansion of the Punitive Damages System on the Construction Industry," the institute claimed, "If the class action system is expanded, there is a high possibility that class actions will be concentrated in housing and development projects despite the existence of alternative dispute resolution procedures outside of court."

The class action system allows one or some of the victims to file a lawsuit against the perpetrator, and other victims can receive relief from damages through that judgment without filing separate lawsuits. In cases where there are more than 50 victims, if one or two file a lawsuit and a compensation judgment is made, the legal effect extends to all other victims.

The institute expressed concern that, due to the nature of construction projects involving various stakeholders such as clients, project participants, licensing authorities, and residents around the project site from the start of the project to post-completion management, disputes and lawsuits are frequent, and the introduction of the class action system in such circumstances could lead to excessive litigation.

The institute pointed out, "If the punitive damages system currently applied to the construction industry (under the Subcontracting Act) is expanded, punitive damages could be applied to all regulatory actions including quality, environment, and safety," adding, "Due to the class action system and punitive damages, contraction of the construction industry is inevitable, and especially small and medium-sized construction companies with limited manpower and financial resources face a high risk of bankruptcy."

Furthermore, the institute emphasized, "Given the increased difficulties faced by companies due to the impact of the novel coronavirus disease (COVID-19), it is not timely to implement controversial systems," and reiterated, "It is desirable to design the system after sufficient discussion and review of the impact on each industry and to postpone its introduction."

The institute also urged the preparation of alternative measures such as improving and utilizing existing systems like the 'joint litigation system' and 'representative party system' already present in the Civil Procedure Act. It also mentioned that the high compensation ratio, currently being discussed at five times under the expansion of punitive damages, should be reviewed and adjusted to a reasonable level.