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Proposed Legislation to Expand Class Action Law and Punitive Damages in Commercial Lawsuits in Korea

2020. 10. 5.

The Korean government plans to announce the enactment of the Class Action Act (“Act”) which includes the expansion of the class action suits which is currently limited to the securities sector, and the Amendment to the Commercial Act (“Amendment”) which includes the award of punitive damages for intentional or grossly negligent acts regardless of the industry or areas of law involved.

The Ministry of Justice announced its proposed legislation on September 23, mentioning, "We expect that the Act and the Amendment, collectively, result in efficient relief and prevention of damages and increase the level of corporates’ social responsibility."

Class Action Act (“Act”)

Currently, the only relevant statute is the "Securities-Related Class Action Act (증권관련집단소송법)," which applies to stock manipulation or false disclosure, etc. Once the Act is enacted, the current law will be abolished and its contents will be absorbed into the Act.

According to the proposed legislation, the Act intends to expand the application of class actions to all areas of the law (i.e., expand to all incidents with more than 50 claimants), and the ruling will be effective for all victims except those who requested in advance to be excluded from the effect of the ruling.

The procedures for filing class action suits and granting permits will be amended as well. According to the current law, claimants need to go through separate procedures such as litigation for a grant to file a class action suit and a lawsuit on the merits, which is complicated and time-consuming. The Act will limit the parties’ appeal to the decision regarding granting a class action suit, and it will lead the parties to argue it in the lawsuit on the merits.

The Act also allows the class representative to request a jury trial at the court of the first instance (i.e., trial level) to reflect the social opinions about the “collective disputes.” Furthermore, the Act allows class-action suits to be filed retroactively on issues that occurred before the Act’s enforcement. Thus, the causes of action that occurred before the passing of the legislation may still be subject to class action lawsuits.

Punitive Damages under the Korean Commercial Act

The punitive damage is currently in effect; however, they are defined sporadically under 19 separate statutes including the Monopoly Regulation and Fair Trade Act(독점규제 공정거래에 관한 법률), etc. The purpose of the Amendment is to prevent malicious misconducts and operate the punitive damages system in a unified manner by collecting all these sporadic regulations and stipulating them in a single statute, the Commercial Act.

The Amendment will introduce punitive damages in all commercial causes of action that will apply to “Merchants” defined as “companies or owners operating as a business.” The Amendment also allows claimants to collect punitive damages up to five times the damages caused by the corporate’s or business’ intentional or grossly negligent conduct.

However, unlike the class action lawsuit, the causes of action that occurred before the passing of the legislation will not be subject to the punitive damages under the Amendment.

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