Class Action and Punitive Damages Government Proposal to Congress Next Month... 'Punitive' to Take Effect Immediately

Punitive Damages Up to 5 Times the Amount
Business Sector Backlash, Some Experts Call for "Cautious Approach"

Minister of Justice Park Beom-gye is attending the inauguration ceremony held at the Government Complex Gwacheon in Gyeonggi Province on the 1st, participating in the national ceremony. / Gwacheon = Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Park Cheol-eung] The government will submit bills on class action lawsuits and punitive damages to the National Assembly next month. These bills include a system where all victims can be compensated together through lawsuits filed by some, and provisions recognizing liability for damages exceeding actual losses. Following the 'Three Economic Laws' (Commercial Act, Fair Trade Act, and Financial Group Supervision Act) and the Serious Accident Punishment Act, strong opposition from the business community is expected once again.

According to the government's '2021 Legislative Bill Submission Plan to the National Assembly' on the 2nd, the Ministry of Justice plans to submit a draft bill for the (tentatively named) Class Action Act and an amendment to the Commercial Act to expand the introduction of punitive damages next month. Both bills were announced for public comment in September last year. The Ministry of Justice proposed that the Class Action Act would take effect six months after promulgation, while the amendment to the Commercial Act would take effect immediately after promulgation.

Newly appointed Minister of Justice Park Beom-gye also expressed agreement on the necessity of the two bills and his intention to work on legislation in his written answers submitted to the National Assembly during his confirmation hearing.

The class action system is currently implemented only in the securities sector, but the bill aims to expand it to all fields. Baek Hye-ryun, the Democratic Party lawmaker and floor leader of the National Assembly's Legislation and Judiciary Committee, and her party colleague Oh Ki-hyung have each already introduced bills. Although it was excluded during the amendment of the Commercial Act at the end of last year, which included restrictions on major shareholders' voting rights, the government bill is expected to bring the issue back to the discussion table in earnest.

Rep. Baek stated, "This system is generally necessary in all fields, including so-called gap-jil (power harassment) related damage compensation lawsuits, consumer disputes, and environmental and pollution disputes, which have been occurring frequently recently." The Ministry of Justice cited the diesel vehicle emissions manipulation case as an example, noting that while compensation was made in the U.S., where class actions are common, and in Germany, where it was introduced through special legislation, it has not been possible in Korea. Both the Ministry of Justice and Rep. Baek's proposals apply to cases involving 50 or more victims.

Punitive damages are currently implemented in some areas such as product liability law, but the government aims to generalize it by incorporating it into the Commercial Act. The Ministry of Justice's draft bill for public comment stipulates that "a merchant who intentionally or through gross negligence causes damage to another shall be liable to compensate up to five times the damage." Democratic Party lawmakers Park Ju-min and Oh Ki-hyung have each introduced bills on this matter.

The business community opposes both systems, and some experts recommend a cautious approach. At a public hearing held in early December last year, Lee Kyung-sang, head of the Economic Research Department at the Korea Chamber of Commerce and Industry, said, "The class action system is a measure with significant socio-economic impact, and thorough preliminary research is essential to determine whether it fits our legal culture and system and to identify any side effects." Chu Moon-gap, head of the Economic Policy Department at the Korea Federation of SMEs, reported that "68.6% of 500 consumer goods SMEs surveyed oppose the expanded introduction."

Regarding punitive damages, Kim Sun-jung, distinguished professor at Dongguk University Law School, pointed out, "Rather than full-scale introduction, the requirements and effects of punitive damages should vary depending on the infringed legal interests and regulatory targets, and social consensus on the necessity and content of legislation is needed."

Heo Byung-jo, a specialist at the National Assembly's Legislation and Judiciary Committee, stated in a review report on punitive damages-related bills, "There may be advantages such as promoting overall fairness among victims of illegal acts and encompassing various newly emerging types of illegal acts," but also noted, "There are criticisms that it is difficult to harmonize with the principles of damages under civil law and the civil and criminal litigation system, so it seems necessary to comprehensively consider the consistency of the legal system, social necessity, and public consensus."

This content was produced with the assistance of AI translation services.