[Class Actions, the Trap of Overcompensation]②Cho Bae-sook: "Hasty Legislation over a Particular Incident... Undermines Legal Stability and Shakes Business if Applied Retroactively"

Cho Bae-sook of the People Power Party
Punitive Damages System Already in Effect
Overlaps with Existing Laws Must Be Reviewed
Concerns Over Retroactive Application and Unexpected Financial Burdens

"The expansion of the class action system must fulfill its purpose of remedying consumer damages, while also thoroughly reviewing constitutional principles and the potential impact on businesses. If a bill is rushed through the legislative process on the back of a specific incident, it could undermine legal stability."

Jo Baesuk, a member of the People Power Party, is being interviewed by The Asia Business Daily at the National Assembly Member's Office Building in Yeouido, Seoul on the 10th. Photo by Kang Jinhyung

Cho Bae-sook, a member of the People Power Party, expressed concerns over applying new class action procedures to cases that occurred before the law's implementation. In an interview with The Asia Business Daily at the National Assembly Members' Office Building in Yeouido, Seoul, on August 10, Cho Bae-sook stated, "Companies establish risk management systems, such as purchasing insurance or setting aside provisions, based on the laws and regulatory environment at the time the actions are taken."

Cho Bae-sook, a five-term lawmaker and the first female prosecutor in Korea, has previously served as a judge at the Seoul High Court and as president of the Korean Women Lawyers Association. In the first half of this year, she participated directly in discussions on the Class Action Act as a member of the National Assembly's Legislative and Judiciary Committee, including in bill review subcommittees and public hearings.

According to the National Assembly's legislative information system on August 13, there are currently 15 bills related to the class action system pending in the National Assembly. The main focus is to expand class actions, which are currently limited to the securities sector, to cover all types of damage claims. The bills were discussed in public hearings and Legislative and Judiciary Committee subcommittees in April, but remain stalled due to disagreements over opt-out provisions and retroactive application.

Discussions have centered around a bill proposed by Park Kyun-taek, a member of the Democratic Party of Korea, while the Ministry of Justice has also proposed an alternative plan adjusting the scope of application. The Moon Jae-in administration also sought to expand the class action system and punitive damages in 2020, making a legislative pre-announcement, but did not proceed to actual legislation.

"Necessary to Assess Overlap with Existing Systems"

Cho Bae-sook argued that, prior to expanding the class action system, the relationship with existing mechanisms should be examined, noting that current law already includes penalties such as surcharges and punitive damages for violations such as corporate mishandling of personal information.

She stated, "The current Personal Information Protection Act already has strict surcharge regulations with penalties amounting to up to 3% of total sales (with maximum levels raised for repeated or severe violations). Additionally, punitive damages systems function thoroughly in individual substantive laws."

Cho Bae-sook argued that if the class action system is applied in addition to existing surcharges and punitive damage systems, corporate liabilities for penalties and damages could increase excessively. Her position is that before expanding the scope of class actions to all types of civil damage claims, it is necessary to examine overlaps with current damage relief mechanisms.

"Need for Inter-Agency Consultation and Impact Analysis"

She also pointed out that, by being introduced in the form of a member’s bill, the current legislation has not undergone essential government procedures such as review by the Ministry of Government Legislation, the Regulatory Reform Committee, or consultations with relevant ministries.

She emphasized that the class action bill has been pushed as a member’s bill, thereby bypassing procedures required for government bills including review by the Ministry of Government Legislation, the Regulatory Reform Committee, and consultations with related departments.

The core issue, she suggested, is whether sufficient procedural scrutiny was undertaken. Given that the class action system could have implications for the industrial and trade sectors as a whole, she insisted that, beyond the Ministry of Justice, review and economic impact analysis by foreign affairs, trade, and industrial authorities are essential.

Cho Bae-sook stated that it is necessary to verify whether the Ministry of Justice has adequately consulted with other relevant ministries such as the Ministry of Foreign Affairs or the Ministry of Trade, Industry and Energy. She argued that, since the class action system could apply to both domestic companies and foreign companies operating in Korea, potential trade disputes must also be preemptively examined.

Cho Bae-sook, a member of the People Power Party, is being interviewed by The Asia Business Daily at the National Assembly Member's Office Building in Yeouido, Seoul, on the 10th. Photo by Kang Jin-hyung

The U.S.-Style Opt-Out and Different Approval Requirements

Cho Bae-sook also pointed out the need to improve the “opt-out” method, whereby those who do not explicitly express their intention to be excluded are automatically bound by the verdict.

Under the opt-out approach, unless victims declare that they wish to withdraw from the lawsuit, they are subject to the court’s decision even if they do not directly participate. While this system is effective in remedying damages for many victims with relatively small claims, it has been criticized for including victims in rulings of whose litigation they may be unaware.

Cho Bae-sook stated, "While the U.S. has adopted the opt-out system, it does not approve class actions solely on the basis of shared issues. U.S. courts strictly review two requirements: predominance—whether common issues outweigh individual circumstances for victims—and superiority—whether a class action is superior to other remedies."

Predominance is the requirement to determine whether common issues are more significant than circumstances that differ among individual victims. Superiority refers to the standard of whether a class action is a more suitable and efficient remedy than individual lawsuits or other alternatives.

She argued that the current bills, as proposed, determine approval for class actions primarily based on commonality of issues, suggesting the need for improvement. Because class actions could group together cases where damages and causality differ among plaintiffs, she said it is necessary to review concrete standards such as the U.S. requirements of predominance and superiority.

"Retroactive Application Could Undermine Predictability"

Her greatest concern involves the retroactive application of new class action procedures to incidents occurring before the law is enacted.

The Ministry of Justice has proposed an alternative that would retroactively apply only to cases within three years prior to the law's effect. While this narrows the scope compared to the original proposal, it still involves applying new class action procedures to incidents that occurred before the law takes effect.

Cho Bae-sook stated, "If acts from several years ago become subject to astronomical class actions under a newly enacted law, companies' ability to predict risks could be completely shaken."

Businesses manage risks based on the laws, damage compensation systems, and insurance coverage in place at the time an incident occurs. If new class action procedures apply retroactively and increase the number of cases subject to damages, companies may suddenly shoulder unexpected financial burdens they could not have anticipated at the time.

She interpreted the recent push by the government and ruling party as aiming to include large-scale incidents in the scope of new class action procedures through retroactive application. However, she stressed that the need for immediate relief for victims should not undermine the principle of non-retroactivity in law or the protection of corporate expectations.

She highlighted the need for an in-depth analysis in the legislative process of the impact that expanding the class action system would have on corporate investment, employment, and capital raising. She warned that, in circumstances of growing economic uncertainty due to global trade disputes and geopolitical tensions, careful verification of both the ripple effects on business management and industry as a whole, as well as potential side effects, is crucial when introducing new systems. Cho Bae-sook urged, "A thorough deliberation process is required to coldly assess the outcries from the business sector and the broader economic repercussions."

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