FKI "30 Major Groups Face Additional 10 Trillion Won Burden if Collective Litigation System Introduced"

Opposition to Commercial Act Amendment Submitted to Government
Legal Defense Costs Rise Instead of Investment

[Asia Economy Reporter Dongwoo Lee] There are claims that if the government's proposed amendments to the Commercial Act, including the introduction of punitive damages and the class action system, are passed, litigation costs for the top 30 conglomerates could increase by up to 10 trillion won.

On the 12th, the Federation of Korean Industries (FKI) submitted opposition opinions containing these concerns to the government regarding the proposed amendments to the Commercial Act. According to the FKI, if the government's legislative notice is passed, the top 30 major groups would have to bear an additional punitive damages amounting to 8.3 trillion won and class action costs of 1.7 trillion won. This figure is more than six times the current estimated litigation cost of 1.65 trillion won.

The FKI expressed concerns that if litigation defense costs expand, funds that could be used for creating new jobs and investing in future growth industries might decrease. Particularly, although the purpose of introducing the class action system and punitive damages is to efficiently compensate victims, as seen in the U.S. cases, there is concern that lawyers representing plaintiffs often gain enormous profits.

In South Korea, there have been controversial cases where lawyers representing local residents in lawsuits against the state received hundreds of billions of won in fees, while the residents themselves were awarded compensation averaging only a few million won.

There is also concern about the excessive filing of lawsuits against companies. Currently, the securities class action system includes a regulation limiting lawyers to involvement in no more than three cases within three years to prevent frivolous lawsuits. However, the government's legislative notice on the class action law has removed this restriction. As a result, lawyers are allowed to file class actions without limits, which has created opportunities for professional brokers to encourage lawsuits or for planned litigation to be excessively filed.

The FKI also pointed out that the low cost of participating in class actions and the relatively low burden of losing a case could be causes of frivolous lawsuits. Since punitive damages can be up to five times the actual damages, they can encourage litigation. Ultimately, as seen in the U.S., where the so-called "litigation ruin theory" is raised, the excessive filing of planned lawsuits could harm well-intentioned companies.

The FKI emphasized that the greatest victims of the government's legislative notice are likely to be companies. They will suffer from massive litigation costs and, in addition to existing administrative sanctions and criminal penalties, will face civil penalties, resulting in "triple punishment." Currently, Korean companies are already burdened with excessive criminal penalties, administrative sanctions, and civil lawsuits. If class actions and punitive damages are introduced, normal business activities will become difficult, and especially small and medium-sized enterprises without sufficient litigation response capacity are expected to suffer significant damage.

The mixing of Anglo-American and continental legal systems in terms of punishment methods was also pointed out as a problem. In Anglo-American legal countries such as the U.S. and the U.K., civil remedies are emphasized, so administrative penalties like fines and criminal penalties are relatively low, while relief is provided through class actions and punitive damages. The U.K. has introduced class actions only in the field of fair trade due to concerns about frivolous lawsuits.

In continental law countries such as Japan, Germany, and France, administrative and criminal penalties are central, so there are no class action or punitive damages systems. If South Korea, a continental law country, adopts Anglo-American systems like class actions and punitive damages, it is pointed out that it would become an unprecedented country with the world's highest level of excessive corporate punishment.

Yoo Hwan-ik, Director of the Corporate System Division at the FKI, stated, “The most urgent policy priority now is to improve unreasonable regulations to overcome the economic crisis,” and added, “This is not the time to hastily introduce systems that increase uncertainty in corporate management, such as the government's legislative notice.”

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