KCCI Submits Opposition to Ministry of Justice on Introduction of Collective Litigation System and Punitive Damages

[Asia Economy Reporter Su-yeon Woo] The Korea Employers Federation (KEF) submitted its opposition to the Ministry of Justice on the 6th regarding the government’s legislative notice of bills aimed at expanding the class action system and punitive damages system.

Earlier, on the 28th of last month, the government issued a legislative notice for the 'Class Action Act' and the 'Partial Amendment to the Commercial Act' to expand the introduction of the class action system and punitive damages system. The Class Action Act stipulates that all damage claims involving 50 or more victims can be filed as class actions, and the amendment to the Commercial Act introduces provisions allowing damage claims up to five times the damages caused by illegal acts of merchants in all commercial transactions.

In response, KEF expressed detailed opposition reflecting the views of the business community. First, it argued that if a class action is filed, the company involved could suffer serious damage to its brand image simply from the fact of the lawsuit being filed, which could lead to operational damages such as stock price collapse, credit crunch, and sales decline.

KEF also expressed concerns that legal brokers, professional plaintiffs, excessive competitive litigation among lawyers, and foreign class action specialist law firms seeking large settlements would join forces, leading to rampant and unreasonable planned lawsuits. Furthermore, it pointed out that pre-litigation evidence investigation, orders to submit materials, relaxation of the burden of proof and claims, and citizen participation trials (jury trials) could significantly increase the risk of leakage of core corporate information such as trade secrets.

Even in the United States, where the class action system is already in place, legislative supplements to prevent abuse of lawsuits have been pursued. However, the current government’s bill significantly relaxes the plaintiff’s burden of claim and proof, along with restrictions on appeals against lawsuit approvals, which could increase legal risks for companies more than in the U.S., according to some claims.

KEF stated, "Rather than directly applying the U.S.-style class action system as proposed by the government, it is more appropriate to complement and develop the current system with joint lawsuits or limited group lawsuits like those in Europe or Japan."

Meanwhile, regarding the punitive damages system, KEF expressed concerns that consumers or companies with malicious intent might use lawsuits as a pretext for unfair demands or that lawsuits could be excessively filed and abused. It also argued that given the stronger anti-corporate sentiment domestically compared to advanced countries, expanding the scope of lawsuits could rapidly damage the external image of domestic companies and negatively affect global competitiveness.

Ironically, the larger the company with a high market share, the greater the litigation risk, while small and micro enterprises are vulnerable to legal risks and could face closure risks simply from the fact that a lawsuit is known.

Finally, KEF argued that punitive damages could cause confusion in the domestic legal system, which follows a civil law system distinguishing civil and criminal liability. It claimed that imposing additional punitive compensation to victims through civil litigation, even after criminal punishment or administrative sanctions for a single illegal act, could be seen as overlapping excessive punishment and might raise constitutional issues.

KEF said, "In an era of low growth, when companies need to focus on strategic management activities aligned with advances in digital technology, these bills could rather discourage challenging innovative technologies and the development of new products and services."

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