[Invest&Law] "Reduce the 'Six-Trial System' Steps and Expand Scope Like the US"

Discussions on Enhancing Effectiveness Gain Momentum
National Policy Committee and Bar Association Deliberate
Calls Grow for Streamlining Procedures

As the securities class action system marks its 20th anniversary since introduction, discussions to enhance its effectiveness are gaining significant momentum. The Presidential Committee on National Policy Planning, together with the Korean Bar Association, has conducted detailed discussions to revitalize the class action system. The securities class action system was designed to ensure that if one plaintiff wins, all victims who did not file lawsuits are also compensated. However, critics argue that its complex procedures prevent it from effectively monitoring and addressing issues such as stock price manipulation, embezzlement, and breach of trust after the fact.

According to the legal community on August 13, streamlining procedures is considered the most urgent task for revitalizing the securities class action system. The current system is criticized for being essentially a "six-trial system" (three trials for lawsuit approval and three for the main case), as it is divided into two stages: the lawsuit approval stage and the main trial. Many are calling for a drastic simplification of these complicated steps. Under the current securities class action system, even just to determine whether a case will proceed, plaintiffs must pass through the district court, high court, and Supreme Court. Even if the Supreme Court grants approval for the lawsuit, the main trial to determine the actual compensation amount must again go through three instances.

In fact, according to the Judicial Policy Research Institute, as of 2023, it takes an average of 57.54 months (about 4 years and 8 months) from the application for lawsuit approval to finalization, and 67.66 months (about 5 years and 7 months) from the filing of the main case to finalization in securities class actions. One attorney with experience in securities class actions commented, "If an immediate appeal is filed against the court's approval of a class action, enforcement is suspended, so the main trial cannot proceed. Either only disapproval decisions should be subject to appeal, or even if an appeal or re-appeal is filed against an approval decision, the main trial should be allowed to proceed concurrently."

The United States, which served as a model for Korea's securities class action system, does not have a separate lawsuit approval process. Instead, the first-instance court simultaneously determines whether to grant class action status and rules on the merits of the case. In many cases, rather than proceeding to the second or third instance, parties actively reach settlements during the first trial. For example, in a 2020 class action filed by U.S. iPhone consumers against Apple, the company and consumers reached a mutually acceptable settlement amount during the first-instance proceedings.

There are also persistent calls to expand the scope of class actions. Advocates argue that the system should not be limited to securities, but should also cover areas where damages can be generalized, such as credit card company data breaches and collusion. It is argued that, as in the United States and other countries, class actions should be expanded to consumer, environmental, and human rights sectors. For instance, the scope should include cases such as personal information leaks by credit card or telecommunications companies, as well as mis-selling of financial products by financial firms.

While there is opposition due to concerns about possible constraints on corporate management, some counter that such expansion is necessary for "corporate value enhancement" and improved shareholder communication. Jung Junhyeok, a professor at Seoul National University School of Law, stated, "To encourage companies to strengthen communication with shareholders, both preemptive regulation by financial authorities and shareholder lawsuits must function as two pillars. The financial system inevitably has loopholes, and in Korea, lawsuits to hold parties accountable after problems arise are not as active compared to preemptive regulation." Another attorney specializing in civil procedure law noted, "As the stakeholders surrounding the capital market become more diverse, it is necessary to shift from administrative regulation by companies-which involves selecting investigation and sanction targets with limited resources-to collective civil litigation."

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