Collective Redress & Class Actions 2021

Last Updated November 09, 2021

South Korea

Law and Practice

Authors



Yulchon LLC is a full-service international law firm headquartered in Seoul, Korea. It employs over 490 professionals, including more than 60 licensed in jurisdictions outside Korea. The firm's perspective is international, and its reach is global. Yulchon advises on a full range of specialised practice areas, including corporate and finance, antitrust, tax, real estate and construction, dispute resolution, intellectual property, and labour and employment. In addition to its main office in Seoul, Yulchon maintains offices in Russia, China, Myanmar, Vietnam and Indonesia, and has 11 regional practice teams covering the world. Yulchon not only offers deep industry and international expertise, its culture of innovation and collaboration provides excellent legal service that puts clients' needs first.

Development of Collective Redress/Class Action Regimes

Prior to the enforcement of the Securities-related Class Action Act (SCAA) in 2015, there were several statutes – seemingly pertinent to collective redress/class actions – which dealt with Appointed Party actions (Civil Procedure Code (CPC) Article 53) and Consumer Collective actions (Consumer Act Article 70). They are not understood as collective redress/class actions in the true sense, due to their intrinsic limitations.

Limitations of statutes prior to the SCAA

In Appointed Party actions, only persons who have explicitly manifested an intent to join the action and have participated in appointing the representative party of the action are bound to the lawsuit's outcome. In Consumer Collective actions, only certain associations or entities considered to have standing according to rigid criteria set forth in law are eligible to file a Consumer Collective action as a representative. What is more, claims in such action must be limited to prohibition of a certain specific illegal act of the seller, and a plaintiff is precluded from seeking relief for damages.

Legislation of the SCAA

Under the limitations of statutes prior to the SCAA, public demand for general collective redress/class action regimes in the Korean legal system constantly increased. As a result, the National Assembly passed the first-class action statute in South Korea, which came into effect on 1 January 2005.

Class action practices under the SCAA

The SCAA establishes special and exceptional rules of civil procedure in order to enable collective redress/class actions for securities-related matters (Article 1). The SCAA aims to deal effectively with collective damages arising from unlawful acts in securities transactions, where there are typically multiple persons suffering from the same type of damages in the same manner, and where the damages suffered by each party tend to be relatively modest.

As of the end of September 2021, however, less than one case per year on average has been filed under the SCAA. Many point to the excessively strict requirements for obtaining certification for "class actions" from the courts, for the unpopularity and impracticability of SCAA class actions.

The Government’s Bill for General Class Action Act

On 28 September 2020, the Ministry of Justice made a pre-announcement for legislation on a new bill for the General Class Action Act, which expands the availability of the collective redress/class action regimes to all types of civil claims involving all industries as well as all areas of the law. However, it is not yet certain whether or when the bill will be passed by the National Assembly under the current circumstances, as the Ministry has not formally proposed the bill due to the strong opposition to it.

The SCAA is basically modelled on the USA's regime and contains a number of provisions that are similar to Rule 23 of the USA's Federal Rule of Civil Procedures (FRCP) together with its own distinctive rules.

Similarities between the SCAA and FRCP

Under the SCAA, a claimant may file a civil action against a defendant or a number of defendants on behalf of a group, or class, or even absent parties, as allowed in the FRCP. Members of the class are automatically bound by the outcome of the suit unless they expressly elect to drop out. Particularly, the opt-out class action procedure and contingency fee arrangement of the SCAA are similar to those of the FRCP.

Differences between the SCAA and FRCP

The most notable difference between the SCAA and FRCP is that the SCAA has far narrower applicability than the USA’s class action rules, as the SCAA allows the use of collective redress/class actions only for certain specified causes (see 2.1 Collective Redress and Class Action Legislation). In addition, unlike the FRCP, if the plaintiff appeals against the court’s initial denial of certification for "class action" to the high (appellate) court, such appeal will automatically suspend the whole subsequent proceedings until the high (appellate) court, or even the Supreme Court, finally and conclusively rules on the matter, which is likely to significantly delay the class certification stage. The SCAA also has different fee-shifting rules and does not provide for the discovery process. 

There is no applicable information in this jurisdiction.

Generally, collective redress/class actions are not permitted, and each claimant seeking relief must file an individual action.

The only exception to this principle is the SCAA, under which collective redress/class action is available for damages arising from securities transactions (see 1.1 History and Policy Drivers of the Legislative Regime).

Permitted Causes of Action under the SCAA

Under the SCAA, a class action seeking compensation may be filed by one or more representative parties regarding losses suffered by numerous persons in the course of purchase, sale, and other transaction-related securities. The cause of action must fall under at least one of the following (Article 3):

  • damages arising from a false or omission of a description or representation of a material statement (in registration statements or investment prospectuses, annual reports and other periodic reports, or audit reports, or material fact reports, or a document attached thereto);
  • unfair securities practices, including insider trading or market price manipulation; and
  • claims against auditors of financial records.

Collective redress/class actions are available only for damages arising out of securities-related transactions (see 1.1 History and Policy Drivers of the Legislative Regime and 2.1 Collective Redress and Class Action Legislation).

Generally Understood Definition

In general, collective redress/class actions are understood as a legal mechanism under which a person(s) initiates a civil action as a representative party where, typically, numerous other persons have suffered as a result of the same unlawful act.

The SCAA’s Definition

According to the SCAA, the only statute providing for collective redress/class actions, a "securities-related class action lawsuit" is defined as a “lawsuit seeking compensation brought by one or more representative party/parties regarding losses suffered by numerous persons in the course of the purchase, sale and other transactions concerning securities” (see 2.1 Collective Redress and Class Action Legislation).

Collective redress/class actions under the SCAA may be filed when a number of persons have suffered under the same unlawful acts related to trades or other transactions concerning securities issued by a publicly traded company (see 2.1 Collective Redress and Class Action Legislation). 

These securities-related class actions must be heard by a panel of three judges at the appropriate district court with competent jurisdiction over the area where a defendant’s general place of business is located (Article 4).

Commencement of a Class Action

In the individual civil litigation governed by the CPC, a plaintiff is required to file a complaint with the court in order to commence civil litigation. Under the SCAA, a person who wishes to be a representative party must submit an application to the court asking for “permission for a class action” simultaneously with a complaint (Article 7.1). Such application is required to be accompanied by some documents supporting the plaintiff as well as their attorney to represent the interests of the class fairly and appropriately (Article 9). 

Items to be stated in the complaint (Article 8):

  • the plaintiff and, if any, their legal representative;
  • the attorney of the plaintiff;
  • the defendant;
  • the cause of action(s) and grounds thereof; and
  • the range of the entire class.

Items to be stated in the application (Article 9):

  • the plaintiff and, if any, their legal representative;
  • the attorney of the plaintiff;
  • the defendant;
  • the range of the entire class;
  • careers (eg, CVs) of the plaintiff and their attorney;
  • the causes and grounds for the application; and
  • an agreement on attorney’s fees.

Public Notification of Commencement of the Class Action

Within ten days from the date of receipt of the complaint and application for permission for a class action, the court will issue a public notice as to the fact that a securities-related class action has been filed with the court (Article 10). Any other person wishing to be a “representative party” must submit an application to the court within 30 days from the date of the public notice (Article 10).

Certification of a Class Action

The court will hear the plaintiff and defendant in a hearing to decide whether to certify a "class" and grant “permission for a class action". If the court finds that the action satisfies all criteria specified by the SCAA, the court will rule to permit the securities-related class action.

Requirements for permission for a class action:

  • the number of class members is at least 50, and the sum of the securities held by the class members at the time of conducting the activities, which are the grounds for the claim, is at least 1/10,000 of the total number of the outstanding securities of the defendant company;
  • the legal or actual material counts are common to all members of the class;
  • the securities-related class action is an appropriate and efficient means to realise the rights of the class and protect their interests; and
  • the matters stated in the application for permission for a class action and its accompanying documents do not have deficiencies.

Appeal Procedure

As to the denial or granting of such permission, either party may immediately appeal to the high (appellate) court at their election (Article 17). Please note that even if the class is not ultimately certified by the court, individual claimants may still bring separate lawsuits against the defendant.

Public Notification of Certification for a Class Action

When the decision to permit the securities-related class action is conclusive and final beyond appeal, the court will notify the class members of the information considered to be necessary by the court, including, but not limited to, the items listed below (Article 18). The court notification must be made in a newspaper that is distributed nationwide.

Items to be included in the public notification upon the granting of permission:

  • the name and address of the representative party and defendant;
  • the name and address of the representative party’s attorney;
  • the range of the entire class;
  • summary of the cause of action and its grounds;
  • the procedure and period for opting out of the class;
  • the fact that an opted-out member may sue individually;
  • the fact that class members who do not opt out will be legally bound by the decision reached by the court;
  • the fact that class members may become the lead plaintiffs by obtaining permission from the court; and
  • an agreement on attorney’s fees.

Proceedings Subsequent to the Permission

Once such permission/certification is granted, the court will proceed with the next stage of the litigation to determine the merits of the case, ie, whether the defendant(s) is/are, in fact, liable for damages (Supreme Court Decision No 2015Ma4027 dated 4 November 2016) in accordance with the procedural rules of the SCAA and CPC (Article 6).

A class action under the SCAA can be brought by any individuals regardless of their nationalities or places of residence, as long as they have personally suffered losses in relation to securities that are traded on the Korea Securities Exchange (see 2.1 Collective Redress and Class Action Legislation). However, it should be noted that claims cannot be assigned to third parties for the purpose of proceeding as a party in an SCAA lawsuit.

Number of Class Members

The number of class members under the SCAA is at least 50.

Certified Range of Class

The range of the entire class under the SCAA is initially determined as prescribed in the public notification of the court (see 4.1 Mechanisms for Bringing Collective Redress/Class Actions). It should be noted that the range of the entire class of an ongoing class action may be adjusted under the court’s own case-management power or a party’s application if it deems this necessary (Article 28). If such adjustment takes place, the court should notify persons who are excluded from, as well as newly included in, the class (Article 27).

Opting-In Mechanism

Once the court certifies a "class" and grants a “permission for class action", all members of the class, regardless of their explicit manifestation to participate in the action, are to be automatically bound by the outcome of the lawsuit unless they expressly elect to opt out (Article 37). Hence, class members are not required to opt in to a class action proactively under the SCAA.

Opting-Out Mechanism

A class member may opt out of the class by submitting a written opting-out report to the court during the period set forth in the public notification (see 4.1 Mechanisms for Bringing Collective Redress/Class Actions and “Certified Range of Class” above).

The SCAA consists of special and exceptional rules of the CPC, which supersede the CPC. When it comes to the joining procedure of a third party, the SCAA does not make any provision for this. Thus, the CPC will govern the matter. Under the CPC, third parties may participate in ongoing proceedings either as a party to the proceedings or as a non-party, depending on the legal basis on which they have joined or intervened in the proceedings.

Joining as an Independent Party

A third party may join an ongoing proceeding as an independent party in one of the following cases (Articles 78–80 of the CPC):

  • the whole or part of the subject matter of the lawsuit belongs to the third party;
  • the rights of the third party are likely to be infringed by the outcome of the proceedings; or 
  • the dispute can only be resolved when the third party joins the proceedings.

In all such cases where a third party joins as a party to the proceedings, the court's decision will be fully binding on the third party.

Joining as an Intervener

A third party can be involved in a lawsuit as an intervener for either the plaintiff or the defendant if the third party is found to have interests in the dispute being decided (Articles 71–77 of the CPC).

To be more specific, a third party can join as an intervener either of its own volition or upon issuance of a notice by a party to the third party to join as an intervener. In such case, the outcome of the proceedings will be binding between the third party and the party which the third party joined as an intervener, or the party that sent a notice to the third party asking it to act as an intervener, as the case may be.

General Case-Management Powers of the Courts

In civil litigations, including SCAA proceedings, the courts have exclusive and extensive authority to manage the case under the CPC. The courts, on consultation with the parties and/or their legal representatives, determine the schedule for the proceedings, including deadlines for submission of briefs, dates for preparatory meetings and hearings, examination of evidence and witnesses, court hearings, and announcement of the judgment.

Case-Management Powers of the Courts under the SCAA

The SCAA specifically grants powers to the courts to investigate evidence, examine any class member and representative party, and order a person to submit certain relevant documents (Articles 30–33).

Effects/Influences of Test Cases

If a party that has opted out of a class action under the SCAA initiates a separate civil action, it may be possible that the merits of the separate action will be decided prior to the court’s decision in the class action. If so, although the decision itself in the individual civil action is not legally binding on the class action in principle, it is likely that the prior decision will substantially influence the outcome of the class action as a practical matter because of the tendency of the courts to respect other courts’ decisions.

Certification Stage under the SCAA

In general, the initial certification stage itself under the SCAA takes at least several months at the courts of first instance. Since the court’s grant or denial of certification for class action may be further appealed to the high court and even the Supreme Court, it is quite possible that one or two years will pass before the subsequent proceedings on the merits. There has been an exceptional case where the certification process took five years (Seoul High Court Decision 2015 Ra 656 rendered on 16 November 2015).

Subsequent Proceedings on the Merits under the SCAA

According to statistics, it typically takes 12 to 24 months for the court to complete multiple hearings and decide on the merits in securities-related civil actions. In one exceptional case, it took a total of eight years and four months from filing (Supreme Court Decision 2020 Da 223747 rendered on 27 February 2020).

Since the courts retain exclusive authority to manage the case, there are no procedural mechanisms available to change the length/timetable/disposal of proceedings. However, a party can consider submitting its opinion to the court in order to effect the exercise of the court’s case-management powers. 

General Rules for Costs

There are no special rules regarding fees and costs in securities-related class actions under the SCAA, and each party is responsible for their own legal costs, as is generally the case in civil matters in South Korea. It should be noted that the fee arrangement with the attorney must be disclosed to the court and even to the public if the certification for a class action is approved (see 4.1 Mechanisms for Bringing Collective Redress/Class Actions). In practice, law firms tend to charge a meagre upfront fee to encourage more securities holders to participate in the action as representative parties.

Fees to be paid to or through the courts

For the SCAA claimants, court-ordered costs, including costs for experts, public notices, and sending notifications, must also be paid in advance, in addition to the stamp taxes generally imposed in civil litigation (Article 16).

The courts’ ruling on legal fees

The courts will decide which party bears the legal costs and fees when rendering decisions on the merits. The courts usually order the losing party to bear the pro-rata costs and fees, subject to the rigid statutory limit set forth by the Supreme Court.

Third-Party Funding

There are no specific rules or restrictions regarding third-party funding under the SCAA. Individual members with gross financial difficulties can apply for government legal aid as in other civil actions, although there is little need for them to incur separate legal fees as they will automatically be included in the class once it is certified by the court (see 4.3 Standing).

General Disclosure Rules without the Discovery Process

There is no common law rule of discovery in South Korea, including for electronic documents. As a result, a party does not voluntarily need to disclose any documents in its possession unless the court issues a document production order for those specific documents. If a party fails to comply with the court order to produce documents without a justifiable reason, the court can admit the content of such documents as alleged by the opposing party (Article 349 of the CPC).

Disclosure before litigation

In the SCAA actions, a party can request the court to order the other party to disclose evidence by showing that there is a risk that this evidence might not be available at a later time (Article 376 of the CPC).

Disclosure during litigation

As is in other civil litigations, document disclosure is permitted and must be sought by request to the court for a document production order by identifying the requested documents with a relatively high degree of specificity. If it considers this necessary, the court can order a person who holds documents related to the lawsuit to submit them or order the person to send them (Articles 343–352-2 of the CPC).

Furthermore, a party can also request an order for preservation of evidence during the litigation, in which case, the court can examine this evidence if it considers it necessary, even without showing that the evidence might not be available at a later time (Article 33 of the SCAA).

Rules of Privilege

Certain professionals can refuse to submit documents containing confidential information if these fall within the scope of their professional duty (Articles 344 and 315 of the CPC). However, it should be noted that attorney-client privilege is not generally acknowledged in civil litigations. The list includes:

  • lawyers;
  • patent attorneys;
  • public notaries;
  • certified public accountants;
  • tax accountants;
  • medical doctors;
  • pharmacists;
  • persons who have a duty of confidentiality under other applicable laws; and
  • persons engaged in religious service.

Only monetary damages can be recognised under the SCAA because the damages claimed in such actions relate to capital markets transactions. Damages are generally calculated as the difference between the profits/losses that were actually realised and the profits/losses that would have been realised but for the unlawful act. 

Once the amount of damages is determined by the court and the damages are paid by the defendant, the amount will be distributed to class members in a separate procedure, after deducting legal fees and costs (Articles 39–58 of the SCAA).

Formal Mediation/Settlement Mechanisms

In civil litigations, court-supervised mediation/settlement is frequently used and is encouraged by the courts. These are governed by the Judicial Conciliation of Civil Disputes Act and are moderated by a single judge or a mediation committee appointed by the court. Although court-supervised settlements/mediations are strongly encouraged by the courts, a party is not legally compelled to agree to such procedure and may request the court to proceed with the litigation and decision.

Informal Mediation/Settlement Mechanisms

Without the supervision of the court, informal private mediation and conciliation proceedings can be considered alternatives, although such settlement is subject to court approval under the SCAA (Article 35).

Notification of the Mediation/Settlement

The SCAA states explicitly that the court must notify the class members in advance and provide an opportunity for them to present opinions before approving the withdrawal or settlement of a lawsuit or waiver of claims, which binds the entire class. Class members who do not wish to be bound by the mediation/settlement can opt out and choose to file a separate lawsuit against the defendant or settle separately (Article 35 of the SCAA). 

Nature and Binding Effect of SCAA Judgments

As in other judgments in civil litigations, once a judgment in an SCAA action is rendered and finally concluded, it has a binding effect on both parties, including all the class members that have not opted out.

Enforcement of SCAA Judgments

There is no need or mechanism for enforcement of these judgments post-decision. The prevailing party can immediately enforce the judgment against the property or assets of the losing party by asking the court to place the property or assets in a public auction and distribute the proceeds among the class members.

Currently, no policy development or initiatives exist other than the bill for general class action proposed by the Ministry of Justice (see 1.1 History and Policy Drivers of the Legislative Regime).

Several bills have been proposed to expand the applicability of class actions in South Korea. The proposed bills include the General Class Action Act, the Consumer Class Action Act, and the Antitrust Related Class Action Act. These are currently being reviewed at the National Assembly.

As mentioned in 1.1 History and Policy Drivers of the Legislative Regime, on 28 September 2020, the Ministry of Justice announced that it would propose the General Class Action Bill, but it has not yet been formally submitted to the National Assembly.

Brexit has had no impact on the matters outlined in the above sections in South Korea.

COVID-19 has had no direct impact on the matters listed in the sections above, because class actions are only available for claims related to securities transactions in South Korea.

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Law and Practice

Authors



Yulchon LLC is a full-service international law firm headquartered in Seoul, Korea. It employs over 490 professionals, including more than 60 licensed in jurisdictions outside Korea. The firm's perspective is international, and its reach is global. Yulchon advises on a full range of specialised practice areas, including corporate and finance, antitrust, tax, real estate and construction, dispute resolution, intellectual property, and labour and employment. In addition to its main office in Seoul, Yulchon maintains offices in Russia, China, Myanmar, Vietnam and Indonesia, and has 11 regional practice teams covering the world. Yulchon not only offers deep industry and international expertise, its culture of innovation and collaboration provides excellent legal service that puts clients' needs first.

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