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CLASS ACTIONS - THE MORE THE MERRIER?

CLASS ACTIONS - THE MORE THE MERRIER?

CLASS ACTIONS - THE MORE THE MERRIER?

Tuesday, 28 January 2014 20:51

By Olivia Kung, Associate

“Class Action” is a term most people associate with the United States. Indeed it is a US phenomenon, and the birthplace of this kind of “representative” proceedings. Some countries e.g. Italy, Netherlands, Spain, Australia, China and Canada have followed suit or have adopted the regime in their own ways. On the other hand, other countries have also looked into this regime but have decided that this is not quite their cup of tea.


In this article, we will examine the pros and cons of this regime generally and in particular, in a Hong Kong perspective.
Existing law in Hong Kong does not allow any form of class actions. It does however allow individuals the liberty to make a claim on the same issue as joint plaintiffs (under Order 15 Rules of the High Court) or lodge different claims if they wish.


In May 2012, the Law Reform Commission of Hong Kong proposed that the mechanism of class actions should be adopted in Hong Kong. The Department of Justice has established a cross-sector working group to study and consider the proposals of the report. The final decision is still pending.

WHEN ALL BECOME ONE

What is class action? Class action is a procedural device which enables one or more members of a class to file or defend a case at court on behalf of a larger group or “class” of individuals with a common interest in the matter. Although class actions are generally plaintiff led proceedings, defendant-led proceedings are also possible, although it is very rare. Apart from the famous Erin Brockovich case, which was made into a movie. Other famous cases include class actions against Facebook, World Com and Enron.


Although it may sound similar but class actions are different from group actions. Group actions are actions where each litigant is a party, rather than as a represented non-party.
In the US, under rule 23 of the Federal Rules of Civil Procedure, there are prerequisite conditions to satisfy before a class action can be initiated:

  1. The class is so numerous that joinder of all members is impracticable;
  2. There are questions of law or fact common to the class;
  3. The claims or defenses of the representative parties are typical of the claims or defenses of the class; and
  4. The representative parties will fairly and adequately protect the interests of the class.

THE BRIGHT SIDE

The following are some of the main advantages of class action regime.

1. FAST AND FURIOUS

The major advantage of the class action regime is speed. As class actions combine a large number of individual claims into one representative proceeding, it saves the court time and resources by the avoidance of listening to repeating the same facts, arguments and witnesses.

2. SHARING…

Another advantage of the regime is that it provides a venue for plaintiffs who cannot otherwise afford the legal costs to initiate proceedings as the procedural costs are greatly reduced by “combining:” all individual actions into one. In other words, the regime enables individuals to overcome cost-related hurdles.

Further, where the defendant has limited funds, class actions can also ensure that all plaintiffs receive compensation rather than on a “first come first serve” basis. In cases where there are large numbers of plaintiffs, some plaintiffs may find that the defendant has run out of pocket by the time they win the cases as the plaintiffs who file their cases earlier have already deleted the defendant’s funds.

3. THE BIGGER, THE BETTER

The regime enhances individual access to justice as it provides a venue for those who have suffered losses too small to justify separate legal proceedings to join together and be brought by a representative on their behalf.
In a way, therefore, the regime promotes greater equality between the parties and a means of redressing the imbalance of power between single plaintiff and large wealthy corporate defendant.

4. ONCE AND FOR ALL

From the defendant’s point of view, the regime prevents different outcomes and inconsistency from different court rulings that may cause confusion and difficulty in following. The regime also provides the defendant earlier closure to the case as it will be conducted in a once and for all manner rather than multiple individual actions over a long period of time. The reasoning behind this is that defendant should not have to spend money or face adverse publicity as a result of multitude individual actions.

THE DARK SIDE

1. WE CAN’T STOP

The major concern is that the introduction of class actions may open the door to compensation culture in Hong Kong and the courts may be swamped with unnecessary or unmeritorious claims.

The reasoning behind this is that class action lawyers may encourage people to sue for their own personal gains rather than for the benefits of the litigants.

Although this is a possibility, however, unlike the US and other countries, under the current Hong Kong law, both contingency fee agreements (i.e. lawyers are entitled to a share of the settlement) and conditional fee agreements (i.e. lawyers are entitled to an upscale premium, also known as success fee, if the case is won) in litigation are illegal. Further, in the US, each party bears their own costs whereas in Hong Kong the unsuccessful party has to pay the legal costs of the winning party.

Therefore, this in fact is unlikely to happen in Hong Kong unless the law is changed in terms of funding of litigation cases or the government sets up special funding arrangement for this kind of cases.

2. “BONDING”

Under the US regime, plaintiffs are all “bound together” unless they choose to “Opt Out”. This means that individuals in class actions are automatically bound together as members of the class and will be subject to any judgments or settlement made in the proceeding unless they take a positive step to indicate that they do not wish to be included from the class action and from the effect of the judgment. This causes concerns that individuals may find themselves “forced” into litigation by their inaction. Even if they choose to litigate, members of a class have no freedom to choose who represent them and they have no say as to how their case should be conducted.

3. GET DOWN TO BUSINESS

From the business point of view, this regime may bring potential danger to corporate defendants especially small and medium size companies as they may struggle to pay a large sum of compensation to a class of litigants if they lose the case. Further, those plaintiffs who may not otherwise start proceedings may be “encouraged” to do so. If a corporate defendant is unable to pay the damages, and fail to find alternate ways to fund, the only option will be to close down the business. This in turn will result in job loses and affect individual’s lives. Depending on the scale of use of class actions, if Hong Kong turns into a litigious society, then no doubt this will affect the economy as a whole. Having said that, the upside of this is that the fear of being sued may encourage companies to be more responsible in their actions and pay more attention to the quality of their products and/or services they provide.

4. SIZE OF THE CAKE

There is concern that, class members may sometimes end up receiving little or nothing from class actions. For example, where the legal costs are very high which leaves class members with token awards or awards with little or no benefit to them. On the other hand, there is also concern that damages awarded will be disproportionate high to the wrongdoing to encourage settlement. In other words, the amount that the individuals receive at the end of the case may be totally disproportionate to what they deserve.

FREE YOUR MIND…

The proposed law reform has sparked heated debates amongst various interest groups. The government needs to balance between the possible benefits class action regime can bring and the potential dangers. We can either follow the US regime rigidly or come to the conclusion that this is not something we want to get ourselves into.

If we do decide to embark on this challenge, instead of simply “copy and paste” the US regime, we can borrow the idea and create a regime that fits into the current legal system – the “Hong Kong Style” class action mechanism. The following are some suggestions on how we can adopt the US recipe and make it our own:

1. IN & OUT

In the US, the class action regime is an “Opt Out” scheme. This means that unless an individual takes active steps to “Opt Out” of a class action, he/she will automatically be included in the class regardless of whether or not he/she wants to.

Instead of following the US regime’s “Opt Out” scheme, we can use an “Opt In” scheme. This means that an individual must take active steps to notify the court of his/her desire to be included in the class action. This scheme allows individuals the freedom of choice. Once an individual “Opt In”, he/she will become a member of the class, and will be bound by the judgment or settlement.

2. IN OR OUT?

As mentioned above, one of the concerns is that class actions may promote unnecessary litigation and courts may be overloaded with cases which have no merits. As a result, instead of improving the efficiency of the court system, it may cause an adverse effect. Perhaps one possible solution is, as the Commission has recommended, that class action cases should only be allowed provided that they have been certified by the court that this is necessary.

3. SLOWLY…GENTLY…

Instead of incorporating the whole regime all at once, we can do this step by step. Some countries only allow class actions in certain types of cases e.g. consumer products. This is a good way to test the water and give an indication whether this regime fits into the current legal system. If the result is good, we can then expand the scope gradually to other types of cases.

NOW OR NEVER

Should we and are we ready to join the club or is this something that is best kept in our heads? The introduction of class action will no doubt create more than a ripple in our current legal system and it should not be entered lightly. If we do decide to take the plunge, how deep and how fast should we go? The new adventure can either enhance our current position or we may find ourselves about to open Pandora’s box. Only time can tell…