Dispute Resolution Bangkok Newsletter August 2015 www.bakermckenzie.com Bangkok 5th Floor and 21st-25th Floors 990 Abdulrahim Place Rama IV Road, Silom, Bangrak Bangkok 10500 Thailand © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. Class Action Regime: A new legal landscape for Thailand and its potential impact on business On 8 April 2015, the Act to Amend the Civil Procedure Code (Number 26) B.E. 2558 (the "Class Action Act") was published in the Royal Gazette and will take effect on 8 December 2015. This Class Action law represents the next big change to the Thai litigation system and will inevitably increase the magnitude of risk to business as class action lawsuits act as a damages multiplier in litigation. Based on experience from countries, class actions are suitable for mass tort litigation, product liability lawsuits, securities fraud, environmental pollution, and violation of trade competition law. While its practical implications remain to be seen, businesses who have an exposure to these types of litigation should carefully review their business practices and legal strategies as well as ready themselves to adapt to the new legal climate. What is a class action? The term "class action" often evokes images of misbehaving corporate empires being taken down by brave but mostly powerless individuals who band together after suffering a common wrong− much like in the movie Erin Brockovich, a dramatization of the legal battle initiated by town residents who became ill after consuming contaminated water. A class action is a proceeding which enables a named plaintiff to file a lawsuit on behalf of a large group of persons, known as a "class" and the judgment from such suit binds all class members. Underlying rationale of a class action regime: The watch dog of society In American class action practice, an enterprising lawyer will search out opportunities, such as a defective product, and find a group of consumers who have been injured from such product (such as 4-5 consumers) to act as class representatives. The lawyer will file a complaint against the manufacturers, distributors, and retailers of the defective product and ask the Court to certify the class for all similarly situated consumers of such products in the US (which can be thousands or even millions of people). The Court will consider whether the customers share the same factual pattern and legal standing as well as whether the class lawyer can act best for the benefit of the class− considering the adequacy of representation in a complex legal case. If so, the Court will certify the class and the stake of the litigation grows substantially as the judgment will be binding upon all members of the class. If a settlement between the class and the defendants can be made, or if a judgment is rendered in favor of the class, the class lawyer earns his fees as part of the awarded compensation. Sometimes, it can exceed 30% of the total awarded compensation to the class. It is not uncommon for large class action settlements or judgments to yield lawyers fees in the millions of dollars. In this Issue › Underlying rationale of a class action regime: The watch dog of society › The evolution of the class action system in Thailand › The Class Action Act › Anticipated Impact of the Class Action Act › Expected types of lawsuits suitable for class action › What should businesses do now to prepare for the Class Action Regime? › Conclusion Newsletter © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. www.bakermckenzie.com Bangkok 5th Floor and 21st-25th Floors 990 Abdulrahim Place Rama IV Road, Silom, Bangrak Bangkok 10500 Thailand In the American class action system, class action lawsuits have resulted in tremendous gains in the area of consumer rights. Small damage cases, arising out of wrongful acts such as breaches of privacy, pricing collusion, and misrepresentation can yield huge damage awards under the class action system, when the wrongful act has been perpetrated on millions of customers. If plaintiffs in these cases were to bring their cases individually, they would have difficulty retaining a lawyer because the damages are too low to attract a lawyer to bring a case on an individual basis. Aggregating the cases under a class action system provides lawyers with the incentive to take on these matters, which would normally not be redressed in litigation. As such, it is a lucrative business for entrepreneurial lawyers. The rationale behind class actions is that it will provide fairer, more efficient, and more equitable litigation proceedings as the case will be tried at one time for all affected parties. There is efficiency for court resources, in that a multitude of cases are decided in a single proceeding. It is also believed that consolidating numerous claims into a single action improves the redressing of wrongful conduct because an entrepreneurial lawyer can act as a "watch dog of a society" to identify wrongdoers and bring an action for the benefit of all people harmed. Moreover, business operators, because of the increased likelihood of litigation, and the amount of compensation which will have to be paid, will be more careful in operating their businesses so as to avoid becoming a defendant in a class action lawsuit. This will promote good governance in the private sector and, in turn, society as a whole will be better off even if the price of goods and services increases to cover higher insurance premiums and the risk of class action lawsuits. This approach also promotes consistency because it eliminates the problem of conflicting judgments if cases were to be tried in different courts. Without a class action system, there would be the numerous cases arising from the same fact patterns tried in different courts. In the end, some judgments arising out of similar fact patterns would end with different results− some in favor of consumers and some in favor of manufacturers. It is noted further that although the class action regime is useful to powerless individuals, it is very easily abused and American business operators have first hand experience with this. After a long push for reform, in 2005, the US passed the Class Action Fairness Act of 2005 with the aim to balance the bargaining and litigation power of the parties. >back to top The evolution of the class action system in Thailand Before enactment of the Class Action Act, Thailand had a similar regime but it applied only to labour cases. Section 53 of the Act to Establish the Labour Court and Labour Proceeding B.E. 2522 empowers the labour court to extend the scope of its judgment to cover other employers and employees who have an interest in the disputed issues of the case under its jurisdiction. Only a few Supreme Court's judgments demonstrate exercise of this power by the labour courts. The scope of Section 53 is limited to labour cases and there is no mechanism for an award of attorneys fees. As for non-labour disputes, the only method of aggregating the claims of multiple plaintiffs into a single action was through the use of joinder and consolidation under the Civil Procedural Code. This was not only inconvenient, but it was also impractical if the number of plaintiffs to be joined was too great. › The Class Action Act goes into effect on 8 December 2015 Newsletter © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. www.bakermckenzie.com Bangkok 5th Floor and 21st-25th Floors 990 Abdulrahim Place Rama IV Road, Silom, Bangrak Bangkok 10500 Thailand As early as 2002, there has been a move toward adopting the Class Action system in Thailand. In that year, the Office of the Securities and Exchange Commission began its push to allow retail shareholders to bring class action lawsuits to recover losses from their investments due to fraud and misrepresentation of financial conditions. This push has finally culminated in the Class Action Act which will take effect on 8 December 2015. >back to top The Class Action Act The Act to Amend the Civil Procedure Code (Number 26) B.E. 2558 (the "Class Action Act") only provides a framework for the class action regime and empowers the President of the Supreme Court to issue detailed regulations on the class action process. There are many questions left unanswered in the Act because the details will be provided later under yet-to-be-issued regulations. As it stands, the Class Action Act provides the following framework: Opt-out system There are two types of class actions: opt-in and opt-out. In an opt-in system, injured non-parties must identify themselves and choose to be bound by the rulings and results of the class litigation. In an opt-out system, the class litigation automatically binds all injured persons. If any particular injured person does not want to be bound with the class litigation, they must identify themselves and choose to opt out from the class litigation. Under the Thai Class Action Act, Thailand has adopted an opt-out system. This means that the injured person will automatically be a member of the class, if he/she fits the criteria of the certified class, and does not elect to opt out. As a hypothetical, an enterprising lawyer who identifies a potentially defective product could then select a small group of consumers to serve as class representatives. Once the class action lawsuit is filed, there would subsequently be a motion for class certification. As part of that motion, the plaintiffs' lawyer would need to identify the criteria that would define the class (for example, all consumers in Thailand who bought Product A from 1 March 2012 - 7 December 2015, the day before the legislation takes effect). If the court certifies the class, all consumers in Thailand who were affected will automatically be bound by the result of the class litigation, unless they opt out of the class. If the plaintiffs win the litigation, the class members are entitled to the compensation as awarded by the Court. If the plaintiffs lose, the class members, who did not opt out, are bound by the judgment and would no longer have a right to take action against the defendant. Potential class members have two stages at which they can opt out of the class action lawsuit: first, when the Court certifies the class; and, second, when there is a petition to approve settlement of the case. Class Certification In order to initiate a class action lawsuit, the plaintiffs' lawyer must file a complaint and then a motion for class certification. Newsletter © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. www.bakermckenzie.com Bangkok 5th Floor and 21st-25th Floors 990 Abdulrahim Place Rama IV Road, Silom, Bangrak Bangkok 10500 Thailand In certifying the class, the court must be satisfied as to the commonality of issues, the size of the class, the efficiency of the class action proceedings as compared with normal civil proceedings using joinder, and the adequacy of the lawyer and plaintiffs representing the class. Once the court certifies the class, all persons identified as members of the class must be notified. In addition to any mailings, a public notice must also be published in a prominent newspaper for three consecutive days. Judgments and orders are binding on all members of the class except those who decide to opt out from the class. Members who decide to opt out must notify the court within specific time periods. If the court later finds that class action proceedings are not appropriate to protect members of the class, it may decertify the class and direct the plaintiffs to initiate normal civil proceedings. Settlement Settlements must be approved by the court in order to be valid. Once the court approves a settlement, class members will be notified of the date by which they may opt out of the class settlement. Enforcement and lawyers' fee award The court will appoint an executor to distribute the proceeds from the judgment. If the class action is successful, the class will receive the full amount of awarded damages and its lawyer will receive an award of not more than 30% of the awarded damages. This means the losing party will be required to pay the lawyer's fees as a separate amount in addition to the damages awarded to the class. It should be noted that one of the most differentiating aspects of the Thai class action system from the American system is that in the Thai class action regime the defendant may end up paying up to 130% of the plaintiffs' award because attorney's fees are a separate part of the judgment, and are not taken from the plaintiffs' compensation (although, in America, where attorneys' fees are awarded as a matter of right by law (e.g., a civil rights case), the attorneys fee award is separate). >back to top Anticipated Impact of the Class Action Act It is believed that the class action system will be overwhelmingly welcomed by entrepreneurial lawyers as it is an opportunity to greatly expand their business. However, the magnitude of change has yet to be seen because it is dependent on both the new regulations to be proposed by the President of the Supreme Court and how the courts will apply the class action law in real cases. One thing worth noting is that the experience from other countries which have adopted a class action system has not always been favorable. Several scholars indicate that a lack of an opt-in system or provision for an award for attorney's fees has led to poor outcomes. An opt-in system puts the burden of being included in the class on damaged members of the public, who might be unaware or disinclined to join litigation. A lack of a separate award of attorneys fees removes the underlying incentive for entrepreneurial lawyers to seek out and initiate class action lawsuits. Newsletter © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. www.bakermckenzie.com Bangkok 5th Floor and 21st-25th Floors 990 Abdulrahim Place Rama IV Road, Silom, Bangrak Bangkok 10500 Thailand The Thai Class Action Act contains both an "opt-out" and lawyer's fee award mechanism. However, it remains to be seen what regulations will be promulgated in relation to the Act, and how the courts will apply the class action law in real cases. If courts do in fact grant 30% of the damages to the class lawyer as the lawyer's fee, the class action industry is sure to become a booming industry for plaintiff's lawyers. Until the President of the Supreme Court issues the regulations under the Class Action Act, it will be difficult to measure the magnitude of the Act on the class action regime. The Act only provides a framework and several questions still remain unclear including: What criteria will the court apply in certifying a class? What criteria will the court apply in determining the adequacy of the class lawyer? If there are multiple motions for class certification, what criteria will the court apply in certifying the class? How much time and expense is the class lawyer expected to invest in the litigation? What will be the average lawyer's fee awarded by the court where the class action lawsuit succeeds? In addition, there is no framework for depositing security for an award of costs in the Thai legal system, except in the case where the plaintiff resides outside Thailand. Further, the award of lawyers' fees to the defendant if the plaintiff loses the case is far lo wer than the actual lawyer's fee incurred by the defendant. Plaintiffs' lawyers may take advantage of some of these gaps in the regime. >back to top Expected types of lawsuits suitable for class action Based on experience in the US and the increasingly litigious environment in Thailand, it is anticipated that the following types of lawsuits will be suitable for class action litigation: Labour cases: Although somewhat sanctioned by current court rules, labour class action lawsuits stand to substantially increase as a result of the Act. In the current system, employees may be disinclined to join actions against their employers if they remain employees of the company. With an "opt-out" system, only a few employees need be named as parties, and the other similarly situated employees can ride their coattails. Let's imagine a case in the current system where not many employees would like to disclose themselves in a suit for overtime. In the opt-out class action under the new Act, only a few employees, especially the labour union members, may initiate a class action against the employer for overtime. The class includes all employees who already have resigned and those still employed. In this case, the current employees will not have to identify themselves. Rather, the employer may want to encourage individual current employees to opt out from the class, and pursue a separate, more favorable, and more amicable solution with them. Class action lawsuits in the US have resulted in large awards for unfair labour practices such as violations of laws for overtime pay, minimum wage, and reductions-in-force (large layoffs). Newsletter © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. www.bakermckenzie.com Bangkok 5th Floor and 21st-25th Floors 990 Abdulrahim Place Rama IV Road, Silom, Bangrak Bangkok 10500 Thailand Securities fraud: The original impetus of the Thai Class Action Act was to address securities fraud. The injured class of persons in a securities fraud case are any shareholders who owned shares of company stock at the time an applicable law was violated or a damaging act occurred. The class of injured persons are easily identified from the shareholder registrar and the amount of damages can be easily quantitated by the difference in share price. The class action suit can be used to obtain redress for illegal acts of the company directors, for misrepresentation in finances, and to even force a change in the composition of the board of directors. Mass tort litigation: Accidents that cause widespread damage or numerous injuries or deaths are ripe for class action status. Examples of mass tort litigation include exposure to chemical leaks, airplane crashes, fires, floods, factory explosions, riots, and terrorism. Entrepreneurial lawyers will be keen to initiate class action proceedings when major disasters cause widespread damage or injuries. It should be noted that American scholars have commented that some mass accidents are not appropriate for a class action because legal liability affecting the individual class members may be different. For example, in airplane crashes, the legal question of liability and damages may depend on the passenger's country of origin or citizenship. Thus, it is difficult to certify a class where different legal liability may apply to individual members of the class. Again, we have to see how the Thai Court will implement the class action regime. Environmental litigation: Pollution is a major threat to the the environment and to the health of people. Environmental lawyers will be quick to convert their litigation into class action status. Water, air, and ground pollution can cause widespread damage. Noise pollution from factories, construction and entertainment venues can result in diminishming property values. All of these events will be ripe for exploitation by environmental lawyers as they can cause injury to thousands of people. However, it remains to be seen how the courts will deal with class certification and to what extent a plaintiff must demonstrate injury to be included in a class. Products liability: Products which are sold to consumers can be the subject of class action litigation if they contain defects or have unsafe characteristics. . Where a product is already subject to class action litigation in another country, and if it is also sold in Thailand, an enterprising lawyer is likely to also file a class action lawsuit in Thailand. Information sharing is widespread among products liability lawyers. This has been especially true in tobacco products liability litigation. It is unclear as to how far the Thai courts will go in rendering judgment for a failure to warn of potential for injury as an avenue to establish an unsafe product. This could have a massive impact on product packaging and labeling an-d also accelerate the need to initiate product recalls. Services that use adhesion contracts: Service operators such as insurance companies and banks can be targeted if portions of their contracts should be voided as being illegal or they systematically breach those agreements with their customers. Often these contracts are not negotiable and consumers have no choice but to agree to a "form" contract. Class action lawsuits against telecom providers, ISPs, financial institutions, credit card companies, and fitness gyms have become fairly routine globally. While the damages for each individual may be relatively small, when all of the class members are Newsletter © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. www.bakermckenzie.com Bangkok 5th Floor and 21st-25th Floors 990 Abdulrahim Place Rama IV Road, Silom, Bangrak Bangkok 10500 Thailand aggregated, the damages can be quite staggering. Enterprising lawyers will be exploring these types of cases as the awards for lawyer's fees can be high. >back to top What should businesses do now to prepare for the Class Action Regime? Understand the class action regime − with the exception of the additional risk of a lawyers' fee of not more than 30% on top of the judgment, the class action law does not provide additional liability to businesses. Legal liability for business operations remain the same under the Class Action Act. The class action is only a procedural law which can be a multiplier to the risk and amount of damages which might be awarded under any particular set of substantive laws. Understand that while the risk of having a judgment entered against a business remains the same, the opportunity to be sued in court and the amount of damages that could be awarded has now been dramatically multiplied because awards will be made not just for the named plaintiff, but for everyone who is similarly situated and has not opted out of the class. Also be aware that the class action system may increase the likelihood of litigation and also increase its cost due to complexity. Keep informed and monitor any changes in substantive law − liability arising out the operation of business is controlled by substantive laws. Several new laws providing rights and liabilities to business have recently been enacted. These substantive laws are the source of risk and liabilities. Businesses should keep a close eye on these developments because when combined with the class action regime, they may become a new or significantly enhanced risk for continued business operations. Also, as courts decide cases, it is possible that there may be a shift toward the protection of consumer rights, as this is part of the impetus for adopting the class action system. Promote good governance − the underlining reason of the class action regime is to promote good governance in the private sector. Therefore, it is recommended that businesses take some time to review their contracts and business practices. Those who often violate the law will become big targets for entrepreneurial lawyers. Monitor the implementation of the class action regime − it is currently premature to evaluate the magnitude that the regime will have on the risk of conducting business. Pay attention to the promulgation of class action regulations and the trends that develop in court rulings under the class action regime. Whether the Act has a significant impact in Thailand depends on the rulings of the courts. If class certification is difficult or if lawyers' fee awards are low, the class action regime will not have as big of an impact on businesses. Be aware of any class action notifications − businesses are not always the defendant. Rather, businesses are also consumers and can be members of class action litigation. Therefore, businesses should set up a process for receiving and acting upon class action notifications. Making the right decision on whether to opt out from a particular class litigation and initiate a lawsuit on their own is an important decision with substantial financial ramifications. Newsletter © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. www.bakermckenzie.com Bangkok 5th Floor and 21st-25th Floors 990 Abdulrahim Place Rama IV Road, Silom, Bangrak Bangkok 10500 Thailand Select the right lawyer − as a named defendant, the stake in a class action lawsuit will be high as damages are being claimed for all class members, not just the named plaintiffs. Therefore, businesses should select competent and experienced lawyers to handle class action litigation. Shift the risk − for businesses in higher risk industries, analyze your insurance coverage. Shifting the risk to others by way of insurance coverage or contract can reduce your exposure to class action liability. For insurance policies, check your exclusions. Make sure your business has coverage for products liability, mass torts or damage caused by pollution. Often, exclusions can be bought back at extra cost through optional riders with a separate premium. >back to top Conclusion The implementation of the Class Action Act may result in an increase of litigation, higher costs of doing business, and greater risks of liability. It is our advice that businesses carefully study the implications of the class action regime and prepare for its effect. We will continue to monitor the implementation of the Class Action Act and inform you of any significant developments. For further information please contact Chirachai Okanurak +66 2636 2000 ext. 3223 [email protected] Kanit Vallayapet +66 2636 2000 ext. 3112 [email protected] Wynn Pakdeejit +66 2636 2000 ext. 3120 [email protected] Chaiporn Supvoranid +66 2636 2000 ext. 3068 [email protected] Manu Rakwattanakul +66 2636 2000 ext. 3060 [email protected] Pisut Attakamol +66 2636 2000 ext. 3011 [email protected] Piya Krootdaecha +66 2636 2000 ext. 3066 [email protected] Paralee Techajongjintana +66 2636 2000 ext. 3081 [email protected] Pradthanaadt Ratanatanungpong +66 2636 2000 ext. 3143 Pradthanaadt.ratanatanungpong @bakermckenzie.com Suksawat Watewai +66 2636 2000 ext. 3057 [email protected] Timothy Breier +66 2636 2000 ext. 3092 [email protected]