The quintessential US legal device of “class actions” could be heading Hong Kong’s way under wider plans to improve the civil procedure system. The Law Reform Commission has recently established a committee to consider whether a scheme for multi-party litigation should be adopted in Hong Kong and, if so, to devise a suitable model for the jurisdiction.

A class action enables the claims of a number of people against the same defendant to be determined in a single suit. Essentially, a representative plaintiff sues on his own behalf and on behalf of the “class” who have a claim to a remedy for the same or a similar alleged wrong, and who have claims that share questions of law or fact. These types of disputes tend to arise in the context of consumer cases, financial actions such as the Lloyds litigation, “one-off” disasters, large scale complex environmental actions and product liability claims.

Many common law jurisdictions now have specific court rules that provide for actions by groups of plaintiffs with a common interest. Hong Kong has yet to introduce anything like this. At present, all claims in Hong Kong remain individual actions, although parties may apply to have similar actions consolidated or heard together. Alternatively, one party may bring a “representative action” on behalf of a group of others where those parties have the same interest in the proceedings. Both rules are difficult to use and in particular, the representative action mechanism has been criticised as an inadequate framework for dealing with large-scale multi-party disputes.

Proponents argue that class actions enhance access to justice by providing a remedy to those who would not otherwise have the means to bring legal proceedings. For example, individuals with losses that are too small to merit individual litigation can team together to pursue large companies in a single litigation effort, and share the costs.

Furthermore, as multiple proceedings can be notoriously difficult to manage both for the court and the litigants, the introduction of a specific class action procedure can help facilitate efficient and cost-effective collective management, and the avoidance of a proliferation of claims.

Some even regard class actions as a champion tool for small individual consumers in their fight against the corporate giants by acting as a deterrent against corporate wrongdoing, thereby leading to a long term social benefit in the form of higher safety standards for consumers and others. Others fear the introduction of US style class action litigation, which is often highly criticised for two main reasons. Firstly, the procedure is open to abuse and can, some argue, be used as a form of “corporate blackmail”.

Companies are often forced to settle an action even when a claim is spurious to avoid the costs and reputation damage associated with a trial. Secondly, the astronomical sums awarded in a number of recent cases has led to concern that the lawyers benefit more than the individuals they represent. In the US, lawyers often operate under a “contingency fee” system, whereby fees are calculated as a percentage of the amount awarded by the court, which is usually around a third, but sometimes up to a half, of the spoils. This latter point is less of a concern for Hong Kong where lawyers are currently prohibited from entering into any kind of fee arrangement where remuneration is only uplifted or received in the event of a successful outcome.

During the civil justice reform review process in Hong Kong, the English mechanism of “Group Litigation Orders” (GLOs) for dealing with large scale multi-party litigation was initially considered. GLOs were introduced into English civil procedure in 2000 and since then, 58 have been registered. GLOs allow individuals whose claims give rise to common or related issues of fact or law to sign up for a single litigation effort. Under a GLO, a group register is set up in which all the claims under the GLO are recorded. The issues at stake are then often tried by way of a carefully selected “test case”.

Although acknowledging the benefits of GLOs, the civil justice reform body has noted that the current English rules do not address a number of key areas and rely too heavily on the discretion of the judge. As such, it concluded that it would be premature to adopt the GLO system before undertaking a specific study on other schemes implemented in comparable jurisdictions, with a view to identifying a system suitable to Hong Kong’s requirements. It is too early in the process to predict with any certainty the final outcome of the review but a generally more litigious Hong Kong society, together with pressure from consumer groups, make it likely that some form of class action procedure will be introduced.

The broader picture

Looking at the broader Asian picture, class actions are also currently unavailable in the People’s Republic of China. Instead, the PRC Civil Procedural Law provides for a joint action procedure for multiple claims. Very few joint actions have been brought in China and the rules and practice are still under development. Likewise, in Japan, there are currently no provisions for US style class actions. The relatively new Japanese Code of Civil Procedure allows for representative proceedings but at the time of drafting the Code, the decision was taken not to introduce US style class actions. This debate is still ongoing, but there is concern that US class actions are not appropriate in the Japanese context.

More significant developments have been made in Thailand where the Cabinet back in 2004 approved in principle draft legislation on class action lawsuits. Class actions are not currently recognised under Thai law. It is proposed that the new legislative provisions will be incorporated into the Thai Civil Procedure Code. The reforms have not yet come into force, despite reported calls from bodies, such as the Thai Investors Association, to accelerate passage of the law. In Indonesia, a Supreme Court Regulation was issued in 2002 setting out procedures for class action lawsuits. In practice, however, the Indonesian courts have not, as yet, seen many class actions. There has on the other hand been an increasing number of quasi-representative actions brought by various NGOs against large corporations pursuant to the Indonesian Environmental law which makes express provision for such actions.

Conclusion

The issue of class actions has recently become prominent worldwide, as is evidenced by the recent announcement by the European Commission that the EU is considering proposals to introduce new class action style rules to allow individuals and consumer bodies across Europe to band together to pursue “collective redress” against companies.

This issue is also exercising the minds of Governments and relevant bodies around Asia and it will be interesting to see whether they embrace the momentum for class action reform as enthusiastically as the European Commission is appearing to.

Although the introduction of class actions would significantly alter the litigation risk for companies that supply goods and services in the Asian countries considered, it is a fact of life that as consumers are becoming increasingly aware of their rights, more people may group together against companies through these types of actions. On balance therefore, it would be a positive step to introduce a mechanism in the civil procedure rules to streamline that process. Insurers, who inevitably pay for the costs of class action litigation, successful or not, ought to welcome a sensible approach by Asian countries on this issue. We are monitoring the progress of these proposed developments in the various jurisdictions and will be writing further on the subject when matters develop.