On 28 May 2012, the Law Reform Commission (the "Commission") of Hong Kong published a Report on Class Actions (the "Report"), setting out their proposals for the introduction of a comprehensive class action regime in Hong Kong.
Background to the Report
In 2000, Hong Kong's Chief Justice appointed a Working Party to review the civil rules and procedure of the High Court. In the Working Party's final report, published in 2004, one of the recommendations was to adopt a scheme for multi-party litigation and study the models implemented in comparable jurisdictions. In 2006, the Commission agreed to take on the project and its Class Actions Sub-committee commenced its study in January 2007. The Commission's Consultation Paper on Class Actions (the "Consultation Paper") was published in November 2009, opening a round of public consultation until February 2010.
As part of the public consultation exercise, Hogan Lovells held various round-table discussions with representative clients from various industry sectors to garner their views on whether Hong Kong required a class actions regime and the various proposals outlined in the Consultation Paper. Our submission paper included many of the comments and views sought and, contrary to the final recommendation of the Report, reported an overall negative response to the question of whether Hong Kong needed a comprehensive regime for class actions.
The Report studies the current provisions for group actions in Hong Kong and other jurisdictions and makes nine recommendations, essentially recommending the introduction of a comprehensive class action by means of an incremental approach, starting with consumer cases. While the Report does seek to limit some of the options considered in the Consultation Paper, it does not drill down in sufficient detail as to how certain proposed mechanisms would work in practice and clearly leaves much to be done before a concrete proposal can be put on the table. The Report, in fact, concludes with a recommendation that a working party or task force comprising representatives of the major stakeholders (including the Judiciary and Department of Justice) be formed to consider the finer details of the proposed regime.
We summarise some of the key issues below:
Current Provisions for Group Action in Hong Kong
In Hong Kong, the current regime for handling group actions is a "representative action" under Order 15 rule 12 of the Rules of the High Court ("RHC"). This mechanism was originally designed for a small number of parties who are closely connected, not for large-scale multi-party litigation. In order to bring a representative action under O.15 rule 12, the parties must pass the "same interest" or "common ingredient" test which requires all class members to show identical issues of fact and law1. The Report concludes that the current procedure for representative actions, on account of its limitations, has rarely been used and extra-judicial compensation schemes or test actions have been the preferred route for these types of dispute. A comprehensive new regime, rather than a revision of the existing regime, is therefore recommended.
Opt-Out Approach and Class Composition
The Report recommends the adoption of an "opt-out" scheme (that is to say anyone who holds a claim concerning the issues raised in the class action proceedings will be bound by the proceedings unless they take active steps to opt out of the proceedings). One of the main considerations for this recommendation is the rate of participation found in other jurisdictions. For foreign plaintiffs, an opt-in regime (in addition to other special measures) is recommended.
The Report also recommends close supervision by the Court, whereby the commencement of a class action must be certified by the Court (in addition to other new case management measures). Certification will require (a) a minimum number of identifiable claimants (the "numerosity" criterion), (b) sufficient legal merit (the "merits" criterion), (c) sufficient commonality of interest and remedy among members of the class (the "commonality" criterion), (d) that a class action be the most appropriate legal vehicle to resolve the issues in dispute (the "superiority" criterion) and (e) that the representative plaintiff have the standing and ability to represent the interests of the class of claimants both properly and adequately (the "adequacy of the representative" criterion).
Choice of Plaintiff, Costs and Funding
One of the main factors in the effectiveness of a class action regime is who will pay for it. Hong Kong generally applies the rule that costs follow the event and, unlike some other jurisdictions, the laws of maintenance and champerty (which generally prohibit strangers to litigation from providing funding) still apply in Hong Kong.
It is a feature of some class action regimes that, if the class loses, members of the class will not be subject to costs consequences – these are borne by the representative plaintiff. However, in order to avoid potential abuse whereby an impecunious class member is deliberately chosen as the representative plaintiff (so as to avoid any adverse costs consequences), the Report recommends empowering the courts to order security for costs to protect defendants from such abuse. In addition, the ability to show adequate funding may form part of the certification criteria outlined above.
As to funding, truly impecunious plaintiffs should have access to discretionary funding and legal aid is recommended to be made available for class actions – but only to the same extent as if they were pursuing a personal action. However, the part of the total common fund costs attributable to them should be disaggregated, and class members who are not legally aided should share, equitably, the costs. In the long term, the Report recommends establishing a class action fund ("CAF") to make discretionary grants to eligible plaintiffs. While the CAF would require seed money for its establishment, it would be intended to be self-funded with plaintiffs being required to reimburse the CAF from proceeds recovered from defendants. In the short term, funding should be made available by increasing the scope of the existing Consumer Legal Action Fund, which was set up in 1994 to provide greater consumer access to legal remedies run by the Consumer Council, to include class action cases.
The Report recommends against revisions in the law to allow contingency funding and litigation funding companies (commercial organisations that fund litigation for profit) to operate. It concludes that the community at large does not accept the idea of funding litigation for profit.
An incremental approach is recommended for the introduction of the new regime. In simple terms, this means that, initially, the High Court only will be empowered to hear class action claims, with the District Court's jurisdiction deferred for five years, while the High Court builds its experience. The Small Claims Tribunal should not be empowered to hear class action proceedings.
The other aspect that is to be incrementally introduced is that class actions should only apply to "consumer" cases at the outset. The term "consumer cases" is explained as "tortious and contractual claims made by consumers in relation to goods, services and immovable property" and the Report recommends applying existing definitions under Consumer Council Ordinance (Cap. 216) – accordingly, this will cover a substantial number of the target disputes. The Report further seeks to rely on the Unconscionable Contracts Ordinance (Cap. 458), whereby whether or not a party deals as a consumer depends on the individual circumstances of each transaction, not the party itself, and by reference to the Consumer Council Ordinance (Cap. 216).
The introduction of a class action regime in Hong Kong is not imminent, as the findings of the Report will still require further detailed study before any suitable legislation can be put forward for discussion. However, with Hong Kong's new Chief Executive coming into office on 1 July 2012 and the potential winds of change upon which his "grass roots" election platforms were based, these reforms granting the public greater access to justice may receive earlier scrutiny than previously expected.
The full Report may be accessed at http://www.hkreform.gov.hk/en/publications/rclassactions.htm