[Editorial] Regulations pile up

By Korea Herald

Government to strengthen class action, punitive damages targeting businesses

  • Published : Sept 29, 2020 - 05:30
  • Updated : Sept 29, 2020 - 05:30

The government and the ruling Democratic Party of Korea keep tightening business regulations.

They appear determined to demotivate companies.

Business circles appealed to them for days to reconsider three “fair economy” bills. But they are adamant. The ruling party is poised to pass them through the National Assembly.

Under the banner of a fair economy, they proposed bills to revise the commercial law and fair trade law, and enact the financial group supervision law, but companies worry about the bills exposing their managerial right to threats from speculative foreign investors while offering few self-defense tools.

If businesses are compelled into a situation where they must concentrate on defending their management right, they will likely be distracted from business and investment.

To add to their troubles, the Ministry of Justice suddenly announced bills last week to expand class action and punitive damages to all industries. The ministry on Monday began to gather opinions on the proposed legislation. The announcement came less than a month after the government proposed the three bills to the National Assembly.

A class action is undertaken by one or more plaintiffs on behalf of themselves and all other persons having an identical interest in the alleged wrong. It is understandable that this is useful in protecting consumer rights. But corporate concerns about excessive litigations must be considered as well.

Korea introduced a class action system in 2005 with regard to securities transactions, but made related procedures difficult to prevent lawsuit abuse. This time, the ministry simplified the procedures and also allowed a jury in the first trial if plaintiffs want. A jury trial in a civil suit raises concerns about the influence of public opinion, particularly from vociferous civic or consumer groups.

Under the proposed legislation, class action is applied retroactively. Experts note that this goes against the constitutional principle of nonretroactivity of law.

Punitive damages are effective in preventing companies from violating laws malignantly. However, these may cause heavy legal expenses to companies. Punitive awards are five times the compensatory damage in cases of malignant offenses.

The burden of proof lies with companies. They must prove they did nothing wrong to avoid punitive damages.

If punitive damages are imposed in addition to a fine and a criminal penalty, they effectively violate the constitutional principle against double punishment.

It is problematic, too, to subject the press to punitive damages for misinformation. The concept of “malignant fake news” is ambiguous. Freedom of expression may be intimidated.

Protection of consumer interests are important, but adverse effects of class action and punitive damages must be removed.

Excessive litigations can exhaust corporate resources. Even if a company wins a lawsuit, damage to its public image and revenue will be inevitable. Small businesses may go bankrupt if they cannot afford to pay out astronomical recompense. Attorneys may file frivolous lawsuits just to earn quick settlements.

The ruling party has proposed a bill to keep large retailers up to “20 kilometers” away from the boundary of a traditional market. The existing distance is 1 kilometer. Though existing large retailers are exceptions from the new distance regulation, critics note that it is practically impossible for new distributors to find proper sites for their retail outlets 20 km away from any traditional market. Protection of mom-and-pop stores is important, but large retailers should be able to compete and survive. Furthermore, it is questionable whether consumer interests will be served by blocking large stores.

Many companies are reeling from the economic impact of COVID-19. According to the Bank of Korea, the proportion of firms unable to generate enough operating profits to pay interest is forecast to increase from 14.8 percent last year to 21.4 percent this year. The Korea Economic Research Institute projects the nation’s economy to plunge to a negative 3.8 percent growth in the second half.

In this challenging time, bills constraining businesses are pouring out, while new deregulation measures are nowhere in sight.

If the government and the ruling party keep driving businesses into a blind alley as if they are a public enemy to ordinary folk, there is no hope of economic recovery.