The proposed class action regime for hong kong

On 28 May 2012, The Law Reform Commission of Hong Kong published a report proposing that a class action regime be introduced in Hong Kong. The proposals follow responses to its consultation paper published in 2009.

What is a class action?

A class action is a legal procedure whereby claims of a number of individuals against the same defendant(s) are determined in one legal action. One or more “representative plaintiffs” sue on their own behalf and on behalf of a number of other persons (the class) who have the same claim or similar claims as the representative plaintiff, sharing questions of law or fact. Only the representative plaintiff is a party to the legal proceedings, but the class is bound by the outcome of the court proceedings, although they have not taken any active part in the proceedings.

What is the current position in Hong Kong?

Under Hong Kong's existing law there are “representative proceedings”, whereby numerous persons having the same interest in any proceedings can bring proceedings by or against any one of them, as representing all or as representing all except one or more of them.

What are the shortcomings of representative proceedings?

Representative proceedings were criticized in the final report of the Chief Justice's Working Party on Civil Justice Reform as being too restrictive and inadequate. While the provisions were considered adequate in cases involving a relatively small number of parties closely concerned in the same proceedings, they were considered inadequate for dealing with large-scale multi-party situations. Further, even where a representation order is made and the case proceeds to judgment, finality is not necessarily achieved because individuals affected by the representation order can challenge enforcement and re-open the proceedings on the basis that facts and matters peculiar to their case exist.

What are the benefits of a class action regime?

The Law Reform Commission's Report identifies the following benefits:

Benefits for Plaintiffs

1. Improved access to justice. A single plaintiff's claim may not be economically viable to pursue because of the costs involved, but the aggregate claims of the plaintiff class may be substantial enough to justify a claim.
2. Narrowing down disparity between the parties, especially when a plaintiff is a single litigant or consumer up against a governmental body or wealthy multinational corporation.

Benefits to Defendants

3. Avoiding multiple related legal proceedings. Defendants will be spared the time, cost and inconvenience of defending identical, related or similar claims, which may stretch over long periods of time and in different jurisdictions.
4. Finality of disputes. A class action regime could lead to finality and class-wide resolution of disputes, preferably by settlement, because the ruling or settlement agreement would bind all class members.

Benefits to Society

5. Increased judicial economy. A class action regime enables the court to deal with claims involving common issues of law and fact within a single proceeding, instead of determining claims individually. This will save judicial resources.
6. Greater access to justice.
7. Different or inconsistent rulings on identical or similar claims brought by plaintiffs in separate actions can be avoided.
8. Class actions can act as a deterrent to potential wrongdoers, such as corporations and governmental bodies from committing wrongful acts by making it feasible for victims to recover damages from wrongdoers who were previously insulated from having to account for their wrongs because of economic and other barriers to individual proceedings.

What are the potential drawbacks of a class action regime?

The Law Reform Commission's Report also recognises some potential pitfalls of a class action regime, including the risk of promoting unnecessary and unmeritorious litigation and risk of insufficient protection of individual class members' interests, given that they each play a small part in the litigation.

What are the Law Reform Commissions conclusions and recommendations?

The Law Reform Commission's Report concludes and recommends as follows:

1. There is a good case for the introduction of a comprehensive multi-party regime in Hong Kong. This should start with consumer cases and then possibly extended to other types of cases.
2. A good case has been made out for considering the establishment of a general procedural framework for class actions in the Hong Kong courts. It is crucial that there are procedures for filtering out cases that are not viable and that there are rules in place to ensure fairness, expedition and cost effectiveness. In addition, alternative dispute resolution techniques, such as mediation and arbitration should be fully utilised.
3. Class actions should adopt an opt-out approach i.e. unless otherwise ordered by the court, once the court certifies a case suitable for a class action, the members of the class, as defined by court order, would be automatically considered to be bound by the litigation, unless within time limits and in a manner prescribed by the court order, a member opts out.
4. The new class action regime should apply to public law cases. The Law Reform Commission had considered whether a class action regime was suitable for public law cases, in view of the special features of public law litigation in Hong Kong by virtue of the Basic Law.
5. To prevent class members with sound financial capability from deliberately selecting impecunious plaintiffs to act as class representative, a representative plaintiff' should be required to prove to the court's satisfaction that suitable funding and costs-protection arrangements are already in place at the certification stage. In appropriate cases, the court should be able to order representative plaintiffs to pay security for costs.
6. Where a class action involves foreign plaintiffs, an opt-in procedure should be the default position i.e. unless the court orders otherwise, a potential class member must expressly opt in to the class proceedings by taking a prescribed step within a stipulated period and will not be bound by a settlement or judgment unless he opts in. The current court rules on service of proceedings outside Hong Kong should be applicable to foreign defendants and the court should be able to stay class actions involving foreign plaintiffs or defendants on the grounds of forum non conveniens i.e. on the grounds that Hong Kong is not the appropriate forum for resolution of the dispute and that there is another available forum which is clearly and distinctly more appropriate. To assist foreign plaintiffs to consider whether to join in class proceedings commenced in Hong Kong, information on the proceedings should be publicised on a website.
7. A legally aided person should not lose his legal aid funding by agreeing to act as representative plaintiff in a class action, but he should only be funded or protected to the extent as if he were pursuing a personal, as opposed to class, action.
8. In the long term, a special public fund should be established which can make discretionary grants to all eligible, impecunious, class action plaintiffs and which the representative plaintiffs must reimburse from the proceeds recovered from defendants. Given the recommendation that the class action regime should start with consumer cases, it is recommended that the Consumer Legal Action Fund's resources be increased to make funding available for class actions for consumer claims.
9. The class action regime should cover tortious and contractual claims made by consumers in relation to goods, services and immovable property. The existing representative proceedings regime should be retained, at least until the proposed class action regime has been extended to all types of cases. The jurisdiction of the District Court to hear class actions should be deferred for at least five years until a body of law of the Court of First Instance has been established.

The way forward

The Law Reform Commission recommends that a working party or task force, comprising of major stakeholders (including the judiciary and the Department of Justice) be formed to consider the fine detail of the proposed regime, as only after that, can steps be taken to implement the regime by legislation. So we can expect it to be some time before class actions are introduced in Hong Kong, even for consumer cases.