Investors to miss out in new class action system
A public consultation on law reforms aimed at making it easier for litigants to combine in class action law suits in Hong Kong has ended in disappointment for investors.
The Law Reform Commission announced yesterday that in the initial implementation stage of the class action system, only consumers would be able to combine to take multi-party complaints to court. It did not give a timeline for the eventual inclusion of investors.
But the commission also suggested the establishment of a class action fund, as well as an expansion of legal aid schemes and the Consumer Legal Action Fund, which would help investors.
David Webb, a veteran corporate governance activist, said he was disappointed with the outcome of the consultation, adding that an effective class action system supported by different sources of funding would be the most effective way to keep a check on banks and companies, since they would bear in mind the risks of being sued if they behaved unethically.
That would be far more effective, he said, than the proposal by the Securities and Futures Commission of possible jail terms and fines for sponsors of initial public offerings who misled investors, since the investors would have to rely on the SFC to pursue an action. What was more, in the case of a successful prosecution the SFC, rather than the aggrieved investors, would collect the proceeds of any fine.
Webb was also concerned about the amounts that might be injected into a class action fund, as well as the existing consumer fund and legal aid schemes.
There was less than HK$20 million in the consumer fund, he said, when a single class action lawsuit could run up costs of millions of US dollars.
Jeffrey Maddox, Hong Kong-based partner at Cadwalader, Wickersham & Taft LLP, said funding was a core issue yet to be resolved by the commission.
The proposed legal aid system and consumer legal action fund would mean that troubled consumers would have to go through a process of screening and approval, as opposed to allowing market mechanisms to function, he said.
Peter Chan Kwong-yue, former chairman of the Alliance of Lehman Brothers Victims, said he was happy that Hong Kong was taking steps towards the implementation of a class action litigation system, although he was aware it could be many years before it was implemented.
'It might be too late for investors in those Lehman minibonds,' he said, noting that the alliance was in the middle of a class action lawsuit against the US office of HSBC.
But it was not fair to expect fully-fledged class actions such as those available in the US to be launched in Hong Kong, Chan said. 'We have different judiciary systems. I only hope that in the future both consumers and investors are better protected by law.'