Proposal by Law Reform Commission a step towards class-action cases

Proposal by Law Reform Commission is step towards Hong Kong seeing class-action civil cases, empowering consumers against corporate giants

PUBLISHED : Tuesday, 18 September, 2012, 12:00am
UPDATED : Tuesday, 18 September, 2012, 8:15am

In the United States, class-action lawsuits are the stuff of Hollywood movies. Films like Erin Brockovich, which was inspired by actual events, tell the stories of ordinary folk banding together to fight the giants of industry and correct injustices.

In Hong Kong, class actions are still strictly fiction. Plaintiffs are forced to act in an individual capacity when bringing a civil case. Back in 2004, this was criticised by the chief justice at the time, Andrew Li Kwok-nang, who said the rules on multiparty lawsuits were inadequate and restrictive.

Hopes that class-action lawsuits may yet come about were raised by a proposal published in May by the Law Reform Commission, the statutory body responsible for suggesting ways to improve the city's legislation.

The proposals were drawn up following earlier rounds of public consultation. Government departments were given a six month period - which ends in November - to respond to the findings of those consultations.

The class-action regime proposed by the commission has been hailed by some as a "major step forward" towards more accessible justice. But critics say that the many hurdles in its path mean it is no more than a single step towards a distant goal.

Class-actions lawsuits are most common in the United States, where a string of multibillion-dollar claims against the tobacco industry has made headlines in the past few decades.

The commission said that its proposal would widen access to justice, but recommended a "cautious" approach, phasing in the use of class-action lawsuits to avoid a flood of unnecessary litigation. The system should start with consumer cases, which it says would bring within the net potentially the largest segment of cases suited to class actions.

Were the regime in place in Hong Kong, cases of misleading sales practices - for instance those involving travel clubs, beauty parlours, fitness centres and modelling agencies - could be brought to court by multiple plaintiffs as a single lawsuit.

David Webb, a corporate-governance activist based in the city, believes that civil actions could be a powerful tool to open up access to justice.

"For too long, people have been deprived of their rights, unable to afford their theoretical right to litigate," Webb said.

Others argue that talking about introducing a class-action regime without addressing the issue of funding such lawsuits is putting the "cart before the horse".

In the US, most class actions are brought on the basis of contingency fees - with lawyers taking the risk of an action failing and plaintiffs paying nothing unless they win. But the situation is different in Hong Kong. The plaintiff in a civil case is exposed to financial risk here, because the loser in such a case has to contribute to the winning side's costs.

US lawyers can expect a considerable payout - a quarter or a third of the damages recovered is not uncommon - when the action is settled or the plaintiffs succeed.

But in Hong Kong, lawyers work by the hour. So any class-action lawsuit would probably have to be funded through the Consumer Council's Consumer Legal Action Fund - which is already running short of cash.

"The combination of these two factors makes class actions really difficult to implement effectively," said Huen Wong, a former Law Society president.

There is about HK$18 million in the fund now, and it is not clear whether the government will inject more money into it, according to Connie Lau Yin-hing, chief executive of the Consumer Council. She remains hopeful the government will offer more cash.

"With a bit of misfortune, one single claim can wipe out all the money in the fund," Wong said. "At most, two."

Lawyer and Civic Party lawmaker Ronny Tong Ka-wah says of the Law Reform Commission's proposal: "It's not a fundamental change. It's a very, very tiny step forward. We're tiptoeing here. It's a long time coming. It's a relatively conservative proposal because it still doesn't tackle the question of funding."

He said the cost of insurance would probably rise, as companies invested more in product liability. "That cost would be passed on to consumers, ultimately. So everyone is going to bear that," Tong said.

Class actions usually involve higher legal fees because the respondents, worried about the cost of a payout to a large group of people, will exhaust all the possibilities to prove themselves innocent.

"The proposal is dead in the water as long as they don't allow the private sector to finance these cases," Webb said.

But many are against opening up the litigation-funding market, fearing there will be a perversion of justice if litigation-funding companies are allowed. Webb, however, said that had not been the case elsewhere.

"They are saying that lawyers should not have contingent legal fees, that they can't work on a no-win-no-fee basis in return for a percentage of the winnings. But if they were allowed to do that, it would align the lawyers' interest with the clients' interest much more closely than the current pay-by-the-hour system does, where lawyers actually have an incentive to waste a lot of time racking up the cases."

Concerns that Hong Kong would develop the kind of litigious tendencies seen in the US did not hold water, Tong said.

"It's against our culture. I have been in practice for over 40 years, and have seen that people really don't want to go near a court."

Another concern is whether the class-action regime will operate on an "opt-in" or "opt-out" basis - whether everyone affected will automatically be part of the same case, or whether they will have to choose to join the litigation.

The commission recommends that an opt-out approach be used, meaning those who bring lawsuits and are defined by the court to be of the same class would automatically be bound by the class action, unless they decide otherwise.

Wong said the advantage of the opt-out approach was that it gave the respondent finality, "rather than having to face an endlessly growing class".

But one problem could be the fact that products and services sold in Hong Kong and affected by class-action suits might be available on the mainland.

"In fact, a lot of what's sold here is not bought by Hongkongers, but by mainland Chinese," Wong said.

Under the proposed scheme, Hongkongers will have to opt out of any lawsuit, but those from elsewhere - including the mainland - must opt in.

A disadvantage of this opt-in approach is that potential plaintiffs who do not live in Hong Kong may forfeit their right to claim damages over goods or services bought here because they are unaware of any legal action in Hong Kong.

"How do you tell the mainlanders to opt in?" asked Wong. "But still, it's better than including everyone in the action by default, because that would deprive them of some rights."

Government bureaus and departments have until the end of the year to respond to the commission's proposal.

The commission says 35 of 61 submissions on the issue received during a previous consultation were in favour of class actions, while the rest were against it or expressed reservations.

Lau of the Consumer Council said that, as far as she knew, several government departments were supportive of class actions.

The Department of Justice, the Home Affairs Bureau, the Office of the Privacy Commissioner for Personal Data, the Equal Opportunities Commission, are understood to support the proposal, as does the Society for Community Organisation, a grass-roots rights-protection group.

Those opposed include the Hong Kong Association of Banks, the Cheung Kong conglomerate, and the Hong Kong General Chamber of Commerce. Some of the opponents chose not to be identified.

Despite the hopes raised by the commission's proposal, the road to implementation promises to be long. A working party first started studying class actions 12 years ago, and the commission started looking into such a law six years ago. It is likely there will be further delays before class actions become a reality, even in consumer cases.

It's likely to be even longer before financial institutions and corporations - and their insurers - face the risk of class-action litigation in Hong Kong. That means it will be of little use to investors who lost their money on Lehman Brothers minibonds, for example. They have been forced to take their legal action to the United States instead. The class-action regime will need to be broadened and the issue of funding resolved before Hong Kong's courts see any such litigation.

"Although it's a relatively conservative proposal, we still don't know whether the government will take it up or not," Wong said.

In the last decade, the commission has released 21 reports. Only three have led to new laws.

The commission's report on stalking has been with the government since 2000, while privacy laws have been studied since 2004. But there is still no sign yet of those issues being dealt with in the statute books.