In Korea, there are mainly three types of class actions: (i) securities-related class actions under the Securities-related Class Action Act (“Securities Class Actions”); (ii) consumer class actions under the Framework Act On Consumers (“Consumer Class Actions”); and (iii) personal information class actions under the Personal Information Protection Act (“PIPA”) (“Personal Information Class Actions”). All of these class actions fall under civil litigation, and therefore, the Civil Procedure Act is applicable unless otherwise specified in the respective laws.

(i) Securities Class Actions

Pursuant to Article 2(1) of the Securities-related Class Action Act, this class action means an action for damages filed by one or more representative parties when any damage arises to many persons in the course of the trade or other transaction of securities. This law, enacted on January 20, 2004, came into force on January 1, 2005, to alleviate the challenges encountered by small investors in pursuing damage claims within the existing litigation framework. It aims to assist small investors in seeking redress for losses resulting from unlawful activities like false disclosures, stock price manipulation, and inadequate audits in the securities market.

(ii) Consumer Class Actions

Pursuant to Article 70 of the Framework Act On Consumers, this class action is a lawsuit that allows certain organisations to file an action to prohibit or suspend the infringement of consumers’ rights and interests if a business entity infringes directly on the rights and interests of consumers relating to their lives, bodies, or property. To promptly and efficiently protect consumer rights, relevant provisions allowing Consumer Class Actions were newly incorporated in the Framework Act On Consumers on September 27, 2006, and took effect from January 1, 2008.

(iii) Personal Information Class Actions

Pursuant to Article 51 of the PIPA, when personal data infringements occur to multiple individuals in an identical or similar manner, and if a personal information controller rejects or would not accept the collective dispute mediation, a consumer group or an organisation meeting the requirements under the PIPA may file a class action lawsuit. To enhance the available remedies for damages resulting from personal data infringements and to strengthen the protection of individuals’ privacy rights, new provisions enabling Personal Information Class Actions were introduced into the PIPA on March 29, 2011, and took effect from September 30, 2011.

Securities Class Actions

Only representative parties may file a Securities Class Action. Pursuant to the Securities-related Class Action Act the representative party must be:

• a class member who can represent the interests of the class in a fair and appropriate manner, such as the person who is likely to obtain the largest economic benefit from the relevant Securities Class Action among class members (Article 11(1));
• must not have been involved as a representative party in at least three Securities Class Actions in the preceding three years (Article 11(3)); and
• must not have acquired securities in order to file the Securities Class Action, or in accordance with the instructions of the attorney (Article 9(2)1).

Consumer Class Actions

Only listed organizations as stipulated in Article 70 of the Framework Act On Consumers may file Consumer Class Actions – specifically:

• a consumer organization which is registered with the Fair Trade Commission (Article 70(1));
• the Korea Consumer Agency (a quasi-governmental organization under the Fair Trade Commission) (Article 70(2));
• a certain business organisation (Article 70(3)); or
• a certain non-profit and non-governmental organisation (Article 70(4)).

Personal Information Class Actions

Only listed organizations as stipulated in Article 51 of the PIPA may file Person Information Class Actions such as:

• a certain consumer group registered with the Fair Trade Commission (Article 51(1)); or
• a certain non-profit, non-governmental organization (Article 51(2)).

Securities Class Actions

Under the Securities-related Class Action Act:

• securities Class Actions are under the exclusive jurisdiction of the collegiate panel of a district court which has jurisdiction over the location of a defendant’s general forum (Article 4);
• where multiple applications for permission for securities-related class actions are submitted to the same court over the same dispute, the court must consolidate them for hearing (Article 14(1)); and
• if the multiple applications for permission for securities-related class actions are submitted to different courts, the immediate higher court having common jurisdiction over the relevant courts shall determine the court to hear them (Article 14(2)).

Consumer Class Actions and Personal Information Class Actions

As with Securities Class Actions, these class actions are also under the exclusive jurisdiction of the collegiate panel of a district court with jurisdiction over a defendant’s principal or business office location or, if the defendant has no such office, over the domicile of a person principally in charge of the defendant’s duties. If a defendant is a foreign business entity, jurisdiction is determined by its principal or business office location within Korea, or the domicile of a person principally in charge of the defendant’s duties within Korea (See Article 71 of the Framework Act On Consumers, and Article 52 of the PIPA).

Securities Class Actions

Pursuant to Article 3 of the Securities-related Class Action Act, a Securities Class Action may be filed to claim damages only in respect of the following six types of prohibited acts of trading or dealings with securities issued by listed companies stipulated in the Financial Investment Services and Capital Markets Act (“FSCMA”):

1. a false description or representation of any material fact in a registration statement and an investment prospectus or an omission of a material fact therefrom;
2. a false or misleading statement in business reports and attachments thereto;
3. use of undisclosed material information;
4. market manipulation;
5. fraudulent unfair trading; and
6. inadequate audits.

Consumer Class Actions

These class actions target the behaviour of business entities that violate Article 20 of the Framework Act On Consumers, which refers to the violation of five related standards established by the State (i.e., danger or injury prevention standards, labelling standards, advertising standards, unfair business practice standards, and personal information protection standards). If such behaviour directly infringes upon consumers’ rights and interests to their lives, bodies, or property, and such infringement continues, a lawsuit may be filed to seek prohibition or suspension of the infringing act (See Article 20 and Article 70).

Personal information Class Actions

These class actions target the act of infringing upon the rights of a data subject related to the processing of personal information. Such infringement includes not only any infringement of rights resulting from violations of the said law but also any infringement of rights arising from the processing of personal information. At the time of filing a lawsuit, the infringement of rights must be ongoing, and past infringements of rights are not eligible.

Securities Class Actions

As explained above in response to Question 4, only claims for damages resulting from explicitly enumerated violations in the law are deemed admissible.

Consumer Class Actions and Personal Information Class Actions

Only claims for prohibition or suspension of infringement are permissible. As claims for compensation for individual damages are excluded, a separate civil lawsuit must be initiated to seek monetary compensation.

Currently, it appears all three avenues of class actions are underutilized. As per the public notifications on the Supreme Court website regarding Securities Class Actions, a total of 16 such actions have been initiated as of May 8, 2024. However, among these, three cases concerning stock price manipulation by Genematrix Inc. were essentially identical and were consolidated into a single settlement decision. Similarly, there are two cases involving Royal Bank of Canada that are essentially the same. Moreover, two recent lawsuits regarding IPOs against Fadu Inc. for false disclosure are also the same. Consequently, only around 12 distinct cases have been filed since 2005.

Unlike Securities Class Actions, there is no distinct system in place for disclosing the status of Consumer Class Actions and Personal Information Class Actions, posing challenges in accurately evaluating the current status of lawsuits. As of July 20, 2020, there were approximately eight Consumer Class Actions filed. Notably, two class action cases were recently adjudicated by the Supreme Court on June 15, 2023, resulting in a partial acceptance of the plaintiffs’ claims upon remand. Further, it appears that no Personal Information Class Action have been filed.

In Securities Class Actions, (i) false disclosures (and/or inadequate disclosures) and (ii) fraudulent unfair trading are the main issues; while in Consumer Class Actions, (iii) consumer withdrawal rights are the main points of contention.

1. In Securities Class Actions, the majority of cases (8 out of 16) pertain to claims of damages arising from false and/or inadequate disclosures. The latest lawsuit, filed in March 2024, exemplifies this trend, with shareholders initiating a class action against a company and its underwriters for exaggerating projected revenue, net profit, and other information in a securities registration statement and an IPO prospectus (i.e., inadequate disclosures).
2. Moreover, within Securities Class Actions, several cases highlight concerns regarding fraudulent and unfair trading practices, as seen in the Royal Bank of Canada and Deutsche Bank AG cases. These cases concern allegations that the defendants engaged in back-to-back hedging transactions or swap contracts with securities companies to evade maturity redemption payments on equity-linked securities (ELS). Subsequently, they conducted mass sales of underlying assets to manipulate closing prices, leading to the failure of maturity redemption payments.
3. In Consumer Class Actions, the recognition and scope of consumer withdrawal rights related to mobile phone service contracts (SKT, KT, LG U+) and online sales contract (Hotels.com, Hi-Mart) are primarily at issue.

Securities Class Actions

Generally, civil lawsuits operate on an opt-in basis, where the effect applies only to those who have participated in the lawsuits. However, Securities Class Actions operate on an opt-out basis, where the effect applies to all class members unless any member files an opt-out notice (Article 37 of the Securities-related Class Action Act).

Opt-out notice means a report filed by a class member to a court that he/she intends not to be bound by the res judicata effect of the judgment in a Securities Class Action (Article 2(5) and Article 28(1) of the Securities-related Class Action Act). A person who files a separate lawsuit for the same rights that are the object of a Securities Class Action before the expiration of the period for filing an opt-out notice shall be deemed to have filed an opt-out notice (Article 28(2) of the Securities-related Class Action Act).

Consumer Class Actions and Personal Information Class Actions

As these legal actions aim to prohibit or suspend infringements (such as suspending unfair terms and conditions), the impact of a plaintiff’s claim will affect ordinary consumers if the claims are upheld.

However, if a judgment dismisses the plaintiff’s claims, other potential plaintiffs may be barred from initiating a class action lawsuit on the same issue (as stated in Article 75 of the Framework Act On Consumers and Article 56 of the PIPA).

However, this shall not apply when new evidence is found by the state or a local government or an institution established by the state or a local government with respect to the dismissal after the judgment became final and conclusive, or when the judgement of dismissal is found to have been caused by an intentional act of the plaintiff (Article 75 of the Framework Act On Consumers and Article 56 of the PIPA).

Securities Class Actions

Pursuant to Securities-related Class Action Act, the following procedural formalities are applicable:

• permission for a class action must be obtained from the court (Article 12);
• to obtain permission for a class action, certain requirements must be met, including stating all necessary items in the application for permission for the lawsuit and having at least 50 members forming the plaintiff with the total number of securities held by these members at the time conducting the activities that gave rise to the claim being at least 1/10,000 of the total number of securities issued by the defendant company (Article 12);
• a decision on whether to grant permission for the class action is made by the court after it examines the plaintiff and the defendant (Article 13(2)); and
• when rendering a decision on permission for the class action, the court must order an advance payment of necessary costs (Article 16).

Consumer Class Actions and Personal Information Class Actions

These class actions also require permission from the court.

• In the case of a Consumer Class Action, certain requirements such as the lapse of 14 days after “the organization instituting the class action asked the business entity concerned, in writing, to prohibit and suspend the infringement of consumers’ rights and interests” must be met (Articles 73 and 74 of the Framework Act On Consumers).
• In the case of a Personal Information Class Action, certain requirements such as the personal information controller having rejected the mediation of the Personal Information Dispute Mediation Committee or having not accepted the mediation result must be met (Articles 54 and 55 of the PIPA).

Securities Class Actions

Remedies are limited to claims for compensation for damages. Therefore, injunctive relief, declaratory relief, and specific performance are not available.

Consumer Class Actions and Personal Information Class Actions

Claimants in these types of class actions may only claim for prohibition or suspension of infringements. Therefore, a separate lawsuit is required to claim compensation of damages.

No. In Korean civil proceedings, punitive or exemplary damages are typically not permissible. Although certain special laws, such as the Product Liability Act and the Serious Accidents Punishment Act, may offer exceptions, there are no specific provisions allowing punitive or exemplary damages in Securities Class Actions, Consumer Class Actions, or Personal Information Class Actions.

No. In Korea, the jury system is not utilized in civil lawsuits, including class actions, which fall under the purview of civil litigation.

Securities Class Actions

The Securities-related Class Action Act provides that where the calculation of the amount of damages is prescribed in the provisions of the FSCMA or other laws, such provisions shall apply (Article 34(1)), and where it is impracticable to calculate the exact amount of damages based on such provisions or through evidence investigation, a court may determine the amount of damages through sampling, average, or statistical methods or other reasonable methods in consideration of various circumstances (Article 34(2)).

Among the six types of prohibited conduct under the FSCMA, the FSCMA provides for the calculation of damages for false statements ((i) and (ii)) and inadequate audits (iv). Specifically, the FSCMA states that the amount of damages is presumed to be the difference between ‘the amount actually paid or received for the acquisition or disposition of the security’ and ‘the market price of the security at the time of closing of the pleadings or, if the security was disposed of before the closing of the pleadings, the disposition price.’ Indeed, in a class action against GS Engineering & Construction Corporation, the court calculated the amount of damages for false statements in business reports, et cetera, in accordance with the above provisions of the FSCMA (Seoul High Court Decision 2020Na2039731 dated March 2, 2021).

For the remaining types of prohibited conduct (specifically, (iii) use of undisclosed material information, (iv) market manipulation, (iv) fraudulent unfair trading), the FSCMA does not provide separate provisions for calculating damages. Instead, the general civil law method for calculating damages is applied – i.e., to put the party into a position it would have been had the contract been performed or had the tortious act not been committed.

In relation to this, in a class action filed by investors who suffered losses from investing in equity-linked securities (ELS) against Royal Bank of Canada, the court calculated the amount of damages by taking the difference between the amount they would have received if the ELS had met the maturity proceeds payment terms (122% of the invested principal) and the amount actually received (approximately 74.6% of the invested principal) (Seoul Central District Court Decision 2010GaHap1604 dated February 15, 2017).

Consumer Class Actions and Personal Information Class Actions

Since claims for prohibition or suspension of an infringing act are the only remedies available for these class actions, the method for calculating damages is not at issue.

There are no apparent jurisdictional obstacles specific to representative proceedings. Similar to general civil proceedings, class actions against foreign companies may also be permitted if the dispute has substantive connections to Korea (for example, if a foreign company lists its shares on a Korean stock exchange and discloses related information).

There is no limit as to the nationality or domicile of plaintiffs in class actions in Korea. However, if a plaintiff does not have an address, office, or business place in the Republic of Korea, upon the defendant’s application, the court shall order the plaintiff to provide security for the litigation costs (Article 117 of the Civil Procedure Act), and the defendant who requested security may refuse to participate in the litigation until the plaintiff provides the security (Article 119 of the Civil Procedure Act).

Class actions or collective redress proceedings are governed by specific laws such as the Securities-related Class Action Act, the Framework Act On Consumers, and the PIPA, as well as the Civil Procedure Act; and are not particularly affected by international laws.

Securities Class Actions

Under the Securities-related Class Action Act, any settlement or withdrawal must be approved by a court (Article 35(1)). Where a court intends to permit settlement, the court shall give prior notice to class members and give them an opportunity to express their opinions (Article 35(2)).

Consumer Class Actions and Personal Information Class Actions

Since there are no separate provisions regarding settlement, the Civil Procedure Act applies (Article 76(1) of the Framework Act On Consumers and Article 57(1) of the PIPA), and parties are free to settle as they wish.

As for Securities Class Actions, in past cases where judicial settlements were granted, courts held that a “judicial settlement in a Securities Class Action may be permitted only if it does not infringe upon the legitimate interests of members who did not directly participate in the lawsuit” and considered “fairness, substantiality, and adequacy in determining whether to grant such a settlement” (See for instance, Seoul Central District Court Decision 2010GaHap1604 dated February 15, 2017 in the Royal Bank of Canada case and Seoul High Court Decision 2020Na2039731 dated March 2, 2021 in the GS E&C case).

As for Consumer Class Actions and Personal Information Class Actions, there is no separate provision for settlements.

Securities Class Actions

Since violations of the FSCMA, which are subject to the Securities-related Class Action Act, also entail criminal liabilities, there have been numerous class action cases where regulatory enforcement proceedings influenced the initiation of such class actions. In other words, it is understood that investigations, prosecutions, and administrative actions by supervisory authorities, such as prosecutors or the Financial Supervisory Service, regarding allegations of FSCMA violations affected the filing of class actions. Notable cases include: Royal Bank of Canada and Deutsche Bank AG cases involving fraudulent unfair trading, Genematrix stock manipulation case, and Dongbu Securities case involving false disclosures.

On the other hand, the recent Fadu Inc. case serves as an illustrative case of how a class action movement can impact supervisory authorities. The registration of affected shareholders for a class action commenced around November 15, 2023, shortly after Fadu Inc.’s quarterly report was disclosed on November 8, 2023 and there were media reports that the Financial Supervisory Service immediately launched an investigation into the matter as shareholder resistance, including the class action movement, intensified. The Financial Supervisory Service is reported to have recently conducted searches and seizures on Fadu Inc. and its co-underwriters. Since the Securities-related Class Action Act provides that in rendering a decision on the permission for a Securities Class Action, the court may ex officio conduct necessary investigations, including receiving basic investigation materials on the cause of claims for damages from the supervisory authority that supervises and inspects the conduct giving rise to the claims for damages (Article 13(3)), it is possible that the Financial Supervisory Service’s findings may potentially influence the class action in the future.

Consumer Class Actions

The first Consumer Class Action, known as the Hanaro Telecom case of 2008, was filed on July 24, 2008, following allegations of customer information misuse uncovered during a police investigation. In February 2008, the Cyber Investigation Unit of the Seoul Metropolitan Police Agency commenced an investigation into the alleged misuse of customer information by Hanaro Telecom, which included search and seizure activities. In May 2008, the Korea Communications Commission also launched its own investigation. Subsequently, on June 24, 2008, the Korea Communications Commission imposed a business suspension, a penalty surcharge, and a fine for negligence for the misuse of personal information. Furthermore, on July 6, 2008, the Fair Trade Commission issued a corrective order, although the necessary adjustments to the terms and conditions were not made. Following corrective actions taken by Hanaro Telecom during the class action proceedings, the plaintiff withdrew the lawsuit, leading to the case’s closure.

Personal Information Class Actions

While not classified as a class action under the PIPA, a regulatory sanction was imposed by a Korean supervisory authority and led to a subsequent lawsuit by victims against Facebook (now Meta) for unauthorized data sharing with third parties. In November 2020, the Personal Information Protection Commission imposed a penalty surcharge of KRW 6.7 billion on Facebook (now Meta) for unauthorized provision of data to third parties. Following this, some victims sought dispute mediation with the Personal Information Dispute Mediation Committee around April 2021. A recommendation was issued in October 2021, including that Meta pay KRW 300,000 per member who applied for dispute mediation. However, Meta refused to accept the recommendation, resulting in the failure of mediation. Subsequently, the victims filed a lawsuit for damages in 2022.

Based on available information, none of these three class action mechanisms have been brought for ESG matters.

Litigation funding is not explicitly prohibited in Korea, but its usage has been limited. However, it recently gained attention after a legal tech company launched a related business last year. It is anticipated that more legal tech companies will engage in this area in the current year.

In 2015, the Supreme Court issued a ruling declaring contingency fee arrangements for criminal cases void. However, in civil litigation, contingency fee arrangements are generally allowed. Consequently, they are also generally permitted in class actions, which fall under civil litigation. According to the Securities-related Class Action Act, ‘attorney fee arrangements’ must be disclosed in the application for permission for a lawsuit (Article 9(1)7), and the court must notify such arrangements when notifying its decision on the permission for the lawsuit (Article 18(1)10). Therefore, contingency fee arrangements may be found through relevant notices on the Supreme Court website.

Since each relevant law does not provide specific regulations on this matter, the Civil Procedure Act applies. Under the Civil Procedure Act, the general principle is that the unsuccessful party bears litigation costs (Article 98 of the Civil Procedure Act). These litigation costs include opposing party’s attorney fees within the range of amounts determined by the Supreme Court rules (Article 109 of the Civil Procedure Act).

A notable example is the Class Action Act bill proposed by the Ministry of Justice on September 28, 2020, and the key points are as follows:

1. introducing a class action system for all claims for damages with 50 or more victims without restrictions on the field;
2. limiting appeals against the decision to grant permission to sue, as currently appeals are permitted at both the trial for permission to file a lawsuit and the trial on the merits, creating a de facto six-tier trial structure and thereby causing delays in the proceedings;
3. allowing evidence preservation and investigation even at the trial for permission to file a lawsuit stage; and
4. introducing a citizen participation trial system for class actions.

Additionally, among the proposals for amendments to existing laws introduced by members of the 21^st National Assembly (2020~2024), there are the following proposals:

• In relation to Securities Class Actions:
  • Proposals have been introduced to broaden the scope of application, such as expanding it to cover all ‘lawsuits arising from financial transactions’ without limiting it to six types of prohibited acts, to restrict the defendant’s appeal against the decision to grant permission for the lawsuit, and to allocate the remaining balance after the distribution process to the national treasury instead of currently paying it to the defendant.
• In relation to Consumer Class Actions and Personal Information Class Actions
• • Proposal to introduce a class action system that allows opt-out for compensation claims, similar to the Securities Class Action system.