SCMP:Time to reconsider class action lawsuits

http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=B9JBGSP78WP8&linkid=3e7f0a20-5c7e-451d-aff0-65d68033f226&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d

11 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator. frank.ching@scmp.com

Hong Kong lacks a legal tool that is available to people in the US and Australia, as well as certain European jurisdictions – that of the class action lawsuit. A class action lawsuit is one where a large number of people collectively bring a claim to court. One advantage is that a single class action lawsuit aggregates a large number of individual claims into one representational lawsuit. It can save time and money.

The situation stemming from the bankruptcy of Lehman Brothers is a case in point. Some 43,000 local people have invested in Lehman products, mostly minibonds. The court system cannot possibly handle thousands, or even hundreds, of cases.

There are also many small investors who cannot afford to go to court, or the size of their investments simply does not justify the legal expenses involved in a court case.

Being able to take a class action lawsuit makes a huge difference. It enables individuals, who only stand to recover a small amount, to act together and assert their legal rights. Often, an individual cannot take legal action because the costs would be greater than the amount he or she could recover.

Hong Kong has never allowed class action lawsuits, primarily because it is almost always done on a contingency fee basis. That is to say, lawyers do not get paid if they lose and get a percentage if they win.

In principle, there is nothing wrong with this system. The fact that lawyers do not get paid if they lose means that even individuals without deep pockets can afford to be part of a class action lawsuit, because there is no outlay of money involved. If they lose the case, they haven’t lost any additional funds and, if they win, it is a windfall that they could not have expected otherwise.

Another criticism sometimes made is that class actions combined with conditional fees result in greater litigiousness. But this may simply reflect the fact that more people have access to legal justice as a result of this avenue being opened.

The fact that lawyers aren’t paid if they lose means that they are much more likely to pick only cases that they believe have merit. It should not result in many frivolous cases, because the lawyers themselves would stand to lose.

Critics also point to the fact that, in US style class action lawsuits, huge amounts of money is sometimes awarded by judges to the plaintiffs.

But this, like the contingency fee system, is something that can be governed by legislation. Surely, legal minds in Hong Kong’s Department of Justice, the Financial Services Bureau and the legislature are capable of devising legislation that will enable Hong Kong to benefit from class action lawsuits and, at the same time, minimise what are considered to be the unsatisfactory features of such actions.

While class action lawsuits have not been widely adopted in Europe, it is interesting to note that certain countries have found this a useful tool in the area of consumer protection. In Austria, for example, consumer organisations have in recent years brought claims on behalf of hundreds or even thousands of people, resulting in a significant reduction in overall costs.

In France, the law allows an association to represent the collective interests of consumers. But, in a lawsuit, each claimant must be individually named, which is not the case with class action cases in the US.

The bankruptcy of Lehman Brothers has already resulted in class action lawsuits in America, one by investors who purchased Lehman Preferred Series “J” stock shares and one by former employees who claim that – contrary to the law – they had not received payment for 60 days.

In Hong Kong, a class action lawsuit would most likely be against one of the banks that distributed Lehman products. There have been so many claims of “misselling” that thousands might benefit – if only such lawsuits were allowed here.