On September 28, 2020, the Ministry of Justice (the "MOJ") announced (i) the proposed amendment to the Korean Commercial Code (the "KCC") to adopt the punitive damages system generally applied to all areas of business, and (ii) the proposed bill to introduce a class action system in Korea.
The expansion of the scope for the punitive damages system is a ruling Democratic Party's campaign pledge for the 21st National Election, and is also one of the "100 major tasks" that the current government proposed. The expansion of the scope means that it will be introduced generally throughout all areas of business and is not limited to any specific business field. According to the MOJ, the punitive damages system—since it was introduced as part of the Fair Transactions in Subcontracting Act (amended as of March 2011)—has already been implemented through approximately 20 different laws, including, but not limited to, the Product Liability Act and Monopoly Regulation and Fair Trade Act. However, as it was introduced sporadically by different business fields, there exist issues of (i) unequal treatment by different business fields (depending on whether the system was introduced or not), and (ii) gaps in applicability, requirements and effects of each law. As such, it appears that the government seeks to promote general introduction of the punitive damages system to secure a deterrent effect against malicious misconduct throughout all areas of business.
The details of the proposed amendment to the KCC are as follows:
applicable to all business person (including any company) causing damages to any other party with intention or by gross negligence;
applicable to all acts of a business person liable under any law, including those liabilities caused by an act of a contractor or an employee thereof;
punitive damages shall be recognized within the amount not exceeding five times the amount of the actual damages;
agreement to exclude or limit the scope of punitive damages shall have no effect;
take precedence over all other provisions of compensation for damages in any law, and may only be claimed by litigation; and
applicable to damages caused by an act or omission after the enforcement.
In order to reinvigorate the punitive damages system and to secure its effectiveness, the MOJ also announced it will submit a proposed legislation for a new Class Action Act. The new Act is expected to apply to all fields, to provide Korean style discovery process while establishing special cases for examination of evidence, to have public participation in a trial (a jury trial), and to apply to damage claims where an attributable cause arose before the enactment.
The proposed bill and the proposed partial amendment to the KCC, initiated by the government in accordance with relevant legislation process, will be reviewed by the Ministry of Government Legislation and the State Council for approval by the President before they are submitted to the National Assembly for final adoption.