The Law Reform Commission of Hong Kong
Report
Class Actions
This report can be found on the Internet at:
http://www.hkreform.gov.hk
May 2012
The Law Reform Commission of Hong Kong was established by the Executive Council in January 1980. The Commission considers for reform such aspects of the law as may be referred to it by the Secretary for Justice or the Chief Justice.
The members of the Commission at present are:
Chairman: Mr Wong Yan-lung, SC, JP, Secretary for Justice
Members: The Hon Chief Justice Geoffrey Ma
Mr Eamonn Moran, JP, Law Draftsman
Mr John Budge, SBS, JP
The Hon Mr Justice Patrick Chan, PJ
Mrs Pamela Chan, BBS, JP
Mr Anderson Chow, SC
Mr Godfrey Lam, SC
Ms Angela W Y Lee, BBS, JP
Mrs Eleanor Ling, SBS, JP
Mr Peter Rhodes
Professor Michael Wilkinson
The Secretary of the Commission is Mr Stephen Kai-yi Wong, Principal Government Counsel and the Commission's offices are at:
20/F Harcourt House
39 Gloucester Road
Wanchai
Hong Kong
Telephone: 2528 0472
Fax: 2865 2902
E-mail:
Website: http://www.hkreform.gov.hk
The Law Reform Commission
of Hong Kong
Report
Class Actions
CONTENTS
Chapter / Page /Preface / 1
Terms of reference / 1
The Sub-committee / 1
Meetings / 3
Multi-party litigation and definition of class actions / 3
Typical elements of a class action regime / 5
Control by the courts: certification / 5
Opt-in or opt-out / 6
Cut-off date / 7
Notification / 7
Subgroups and lead or representative cases / 8
Need for flexible set of rules to achieve optimal outcome / 9
Public consultation / 9
Layout of this report / 10
Acknowledgements / 10
1. The current rule on representative proceedings in Hong Kong / 11
Introduction / 11
Relaxation of the "same interest" requirement / 15
Changing from the "same interest" test to the "common ingredient" test / 15
Separate contracts no longer a hindrance / 16
Separate defences not an impediment / 16
Damages can be awarded in representative actions / 17
Other developments that facilitate representative actions / 18
Applying the judicially expanded rule on representative proceedings to types of cases that may invoke the class actions regime / 20
Conclusion / 23
2. The law on representative proceedings and class action regimes in other jurisdictions / 25
Introduction / 25
Australia: federal regime / 25
Canada / 29
England & Wales / 35
Ireland / 46
New Zealand / 49
People's Republic of China (the Mainland) / 50
Singapore / 54
South Africa / 55
United States of America: federal regime / 58
Conclusion / 62
3. The need for the introduction of a class action regime / 63
Introduction / 63
Benefit to plaintiffs / 64
Improved access to justice / 64
Benefit to defendants / 66
Avoiding multiple related lawsuits / 66
Finality of disputes and early opportunity of closure / 66
Negotiated certification / 67
Benefits to society / 67
Increased judicial economy / 67
Enhancement of justice / 68
Deterrence of wrongdoing (behaviour modification) / 68
Principle and consistency / 69
Potential risks of class action regime / 70
Risk of promoting unnecessary litigation / 70
Risk of bringing unmeritorious legal proceedings / 71
Risk of benefiting entrepreneurial lawyers / 71
Risk of insufficient protection of the class members' interests / 72
Relevance of American experience to Hong Kong / 72
Punitive or treble damages / 72
Juries in civil trials / 73
Contingency fees / 73
Costs rule / 74
Need to take note of differences between US and HK / 74
Time needed to dispose of class actions proceedings / 74
Regulatory action / 77
Comparison of a full class action regime with the judicially expanded rule on representative proceedings / 78
Consultation and conclusion / 79
Our overall conclusions / 93
Mediation and arbitration / 97
Section 53A of the Federal Court Act / 98
Relevant Australian cases / 99
Settlement of opt-out class actions / 103
Dispute resolution mechanism for the financial industry / 105
Consultation and conclusion / 105
4. "Opt-in" v "Opt-out" / 110
Introduction / 110
Basic features of the two procedures for class actions / 110
Competing arguments / 113
Access to justice / 115
Empirical data on degree of participation under different schemes / 117
Finality and closure of issues / 117
Human rights and basic law considerations / 118
Consultation and conclusion / 119
Opt-out regime as the starting point / 120
Judicial discretion / 121
5. The treatment of public law cases / 123
Introduction / 123
The appropriateness of class action procedures to public law litigation generally / 123
A particular constitutional feature in Hong Kong / 128
Possible alternative approaches / 130
Option 1: Exclusion of public law cases from the class action regime / 131
Option 2: Judicial discretion to adopt opt-in or opt-out approach in public law cases / 139
Option 3: Opt-out model for class actions in public law cases / 142
Option 4: Opt-in model for class actions in public law cases / 146
Consultation and conclusion / 146
6. Choice of plaintiff and avoidance of potential abuse / 149
Introduction / 149
The problem identified / 150
Reliance on vexatious/abusive rules of court / 151
The representative certification criterion / 152
Funding proof at certification / 153
Security for costs / 153
Private litigation funding and security for costs / 160
Consultation and conclusion / 160
7. Handling of class actions involving parties from other jurisdictions / 164
The problem identified / 164
Res judicata concerns / 165
Recognition and enforcement of Hong Kong class action judgments by Mainland courts / 167
Possible solution / 167
(a) Discretion to transfer class action proceedings in interests of justice / 168
(b) Excluding foreign class members / 171
(c) Sub-classing of class members from other jurisdictions / 173
(d) Opt-in requirement / 173
Consultation and conclusion / 177
A class action database / 178
Extension of time for opting in / 180
Class actions involving defendants from other jurisdictions / 180
The common law doctrine of forum non conveniens / 182
8. Funding models for the class actions regime / 185
The problem identified / 185
Costs rules / 186
Costs in case of settlement / 189
Costs where proceedings no longer continue as a class action / 190
Costs-shifting measures in other jurisdictions / 191
(a) Shifting costs to the defendant / 191
(b) Shifting costs to class members / 192
(c) Shifting costs to the class lawyers / 194
Other alternative sources of funding / 201
Conditional legal aid fund / 201
Legal aid / 201
Class action fund / 205
Litigation funding companies / 211
The way forward: existing sectorial funds / 223
Sectorial litigation funds in the financial sector / 224
The Consumer Legal Action Fund / 227
Consultation and conclusion / 233
9. Main features of the proposed regime
/ 243Detailed design issues / 243
Consumer cases / 243
Models of certification criteria / 247
Legislation to implement a class action procedure in Hong Kong / 257
Primary legislation for a class action regime / 258
Order 15 of the Rules of the High Court / 260
Certification criteria / 263
Treatment of public law cases / 265
Choice of plaintiff and avoidance of potential abuse / 265
Handling of parties from other jurisdictions / 265
Funding options for class actions / 266
Case management powers / 267
Jurisdiction to hear class action cases / 267
The way forward / 268
10. Summary of recommendations / 270
Annex 1 / 275
Types of cases that might be suitable for class action proceedings
Annex 2 / 276
Potential risks of a class action regime
Annex 3 / 291
Human rights and Basic Law issues relevant to an opt-out class action regime in Hong Kong
Annex 4 / 303
The application of the forum non conveniens doctrine to group litigation in other jurisdictions
vi
Preface
______
Terms of reference
1. In 2000, the Chief Justice appointed a Working Party to review the civil rules and procedures of the High Court. One of the recommendations in its final report, published in 2004, was that:
"In principle, a scheme for multi-party litigation should be adopted. Schemes implemented in comparable jurisdictions should be studied by a working group with a view to recommending a suitable model for Hong Kong."[1]
2. The Working Party said that the introduction of a multi-party litigation scheme was widely supported, including by bodies such as the Special Committee on Personal Injuries of the Hong Kong Bar Association and the Consumer Council.[2] The final report also suggested that it might be appropriate for the Chief Justice or Secretary for Justice to refer the subject of multi-party proceedings to the Law Reform Commission of Hong Kong.[3]
3. At its meeting on 5 September 2006, the Law Reform Commission agreed that the subject of class actions should be taken on as a project, with the following terms of reference:
"To consider whether a scheme for multi-party litigation should be adopted in Hong Kong and, if so, to make suitable recommendations generally."
The Sub-committee
4. A Law Reform Commission sub-committee under the chairmanship of Mr Anthony Neoh, SC, was appointed in November 2006 to consider this subject and to make proposals to the Commission for reform. Themembership of the sub-committee was:
Mr Anthony Neoh, SC(Chairman) / Senior Counsel
Hon Mr Justice Barma / Judge of the High Court
Ms Agnes Choi / General Manager & Head of Corporate Insurance
HSBC Insurance (Asia-Pacific) Holdings Limited
Hon Mr Justice Fok[4] / Justice of Appeal of the Court of Appeal of the High Court
Mr Ambrose Ho, SC / Senior Counsel
Vice Chairman of the Consumer Council
Professor Elsa Kelly[5] / Adjunct Associate Professor
Faculty of Law
Chinese University of Hong Kong
Mr Mickey Ko Man-kin / Managing Director
Integrated Corporation
Mr Thomas Edward Kwong / Deputy Director (Litigation)
Legal Aid Department
Mr Kenneth Ng / Head of Legal and Compliance
Hongkong and Shanghai Banking Corporation Ltd
Mr Martin Rogers / Solicitor
Clifford Chance
Professor Tsang Shu Ki / Senior research fellow
Institute for Enterprise Development School of Business
Hong Kong Baptist University
Mr Anthony Wood
(from 1 June 2010) / Deputy Chief Counsel
Securities and Futures Commission
Mr Byron Leung
(except from September 2007
to June 2009)[6] / Secretary
Meetings
5. The sub-committee commenced the study of its reference in January 2007 and between then and the publication of the Consultation Paper held a total of five meetings. The Consultation Paper was published in November 2009. Since then, the sub-committee have held five more meetings to consider the responses from the public and finalise the report. The report was then discussed by the Law Reform Commission.
Multi-party litigation and definition of class actions
6. Multi-party litigation has been defined as referring to:
"... instances where a collection or group of users [of courts] shares characteristics sufficient to allow them to be dealt with collectively. The central, common feature will vary with the group, but will militate in favour of a collective or group approach. This feature may be found in a question of law or fact arising from a common, related or shared occurrence or transaction. The definition of the combining force necessary to commence a multi-party procedure is intended to be as flexible a concept as the overriding principles of administrative efficiency and fairness will permit."[7]
7. As pointed out by the Working Party on Civil Justice Reform, the need for specific procedures to deal with cases involving numerous potential litigants arises in two main situations.[8] The first is where a large number of persons have been adversely affected by another's conduct, but each individual's loss is insufficient to make undertaking individual litigation economically viable. The second is where a large number of similar or related claims (each of which may be individually viable in financial terms) are instituted at the same time, which presents problems for the court in disposing efficiently with the various proceedings. In most major common law jurisdictions these situations are met by procedures to allow what is termed a "class action".
8. Rachael Mulheron, author of The Class Action in Common Law Legal Systems, defines a class action as:
"A legal procedure which enables the claims (or part of the claims) of a number of persons against the same defendant to be determined in the one suit. In a class action, one or more persons ('representative plaintiff') may sue on his or her own behalf and on behalf of a number of other persons ('the class') who have a claim to a remedy for the same or a similar alleged wrong to that alleged by the representative plaintiff, and who have claims that share questions of law or fact in common with those of the representative plaintiff ('common issues'). Only the representative plaintiff is a party to the action. The class members are not usually identified as individual parties but are merely described. The class members are bound by the outcome of the litigation on the common issues, whether favourable or adverse to the class, although they do not, for the most part, take any active part in that litigation."[9]
9. The potential advantages of such an approach include the fact that it promotes access to justice (by allowing claimants to seek compensation who could not have afforded to do so individually), avoids court resources being expended unnecessarily on numerous individual actions and ensures that a consistent disposal is applied to all claimants with a similar cause of action. The availability of a procedure for a class action is particularly useful in relation to consumer litigation, where the individual claim may be small though numerous individuals may be involved. In its submission to Lord Woolf in relation to his review of access to justice, the UK's National Consumer Council said:
"As we become an increasingly mass producing and mass consuming society, one product or service with a flaw has the potential to injure or cause other loss to more and more people. Yet our civil justice system has not adapted to mass legal actions. We still largely treat them as a collection of individual cases, with the findings in one case having only limited relevance in law to all of the others."[10]