Send to

[Editorial] Protecting consumers

Time to recognize punitive damages, class actions

July 1, 2016 - 17:20 By 이윤주
German carmaker Volkswagen’s $14.7 billion deal with U.S. customers and regulators is fueling a debate over the need for Korea to introduce punitive damages and class action lawsuits to bolster consumer protection.

To settle its emission cheating scandal in the U.S., Volkswagen has offered to pay U.S. owners of its polluting vehicles -- nearly 475,000 TDI diesel cars -- as much as $10,000 per car in compensation. It has also agreed to buy back or repair the defective vehicles.

While offering fairly generous terms to U.S. consumers, the German carmaker reaffirmed it had no plans to provide compensation to Korean owners of its emissions-cheating cars.

Volkswagen said its agreements with U.S. regulators and private plaintiffs were “not an admission” of its liability in Korea. It asserted that U.S. regulations on nitrogen oxide emissions were much stricter than those in other parts of the world.

One factor behind the company’s double standards in treating its customers in the U.S. and Korea is differences between the legal systems of the two countries.

One major difference concerns punitive damages. In the U.S., the court may order a defendant to pay a plaintiff punitive damages in addition to compensatory damages if the defendant’s behavior was reckless or intended to cause deliberate harm. 

The court often imposes exorbitant punitive damages as they are meant to punish the defendant and deter the defendant and others from misconduct.

Volkswagen has sought to reach a deal with U.S. authorities early as it was well aware that it could be ordered to pay an astronomical amount of money in punitive damages if it lost the lawsuit against it.

In Korea, punitive damages are generally not recognized. They are only available in cases concerning the illegal use of credit information and unlawful employment of irregular workers. And punitive damages cannot exceed three times the actual damages sustained.

The Korean government has been opposed to applying punitive damages to other cases on the grounds that it would put an extra burden on corporations.

Yet there have been growing voices calling for a broader use of the legal remedy. In a recent seminar jointly held by the Judicial Policy Research Institute and the National Assembly Research Service, legal experts called on the government to change its stance. 

They called for a general rule on punitive damages that could be applied consistently to a wide range of egregious corporate misconduct. They also said the cap on punitive damages should be raised to 10 times the actual losses.

The legal systems of the two countries also differ in class action suits. In the U.S., class suits allow an individual to represent all consumers who suffered harm from a particular product or service.

In Korea, the U.S.-style class action is applied only to securities-related claims for damages based on false securities reports, stock price manipulation and negligent auditing.

In other areas, the only legal remedy Korean consumers can use to recover damages collectively is collective action suits. But this procedure requires each participant to come forward as a named plaintiff.

This is why the number of Korean owners of defective Volkswagen and Audi vehicles who participate in a collective action suit against the company is so small -- about 4,500 out of a total of 125,000.

The Korean legal system does not provide strong protection for consumers against companies that put profits before safety. It is time for the executive and legislative branches to take steps to apply punitive damages and class action suits more broadly.