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Seoul YMCA Citizens’ Mediation Center
[Comments by Seoul YMCA on Court Decision on Korea’s Largest Collective Damage Claim against School Uniform Producers]
First Decision in Korea to Recognize Consumer Damage Caused by Illegal Conspiracy among Vendors
- Court decision issued on Korea’s largest collective damage claim, made by 3,525 parents of students against price conspiracy hatched by three school uniform vendors in 2002.
- Class action system should be urgently introduced as collective litigation encountered various difficulties over four years while validity of court decision expires without res judicata (binding force) on 2.5 million other victims.
1. Korea’s first court decision has been issued on Korea’s largest collective damage claim against price conspiracy, four years after the complaint was filed.
Last June 17, Seoul District Court Civil Panel No. 22 ruled that three major school uniform vendors must pay over 200 million won in compensation to 3,525 claimants, the parents of students who filed a claim against the vendors for the losses or damages inflicted upon them by the vendors’ illegal price conspiracy. It was Korea’s largest ever collective lawsuit, filed by the students of the parents of 400 junior and senior high schools in 46 areas across the country against three major school uniform vendors ? SK Global (Smart), Cheil Woolen (Ivy) and Saehan (Elite). The court added power to the consumers’ drive to reclaim their rights from the illegal business conspiracy, declaring in its judgment, “It has been recognized that the claimants have suffered losses or damages by buying school uniforms at prices exceeding the fair price, since the defendants’ conspiracy and obstruction against collective purchase actions violated the Fair Trade Act.”
2. The collective campaign for the purchase of school uniforms was started by students’ parents who determined it to be unfair that the price of the winter uniforms worn by nearly all junior and senior high students exceeded 200,000 won, inflicting a heavy financial burden on the parents, when they could reduce the uniform price by over half through the participation of over 1,000 junior and senior high schools in the campaign. The collective purchase campaign drew the participation of over 1,000 junior and senior high schools as it attracted the committed participation of parents under the slogan that “school uniform prices can be reduced by half,” developing into the “Nationwide Network for the Collective Purchase of School Uniforms Campaign” as National Teachers Union and student parent organizations participated from April 2000. As the outcome of the campaign, they sought collective purchases of school uniforms at around 100,000 won after ensuring an optimum margin to the vendors, instead of the 200,000 won charged by the major vendors’ conspiracy.
3. Fair Trade Commission the Fined School Uniform Vendors for Illegal Price Conspiracy and Obstructive Acts
In May 2001, the Fair Trade Commission fined the major school uniform vendors 11.5 billion won for their illegal price conspiracy and their obstruction of the parental campaign for the collective purchase of school uniforms. This helped the parents to disseminate their school uniform collective purchase campaign and file a claim for losses or damages inflicted upon them by unfair uniform prices. The Fair Trade Commission investigation revealed the illegal acts planned and organized by the businesses. According to the investigation, the three school uniform vendors organized regional councils and national gatherings with the top managers responsible for school uniform sales and regional sales agents, at which ways to conspire over school uniform prices and obstruct the parents’ collective purchase drive were discussed.
The vendors requested the Fair Trade Commission to cancel the fine, delaying the school uniform lawsuit, but the court rejected their argument stating an absence of grounds for doing so in 2004.
After the Commission imposed the fine on the school uniform vendors, SK Networks, a manufacturer and distributor of school uniforms, and other vendors filed ‘a lawsuit against the Commission to cancel the earlier court order on corrective actions and fine payment’, arguing, “We did not conspire over school uniform prices or instruct selling agents to apply such prices”. On 22 August 2004, however, Seoul Appellate Court Special Panel No. 6 (presided by Lee Dong-heup) ruled against the plaintiff, saying, “It is recognized that the three companies, SK Networks, Cheil Industries (Ivy) and Saehan (Smart) determined their school uniform prices in a conspiracy and agreed to maintain the prices at a given level.”
4. Plan to file a lawsuit claiming compensation for damages caused by school uniform vendors: 2.5 million student parents affected; 3,525 parents participate in the lawsuit
The attorneys-at-law of the Seoul YMCA Citizens Interest Defense Counsel and the Nationwide Network for the Collective Purchase of School Uniforms Campaign decided to file a lawsuit for liquidated damages against the school uniform vendors, together with consumers who bought school uniforms at unfairly high prices, and recruited plaintiff candidates nationwide for three months from July to September 2001. The lawsuit drew the voluntary participation of 3,525 parents who suffered losses or damages as a result of the conspiracy among the major school uniform vendors that obliged them to buy so-called famous brand school uniforms at unfair prices. Those who participated in the lawsuit as plaintiffs were the parents of students attending over 400 junior and senior high schools in 46 areas across the country. They were represented by Choe Jong-min (Taewung Law Firm) and other lawyers belonging to the Seoul YMCA Citizens Interest Defense Counsel. The amount claimed by each plaintiff amounted to approximately 100,000 won.
Though the number of named plaintiffs was ‘relatively’ small, with only 3,525 parents of a possible 2.5 million participating, it was nevertheless Korea’s largest lawsuit in terms of the number of plaintiffs. Furthermore, it was the first case in which consumers claimed compensation through a lawsuit for losses or damages inflicted by a pricing conspiracy. The case was significant in that over 3,500 consumers were able to punish an illegal price conspiracy through their collective participation in a lawsuit, especially in view of the many previous cases where losses or damages inflicted by illegal business acts on indefinite numbers of consumers were left unresolved. Furthermore, it clearly demonstrated the inconvenience and unfairness that many consumers have to undergo to remedy their rights as Korea still does not have a class action system. The case excited great attention regarding the proposed early introduction of a class action system, and will stand as an historic case that could help prevent similar suffering on the part of consumers in the future.
5. Significance of Current Court Judgment on School Uniform Case and Future Tasks, including Introduction of Class Action System
It is very difficult for consumers to restore their rights regarding any damages they may suffer in the market because of the imbalance of power and asymmetric information between businesses and consumers. In particular, the remedying of consumer rights through legal proceedings is extremely difficult in Korea unless businesses volunteer to relieve consumer damages. Litigation proceedings tend to be quite remote and impractical for consumers as the country does not have reasonable procedures (including the class action system) that promote procedural convenience for consumers ? who are the weaker party in litigation processes. In that respect, the social significance of the current legal remedy largely covers two points:
1) The case has set a precedent that broadly proves the need for a class action system.
Only a limited number of the 2.5 million victims could participate in the lawsuit. What matters more is that millions of other parents could be unable to claim their damages as their claim rights will eventually expire because of a ‘negative prescription’, since the court decision applies to only those parents who participated in the lawsuit. This reality clearly indicates the critical need for a ‘class action or lawsuit system’ to be introduced.
Ignited by an amendment to the Consumer Protection Act, active discussion is currently underway as to the proposed introduction of the class action system. However, productive discussion is still difficult as businesses are opposed to it, with some arguing that it is still too early or that the class action system would be abused. In fact, the Seoul YMCA Citizens’ Mediation Center has worked to get the class action system introduced to resolve various consumer problems for over 10 years, including the submission of a draft act on a class action system, a motion for its petitioned legislation, a request for legislation by the National Assembly, and the presentation of opinions to the government-initiated legislative processes. Direct governmental intervention in the market is being reduced as part of the process of deregulation. New regulations are strictly restricted in the control of total regulations. Though market autonomy should be extended, and a fair competition order should be fully established, there still remains a chance for businesses to intensify their anti-social activities in the market, including deceiving or unfairly inducing consumers by exploiting their enormous economic power and information producing capacity, inflicting losses or damages through the production and distribution of poor quality goods, and committing unfair business acts through conspiracy. In this context, YMCA and other NGOs believe that fair rules of the game should be established so that consumers can litigate for losses or damages caused by unfair business practice on a large number of citizens, while admitting that it is desirable that market autonomy be extended and government intervention in the market reduced. Given the highly unequal relationship between businesses and consumers in terms of economic power, expertise, and, most of all, ever-deepening asymmetric information access, a class action system is essential to allow a large number of consumers to rally their forces and wage their struggle against business. We believe such a system will eventually enhance the soundness and competitive edge of businesses.
2) Consumer rights regarding damages caused by a business conspiracy have been upheld for the first time.
Seoul YMCA has provided legal support to a collective damage compensation claim filed by consumers against a conspiracy hatched by KT and hanarotelecom. This may turn out to be a critical issue that seriously hurts consumer rights in the long term if unfair prices are determined by a conspiracy among businesses; the government has customarily maintained a policy that determines an unfair market structure where price setting is entrusted to the market, and consumers have virtually no influence on price determination. We therefore believed that the consumers should on this occasion bring this serious issue under the spotlight in order to abolish such practices.
The current school uniform litigation also constitutes a legal countermeasure against the large vendors who inflicted damages or losses on millions of consumers by setting and maintaining unfair prices through their nationwide sales network as part of a clandestine conspiracy. However, the lawsuit has been highly significant in that thousands of consumers have raised the issue, but the reality is that not a single penny of the fine imposed by the Fair Trade Commission ? which ultimately is government revenue - is being used to relieve the consumer damages, and remains very difficult for consumers to invoke specific legal procedures to seek redress of their legal rights.
We hope that the current discussion among various social entities, including the government and the National Assembly, surrounding the proposed introduction of a class action system will proceed in a productive direction. We also believe that the current court ruling will be an important precedent in expediting the proposed legislation for the introduction of a class action system, which has undergone some difficulties in view of previous cases where damages inflicted by illegal business practices on an indefinite number of consumers were usually neglected. We also hope that the current case will provide a watershed and that from now on similar cases will be prevented, given that this is the very first case in Korea where consumers, the victims of price conspiracy, have claimed compensation through litigation.
▶ Contact: Kim Hui-kyeong, Secretary (02-725-1400) |
