Kwan-Seok Oh and Eric Cha explain the Korean Product Liability Act and the significant changes it will bring to the country's product liability system.
The Korean Civil Code adopts a negligence theory to provide for compensation for injuries that are caused by defective products. In other words, those injured by defective products must prove the existence of the defect, causation between the defect and the injury, and negligence (or intent) on the part of the manufacturer. As such, the burden of proof is on the injured party to prove fault. In many instances it is difficult for the injured to carry its burden.
In view of the limited consumer protections offered under the Civil Code, the Product Liability Act (PLA) was passed, and came into effect on 1 July 2002. Key aims are to alleviate the burden of proof on the injured through strict liability theory and to expand manufacturers' responsibilities for injuries caused by defective products. Accordingly, under the PLA manufacturers are strictly liable for damages caused by their defective products. We believe this change, and others discussed below, will be far reaching, and will have a significant impact on manufacturers who sell their products in Korea.
Liability under the PLA exists as long as the product is movable property that is manufactured or processed. Raw material suppliers and parts manufacturers are also held responsible for compensating for damages caused by defective raw materials or parts. Furthermore, since manageable natural power such as electricity or gas is regarded as movable product, it may also lie within the scope of the PLA. However, non-processed agricultural products, livestock products, marine products, forest products and so forth do not fall under the scope of the Act. Some have argued that the PLA should apply to immovable products, especially with regard to houses, but such arguments have not yet been accepted. Of course, any discussion of the products covered by the PLA is based on the theoretical opinions of experts. Due to the absence of explicit provisions or court precedents, this discussion should not be taken as the certain position of the Korean courts at this time.
Article 4(1)(a)-(d) of the PLA provides four exemptions from liability under the PLA, which are applicable in certain circumstances. Article 4(1)(b) provides a `state of the art defence' where manufacturers are exempted from liability if the manufacturer proves that it was not possible to discover the defect due to the state of scientific or technical knowledge at the time the relevant products were delivered. The other exemptions of Article 4(1) relate to: (a) if the manufacturer did not supply the product: (c) if the defect existed in the product due to compliance with standards designated by applicable law at the time the products were delivered; or (d) if the product was used as a part or material in another product, and its defect was caused by complying with instructions as to the design and manufacture for the other product. Accordingly, the proof of any of the above circumstances would be an affirmative defence to any liability arising from injuries attributable to defective products.
However, Article 4(2) of the PLA precludes the application of the Article 4(1)(b)-(d) exemptions if the manufacturer knew or could have known of the existence of the defect in the relevant product during supply of the product and did not take appropriate measures to prevent the injury that was caused from such defect. This is one of the most significant departures from the current product liability system, and has no analogue in the German or Japanese product liability systems. It has been described by some scholars as the `duty of vigilant guard of the product'. This new duty obligates the manufacturer to take various affirmative measures after the distribution of the product in order to protect the public, so as to claim the benefit of the Article 4(1)(b)-(d) exemptions from liability.
The duty to be vigilant may mean that manufacturers will need constantly to monitor the safe operation of products that have already been supplied but which are out of its control, and to take precautionary measures if a defect is discovered. In this regard, the foregoing provision is considered to be unique, in that it prescribes: (i) no time limit; and that (ii) manufacturers may not claim exemption from liability, not only in cases where they knew of the existence of the defect, but also if they could know of the existence of the defect or they failed to know the existence of a defect due to their negligence.
Accordingly, information about the safeness of products may need to be one of the foremost concerns of manufacturers, such that they know about all defects that could reasonably be known. In this vein, the manufacturer may need to be diligent in testing for safeness, conduct follow-up safety surveys with end-users if feasible, and, in general, implement procedures for gathering as much information as is achievable on the possible existence of any defects. If a defect exists and becomes known after diligent testing and monitoring, the manufacturer should consider appropriate measures to prevent damage or harm. Although what is appropriate may depend on the circumstances, we may envision such measures to include disseminating to the public information about the defect, and to take further measures such as making free repairs or replacement with defect-free products by means of a product recall. Thus, Article 4(2) creates a new and particularly onerous duty for manufacturers.
The PLA does not include a separate provision for the allocation of burden of proof. Thus it is believed that the recent trend by the Korean courts of shifting the burden of proof to the defendants in regard to the existence of defect and causation may be maintained in the application of the PLA in certain circumstances. Further, the PLA does not limit the maximum amount that a plaintiff may be awarded in regard to a product liability claim. Although there is no risk that punitive damages will be part of product liability damage awards, nevertheless, there are risks of significant damage awards for claims involving serious bodily harm or death, since damage awards are not capped under the PLA.
Under the Act, manufacturers can expect to be exposed to burdensome and expensive product litigation suits, and their chances of prevailing are likely to be noticeably reduced. Further, manufacturers will be under an onerous duty to be vigilant guard of their product. Finally, if a defect is found, manufacturers would need to implement precautionary measures so as to prevent injury.
The political climate has been steadily changing with respect to consumer protection issues in Korea. Currently, such issues are highly politically charged, and the consumer protection movement is gaining momentum, as evidenced by the newly effective PLA, and increasing support for class action legislation.
A securities-related class action bill is currently pending in the Korean legislature, and a petition for a general class action bill has been presented to it. We expect heated debate, with strong opposition from the business sector to both. However, considering the recent efforts to improve protections for minority shareholders, and that the World Bank, as a condition for the International Monetary Fund (IMF) bailout package, publicly requested that the Korean government enact securities-related class action legislation, it would not be surprising if the pending securities class action bill is enacted. If that happens, it would provide momentum for the consumer protection movement, creating the real possibility that general class action legislation would be enacted. In the near future, the legal environment for manufacturers doing business in Korea is likely to get more and more stringent.
Some very major product liability litigation cases are currently pending, including litigation against foreign chemical companies over a product liability issue. Foreign motor manufacturers are being sued for allegedly making defective cars, and complex and high-stakes tobacco litigation is underway against the domestic tobacco industry. Although all these suits were brought under the traditional tort theory based on a negligence theory, it forebodes an even more active and uncertain legal landscape under the PLA, particularly if general class actions lawsuits are allowed.
About 4,600 lawyers currently practice in Korea. Although this is a very small number compared to other societies, the rate of newly registered lawyers in Korea is increasing. A temporary limit of 1,000 new registrations per year has been established. We expect the number of practicing lawyers in Korea will double after five years, which is likely to give the general public greater access to lawyers and consequently result in a more litigious society.
Further, there is the recent trend of increasing litigiousness of Korean consumers. Historically, and to a large extent presently, it is common for product liability claims to be settled out of court. The Consumer Protection Board (CPB) is a government agency that investigates manufacturers that have been the subject of consumer complaints, and facilitates mediation between the disputing parties. A large number of complaints, especially those involving relatively small amounts, have been settled out of court with the involvement of the CPB. However, given the limited function of the board, and the recent court decisions alleviating the burden of proof for plaintiffs in certain instances, the number of court filings of products liability claims has been steadily increasing.
In view of the newly effective PLA and the fast changing legal landscape in Korea, manufacturers would be wise to prepare for the upcoming changes to their business environment.