Hong Kong to toughen laws against unfair trade practices

Hong Kong has a reputation as a shoppers' paradise but numerous incidents have been reported in the media relating to businesses that recently engage in unscrupulous sales tactics including misrepresentation and high pressure sales. The Government has been concerned that the current legislation only provides limited protection for consumers against unfair trade practices. In particular, a long-recognised loophole is the fact that the Trade Descriptions Ordinance (Cap.362) only applies to false descriptions of goods and not services. Amidst strong public demand to enhance protection for consumers, the Trade Descriptions (Unfair Trade Practices) (Amendment) Bill 2012 (the Bill) was gazetted on 24 February 2012. The main object of the Bill is to expand the scope of prohibited unfair trade practices and to enhance the enforcement regime.

Key Proposals

• To extend the prohibition against false trade descriptions to cover false indications in relation to services.
• To introduce new offences in relation to misleading omissions, aggressive commercial practices, “bait advertising”, “bait and switch” tactics, and wrongly accepting payment.
• To allow aggrieved customers to sue for damages and to empower the courts to award compensation.

New offences

False trade descriptions in relation to services

The gap in Hong Kong's legislation has now been plugged by the extension of the Trade Descriptions Ordinance to prohibit the application of false trade descriptions to services.

Misleading omissions

Under the proposals, a commercial practice is a misleading omission if it omits or hides material information, provides material information in a manner that is unclear, unintelligible, ambiguous or untimely, or fails to identify its commercial intent. As a result, the misleading omission causes or is likely to cause, the average consumer to make a transactional decision that he would not otherwise have made.

Prohibition against aggressive commercial practices

Following the example of the UK, the Bill proposes to prohibit practices that significantly impair the consumer's freedom of choice through the use of harassment, coercion or undue influence, causing him to make a transactional decision that he would not otherwise have made. It is likely that the legislation will set out a non-exhaustive list of factors that need to be taken into account in determining whether there has been harassment or coercion. This will include the use of threatening or abusive language, or behaviour, and the use of tactics such as withholding cancellation forms.

The offence is significant as the intention of the trader is not relevant; an offence is committed if the behaviour is found to be aggressive in fact, taking into account all the circumstances.

“Bait advertising” and “bait and switch”

These are 2 new offences modelled on Australian law. “Bait advertising”, prohibits a trader from advertising the supply of products at a specified price if there are no reasonable grounds for believing that he will be able to supply those products at that price for a reasonable period and in reasonable quantities. The nature of the market and the nature of the advertisement will be relevant.

It will be the responsibility of the trader to ensure that he has adequate supply before advertising and an offence can still be committed if he had an honest, but unreasonable, belief that he could have met the demand.

The second offence, “bait and switch”, prohibits the practice of promoting products at bargain prices and very favourable terms, but then switching to more expensive products once the consumer has been lured into the shop.

Wrongly accepting payment

Pre-payment for goods and services is becoming increasingly popular. There have been many recent incidences of consumers who have pre-paid for services, such as beauty treatments or yoga classes, only to find that the suppliers has gone out of business before their packages have been used up. The Bill makes it an offence for a trader to accept payment if, at the time of accepting payment for the product, he has no intention to supply to product or intends to supply a materially different product. An offence will also be committed if the trader has no reasonable grounds for believing that he will be able to supply the product. He may still be held liable if he holds an unreasonable belief that he could supply to products within the specified time or within a reasonable period.

Enhanced enforcement

The Bill proposes to give Customs enhanced powers to:

• Require the production and inspection of any books or documents required to be kept by the Ordinance (such as invoices and other transactional information) in order to ascertain whether an offence has been committed;
• To accept a written undertaking from a trader not to continue, repeat or engage in conduct that constitutes an offence; and
• To apply to court for an injunction against any person who is engaged in unfair trade practices or is in breach of an earlier undertaking.

Concurrent enforcement powers are to be conferred on the Telecommunications Authority and Broadcasting Authority in respect of telecommunications and broadcasting services.

Certain sectors are exempted from the ambit of the Ordinance since they are already subject to well-established regulatory regimes. These include the financial services, property and legal sectors.

Consumer redress
The Bill provides that where a defendant is convicted of an offence under the Ordinance, the court has the additional power to order the defendant to pay reasonable compensation to another person who has suffered financial loss as a result of the offence. In addition, the Bill proposes to allow any person aggrieved due to unfair trade practices to commence a civil action to recover any loss or damage suffered.

What next?

Concern has been expressed by stakeholders that some of the offences have been framed in vague and subjective terms but carry criminal liability. This can be problematic for traders since some of the offences are strict liability in that they may be committed regardless of the trader's intention.

In addition, given there can be inherent uncertainties in the supply of goods – what might be regarded as “reasonable” or “reasonable quantities” may not be easy to determine in today's rapidly evolving consumer markets.

The issue of civil liberties has also been raised since it is proposed to give Customs the power to conduct spot checks of a business' books and accounts in order to determine whether an offence has been committed.

Legco's scrutiny of the Bill is continuing. The effect of the proposals on business practices and consumer protection is likely to be significant Stakeholders should take careful note of the proposals and make their view known to the administration.