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The Trade Descriptions (Unfair Trade Practices) (Amendment) Bill 2012.

2 April, 2012

 

Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution

 

What is the purpose of the Bill?
 
The Trade Descriptions Ordinance (Cap. 362) (“TDO“) presently only prohibits false descriptions of goods and there has been strong public demand to enhance the scope of consumer protection and extend the ordinance to prohibit false descriptions of services and unfair trade practices.
 
The Trade Descriptions (Unfair Trade Practices) (Amendment) Bill 2012 (“the Bill“), which was introduced into LegCo on 24 February 2012, seeks to expand the scope of the TDO by:
 
  • expanding the definition of “trade description” in relation to goods
  • extending its coverage to services
  • prohibiting certain unfair trade practices
  • creating new criminal sanctions
  • putting in place a compliance based enforcement mechanism
  • giving wronged consumers the right to institute civil actions
 
Expanding definition of “Trade description” in respect of goods
 
The TDO currently prohibits anyone from applying a materially false or misleading indication of certain specified aspects (such as quantity, method of manufacture, and fitness for purpose) to any goods, in the course of trade or business. The current definition is considered too restrictive because important aspects of goods (such as availability and price) are not currently listed in the TDO and therefore not subject to its regulation. The Bill seeks to expand the definition of “Trade Description” in relation to goods, to the effect that false indications of any matters with respect to goods will be prohibited.
 
Trade Descriptions of Services
 
The present prohibition in the TDO against false and misleading trade descriptions of goods is extended in the Bill to apply to false and misleading trade descriptions of services. A “service” is defined in the Bill as any right, benefit, privilege or facility that is, or is to be provided, granted, conferred or offered under a contractual right, other than under a contract of employment.
 
Prohibiting Unfair Trade Practices Misleading Omissions
 
The rationale behind this prohibition is that consumers should not be misled by omissions or unclear or ambiguous presentation of information about products. A commercial practice will be considered as a “misleading omission” if in its factual context, it omits or hides material information, provides material information in an unclear or ambiguous manner or fails to identify its commercial intent (unless this is apparent) and, as a result, causes or is likely to cause the average consumer to make a transactional decision that he would not otherwise have made. Examples would be advertorials or the posting of comments by traders using pseudonyms in online discussion forums, with the aim of promoting sales.
 
Aggressive Commercial Practices
 
The Bill provides for the prohibition of aggressive practices in consumer transactions. A commercial practice will be considered aggressive if, in its factual context and taking into account the relevant circumstances, it significantly impairs or is likely to significantly impair, the average consumer’s freedom of choice or conduct, through the use of harassment, coercion or undue influence, which causes him to make a transactional decision he would not have otherwise made. The Bill contains a list of factors to be taken into account when determining whether a practice uses harassment, coercion or undue influence, including, for example, its timing, location, nature and persistence and the use of threatening or abusive language or behaviour.
 
Bait Advertising
 
The Bill proposes to prohibit a trader from advertising to supply products at a specified price, where there are no reasonable grounds for believing that the trader will be able to offer for supply those products at that price for a reasonable period and in reasonable quantities, having regard to the nature of the product and nature of the advertisement. A trader may be held liable for this offence if he holds an unreasonable belief (even honestly) that he could have met the demand. To ensure that businesses acting in good faith are not inadvertently caught by the provision, a defence (additional to that currently available under the TDO) is proposed, namely that (with the consumer’s consent) the trader supplied or procured a third party to supply the same or equivalent products, at the same price as advertised, within a reasonable time and in a reasonable quantity.
 
Bait and Switch
 
The Bill proposes to prohibit a trader from the practice of advertising or promoting products at bargain prices or on very favourable terms as bait to attract customers and then switching them to different products.
 
Wrongly Accepting Payment
 
The Bill proposes to prohibit a trader from accepting payment for a product when he intends not to supply the product or intends to supply a product that is materially different from the product for which payment was accepted. A trader will also commit an offence if there are no reasonable grounds for believing that he will be able to supply the product within the period specified or, where no period is specified, within a reasonable period. A defence (additional to that currently available under the TDO) will be available to a trader, namely that (with the consumer’s consent) he successfully procured a third party to supply the same products or equivalent products, within a specified period (or where no period was specified, within a reasonable period).
 
Penalties
 
The proposed maximum penalties for all of the above unfair trade practices is a fine of HK$500,000 and 5 years imprisonment.
 
Liability of Directors and Partners
 
If an offence is committed by a body corporate, a director, shadow director, secretary, principal officer or manager of that body corporate will also commit an offence if committed with that person’s consent or connivance or by his neglect. Similarly, if an offence is committed by an unincorporated body, such as a partnership, a partner, office holder, member or manager of the unincorporated body will also commit an offence, if committed with his consent or connivance or by his neglect.
 
Extra Territoriality
 
A trader may commit an offence, even if the unfair trade practice is directed at consumers who are outside Hong Kong, if at the time of engaging in the practice, the trader is in Hong Kong or Hong Kong is the trader’s usual place of business.
 
Enforcement
 
It is proposed that the Customs and Excise Department be responsible for enforcing the offences, with the Telecommunications Authority and Broadcasting Authority given concurrent enforcement powers in respect of telecommunications and broadcasting services respectively.
 
Compliance Based Enforcement
 
The Bill proposes that the enforcement agency be empowered to seek undertakings from traders suspected of engaging in unfair practice to stop and not repeat such practice, backed up, where necessary, by court injunctions.
 
Power to Inspect Books and Documents at Business Premises
 
Under the TDO enforcement agencies are permitted to inspect any goods and enter non-domestic premises in order to ascertain whether any offence under the TDO has been or is being committed, if it has reasonable cause to suspect that an offence has been committed. This power does not extend to inspecting books or documents. The Bill proposes to expand those powers to enable enforcement agencies to inspect books and documents (such as invoices required under the ordinance to be kept by traders) to help to ascertain if the ordinance is being complied with. Reasonable suspicion that an offence has been committed will no longer be required.
 
Consumer Redress
 
There is provision in the Bill for consumers, who suffer loss or damage as a result of conduct constituting an offence under the ordinance, to institute a private action for damages. It is also proposed that when convicting a person of an offence under the ordinance, the court may order the convicted person to compensate any person for financial loss resulting from the offence.
 
Exempt Persons
 
It is proposed that certain persons be exempt from the ordinance on the basis that they are already regulated by regulatory bodies. Such persons include, for example, accountants, pharmacists, dentists, barristers and solicitors, medical practitioners, engineers and surveyors.
 
When is the Bill likely to be enacted?
 
The Bills Committee was formed on 2 March 2012. It is expected that, if enacted, the Bill will be brought into operation only after implementation details are worked out, possibly in 2013. If enacted, it should enhance consumer protection and redress. The potential hefty fines and prison sentences for a conviction under the ordinance should deter traders from engaging in unfair trade practices and the compliance-based enforcement mechanism, available to enforcement agencies as an alternative to the criminal route, should encourage compliance.
 
 

For further information, please contact:

 

Karen Dicks, Deacons

karen.dicks@deacons.com.hk
 

 

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