Significant amendments to the Trade Descriptions Ordinance (the Ordinance) came into effect in July 2013, extending the reach of the Ordinance to include not only goods but also services. However, until the recent arrests of multiple employees of a popular fitness gym, enforcement has been muted. It is timely to take a closer look at the operation of the amendments to the Ordinance.
Prior to the amendments, the Ordinance prohibits, inter alia, the sale of goods that are not as described, for example, by misstating the place of origin. Amendments were then passed by the Legislative Council in July 2012 to extend the coverage of the Ordinance to trade practices such as false descriptions of services including misleading omissions, aggressive commercial practices, bait advertising, bait-and-switch tactics and wrongly accepting payment. The Customs and Excise Department is the Government body in charge of enforcing the Ordinance. The Unfair Trade Practice Investigation Group was also established in 2014 for this purpose.
The Physical Fitness Arrest
In July and August 2015, four employees of Physical Fitness & Beauty (Physical Fitness), including a saleswoman, a manager, and two directors, were arrested for allegedly pressuring a customer to pay for a 10-year fitness club membership worth HK$38,000. Physical Fitness is a popular chain of gyms and beauty centers in Hong Kong and such aggressive tactics are prevalent in the industry. According to the press, the female customer, who only signed up for a 10-year membership at Physical Fitness in 2014, was persuaded to buy another 10-year membership notwithstanding that she had repeatedly told the saleswoman that she was not interested. She was asked by the saleswoman to hand over her Hong Kong ID card and credit card in order to “check for discounts”. The saleswoman then allegedly used the credit card to execute the payment without the customer’s consent. The customer then signed the contract after being told that the transaction could not be canceled and she subsequently lodged a complaint with the Customs and Excise Department.
The Beauty Parlor Arrest
In another, unrelated case in February 2015, the Customs and Excise Department arrested three beauticians of a beauty parlor, including the beauty director, the regional manager and a therapist, following a complaint by a customer about the exertion of undue influence in the course of sale of beauty services. The beauticians were alleged to have threatened the customer that she may be suffering from infectious disease which could mutate into cancer and hence advised the customer to purchase an expensive beauty service.
Aggressive Commercial Practices
The abovementioned arrests were based on section 13F of the Ordinance, pursuant to which a salesperson commits an offence if he or she engages a consumer in an aggressive manner, which includes any act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by that salesperson. A commercial practice is regarded as “aggressive” if:
- it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice of conduct in relation to the product or services through the use of harassment, coercion or undue influence, and
- it can therefore cause or likely to cause the consumer to make a transactional decision that the consumer would not have made otherwise.
In considering whether there has been harassment, coercion or undue influence, a number of factors must be taken into account, including:
- its timing, location, nature or persistence;
- the use of threatening or abusive language or behavior;
- the exploitation by the trader of any specific misfortune or circumstance, of which the trader is aware and which is of such gravity as to impair the consumer’s judgment, to influence the consumer’s decision with regard to the product (for example, a death in the family);
- any onerous or disproportionate non-contractual barrier imposed by the trader where a consumer wishes to exercise rights under the contract, including rights to terminate the contract or to switch to another product or another trader (for example, unconscionable contractual terms); and
- any threat to take any action which cannot legally be taken.
Liability of management staff?
Although the cases mentioned above are currently still under investigation, there are two points to note.
Firstly, section 18 of the Ordinance provides that a salesperson who is convicted of carrying out an aggressive commercial practice under section 13F cited above would be liable to a fine up to HK$500,000 and to imprisonment for up to 5 years.
Secondly, and perhaps more importantly from a management perspective, under section 20 of the Ordinance, the directors or other managers of a company are also personally liable for offences committed by the staff of the company if the offences were committed with their consent or connivance or are attributed to their neglect. This explains why in both cases above the directors were also arrested even if they were not directly involved in the untoward conduct.
With the more aggressive enforcement of the Ordinance, we expect to see a growing number of unfair trading cases, especially in the service sector. From a risk management perspective, it would be prudent for all consumer facing businesses to review their internal policies and provide adequate training to their sales personnel in light of the recent arrests, as the legal risks are now not only restricted to the staff or the company, but also to the directors who may not have any knowledge of what is happening on the shop floor.