New law passed to curb unfair trade practices

The Hong Kong legislators have passed amendments to the Trade Descriptions Ordinance which create new offences and strengthen enforcement against unfair trade practices. The new law is expected to come into effect next year.

The Trade Descriptions Ordinance prohibits false trade descriptions in relation to goods. The ordinance tackles offences such as the use of false or misleading descriptions of the characteristics of goods, and the use of forged trademarks on goods. Consumers and trademark owners may request Customs to investigate a potential breach of the ordinance.

The aim of the government is to stamp out unfair trade practices. The key amendments to the ordinance include the following:

• A wider definition of 'trade description' - following the amendment, the term 'trade description' has been expanded to cover descriptions such as indications of availability and price (including calculations of discount). It also includes indications that a particular person has acquired or agreed to acquire the goods or services in question (this probably covers certain types of celebrity endorsements).
• False description of a service - the amended ordinance has been expanded to cover false or misleading descriptions of a service. An indication relating to any after-sale service assistance is part of the trade description of a service. However, offences relating to the use of forged trademarks remain confined to goods and do not apply to services.
• Misleading omissions, aggressive commercial practices, bait advertising, bait-and-switch, acceptance of payment without intention to supply - the amended ordinance creates new, strict liability offences against the aforementioned unfair trade practices. The ordinance sets out detailed criteria for these offences and potential defences. For instance, a misleading omission occurs when a trader dealing with a consumer omits or hides material information, or provides such information in an unclear or untimely manner. Examples of material information include additional delivery charges and the consumer's right of withdrawal. With regard to aggressive commercial practices, relevant factors include the timing and persistence of the practice, the use of language and any exploitation of the consumer's misfortune or circumstances. This targets the use of harassment, coercion or undue influence in pressuring a consumer to buy goods or services (eg, lengthy sales pitches or preventing consumers from leaving the business premises).
• Extra-territoriality - in order to catch cross-jurisdictional transactions (especially online transactions), offences under the amended ordinance now include trade practices targeting consumers outside Hong Kong if the trader is physically present in Hong Kong or has its usual place of business in Hong Kong.
• Enforcement - the amendment strengthens the enforcement powers of Customs. Under the amendment, the customs authorities have the additional power of inspecting books or documents kept by a trader to ascertain whether any offence under the ordinance has been or is being committed. The amended ordinance also introduces a 'compliance-based' mechanism. Under this mechanism, Customs may seek written undertakings from traders to stop an offending act. Customs may apply to the court for an injunction when there is a breach of the undertaking.
• Compensation - for certain offences under the ordinance (with the notable exception of offences relating to forged trademarks), the amendment empowers the court to order the convicted party to compensate the aggrieved party. The amendment also allows an aggrieved party to bring a civil suit to recover loss or damage. These provisions will most likely benefit aggrieved consumers.

The amendments aim to enhance consumer rights and enforcement powers. However, the amended ordinance could potentially have a significant impact on trading practices - while no one would dispute the need to discourage unfair trade practices, the net has been cast wide and may catch honest traders. Traders must therefore familiarise themselves with the legislative change and review their current practices. The government has announced that it will conduct publicity campaigns before bringing the amended ordinance into operation.

Kenny Wong and Eugene Low, Mayer Brown JSM, Hong Kong