The Consumer Council in its newly released report titled "Unfair Terms in Standard Form Consumer Contract" ("the Report") proposes the adoption of fair terms in standard form consumer contracts and the implementation of cooling-off period to safeguard consumer rights.
Currently standard form consumer contracts are commonly used to evidence the consumer transactions in written form. As the contracts are drafted by suppliers, they are inherently one-sided and a business may seek to tilt the balance towards itself, at the expense of consumer interests. As these contracts are presented on a 'take it or leave it' basis, consumers are not in a position to bargain with supplier.
In 2011, complaints concerning unfair contract terms are recorded an increase of 27% from 935 cases in 2010 to 1185 cases.
Existing (Current) Situation
Due to the limitations of judicial redress under the current Hong Kong laws, much has to be done to enhance protection of consumers against unfair terms.
Though attempts have been found in certain industry to improve the clarity of provisions in standard form consumer contract, there is still room for improvement to address the unfairness in the contract. Moreover, those actions are industry specific and voluntary, and the compliance with it is subject to the goodwill of the participants.
The Report
With the Report, the Council encourages and assists traders to avoid using unfair terms. In the Report, the Council sets out 26 examples of unfair terms in standard form consumer contracts, gives comments on their unfairness and suggests ways to eradicate it. The examples of unfair terms fall into 12 categories as set out in Annexure 1.
Notorious Examples of Unfair Terms
They are exemplified by the ones:
- that purport to exclude the supplier's negligence liability for any personal injury sustained by consumer, which is in fact a flagrant breach of the Control of Exemption Clauses Ordinance;
- that seek to deprive the consumers of their right to bring dispute to court for adjudication by providing for the suppliers' right to make the final decision on any dispute over the interpretation of the contract;
- that seek to restrict the consumers' basic legal and legitimate rights by purporting to disallow them to file complaint with mass media or relevant authorities, and to institute legal proceedings against the supplier.
To demonstrate how a consumer contract can be drafted fairly, the Report is supplemented by a set of guidelines for drafting standard form consumer contracts and a sample contract with the beauty industry as the subject industry.
The examples of unfair terms discussed in the Report are indicative of the concern that consumers have with the practice of some businesses in Hong Kong. The use of terms which are superfluous, draconian or convoluted are not in the long term interests of a business.
Rather, they are likely to make the contract unnecessary complicated, raise suspicion on the part of consumers as to the motives of the business, and increase the risk and costs of resolving disputes.
In addition, a standard form consumer contract is fair only when it is legible and intelligible. Apart from using plain and ordinary language, a standard form consumer contract should be short and simple.
Cooling-off Period
The principles of good faith and fairness can also be manifested by a cooling-off arrangement which the Council considers to be significant to be included in fixed-term contracts and prepaid contracts with long-term financial commitment or of substantial value. To strike a proper balance between consumer protection and business efficacy, a cooling-off period of 7 working days is recommended and also the supplier may charge a reasonable administrative fee based on a genuine estimation of actual expenses (capped at 7% of the contract price or HK$1,000, whichever is less) incurred on the consumer's cancellation.
Mr. Ambrose HO, Vice Chairman of Consumer Council, said that "Adopting fair terms in consumer contacts indicates the determination of businesses to abide by the principle of good faith and helps the business develop goodwill."
The Council trusts that the Report, with the drafting guidelines and sample contract, will form the basis for businesses to review their consumer contracts, and ensure that the principle of fairness, good faith and honesty in trade is fully observed and that consumers are treated fairly.
Annexure 1
Different Types of Unfair Terms in Standard Form Consumer Contracts
1. Clauses regarding Unilateral variation
- Unilateral right of the supplier to vary terms generally, without a valid reason specified in the contract;
- Unilateral right to change the product;
- Supplier's right to notify variation in a way it deems appropriate.
2. Clauses purporting to exclude or limit the legal rights of the consumer to offset a debt owed to the supplier against any claim which the consumer may have against it
3. Clauses providing for supplier's entitlement to "compensation" for early termination in any event
4. Unreasonable exclusion clauses
- Exclusion clauses excessively broad and general;
- Clause excluding or limiting the legal liability of supplier in the event of personal injury to consumer resulting from an act or omission of supplier.
5. Clauses providing for unnecessary and unreasonable formality requirement
6. Clauses seeking to give supplier the right of final decision on any dispute arising from the contract
7. Entire Agreement Clause
8. Clauses imposing excessive cancellation fees or penalties
9. No refund Clause
10. Clauses imposing unreasonable restriction on consumer's legal rights
11 Automatic renewal Clause
12. Read and Understood Declaration