What you need to know about the latest changes to the Trade Descriptions Ordinance

The latest amendments to the Trade Descriptions Ordinance (“TDO”) came into effect in Hong Kong on 19 July 2013. The amendments:

• widened the scope of the TDO;
• introduced new offences, including misleading omissions, aggressive commercial practices, bait advertising, bait and switch, and wrongly accepting payment;
• introduced an enforcement mechanism to deter unfair trade practices employed by traders against consumers; and
• allow aggrieved consumers to seek damages from traders.

The amended ordinance applies to all traders, which are defined in section 2 as “any person (other than an exempt person) who, in relation to a commercial practice, is acting, or purporting to act, for purposes relating to the person’s trade or business.” A reference to a trader also includes any person acting in the name of, or on behalf of, a trader.

How has the scope of the TDO been extended?

False Trade Description of Goods

The original definition of “trade description” in respect of goods was restrictive. Under the amended TDO however, the definition of “trade description” now extends to cover the availability of the goods, compliance with a standard specified or recognised by any person, the price of the goods and how the price is calculated, as well as the existence of any price advantage or discount.

A “trade description” will also cover indications that a person has acquired or agreed to acquire certain goods and that goods are of the same kind as goods being supplied to a person.  For example, in the promotion of a slimming product, a beauty consultant tells a consumer that the same product has been acquired by a celebrity for her personal use with good results. If the celebrity concerned has never actually acquired or agreed to acquire the product, the beauty consultant may be held to have committed the offence of applying a false trade description.

False Trade Description of Services

The amended ordinance introduced a new definition for trade description in relation to services including indication of nature, scope or quantity of the service, the fitness for purpose, strength, performance, effectiveness, benefits or risk of the service; method and procedure by which the service is supplied; the approval of the services by any person or authority; the availability of the services; after-sale service assistance; and the price of or the manner in which the price is calculated.

For example, a telecommunications operator claims in an advertisement that its service plan has the lowest price tag in Hong Kong by comparing the price of its plan with those of its competitors. However, the reality is that the comparison has not been made on a like-for-like basis and the telecommunications operator compared the service plans of the competitors which have material differences in service features (such as the duration of contract).  If such features are not disclosed in the advertisement to consumers, the telecommunications operator may be liable for having made a false description of its services.

Extra-territorial effect

The amended ordinance has an extra-territorial effect and even catches traders who are in Hong Kong or have a place of business in Hong Kong, but target overseas customers.

Introduction of New Offences under the TDO

Misleading omission

A trader commits an offence under the amended TDO if he omits or hides material information, provides material information in a manner that is unclear, unintelligible and ambiguous or untimely manner, or fails to identify its commercial intent.

A typical example will be a mobile operator advertising an “unlimited mobile data plan” to consumers.  If the mobile operator fails to mention that the unlimited mobile data plan is subject to a usage restriction under which the download data rate of the service will be substantially impaired and charges will be higher if a certain usage threshold is exceeded, the failure to mention such restriction is likely to equate to an omission of material information that consumers require in order to make an informed transactional decision.  An omission in such circumstances is likely to be considered a breach of the amended ordinance.

Aggressive commercial practices

Traders are forbidden to impair consumers’ freedom of choice through the use of harassment, coercion or undue influence, which leads to the consumers entering into a transaction that they would not have otherwise committed themselves to.

Bait advertising

Traders are prohibited from advertising products at a specified price if there are no reasonable grounds for believing that they will be able to offer for supply those products at that price in a reasonable quantity and period of time.

Baiting and switching

Traders must not offer to sell any product at a specified price with the intention of promoting a different product by using any one or more of the following unfair practices: (a) refusing to show or demonstrate the product to the consumers; (b) refusing to take orders for the product or deliver it within a reasonable time; or (c) showing or demonstrating a defective sample of the product.

Wrongly accepting payment

Traders are prohibited from accepting any pre-payment of products if at the time of accepting payment or other consideration for a product, they do not intend to supply the products or intend to supply a materially different product, or the circumstances are such that there are no reasonable grounds for believing that they would be able to supply the goods or services in the time specified or, if no time is specified, within a reasonable time.

Enforcement of the TDO

Any trader who is found guilty of engaging in any of the above offences will have committed a criminal offence and be liable for a maximum penalty of HK$500,000 and imprisonment for 5 years.   Where a trader is a body corporate and is convicted of a criminal offence under the TDO, its directors, officers or managers may also be held personally liable if it is established that the offence had been committed with his consent or connivance, or is otherwise attributable to the neglect of that director, officer or manager.

Action for Damages

Aggrieved consumers may institute private actions for damages if they have suffered loss or damages due to the conduct of a trader which constitutes an unfair trade offence under the TDO.  Further, where a person or a body corporate is convicted of any of the unfair trade offences, the court may order the convicted party to compensate an aggrieved party for financial loss resulting from the offence.

How Tanner De Witt can help

If you wish to explore how the amendments to the TDO could affect your business or organisation, or if you require a professional review of your existing business and trade practices to ensure compliance with the new law, please contact Eddie Look or Tim Drew for further information.

Eddie Look Partner | E-mail

Tim Drew Partner | E-mail

Edmond Leung Partner | E-mail

River Stone Partner | E-mail

Pádraig Walsh Partner | E-mail

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.