Article by Andrew P.B. MacGeoch , David S.C. Mallinson and Sara S.M. Or

Originally published 4 October 2010

Keywords: Hong Kong, time share, holiday, consumer regulations, proposed changes

The government proposes to amend consumer legislation in Hong Kong to increase regulation and provide additional rights to consumers. This has a wide potential effect. This legal update considers the likely effect on time-share schemes and long-term holiday products.

The Commerce, Industry and Tourism Branch of the Commerce and Economic Development Bureau is engaged in a public consultation entitled "Legislation to Enhance Protection for Consumers Against Unfair Trade Practices" ("Consultation").

The purpose of the Consultation is to solicit views from the public in relation to strengthening of Hong Kong's consumer law. The intention is to put a bill amending the Trade Descriptions Ordinance (Cap.362) ("TDO") before LegCo during the 2010/2011 session.

It is still too early to definitively describe the details of the new law. However, the consultation paper provides some insight into the likely shape of things to come. The effect of the new law on businesses involving Hong Kong consumers may be substantial. In this legal update we will focus on the likely effects to the time-share and long-term holiday ("Time-share/Holiday") industries and how you can contribute to the Consultation. Depending on the final wording of the legislation the provisions may also apply to similar schemes such as condo-hotels and condo serviced apartments.

Summary of Proposed Changes to the Law

The proposed changes will, amongst other things:

  1. expand the ambit of regulation under the TDO to include services;
  2. create new criminal offences and create new actionable civil wrongs for questionable activities such as bait-and-switch, misleading statements or omissions, and aggressive selling;
  3. introduce new obligations on providers of goods and services ("Providers") to give details of their products; and
  4. appoint the Customs and Excise Department to a supervisory position, and confer powers on the department to inspect books and records to ensure compliance with the TDO.

In addition to the general proposals affecting all goods and services, there are specific proposals to introduce a mandatory cooling-off period for Time-share/Holiday products. This will be a period of time following entry into a contract during which a customer can unconditionally cancel the contract and receive reimbursement in full ("Cancellation").

Implications for Time-share/Holiday Providers

The Consultation is a response to public concern regarding questionable consumer practices such as aggressive sales, unsolicited visits to consumers' homes, and deceptive advertising and false descriptions. The particular desire to regulate the Time-share/Holiday industries is due to the complexity of the products, and the ambit for less reputable operators to mislead or even deceive customers. In 2009 the Consumer Council received over 34,000 complaints from consumers. Of these complaints, 232 complaints related to Time-share/Holiday Products, more than double the number of complaints in 2008.

In our view, the revisions to the TDO will improve the consumer environment in Hong Kong by increasing consumer confidence and punishing unacceptable practices. This will, in turn, encourage higher standards and facilitate increased competition.

At present, reputable operators may already offer customers voluntary cooling-off periods. Such cooling-off periods offer customers security and there are good reasons to follow the lead set by other jurisdictions by making a cooling-off period mandatory. Purchasing Time-share/Holiday products are long-term decisions for customers. It is not in the interests of customers (nor reputable scheme operators) for unwilling customers to be bound to contracts they later regret.

Greater regulation and mandatory cooling-off periods are likely to enhance consumer confidence in Time-share/Holiday schemes, something which can potentially benefit Time-share/Holiday Providers by encouraging industry growth.

The Consultation: Your Views

If you are a Time-share/Holiday Provider or your business otherwise involves Time-share/Holiday products then you may wish to submit your views as part of the Consultation. The government is, in particular, actively seeking views in relation to the proposed cooling-off period.

If you make a submission, we would suggest that such a submission makes it clear that it relates to the Time-share/Holiday products rather than to the provisions in general.

The following questions may be of assistance in considering a submission to be sent to the government as part of the Consultation:

  1. What would be a suitable length for a cooling-off period to adequately balance the rights of consumers and Providers or Time-share/Holiday Providers?

    The Government proposes a cooling-off period of seven days from signing an agreement.

    The length of the cooling-off period in the UK and the European Union is 14 days from signing an agreement. In California, a major time-share jurisdiction, the time period is 7 days from signing the contract or receiving a report on the time-share.
  2. What Information should be provided by the Time-share/Holiday Provider?

    The government proposes that Time-share/Holiday Providers will need to supply:

    1. details of their identity and contact information;
    2. details and a notice regarding Cancellation during the cooling-off period;
    3. a withdrawal form for Cancellation; and
    4. details of the nature and content of time-share rights to be provided.

    Time-share/Holiday Providers will also be subject to the general obligations applicable to all providers of goods and service under the new law, not to make misleading statements or material omissions.

    The information obligations are similar to those required under English law, although the English provisions appear to be substantially more descriptive. These proposals may thus be just an initial indication rather than a complete list. The requirements under English law include the following:

    1. a general description of the proposed accommodation;
    2. detailed information regarding the parties involved in the time-share;
    3. detailed information on the location of the time-share property;
    4. additional requirements where the time-share property has not been completely built;
    5. detailed information as to the rights provided by the time-share agreement;
    6. detailed information regarding the services provided and what common areas exist;
    7. detailed information as to the maintenance of the time-share;
    8. detailed information as to the enjoyment of the time-share;
    9. detailed information as to rights of cancellation and withdrawal;
    10. information on the statutory rights of the customer; and
    11. details as to how to obtain further information.

  3. What financial arrangements should govern the cooling-off period?

    The government has proposed that any money paid must be reimbursed to a customer within 30 calendar days from Cancellation and that any credit arrangements provided in relation to a Time-share/Holiday product should expire automatically upon Cancellation.
  4. Should administrative fees be charged on Cancellation? Should such fees be capped?

    Such fees can discourage consumers from recklessly entering into contracts on the basis they can cancel. However, such fees can also potentially undermine the right of Cancellation.

    The government has not expressed a view on this point.
  5. Should customers be able to curtail the cooling-off period?

    This issue is relevant if a customer wishes to make use of the Time-share/Holiday product immediately, however it potentially undermines the right of Cancellation.

    The government has not expressed a view on this point.
  6. Should the provider be allowed to charge customers following receipt of goods and services during the Cooling-Off Period?

    The government, rightly in our view, considers that if Cancellation occurs following receipt/use, then the Provider should be entitled to charge the customer for goods and services used or received.
  7. What sectors should be subject to a cooling-off period?

    There have been proposals by some interest groups to apply a wider cooling-off period to consumer transactions such as club memberships, beauty care, fitness and slimming services. The government does not intend to implement such proposals.

    The government currently considers only (a) Time-share/Holiday products, and (b) contracts made during unsolicited visits to a customer's home or place of work, as requiring a cooling-off period.
  8. Is the proposed model of regulation of Time-share/Holiday schemes viable and/or desirable? Do you have views as to other schemes of regulation for Time-shares/Holidays?

    The government has described possible regulatory mechanisms in the consultation paper. If you have views on the proposed scheme or alternative suggestions, and in particular if you oppose any of the government's proposals, you should consider contributing to the Consultation.

    We note that England has a more extensive system of regulation of time-share agreements which includes, amongst other things, the regulation of time-share advertisements and mandatory terms to be included in time-share agreements. Under the English system, a breach of the regulatory obligations potentially renders the agreement unenforceable and obliges a refund of sums paid by a customer. Other jurisdictions, such as California, go further and heavily regulate the initial setup and sale of all time-share schemes offered for sale in the jurisdiction.
  9. Do you have other comments?

    If you have other comments, please consider whether they could be usefully provided to the government as part of the Consultation. It may be more difficult to provide input once the consultation period has finished. The deadline for submitting a Consultation opinion is 31 October 2010.

Submitting Your Views

Mayer Brown JSM is able and willing to assist you in preparing a draft Consultation submission. We can also provide ongoing advice in relation to the effect of the new legislation as the details emerge. Please contact us if you would like to discuss this further.

You can submit your views by email (cpr@cedb.gov.hk), fax, post or Facebook. Further details are set out in the consultation paper, available at: http://www.cedb.gov.hk/citb/en/Hot_Topic/Popup_2010-07-15_e.html

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