The recent sentencing of two Hong Kong fitness centre staff to three months in prison, for “aggressive commercial practices” in signing up customers to memberships, serves as a timely reminder of Hong Kong’s strengthened consumer protection laws, which came into force in July 2013.

It also highlights the need for businesses to have in place proper systems to ensure compliance with these laws. 

“Aggressive commercial practices” is one of the six new offences that were introduced in July 2013 under the Trade Descriptions Ordinance (TDO), enforced by the Customs and Excise Department (or the Communications Authority, if the matter is concerned with telecoms or broadcasting). The definition of such practices is very broad, and covers not just harassing or coercing customers into buying products or services, but also exercising “undue influence” on them to do so. 

Clearly the concept of “undue influence” is vague, and whether conduct falls within this category in any given case could be open to argument. There is a fine line in many cases between enthusiastically trying to persuade a potential customer to sign a contract, and crossing the border into “undue influencing” the customer. The danger of crossing this line is particularly acute when staff or agents are rewarded by meeting aggressive sales targets, especially in markets that are very competitive, as many markets are in Hong Kong. 

The same risk of crossing the line between legal and illegal conduct applies to some of other offences that were introduced in 2013, in the amended TDO. For example:

• “Misleading omissions.” It is an offence to fail to give a potential customer any information that the “average consumer” would need to make a “purchasing decision” regarding a particular product or service. Like “undue influence,” what information the “average consumer” would need to make a purchasing decision could be open to debate in individual cases. Perhaps just as worryingly, a “purchasing decision” includes not just a decision to buy, but a decision not to buy. In other words, it is not just an offence where the customer buys a product or service that they would not have bought, if the missing information had been disclosed to them. It is also an offence if they decide not to buy a product or service that they would have bought, if the information had been disclosed to them.

• “Bait advertising.” It is an offence to advertise products at a certain price, if the business has no reasonable grounds for believing that it can supply the products at that price in quantities, and for a period, that are “reasonable.” This offence is designed to catch situations where goods are advertised at a deep discount merely to attract customers, in the knowledge that demand for the products will far outstrip supply, leaving many potential customers disappointed. What constitutes “reasonable” quantities and a “reasonable” period of time will clearly be open to debate in many cases.

Penalties for contravening the TDO can be severe: a fine of up to HK$500,000, and imprisonment of up to five years. But the possibility of a severe penalty is not the only matter to bear in mind if a business breaks the law. There is also the damage to reputation which inevitably results from media headlines announcing that the business has acted illegally. And there is the cost and disruption that always accompany an investigation, and possible court proceedings. 

So how can businesses protect themselves against these consequences? The answer is to have in place a proper compliance system. A compliance system can reduce the risk of the company breaking the law in the first place. But if an inadvertent breach does occur, the enforcement authority and court may choose to be lenient if they can see that such a compliance system is in place, in terms of the penalty or other sanctions that would otherwise be imposed.

What does a proper compliance system consist of? There a number of elements that regulators regard as important. Probably the key ones are:

• Evidence that senior management has clearly communicated to staff the importance of compliance, and that non-compliance will be treated very seriously. This is commonly called “the tone from the top.”

• Training management and staff must be trained on what is allowed and not allowed under the law. The regulator can, and does, check whether such training has been given.

Compliance systems are also important, for similar reasons, for protection against other laws, including those concerning competition, data privacy and anti-bribery and corruption. Compliance systems are certainly an investment worth making for businesses.