1. The Consumer Council welcomes the initiative taken by the Telecommunications Authority to draft a Code of Practice for Service Contracts for Public Mobile Radiotelephone Service (PMRS). It is pleased that the TA has had regard to the various recommendations put forward by the Council towards consumer protection in the PMRS industry.
2. This paper addresses the five separate issues on which the TA has specifically sought comment:
- the necessity of issuing the proposed guidelines;
- the proposal that the scope of unilateral amendments to contract terms should be circumscribed (paragraph 13);
- the proposal that only two types of contracts should be recognized (paragraph 17);
- the adequacy of the proposed guidelines in Appendix III; and
- the implementation plan and the transitional arrangement as proposed in paragraph 23.
The necessity of issuing guidelines
3. The Council is mindful of the fact (as noted in paragraph 20) that the TA is not directly conferred with powers under the Telecommunications Ordinance to protect consumers against what would otherwise be regarded as unfair contract terms in other jurisdictions. Nevertheless, it must be recognized that the provisions of the Unconscionable Contracts Ordinance would apply against PMRS operators who engage in prohibited conduct. In these circumstances, a voluntary code of practice would be useful to provide guidance for PMRS operators on how to avoid engaging in conduct prohibited under that ordinance, but also promoting a higher standard of consumer protection to ensure that a 'lowest common denominator' standard of services does not arise.
4. The Council welcomes the TA's acknowledgement that legislative remedies may need to be introduced if the guidelines fail. However, in order for this matter to be properly considered, the TA should document his monitoring of PMRS operators' compliance with the general principles behind the guidelines. This is not only to provide a degree of transparency for consumers, but to be fair to industry so that they may take appropriate remedial action in order to honour the principles in the guidelines.
Scope of unilateral amendments to contract terms
5. The Council maintains its position that operators must be prohibited from giving themselves unilateral power of alteration to contract terms in fixed term contracts. The Council also recognizes that there may be circumstances where service contracts will need to be adjusted. It concurs with the TA's recommendation in the Draft Code of Practice that where there is a unilateral power of alteration, in non fixed contracts, such as service contracts, the conditions under which such power can be exercised and the length of the notification period (not less than 30 days) should be clearly stipulated in the service contract.
Distinction between fixed term contract and general service contract
6. The Council concurs with the TA's view that for the purposes of delineating the scope of the principles in the guideline, only two distinct types of contracts, i.e. a fixed term contract or a general service contract, are required.
Adequacy of the proposed guidelines
7. The Council is pleased to note that the proposed guidelines as set out in Appendix III (Draft Code of Practice) are consistent in general with the advice and additional input provided by the Council.
8. Nevertheless, in order to observe the spirit behind making contracts available in both the Chinese and English languages (as stipulated in 4(c) of Appendix III), the Council would suggest supplementing the provision with the words "PMRS operators should not explicitly specify that one language prevails over the other". This is to address a problem that could be faced by consumers who, for example, examine a contract in the Chinese language and the English language version prevails in any court dispute. If a PMRS operator were to stipulate that one language prevails over the other in a court dispute, the guiding principle in 4(d) of the Code of Practice, i.e. "The contract should be in the language chosen by the consumer" would be defeated.
Proposed implementation plan and transitional arrangement
9. As far as the implementation schedule proposed in paragraph 23 is concerned, the Council's views are as follows.
Time frame
10. The timeframe of two months appears reasonable.
Lodgment of contracts
11. The TA has suggested that PMRS operators voluntarily deposit advance copies of their new service contracts with the TA and the Consumer Council. The Council's understanding is that the main purpose for lodgment would be for the relevant authority administering the Code to have access to copies of contracts as and when a need arises. For example, when a complaint is made and the agency cannot readily obtain a copy of the PMRS operator's contract. In this case, the Council is of the view that the lodgment of the new service contracts with the TA would suffice. In addition, it might be desirable for the TA to state that lodgment of the contract does not imply a form of vetting by it and that accepting a copy of a contract as submitted, without any further comment, does not imply acceptance by the TA that the contract has been drafted in satisfaction of the Code of Practice.
Making copies available
12. The Council agrees that a copy of the new service contract (consistent with the guidelines) should be made available to consumers at the earliest opportunity, with the option for consumers to adopt the new contract or retain their existing one.
Phasing out existing contracts
13. The Council agrees with the transitional arrangement for phasing out existing pre-payment contracts with rebates.
Interpretation of the term "harsh and unconscionable"
14. The Council notes the difficulty expressed by the TA in paragraph 19 as to what a court might rule to be "harsh and unconscionable" in a service contract. In this respect, the Council would like to draw the TA's attention to a recent judgment before the Hon Yam J in Chambers handed down on 10 July 2000 -Hang Seng Credit Card Limited and Tsang Nga Lee - Action No. 14227 of 1999.
15. This court case examined provisions in credit card contracts indemnifying banks for losses in recovering debts, and found that the banks in question were in breach of the Unconscionable Contracts Ordinance. The Court examined issues such as
- the relative strengths of the bargaining positions of both parties to the contracts;
- whether the consumer was able to understand the cost provision; and
- whether the consumer could have acquired the identical service from other persons (i.e., the lack of choice adds to the unequal bargaining position between the parties);
16. One particular clause that has been identified by the Council, in its examination of some contracts currently being used, and that could raise difficulties for PMRS operators in terms of 'reasonableness' is along the lines of the following:
- "the Customer undertakes to indemnify the Company in full against all direct or indirect loss, damages, claims, demands, proceedings, costs and charges however arising out of the Customer's breach of any representation, warranty or undertaking."
17. There is no criteria set out in the Code as to how to evaluate whether an item of expense incurred under an indemnity provision is reasonable. In any event, whether charges which are in dispute are reasonable, is ultimately a matter for the court to decide. Accordingly, it is up to PMRS operators to assess their own obligations to ensure they are not at risk under relevant law when seeking to enforce clauses in contracts, particularly clauses similar to that above.
18. Nevertheless, there are some general guidelines that could be given by the TA to assist operators in assessing their obligations, and reducing risk under the law. For example, it could be assumed that the factors that could be taken into account in deciding whether charges incurred for collecting debts are reasonable would be:
- prevailing market practices;
- the reputation of debt collection agents used by the party in the process of collecting debts; and
- the operator's past performance in dealing with debt collectors.
19. The Council considers that one way in which a PMRS operator could lessen its risk of being seen to be acting unconscionably, would be to provide a detailed breakdown of the costs and expenses which consumers who are in debt to the PMRS operator are being required to pay. Such a procedure would enable consumers who are being subjected to the indemnity clause to assess the charges being claimed and seek independent advice as to whether the quantum of the charges appear reasonable and were reasonably incurred.
