Encounters with unscrupulous trade practices result not only in financial loss but in some cases also mental distress to consumers. If the parties involved are unable to resolve their disputes through conciliation or other means of dispute resolution, the avenue of redress that remains available to consumers seeking justice and relief would be the courts. Protracted proceedings, the legal intricacies and substantial legal costs (sometimes disproportionate to the amount of damages claimed) involved may nonetheless deter the average consumer from litigation, with the consequence that unscrupulous traders could walk away unscathed. Founded in 1994, the Consumer Legal Action Fund (Fund) aims to provide legal assistance in meritorious consumer disputes involving significant public interest and injustice. Consumers who having exhausted all means but are not able to resolve their disputes and are not eligible for any other form of legal assistance may apply to the Fund for assistance.
The Council is the Trustee of the Fund. In the decade from 2012 to 2022, the Fund handled a total of 188 applications with assistance provided in 42 cases, after assessing such criteria as the merits of the case, the likely deterrent effect of granting assistance on unscrupulous trade practices and the number of consumers that were adversely affected. Of the 42 assisted cases, 16 involved beauty and fitness services, 4 involved home renovation works and 2 involved financial services. Other matters include time-sharing schemes, columbaria, and residential property transactions. 40 assisted cases involved service contracts, half of which involved prepayments. Amounts involved ranged from several thousand dollars to $800,000, exceeding $4 million in aggregate. In one assisted case, it was the trader who sought to claim a sum of $500,000 in legal proceedings against the assisted consumer.
Assistance provided by the Fund may include legal advice, assistance and the engagement of external solicitors or barristers to represent the assisted consumer in legal proceedings. Of the 42 assisted cases, 22 have concluded with 12 cases resulting in judgments in favour of the consumer, including 3 cases relating to beauty and fitness services, with an aggregate judgment sum exceeding $1.2 million; in addition, subsisting contracts were rescinded. In the cases handled by the Council, those relating to purchase of fitness memberships or beauty packages often involved unscrupulous trade practices, such as aggressive and prolonged sales pitches and even the withholding of consumers’ identity cards or credit cards. Such practices posed substantial mental stress on the consumers and compelled them to unwillingly enter into contracts, some of which involved substantial prepayments or long-term duration. Owing to their financial condition or the salespersons’ inducement, some consumers even took out bank loans in order to meet instalment payments.
One successful case involving a loan transaction concerned 2 defendants. Settlement was reached with one defendant and judgment obtained against the other. The assisted consumer, who was the owner of a private residential unit, had fallen prey to claims by an intermediary alleging to represent the mortgage bank in offering a second mortgage in sum of $900,000 at the cost of only several hundred dollars per month. The intermediary alleged that as the bank’s approval process would take 2 to 3 months, the loan would first be provided by another finance company and transferred to the bank upon approval. At the same time, the intermediary advised that the assisted consumer would in fact only receive a sum of $500,000, with the remaining sum of $400,000 held by the intermediary on his behalf to settle the first 3 months’ interest. The assisted consumer agreed to such arrangements.
The assisted consumer came to realise the falsity of the intermediary’s representations when he received an invoice from the intermediary with a “broker fee” of $369,400. To mitigate his loss, the assisted consumer immediately settled the entire loan but still sustained a loss of around $430,000, comprising the “broker fee”, legal fees, and interest payments. With the assistance of the Fund, the assisted consumer commenced legal action against the intermediary and the finance company. In its judgment, the Court ordered the intermediary to compensate the assisted consumer in sum of around $70,000, plus interest and legal costs. In its settlement with the consumer, the finance company agreed to pay the assisted consumer around $340,000 plus legal costs of $140,000. After deducting contribution to the Fund, the assisted consumer was able to recover a net sum of around $280,000.
11 cases (including the above case) reached settlement, involving an aggregate settlement sum of over $2.24 million. In addition, subsisting contracts were rescinded. Beauty and fitness services dominated these settlements, with 5 cases involving an aggregate settlement sum of over $850,000. One such case involved an assisted consumer who suffered from mental illness and was unemployed at the time of the incident. Despite having expressed disinterest in the membership schemes peddled by the beauty parlour, 2 staff members of the beauty parlour still subjected the assisted consumer to an hour-long high-pressure sales pitch inside a tiny room. Placed under psychological pressure of “a need to make a purchase before leaving” and “a feeling of guilt for not purchasing anything”, the assisted consumer finally succumbed to purchasing 3 similar membership plans. Thereafter, the beauty parlour’s staff also impelled the assisted consumer to purchase 2 beauty packages using similar sales tactics. On the other hand, during the entire sales process, the beauty parlour did not explain the nature and content of the various plans and packages in clear terms. The membership plans and beauty packages that the assisted consumer purchased cost around $800,000, which he prepaid a sum of HK$276,000 by credit card instalments. Taking the view that the case involved unfair trade practices and unconscionable conduct, the Fund commenced legal action against the beauty parlour and the case was finally settled with a refund of $276,000.
Cases involving home renovation works were also relatively common. As such works often involve various stages, materials and manpower arrangements, the associated costs would often run to several hundred thousand or even over a million dollars. And yet, quotations provided by home renovation companies often lack clarity on the items of work, including the project scope, materials, quantity, unit price, and even the project completion date. Any unsatisfactory progress and performance, or even, incompletion of the works, would result in substantial loss to the consumer who already paid for such works.
The Fund assisted a consumer allergic to chemical smells in reaching a settlement with a home renovation company. According to the assisted consumer, in response to her request that the renovation works and furniture must be free from chemical odours, the trader verbally guaranteed the same and promised that formaldehyde would not be used. Thus, a contract of $490,000 in total was entered into and a deposit of around $245,000 was paid. However, the trader subsequently indicated that it was impossible for the works to be entirely free from chemical smells or formaldehyde. Whilst the trader subsequently agreed not to proceed with the works, it was silent on cancellation of the furniture contract or refund of the deposit. The Fund appointed a solicitor to claim against the trader and the case was settled with a refund of the full deposit and part of the legal fees.
Of the 42 assisted cases, 9 are currently still in process, whilst 11 had been terminated by the consumer or for other reasons. Consumers who wish to apply for assistance from the Fund must be an individual consumer or a group of consumers involved in the transaction. The applicant is generally required to pay an application fee of $100 or $1,000, depending on the court assuming jurisdiction over the matter. The Fund will then determine the application according to established procedures.
To strike a balance between allowing consumers to benefit from the Fund and its legal risks, assisted consumers who prevail in their cases are required to make a contribution to the Fund. The contribution payable includes 10% of sums received by the recipient and the value of any property recovered or retained, as well as costs and expenses that were not recovered from the trader, subject to a cap of 25% or 50% (depending on the court assuming jurisdiction over the matter) of the value of the benefit. Taking the 12 cases that resulted in judgment and 11 cases that resulted in settlement as examples, the contribution to the recovered sum of around $2,244,000 was around $627,000. The assisted consumers’ actual recovery was around $1,616,000, in addition to obtaining relief from any further payment obligation under the contracts.
Having been established for almost 30 years, the Fund has long been dedicated to seeking justice for consumers on consumer disputes of all kinds. Back in 2005, the Fund assisted a group of owners of “One Beacon Hill” in pursuing civil action against the developer, claiming contractual interest arising from delayed completion of the development project and eventually leading to settlement in favour of the owners. Further, in its judgment on the developer’s application for trial of preliminary issues, the Court strongly reprimanded the developer for its various unscrupulous trade practices. In the Lehman Brothers minibonds case in 2008, the Fund assisted a group of consumers in pursuing legal action, with the aim of bringing some “test cases” to the courts so as to clarify important legal principles and set a precedent for future consumer protection. The Fund and the Council’s conciliation services mutually complement each other to safeguard consumer rights by providing effective and timely assistance to consumers while deterring unscrupulous business practices.
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