Attractive shopping offers or limited-time flash rewards could easily drive consumers into making hasty purchasing decisions, overlooking the “devil in the details” of the relevant contractual terms. Some consumers may also succumb to high-pressure sales tactics of traders or did not have the chance to read and understand the lengthy and convoluted contractual terms, thus falling into sales traps. In the “Unfair Terms in Standard Form Consumer Contract” study report previously published by the Consumer Council, it was revealed that some standard form consumer contracts included unfair terms that are contrary to the requirement of good faith. It is not uncommon to find unfair exemption clauses that sought to exclude or limit the liability of suppliers for breach of contract, negligence, misrepresentation or other breach of duty to the detriment of the consumers.
A review of court judgments, as well as cases assisted by the Consumer Legal Action Fund (CLAF), the Council identified different clauses that were drafted to the advantage of traders in their contracts with consumers, such as terms providing for “no refund for any fees or payments” and “the trader reserves the right to amend the terms without notice” by a beauty parlour; a timeshare contract which stipulated that the client must pay surcharges of an unidentified amount in order to continue enjoying the services, with hotel reservations that could only be guaranteed by booking 2 years in advance; while a bank providing financial investment product services stated that they shall not bear any liability arising from their investment advice. In another instance, an unscrupulous fitness centre pressurised an individual with mild intellectual disability to enter into a high-value fitness membership contract and then enticed him to try out the gym equipment on-site, an action that would nullify the cooling-off period clause.
The Council stresses that when challenged by unfair, draconian or unconscionable terms, consumers may seek redress through legal action by invoking the Unconscionable Contracts Ordinance (“Ordinance”). The courts have from time to time held certain contracts or terms to be unconscionable and refused to enforce the contract or the unconscionable part of the contract, revised or altered the unconscionable part or limited its application to safeguard consumer rights. The Council also urges traders to uphold fair business conduct. They should not harbor the impression that they could blatantly infringe on consumer rights by simply including unconscionable terms in the contract.
Exploitation of Consumers’ Weaker Bargaining Position Might Constitute Unconscionable Conduct
Whilst the Unconscionable Contracts Ordinance promulgated in 1995 does not define the term “unconscionable”, it is generally interpreted as “acts against conscience”, which does not necessarily involve dishonest, fraudulent or intentional misconduct, and is not bound by traditional common law and equitable concepts. When determining whether a contract or clause is unconscionable, the court will consider all relevant and reasonably foreseeable circumstances relating to the contract at the time it was made, such as the bargaining positions of the consumer and the trader, the consumer’s ability to understand the terms, whether any undue influence was exerted by the trader, and whether the consumer could have acquired equivalent goods or services from another trader. According to case precedents, the trader must or should have known about and had deliberately exploited the weaker bargaining position of the consumer in bringing about the unconscionable transaction. An unfair term and/or the consumer being in a weaker bargaining position on its own might not be sufficient to make out a case for unconscionable contract.
The Ordinance has been broadly applied to consumer contract disputes of various industries, including the financial, timeshare, beauty and fitness industries. The Ordinance had also been successfully invoked from time to time in cases assisted by CLAF, for which the Council acts as a Trustee, in seeking judicial redress for the consumer.
Case 1: Cooling-off Period Term Voided Due to Coerced Use of Gym Equipment
The consumer, a young individual with mild intellectual disability working as a part-time service attendant, was enticed by a salesperson to a fitness centre, where he was requested to sign a gym membership and personal training contracts valued at $150,000. Notwithstanding the consumer’s refusal, the salesperson claimed that the contract had already been filled in with his information and requested immediate payment. Given the impression that he had no other choice, the consumer signed the contract and was “escorted” by the staff to withdraw cash from an ATM nearby. He then completed a voice recording following a script provided by the fitness centre, stating that it was a voluntary transaction. Although the contract included a 7-day cooling-off period, the clause was stated in small print and provided that the cooling-off period will be nullified upon use of the gym equipment. The consumer then used the equipment for around 10 minutes under the coercion of the staff. The court held that the contract was unconscionable given that the staff had exploited the consumer’s mental state and weaker bargaining position to impair his judgment. As a result, the consumer did not have sufficient time to read and understand the contract or the opportunity to seek independent advice from other parties prior to signing the contract. Furthermore, the staff did not explain the cooling-off period clause and further pressurised the consumer into using the equipment in order to void the cooling-off period clause. The court was of the view that the fitness centre had clearly employed dishonest sales tactics in forcing the consumer into a transaction that was unnecessary and beyond the consumer’s means. The contract was rescinded and the centre was ordered to refund the payment of around $150,000.
Case 2: Timeshare Contract Stated 2-year Advance Booking Required for Hotels
A company enticed the consumer with gift vouchers to join a so-called 90-minute seminar, which eventually turned into a 4-hour sales talk. During the process, the consumer was held down by the shoulder by a staff member until he signed a timeshare contract, took a photo on the spot and filled in a questionnaire. The court opined that the trader’s enticement of the consumer and aggressive sales practices resulted in the consumer signing the contract under undue influence and duress, without having sufficient time to read and understand the contract or the opportunity to seek independent advice from other parties. The trader’s requests that the consumer takes photos and completes a questionnaire were attempts to conceal its unfair sales practice. The court considered 4 terms unconscionable: (1) from 2018 to 2027, the consumer could only exercise membership rights once a year to stay at a designated hotel for 1 week every 1 or 2 years; (2) the consumer could only continue enjoying such privileges between 2027 to 2039 upon paying additional charges; (3) however, the exact amount of these charges were not set forth in the contract; and (4) hotel reservations could not be guaranteed unless booked 2 years in advance. The contract was rescinded and the trader was ordered to refund all payments.
Case 3: Customer Persuaded to Purchase 267 Beauty Treatments Within 10 Days
A beauty parlour staff member, despite being clearly aware of the consumer’s low credit limit and tight financial situation, coaxed her to extend and upgrade her beauty membership. The consumer eventually purchased 267 facial treatment sessions for more than $48,000 over the course of less than 10 days. The court held that 3 of the contractual terms were unconscionable and unenforceable: (1) no refund for all payments; (2) the trader has the right to vary the terms at any time without notice; and (3) the trader has the sole right to determine any dispute. The court opined that the trader knew that the consumer was exorable and needed to extend her credit limit to pay for the treatment by instalments, yet exploited her weaknesses to procure the contract. In addition, the relevant terms were in small print and illegible, the consumer did not have the opportunity to read and understand those terms, and the staff also neglected to explain them. Nonetheless, the court found that the trader had explained the costs of the membership and treatment package (which there was no evidence of being excessive), payment method and number of treatment sessions to the consumer. It was not necessary to rescind the whole contract and, as the trader was willing to continue to perform the contract, the consumer was not entitled to any refund.
Although the Ordinance serves to protect the rights of consumers in the face of unconscionable contracts or terms, the Council reminds consumers that they bear the burden of proof in protracted and expensive civil proceedings, the outcome of which very much depends on the court’s findings of fact and views. Further, even if the court finds that some terms were unconscionable, the consumer might not be able to obtain the relief they desired such as rescission of the whole contract and full refund. As such, consumers should remain vigilant and scrutinise the terms and conditions before entering into any contract. They should also consider whether they need or could afford the goods or services and seek independent advice as required before making a purchasing decision.
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