HUTCHISON TELEPHONE COMPANY LIMITED
Comments on
Consultation Paper on the Issue of a Code of Practice for the
Service Contracts for
Public Mobile Radiotelephone Service
16 October 2000
General
1.1
We welcome this opportunity to express our views on the Office of the
Telecommunications Authority (“OFTA”) and the Consumer Council’s (“CC”)
suggested guidelines for service contracts for the PMRS Operators (“Guidelines”).
1.2
We accept that consumer protection is one of OFTA and CC’s common key
objectives behind the Guidelines, but one must not neglect the underlying
rationale behind a mobile operator’s service contract(s).
1.3
The service contracts are intended to govern the provision of mobile services and
wireless devices by mobile operators to any persons (whether individuals or
corporate bodies) who subscribe for those services and order for those devices (as
the case may be). Such individual person who enters into a mobile service
contract in his/her private capacity with a mobile operator for mobile services
and/or wireless devices is called and termed `consumer’. These persons form a
major part of the subscriber base of our mobile operation.
1.4
The narrow scope of the term ‘consumer’ does not come from nowhere. Under the
Unfair Term in Consumer Contracts Regulations 1999 in England, a consumer is
defined as a “natural” person who uses a publicly available telecommunications
service for the purposes that are outside his/her trade, business or profession. In
Hong Kong, a consumer is defined under the Control of Exemption Clauses
Ordinance as someone who enters into a contract in his/her private capacity with
someone who is conducting business. Under Section 3 of the Unconscionable
Contract Ordinance, a party ‘deals as consumer’ in relation to another party if :a.
he does not make the contract in the course of business nor holds himself
out doing so ('business' includes a profession, the activities of a public
body or public authority and the activities of a commission, or committee,
or other body appointed by the government);
b.
the other party makes the contract in the course of a business; and
c.
the goods or services concerned are ordinarily for private use or
consumption.
The latter Ordinance is therefore limited to goods and services obtained for
personal and domestic use and does not apply to commercial arrangements.
1.5
The Consultation Paper therefore focuses on the protection of the said consumers
of mobile services and the effects of the service contracts on the said consumers.
With the scope and definition of `consumer’ established, we should now turn to
the consumer service contracts which are the subject of this submission.
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Consumer Protection Laws
1.6
It is alleged by OFTA and CC that many complaints from the consumers
expressed concerns over the fairness of the terms and conditions of their existing
service contracts (Page 1 of the Consultation Paper).
1.7
Although at the outset, consumers seem to be lacking bargaining power but in
reality the trend in contract law has been to recognize the weak bargaining power
of the consumers.
1.8
In fact, consumer protection laws have developed over the past 100 years to
safeguard the rights of consumers based on the principle of freedom of contract,
examples of which are as follows1:a.
Sale of Goods Ordinance – It sets out the minimum contractual protection
to which a Hong Kong buyer of goods is legally entitled, with no possible
way for the seller of the goods to contract out.
b.
Control of Exemption Clauses Ordinance – It stipulates that no one can
exclude liability for death or personal injury claims arising as a result of a
contract irrespective of the terms in the contract about the respective rights
and duties of the parties.
c.
Supply of Services (Implied Terms) Ordinance – It implies into contracts
for the supply of services terms relating to care and skill, time for
performance, and consideration.
d.
Unconscionable Contracts Ordinance - It empowers courts to give relief in
certain contracts found to be unconscionable. It applies to contracts for the
sale of goods or supply of services in which one party deals as a consumer.
1.9
With due respect, we disagree with OFTA’s view that there is no guidance as to
what would be ruled by the court as “harsh and unconscionable” terms in a
service contract (Page 6 of the Consultation Paper). Under Section 6 of the
Unconscionable Contracts Ordinance, the determination of whether a contract or
part of it was unconscionable in the circumstances relating to the contract at the
time it was made depends on a number of factors. The inclusion of the words
`(among other things)’ in that section indicates that the court is not limited to the
factors stated therein and hence the court has been offered with a sufficient and
flexible guidance when applying the test of unconscionability.
1.10
Further, it is incorrect to say that there is no case law on the subject of
unconscionability in Hong Kong. In a recent Court of First Instance case (Hang
Seng Credit Card Limited v Tsang Nga Lee & Others2), it was held that an
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indemnity costs provision in a credit card members’ agreement was
unconscionable. The Court utilized the factors and flexibilities contained in
Section 6 of the Unconscionable Contract Ordinance and considered various
factors, such as the relative strengths of the bargaining position, comprehension
by the consumer, choices in the market, meaning and effect of the provision and
reasonableness. The Court also stated that it does not preclude the court in a
proper case from looking at all available circumstances in order to decide whether
the indemnity costs provision is unconscionable (even when a defendant fails to
appear). This case demonstrates that the courts in Hong Kong are ready and
willing to apply the Unconscionable Contract Ordinance to protect consumers’
rights.
1.11
In the light of the existing applicable laws, consumers of mobile services are no
doubt being well protected. Hence, they are now placed on a level playing field
with the mobile operators. Further protective mechanisms are unnecessary.
Market Considerations
1.12
Considering that each of the six mobile operators in Hong Kong has a substantial
number of consumers subscribing for its services, it is impracticable to negotiate
the terms of the service contract individually. Consequently, it is perceived by the
public that service contracts are usually “take it or leave it” with no element of
bargaining involved. However, as there is intense competition in the market and
there are wide choices of services and mobile operators for the consumers to
choose from, consumers are free under the operation of the Mobile Number
Portability to switch to the desired services and terms of service contracts that suit
their needs.
1.13
Hong Kong is well known of its unintervened market and legal system, it will be
discouraging to have external forces affecting the wills of the contracting parties
when concluding service contracts. Such interventions will also contravene the
principle of freedom of contract, which is the foundation of the aforesaid
consumer protection laws. In Hong Kong Business Law (4th edition), Anne
Carver described that such principle grew out of the 19th century belief that the
governments and the courts should intervene as little as possible.
1.14
Being a public mobile operator, we hold a similar view as OFTA, that is, we will
consider what, if anything, could be done within our powers (but not beyond) to
resolve any problems that might exist. The market demand and supply forces will
no doubt be the best self correction mechanism.
Unilateral Power of Variation
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1.15
In the Consultation Paper, OFTA indicates that there is no need for the operators
to have an absolute power of unilateral alteration and that the scope of unilateral
amendments to contract terms should be circumscribed.
1.16
The rationale behind retaining such power is to maintain flexibility and fairness to
the existing and would-be consumers where no consumer would be discriminated
or treated differently. Further, it allows mobile operators to respond to the market
changes quicker and to introduce better services to consumers without
administrative delays.
1.17
Historically, only fair variations of the service contracts for operational purposes
have been experienced.
1.18
Overseas jurisdictions do not hold against the inclusion of similar variation
clauses in contracts but adopt preventive measures to avoid abuse of such power.
For example, in England, Schedule 3 to the Unfair Terms in Consumer Contract
Regulations 1994 contains an indicative, but non-exhaustive, list of terms which
may be regarded as unfair. Please note that the Regulations apply to any term in
a contract concluded between a seller or supplier and a consumer and such
contract has not been individually negotiated. Term 1(k) of that Schedule refers
to a term allowing a seller or supplier unilaterally to vary a term. It must be
appreciated that the types of term listed in that Schedule are not automatically
unfair, nor are they deemed fair unless proved unfair. It will still be for the
consumer to demonstrate that the variation term contained in a service contract is
unfair in the context of the whole contract and to satisfy the reasonableness test
under Section 3(2)(b)(i) of the Unfair Contract Terms Act 19773. The
reasonableness test under that section (which has a lower standard than the
unconscionability test) renders a term unfair if such term allows a substantially
different performance from that which was reasonably expected.
1.19
The above example illustrates that the English statutory regime is not created to
intervene the principle of freedom of contract but to implement protective
mechanism to safeguard consumers' rights if a term or its operation has caused
detriment to the consumers.
1.20
As discussed above there is adequate consumer protection laws in Hong Kong to
safeguard consumers' rights and therefore it becomes unfair and unjust to the
mobile operators to have such power forcefully removed or limited.
1.21
Further, as pointed out in paragraph 6 of the Consultation Paper, the mobile
operators have accepted that if any terms of the service contracts are to be varied,
a 30 days prior notice will be given to the subscribers.
1.22
Based on the above, we urge OFTA and CC to reconsider their current position on
this issue.
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Types of Contracts
1.23
OFTA and some mobile operators have identified the following types of service
contracts in the market:
a)
b)
c)
fixed term contracts;
general service contracts; and
prepayment contracts.
We are in support of OFTA's proposal that it is unnecessary to have the third type
of contracts, that is prepayment contract.
1.24
Nevertheless, it is extremely difficult to distinguish between fixed term and
general service contracts merely relying on the sole criterion that a service
contract with a clause allowing unilateral variation of the service charge will be
regarded as a general service contract. It is important to realize that service
contracts are not automatically and readily distinguished as such, it depends upon
the effects of the wordings and the elements of the contract. At times, even courts
find it difficult to categorise contracts into different types.
1.25
If OFTA's proposal is adopted, nearly all existing service contracts may be
classified as general service contracts because most of them contain variation
clauses allowing the mobile operators to alter the service charge unilaterally. If
that is the case, it will defeat OFTA's original intention to protect consumers. You
may be surprised to note that many service providers of other industries have
similar variation clauses in their contracts.
1.26
We are of the view that no categorisation of the service contracts is necessary as
such unilateral power to vary the charges comes within the scope of the unilateral
power of variation and our discussions and views on the latter power are
applicable to the earlier power.
Guidelines
1.27
The draft Guidelines set out in Appendix III of the Consultation Paper are
voluntary in nature. In the circumstances, we reckon that the Guidelines should in
fact be named and regarded as recommendations with no mandatory effect.
1.28
If the Guidelines contain only recommendations, mobile operators are not
statutorily required to follow the Guidelines. The wordings and tones of the
Guidelines should therefore be changed and softened accordingly.
1.29
Referring to the guiding principles in the Guidelines, we have the following
comments:
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1)
Guiding Principles (a) to (c) – We have no objection to these guiding
principles.
2)
Guiding Principles (d) – As most of the service contracts are drawn up in
English language, it is suggested that the English text shall prevail to
preserve their uniformity and originality and the service contracts may be
translated into Chinese language. Usually, our practice is to provide both
English and Chinese versions of the service contracts to our subscribers.
3)
Guiding Principle (e) – As long as the body text and footnotes of a service
contract are legible, it is unnecessary to specify their respective minimum
font sizes. Please note that the terms of the service contract are now
available both in hard copy format and on the Internet. If soft copies of the
terms are obtained via the Internet, consumers can adjust the font size
according to their own wish4. We may consider placing an enlarged version
of the terms of our service contracts or providing leaflets with larger fonts in
a prominent place of our retail outlets.
4)
Guiding Principle (f) – We have no objection to the suggested principle.
5)
Guiding Principle (g) – As discussed above, it will be a matter which the
court can consider in determining if a service contract is a fixed term
contract or a general service contract and whether a term of the contract is
fair. We therefore believe that no attempt should be made to categorise the
contracts.
We have no objection in putting in and highlighting the contractual period,
however for the other suggested salient points, we are of the opinion that the
potential consumers should be better off going through the terms of the
service contract themselves, otherwise they will never bother to read the
terms at all. There is no simple summary that can spell out the essence of
them and preserve their originality. We intend to underline or highlight the
relevant terms to draw their attention.
1.30
Paragraph 6 of the draft Guidelines reserves the Telecommunications Authority's
right to amend and approve modifications, as and when necessary. We believe
that this is also a type of unilateral variation powers. Therefore, subject to the
nature of variation, a variation is only allowed unless prior written notification of
not less than 30 days has been given by the Telecommunications Authority. If the
variation requires a longer implementation period, a longer notice period should
be given.
Transitional Arrangements
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1.31
We suggest that, before new service contracts can be introduced, all existing and
upcoming service contracts should remain valid subject to the giving of 30 days
prior notice if the power of variation is exercised unilaterally.
1.32
The time frame for the introduction and implementation of the Guidelines and
new service contracts should be subject to further negotiations between the
mobile operators and OFTA.
Hutchison Telephone Company Ltd.
16th October 2000
Endnotes:
1.
2.
3.
4.
Chapters 7, 9 and 10, Anne Carver, Hong Kong Business Law, 4th edn, Addison
Wesley Longman China Limited, 1998.
High Court Action No. 13228 of 1999 (Court of First Instance); Judgment handed
down in court on 10 June 2000.
Chapter 10, Richard Lawson, Exclusion Clauses and Unfair Contract Terms, 5th
end, Sweet & Maxwell.
In fact, the terms of our service contract for mobile phone services are available
for perusal on our website (www.orangehk.com).
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