Zheng He Ji International Co., Ltd. violated the Fair Trade Act by selling and promoting pre-arranged funeral service contracts through a multi-level sales platform

Chinese Taipei

Case:

Zheng He Ji International Co., Ltd. violated the Fair Trade Act by selling and promoting pre-arranged funeral service contracts through a multi-level sales platform

Key Words:

multi-level sales, pre-arranged funeral service contracts

Reference:

Fair Trade Commission Decision of March 27, 2003 (the 594th Commissioners' Meeting); Disposition (92) Kung Ch’u Tzu No. 092042

Industry:

Direct Sales Enterprises (4812)

Relevant Law:

Article 23-2(2), 23-3(2), and 23-4 of the Fair Trade Act; Article 5(1), and 11(1) of the Supervisory Regulations Governing Multi-Level Sales

Summary:

1. On 3 August 2001 Zheng He Ji International Co., Ltd. (Zheng He Ji) filed for recordation with the Fair Trade Commission (FTC) for conducting multi-level sales and promotion of "pre-arranged funeral service contracts" issued by Chan Yun Funeral Co., Ltd. (Chan Yun). When purchasing a "pre-arranged funeral service contract," a participant had to make a down payment of NT$39,000 and obtain a distributorship right. In addition to entering into a purchase contract for the "pre-arranged funeral service contract," the participant also had to sign a participation contract with Zheng He Ji. There existed a trilateral relationship among the participant, Zheng He Ji, and Chan Yun. The purchase contract existed between the participant and Chan Yun, with Zheng He Ji acting merely as a commission agent receiving contract applications and down payments in an acting capacity and then delivering the monies to Chan Yun. Chan Yun, for its part, calculated the number of contracts sold to determine the commission to be returned to Zheng He Ji for each succeeding case. Zheng He Ji's chief business revenue was agent commission, rather than the monies collected for the sale of "pre-arranged funeral service contracts."

2. Article 23-2(2) of the Fair Trade Act provides that within 30 days following the termination of the contract, a multi-level sales enterprise shall buy back all goods in the participant's possession at 90% of the original purchase price. Furthermore, Article 23-3(2) of the same Act provides that the provisions of these two articles concerning goods shall apply mutatis mutandis to the rendering of services. The legislative purpose of the aforesaid provisions was to ensure that participants might be able to withdraw from the multi-level sales plan or organization at any time. If goods were actually returned in compliance with Article 23-2(2) of the Fair Trade Act, then would make no substantial difference as to participants' rights and interests whether the return of goods was handled by the multi-level sales enterprise or by its upstream supplier. In the event that the multi-level sales enterprise reached an agreement with participants that the return of goods would be handled by a third party, then whether the enterprise has duly fulfilled its obligation of "buying back all goods in the participant's possession" should be determined by whether the third party has handled the participants' return of goods pursuant to Article 23-2(2) of the Fair Trade Act. In this case, Zheng He Ji only acted as an agent to render services of receipt and delivery of "notices of rescission of contract" for the participant, while Chan Yun handled matters regarding refunds. Although it was specified in the "notice of rescission of contract" that "full amount will be refunded within (inclusive of) 14 days, and 90% of the payments would be refunded in 14 to 30 days, a provision that was a suspected violation of Article 23-2(2) of the Fair Trade Act, Chun Yun claimed that when a purchaser demanded refund after 30 days had elapsed since the execution of the contract, the company still agreed to refund 90% of the total payments. The FTC initiated an ex-officio investigation into this case. Zheng He Ji, although suspected of not observing statutory requirements when handling matters regarding withdrawal and return of goods by the participant, was not found to have committed any substantial violations. It was therefore determined that Zheng He Ji did not violate Article 23-2(2) of the Fair Trade Act as applied mutatis mutandis under Article 23-3(2) of the same Act.

3. Nevertheless, Zheng He Ji engaged in multi-level sales without filing for recordation with the FTC 30 days prior to its commencement of operation. When participants joined its sales organization or plan, Zheng He Ji did not inform them of the particulars enumerated under Article 11(1) of the Supervisory Regulations Governing Multi-Level Sales, which omission constituted a violation of Articles 5-1 and 11(1) of the Supervisory Regulations Governing Multi-Level Sales enacted pursuant to Article 23-4 of the Fair Trade Act. Weighing the number of participants, its operational status, business volume, cooperativeness during the investigation, and the damage its conduct caused to the trading order, the FTC thus imposed an administrative fine of NT$400,000 pursuant to Article 42(3) and the forepart of Article 41 of the Fair Trade Act.

Appendix:
Zheng He Ji International Co., Ltd.’s Uniform Invoice Number: 12931704

Summarized by Wang, Horng-Shiuan; Supervised by Lin, Ching-Tarng