Complaint against Jhan Wang Construction Co., Ltd. for failing to provide prospective clients with ample time to review contracts for pre-sale housing units in its “Sin Di Lai Heng No. 58 Shih-Da Jyu” and “Sin Di Lai Heng No. 59 Jin Zuan Sin Di” housing developments, which was an obviously unfair conduct that is able to affect the trading order

Chinese Taipei

Case:

Complaint against Jhan Wang Construction Co., Ltd. for failing to provide prospective clients with ample time to review contracts for pre-sale housing units in its “Sin Di Lai Heng No. 58 Shih-Da Jyu” and “Sin Di Lai Heng No. 59 Jin Zuan Sin Di” housing developments, which was an obviously unfair conduct that is able to affect the trading order

Key Words:

pre-sale housing units, to review contracts

Reference:

Fair Trade Commission Decision of August 14, 2003 (the 614th Commissioners’ Meeting); Disposition (92) Kung Chu Tzu No. 147

Industry:

Real Estate Investment (6611)

Relevant Law:

Article 24 of the Fair Trade Law

Summary:

1. According to complaints from several members of the public, Jhan Wang Construction Co., Ltd. (Jhan Wang) failed to provide prospective clients with ample time to review contracts for pre-sale housing units in its “Sin Di Lai Heng No. 58 Shih-Da Jyu” and “Sin Di Lai Heng No. 59 Jin Zuan Sin Di” housing developments prior to collecting deposits or formal signing of the contracts, in violation of Article 24 of the Fair Trade Law.

2. Following an inquiry, the Fair Trade Commission (FTC) found that, in some cases, the date for the deposit payment and the date for signing the sales contract were either the same or were separated by just one day. In some other cases, the sales contracts were retained by Jhan Wang as monies due at the time of contract signing had not been paid in full. When selling the pre-sale housing units in question, Jhan Wang sales representatives, due to the large number of prospective buyers coming to view the construction site(s) and the expense of printing the contracts, divided prospective buyers into three groups--“browsers,” “depositors” and “signers”--based on their own judgment and a variety of considerations, and decisions on whether to provide a contract for perusal were based on these prospective buyer classifications.

3. Grounds for disposition:

(1)As regards transactions involving pre-sale housing units, given that the subject property of the transaction has yet to be built, the prospective buyers must rely solely upon the sales representatives and advertisements to familiarize themselves with the relevant information regarding the property, with the content of the sales contracts being the sole means of sufficiently disclosing the actual specifications of said properties. However, most sales contracts for pre-sale housing unit are unilaterally drawn up beforehand by the builders, who undoubtedly have an advantageous position as regards the relevant contract/market information. On the other hand, collection of deposits will place the buyer in an obviously unfair, weak and disadvantageous position if the builder collects such deposit prior to disclosing the content of the sales contract and refuses the buyer’s request for revising the contract, or if the builder insists on confiscating the deposit unless the letter of the contract is adhered to. Furthermore, real estate sales contracts involve specialized language and the layman may require time to verify and understand its meaning. The client’s ability for negotiating contract will be limited if the builder, when engaging in a real estate sales transaction, fails to give reasonable time for the prospective client to peruse said contract. To prevent builders from abusing their advantageous market information position and to fully enforce the legislative intent of Article 24 of the Fair Trade Law, the FTC resolved in the 191st and 383rd Commissioners’ Meetings that, when real estate investment enterprises sell housing units, any one of the following circumstances may constitute a violation of Article 24 of the Fair Trade Law: (i) requiring that clients first pay a deposit before being provided with a copy of the contract; or (ii) failing to provide an ample period of time, a minimum of five days, to peruse the contract prior to collecting a deposit or signing the contract.

(2)According to a number of the complainants in this case, at the time of purchase of their housing units, the date for deposit payment and the date for signing the sales contract were either the same or were separated by just one day. Meanwhile, materials provided by Jhan Wang contained no specific evidence demonstrating that they provided prospective clients with an ample period of time for perusing the sales contract. Given that the transaction’s subject pre-sale housing unit had yet to be built, the contract was the sole basis by which the actual conditions of said unit may be disclosed, even if consensus had been reached on the major contract clauses prior to paying deposits or signing their contracts. Although the complainants might not be aware of their right to demand a copy of the sales contract for perusal, Jhan Wang, with its advantageous market information position, should have provided a copy of said contract for perusal prior to collecting any deposits or signing any contracts. Furthermore, Jhan Wang retained the sales contracts of some complainants because monies due at the time of signing had not been paid in full. Such conduct is evidence that Jhan Wang used its advantageous position of having collected a portion of the purchase price to deprive the prospective client of the opportunity to fully review the contract. The conduct was in contradiction of Jhan Wang’s statements that prospective clients were not required to make any payments to review the contract. This indeed confirms that Jhan Wang obviously take advantage in the buyer’s weak position regarding the available information, by refusing to provide an ample period of time for the prospective client to review the contract prior to collection of deposits or signing of the contract. Such practice constituted obviously unfair conduct that is able to affect the trading order, in violation of the provisions of Article 24 of the Fair Trade Law.

(3)While Jhan Wang stated that it divided prospective clients into three groups before deciding whether to provide them with contracts for perusal, if such a method were actually used as stated, Jhan Wang would even more be able to use its advantageous market information position and all kinds of sales tactics (such as claiming that there were only a limited number of units or only one unit left for sale) to compel prospective clients to pay deposits or sign contracts in a short period of time without carefully reviewing the terms of the sales contract. Further, to use the pretense of testing the sincerity of prospective clients, Jhan Wang might compel them to pay a deposit or sign the sales contract, placing potential home buyers in a disadvantageous position. Thus the company’s statements in its defense lack credibility.

(4) Following consideration of the motivation, purpose, and expected improper benefit of Jhan Wang’s illegal practices, the duration of the harm to the trading order, Jhan Wang's attitude of cooperation with the FTC’s investigation, and other factors, the FTC ordered Jhan Wang to immediately cease the illegal practices and imposed an administrative fine of NT$1.5 million under the forepart of Article 41 of the Fair Trade Law.

Appendix:

Jhan Wang Construction Co., Ltd.’s Uniform Invoice Number: 12953919

Summarized by Taur, Rong; Supervised by Chen, Yuhn-Shan