Violation of the Fair Trade Law by Ambassador Resorts Ltd. Taiwan Branch when selling resort membership for engaging in obviously unfair acts against its trading counterparts that could substantially affect trading order

Chinese Taipei

Case:

Violation of the Fair Trade Law by Ambassador Resorts Ltd. Taiwan Branch when selling resort membership for engaging in obviously unfair acts against its trading counterparts that could substantially affect trading order

Key Words:

timeshare, adhesion contract, promkotional methods

Reference:

Fair Trade Commission Decision of March 17, 1999 (384th Commissioners' Meeting); Disposition (88) Kung Ch'u Tzu No. 035

Industry:

Management Consulting (7402)

Relevant Laws:

Articles 24 and 41 of the Fair Trade Law

Summary:

1. Ambassador Resorts Limited Taiwan Branch (hereinafter "Ambassador") had acquired the name lists of consumers through its cooperating restaurants and enterprises. After sorting out those consumers with potential interest in resort vacations, it then notified the consumers by phone that they had been picked up as the raffle winners. They were invited to attend "travel symposia" on the pretext that the prizes and free coupons for vacations would be awarded at the symposia and were further asked to bring along their credit cards for identification purpose. At the sales site, sales personnel first queried consumers one-on-one about the consumers' travelling interest, experience, and habits. An approximately 90-minute film was then screened to introduce the timeshare vacations (see Note 1) of Resort Condominiums International (RCI). Then, Ambassador's sales personnel began promoting the products to interested consumers. They manipulated a milieu full of enthusiastic buyers and stressed that the membership cards offered benefits of lasting value and could easily be sold or assigned to another party, etc. They then began using extensive promotional tactics such as offering coupons for free stays at overseas resorts, special discount prices (i.e. gold memberships), installment payment plans, exposing consumers to long-hour sales pitches, and claims that only a limited number of discount memberships was available. Consumers who accepted the sales price were taken to another site where managers specifically in charge of contract signing explained and completed the contracts. The entire sales process took approximately four to five hours.

2. In addition to requesting Ambassador to explain its promotional activities, the Fair Trade Commission (FTC) also conducted a questionnaire survey among the randomly selected customers who had signed the contracts with Ambassador. Based on the following reasons, the FTC found that Ambassador's sale methods violated Article 24 of the Fair Trade Law (FTL).

(1) The sale methods employed by Ambassador to promote its resort memberships were obviously unfair.

1. Ambassador included phrases like "A Free Reception for the '98 New Concepts in Travel Exposition" in its advertising and promotional materials, and informed consumers by telephone that they would be attending "travel symposia." Consumers ended up attending Ambassador's product promotion activities without psychologically preparing for a commercial transaction. Ambassador's use of manipulated sales methods to promote its products has caused the consumers to transact with Ambassador on unequal footing.

2. Ambassador stressed to the consumers that the number of gold membership was limited and only available to customers who signed the contracts that very day when in fact it is unlimited and available to all consumers. The "gold membership" sales method was employed by Ambassador with the sole purpose of luring consumers to complete the deals on the same day. It took advantage of consumers' rashness and inexperience when dealing with Ambassador and thereby interfere with their ability to make reasonable purchase decisions.

3. When introducing its products, Ambassador emphatically brought to consumers' attention the benefits of unrestrained resale, leasing, and exchange of the membership. However, although intermediary companies engaging in the resale of timeshare resort membership do exist overseas, the market for such transactions is not mature and no such resale or leasing market exists in Chinese Taipei; and certain restrictions apply to the exchanges of resort membership as well. Resale or leasing would therefore not be easy. Ambassador not only failed to fully disclose these important transaction information but also exempted itself from liabilities by the use of adhesion contract. The exaggeration of the benefits of its membership at the time of the sale and the exemption of its liability by adhesion contract have also constituted obviously unfair behavior.

(2) The obviously unfair contract provisions employed by Ambassador's abuse of its an unfair trading position.

1. The content of the "Membership Application Agreement" signed by Ambassador and the consumers include only the name of the resort, timeshare hours, membership fee, management fee, and some cursory provisions regarding the rights and obligations of the parties. It failed to include such important information as the location, facilities, and service items of the resort purchased by the consumer, the rights and obligations enjoyed and assumed by the consumer, etc. In addition, the agreement at issue was signed by Ambassador as a "Resort Representative" and consumers as the "Applicant for Membership." Whether it will be legally binding on Ambassador is unclear. Furthermore, the contract does not impose any obligation on Ambassador; nor does it provide any information about Ambassador. It is obviously unfair to the consumers.

2. Still, the agreement contains a provision prohibiting the applicant from rescinding the contract. According to the agreement: "Both parties understand that this agreement is legally binding, and cannot be revoked, canceled, or nullified; nor may any amount paid be refunded." Ambassador on the other hand argued that it has given all consumers the right to review and rescind the contract within 7 days, and submitted as evidence a "Customer Agreement Rescission Form." However, the form contains only a statement that "This Company hereby certifies that the customer may within 14 days consult any attorney-at-law, and if the Agreement proves in any way illegal or improper, this Company agrees to make an unconditional refund." Thus, it did not in effect entitle the consumer a seven-day right of rescission.

3. Finally, the resort memberships sold by Ambassador were not inexpensive (they were priced from NT$200,000 to NT$300,000 and up). But in comparison with Ambassador, the consumers were the less informed party in terms of the content of the product. Notwithstanding that Ambassador permitted consumers to peruse the contract at the point of sale, Ambassador and the consumers were still trading on unequal footing given that the content of the contract was incomplete and consumers were not given the right of rescission. Ambassador's utilization of its superior trading position and the obviously unfair contract provision constituted obviously unfair acts capable of affecting trading order.

3. In sum, in the sale of resort memberships, Ambassador had utilized obviously unfair sales methods to interfere with its trading counterparts' ability to make reasonable purchase decisions, had abused its unequal trading position, and employed obviously unfair contract provisions. These acts are found to be obviously unfair acts capable of affecting trading order in violation of the provisions of Article 24 of the FTL.

Summarized by Chang Hsiang-hsi
Supervised by Hu Kuang-yu

Appendix:
Ambassador Resorts Ltd.’s Uniform Invoice No.: 96971539

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