E-NA International Enterprise Co. violated the Supervisory Regulation of Multi-level Sales

E-NA International Enterprise Co. violated the Supervisory Regulation of Multi-level Sales

Chinese Taipei

Case:

E-NA International Enterprise Co. violated the Supervisory Regulation of Multi-level Sales

Key Words:

multi-level sales, written contract, withdrawal and refund, termination of contract

Reference:

Fair Trade Commission decision of June 23, 1993 (90th Commission Meeting); Disposition (82) Kung Ch'u Tzu No. 043

Industry:

Retail Industry (4020)

Relevant Laws:

Articles 41 and 42 of the Fair Trade Law and Articles 4 and 5 of the Supervisory Regulation of Multi-level Sales

Summary:

1. The Investigation Bureau notified the Fair Trade Commission that certain participants of Chiayi branch of E-NA Enterprise Co. ("EEC"), a multi-level sales enterprise, complained about EEC's alleged violation of the Fair Trade Law. The Commission issued letters to invite the complainants to appear before this Commission and learned that the complainants had failed to send written requests to EEC to terminate their contracts with EEC in accordance with the Supervisory Regulation of Multi-level Sales (the "Supervisory Regulation"), and had filed their complaint directly to the Investigation Bureau after their requests for refund was rejected by the Chiayi branch of EEC. After the Commission notified the complainants of the requirement under Article 5 of the Supervisory Regulation that written requests should be sent to EEC to notify the latter of their withdrawal from the multi-level sales organization and termination of contracts therewith and to request refund, EEC subsequently paid a refund to the complainants. In the Commission’s process of handling this case, three other participants filed similar complaints. Satisfactory result was achieved after the Commission issued written notices to EEC, which had notified the Commission in writing, of the result.

2. However, as the Commission inspected the written information which should be made available at all times for inspection in accordance with Article 6 of the Supervisory Regulation, the Commission found that the written contracts executed between EEC and its participants failed to conform to the provisions of Articles 4 and 5 of the Supervisory Regulation. Although EEC failed to specify in the written contracts any provisions governing refunds in case of any participant's withdrawal from the multi-level sales organization, at the time of the Commission's inspection, it was able to provide proof of refund to the participants in prior cases, and it has accepted refund applications from complainants and the subsequent three other refund applications. This indicates EEC's willingness to correct its actions to comply with the Supervisory Regulation.

3. According to Article 4(1) of the Supervisory Regulation, a multi-level sales enterprise shall, before any participant joins its multi-level sales organization or plan, inform such participant, in a detailed and accurate manner, of various information including the enterprise's multi-level sales organization or plan, operation rules and trading guideline, obligations and liabilities of the participants, contents of gains paid to the participants, for directly selling or promoting the sales of merchandise, types, prices and functions of the commodities, terms and conditions of withdrawal from the multi-level sales organization, and rights and obligation arising out of such withdrawal. Article 2 stipulates that a written contract incorporating the information as prescribed above, shall be executed between such enterprise and the participant to protect the rights and interests of the participant. Although EEC indicated the existence of such information in its letter to the Commission, the information is in fact not included in the written contract executed with the participants. In addition, Article 3 stipulates that a multi-level sales enterprise shall have documents signed by the participants or other methods of proof indicating disclosure of the above information. EEC has failed to provide such documentary proof. Although EEC contends that information of which the participants should be disclosed has been described and explained during members' and supervisors' meetings and posted on the bulletin board of each business site, it does not overcome the fact that EEC has violated Article 4 (1), Article 4(2) and Article 4 (3) of the Supervisory Regulation.

4. Under Article 5 of the Supervisory Regulation, a multi-level sales enterprise shall specify in the written contract concluded with the participant the latter's right to rescind and terminate the contract, as well as provisions governing return of goods and refunds, in order to expressly stipulate the rights and obligations of the participant prior to his withdrawal from the multi-level sales organization. EEC's failure to do so in the written contract with participants has violated the provisions of Article 5 of the Supervisory Regulation.

5. The Commission has decided to impose a fine of NT$200,000 on EEC and request the latter, within 30 days from the following day of receipt of this Decision, to amend the participation contract executed with the existing participants to comply with the requirements of Articles 4 and 5 of the Supervisory Regulation and to submit the amended participation contract to the Commission for reference.

Summarized by Hsu, Chen
Supervised by Tsuo, T'ien-liang

Appendix:
E-NA International Enterprise Co.'s Uniform Invoice No.: 86074368.

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