Is the Fair Trade Commission's interpretation (ref. Kung Yen Shih No. 63) of the scope of deduction for bonus or remuneration after rescission of contract under Article 5(1)(iii) of the Supervisory Regulations Governing Multi-Level Sales unfair to companies?
Case:
Is the Fair Trade Commission's interpretation (ref. Kung Yen Shih No. 63) of the scope of deduction for bonus or remuneration after rescission of contract under Article 5(1)(iii) of the Supervisory Regulations Governing Multi-Level Sales unfair to companies?
Key Words:
multi-level sales, rescission, returns upon termination of contract
Reference:
Fair Trade Commission Decision of August 4, 1993 (the 96th Commissioners' Meeting); (82) Kung Ts'an Tzu No. 2569
Relevant Laws:
Article 5 of the Supervisory Regulations Governing Multi-Level Sales
Summary:
1. A request was made for an interpretation of the Fair Trade Commission's statement (ref. Kung Yen Shih No. 6): "When goods are being returned, an enterprise should only deduct the portion of bonuses and remuneration paid out to the participant making the return. The enterprise should attempt to recover bonuses or remuneration paid out for that order from other relevant participants. The organization shall not deduct the entire amount from the price of the goods that the participant rescinding the contract is returning." The party requesting the interpretation believed that because participants in the organization above the participant returning the goods often had already left the organization or were dispersed throughout Chinese Taipei, the company would surely sustain heavy losses if it had to recover bonuses paid out to relevant participants. For this reason, the party requesting the interpretation recommended that the company be allowed to recover all bonus and remuneration paid out in connection with a given order from the party making the returning. The party making the return could then seek to recover bonuses and remuneration from relevant participants above him or her in the organization. This would be a more reasonable, fair, and rational interpretation of the Commission's statement, according to the party requesting an interpretation. 2. The Commission explained that: (1)To protect the rights of participants and to prevent unscrupulous multi-level sales organizations from misleading participants [1] by fraudulent means or concealing information from them or [2] from improperly inducing participants to purchase goods impulsively, Article 5 of the Supervisory Regulations Governing Multi-Level Sales mandates that participants have the right to rescind or terminate contracts, return goods, and obtain refunds. (2)Most multi-level sales organizations pay bonuses and remuneration to participants for each order placed. Other than the participant herself or himself, other participants of the organization above the participant placing the order (those who introduced the participant) also receive bonuses. If the organization were permitted to deduct such bonus paid to latter from the refund to the participant rescinding the contract, there would then be a considerable gap between what the participant making the return paid for the goods and her or his refund. Such an arrangement would not comport with Supervisory Regulations, which are intended to give participants to the opportunity to reconsider and receive refunds. For this reason, when participants return goods, the organization shall be responsible for recovering bonuses paid to individual relevant participants. The organization may not recover such bonuses from the participant returning the goods. Although the organization bears the burden of recovering bonuses from participants higher up in the organization and the risk of being unable to recover these funds, this requirement is imposed in order to prevent multi-level sales organizations from improperly inducing participants to join. There is nothing improper about this requirement. (3) In sum, the Commission finds nothing improper in its interpretation ref. Kung Yen Shih No. 6. Summarized by Kuo An Chi; Supervised by Lin Ching Tarng