Summit Telecommunication Co., Ltd. deducted breach penalty for bank and value of gifts from the payment returned to the participant when the participant terminated the contracts and returned the goods, the participant was requested to pay the telecommunication service provider the breach penalty of terminating the rental; Summit Telecommunication Co., did not report to the Fair Trade Commission prior to the change of sales and service items and other business places; the participation contract did not include the terms of withdrawal and the relevant rights and obligations as required by the law

Chinese Taipei

Case:

Summit Telecommunication Co., Ltd. deducted breach penalty for bank and value of gifts from the payment returned to the participant when the participant terminated the contracts and returned the goods, the participant was requested to pay the telecommunication service provider the breach penalty of terminating the rental; Summit Telecommunication Co., did not report to the Fair Trade Commission prior to the change of sales and service items and other business places; the participation contract did not include the terms of withdrawal and the relevant rights and obligations as required by the law

Key Words:

Breach penalty for bank, the value of gift and payment of breach penalty for the phone service

Reference:

Fair Trade Commission Decision of July 28, 2005 (the 716th Commissioners' Meeting), Disposition Kung Ch’u Tzu No. 094082

Industry:

Direct Selling Establishments (4812)

Relevant Laws:

Article 23-2, Paragraph 2 of the Fair Trade Law, Article 7, Paragraph 1, Article 13 and Article 17, Paragraph 1, Subparagraph 2 of Supervisory Regulations Governing Multi-Level Sales

Summary:

1. In the end of June 2004, Summit Telecommunication Co., Ltd. promoted sales with multi-level sales and “Asia Pacific Mobile Holiday Program” was the major promotional item. The content of this Program was that a customer subscribed to the Asia Pacific’s mobile phone service number started with “0982” and arranged automatic bank transfer to pay his/her rental, can have free calls to other users of Asia Pacific and fifty percents discount for calls made to the users of other telecommunication service providers for two years. In addition, the said customer would get a free cellular phone. The customer who has also applied “Te Li Hao Li 2000” would receive free monthly rental for 15 months. Summit Telecommunication Co., Ltd. purchased cellular phones from Arcoa Enterprise Co., Ltd. (hereinafter referred to as Arcoa).
2. At the back of distributor’s application form, the Returned Good Method 1 for Clause 3 of “Business Regulation for Distributor” stipulated “Party B (that is the participant” shall retain the invoice for 14 days after joining….., Party A has rights to reject this application beyond deadline. …..deduct….tax on credit card payment, management and marketing costs”. With regard to contract rescission and contract termination, the business handbook has prescribed stipulations such as “the cellular phone must be returned to the Company within seven days, the Company will not take back the cellular phone in the case that the return is made after seven days, and the participant has to pay the price of cellular phone” and “no return can be made after six months”). It is likely that these stipulations have violated the Fair Trade Law.
3. With regard to the handling of participant’s withdrawal and return of goods, the Asia Pacific’s mobile phone service numbers started with “0982” and 3G cellular phones were products of the multi-level sales activity and thus the participants have to sign contracts with Asia Pacific Company. In the case that the participant has selected installment payment plan, the payment was arranged by Chen Tai Marketing Company. Therefore, when a participant rescinded the contract before expiration, the said participant must pay service cancellation fee to Asia Pacific Company, if the cellular phone was unpacked and used, the price of cellular phone, call charges, and home delivery cost were deducted. For participant that has selected installment payment plan, Summit Telecommunication Company on behalf of Chen Tai deducted a breach penalty when the participant made withdrawal and returned goods.
4. The investigation of the participants’ withdrawal and returned goods applications revealed that in addition to the deduction of call charges, there are circumstances that the participants are required to purchase the free cellular phones that they have used when they terminated the contracts and returned goods after joining the plan 14 days; besides, Summit Telecommunication Company also deducted “breach penalty for Chen Tai”, a total of NT$ 1,200. However, the Summit Telecommunication’s returned good application form clearly stated “breach penalty …… collected by Asia Pacific”, the claim of Summit Telecommunication Company that its company has personally absorbed the breach penalty arise from the cancellation of mobile phone service rental was not true.
5. The Fair Trade Commission’s investigation also found that the directors and supervisors of Summit Telecommunication Company have been replaced for some legal reasons. The relevant administrative operation was not duly handed over, and thus the report of three business sites, the Taichng’s He Nan branch, Taipei and Kaohsiung, has been neglected.
6. Grounds for disposition:
1. According to Article 23-2, Paragraph 2 of the Fair Trade Law, “Within thirty days from the termination of the agreement in accordance with the preceding paragraph, the multi-level sales enterprise shall buy back all goods possessed by the participant at ninety percent (90%) of the original purchase price; provided that it may be deducted the bonuses or remuneration paid to the participant for the purchase as well as the amount of the decreased value of the goods.” The multi-level sales enterprise when returns payment to participant made withdrawal and returned purchase, can only make two statutory deductions, those are “the bonuses or remuneration paid to the participant makes withdrawal and returns purchase” and “the decreased value of the goods in the case that the value for the returned purchase has decreased ”. It is unquestionable that the deduction or collection of any payments other than the aforementioned statutory deductions will circumvent the said withdrawal and returned purchase mechanism and thus is considered as a violation of laws. Summit Telecommunication Company alleged that the Company was actually selling a “saving plan service”; the cellular phone was a “gift” and the mobile phone service number was provided for the use of cellular phone. Therefore, the Company first calculated the payment, that is the “package” price of this plan, to be returned to participant made withdrawal and returned purchase when settling the withdrawal and returned purchased, then, the price of cellular phone “gift” was deducted from the returned payment and finally the Asia Pacific Company demanded the participant to pay breach penalty for canceling the mobile phone service rental. Actually, if Summit Company claimed that the “saving plan service” was its promotional item, and not the free cellular phone and mobile phone service, then the Company in accordance with the law should use the original purchase price (that is the selling price of the saving plan service) to calculate the returned payment. The cellular phone was considered as a gift and the said Company can only request the participant returning the cellular phone according to the relevant provisions of Civil Law. The Company should not deduct the price of “cellular phone” from the returned payment after the participant refused its request.
2. Next, the Fair Trade Commission’s investigation found that Summit Telecommunication Company did not accept the participants’ return of the free cellular phones when they made withdrawal and returned purchase; instead, the Company directly deducted the price of the said “cellular phones” from the returned payment. The evidence of “Returned Purchase Application Form of Summit Telecommunication” provided by the said Company can prove this fact. In addition, the breach penalty arose between the participant and the bank was a private right dispute on the loan agreement between both parties; Summit Telecommunication Company was not involved in the said dispute and the said breach penalty was not an item included in the multi-level sale enterprise’s payment returned to the participant made withdrawal and returned purchase. Furthermore, the said Company should not deduct the breach penalty from the returned payment without the prior consent of the participant. The acts of Summit Telecommunication Company in deducting the breach penalty for bank and the price of gift from the payment returned to the participant made withdrawal and returned purchase have violated the provision of Article 23-2, Paragraph 2 of the Fair Trade Law.
3. In accordance with the provision of Article 17, Paragraph 1, Subparagraph 2 of the Supervisory Regulations Governing Multi-Level Sales enacted pursuant to Article 23-4 of the Fair Trade Law, “A multi-level sales enterprise may not engage in any of the following activities: ……….. (2) requiring a participant to pay or undertake any security deposit, breach penalty, or other liability, where such is obviously unreasonable………” The multi-level sales enterprise promoted mobile phone service for a telecommunication service provider, the telecommunication service provider paid commission to the multi-level sales enterprise when a participant signed mobile phone service rental agreement with the telecommunication service provider. It is thereby evidence that the multi-level sales enterprise had received benefits for promoting telecommunication services and indeed should ascertain that the rental agreement continued to be valid in order to meet the benefits of telecommunication service provider and the multi-level sales enterprise. Therefore, when the participant joined the aforementioned multi-level sales organization and purchased the saving plan service, the respective mobile phone service number of Asia Pacific Company was needed for the use of the saving plan service, so Summit Telecommunication Company should handle the service rental termination in the event of the participant made withdrawal and returned purchase. The Company should not tell the participants that it is their responsibility to pay the great sum of breach penalty to the telecommunication service provider before they can terminate the service rental agreement. Therefore, the act of Summit Telecommunication Company promoting telecommunication service through multi-level sales activity and receiving benefits from the promotion, but requested the participants to personally pay breach penalties to the telecommunication service provider when they terminated the mobile phone service rental, is an act of requesting the participants to pay or undertake any liability that is obviously unreasonable and such request has violated provision of the aforementioned law.
4. Also, in accordance with the provision of Article 7, Paragraph 1 of the Supervisory Regulations Governing Multi-Level Sales, “Any change to the content of the report filed by a multi-level sales enterprise, ……., shall be reported prior to implementation.” Article 13 of the same Supervisory Regulations stipulates, “A multi-level sales enterprise shall notify the participant or include in the contract signed with the participant the content as specified in Article 11, Paragraph 1, Subparagraph 7 that is beneficial to the participant. In addition, the notification or contract must also include the provisions stipulated in Article 23-1 to Article 23-3 of this Law.” Summit Telecommunication Company reported the marketing of “Asia Pacific Mobile Holiday Program” to the Fair Trade Commission on August 17, 2004. However, based on the participants’ returned purchase information provided by Summit Telecommunication Company which revealed that some participants have joined “Asia Pacific Mobile Holiday Program” in June and July of 2004, it is sufficient to conclude that the Company did not comply with the law and file report of changes to the Fair Trade Commission prior to implementation of the said program. Moreover, the Company also admitted that the Company has already established three business branches in Taipei, Taichung, and Kaohsiung but did not report the changes to the Fair Trade Commission. Summit Telecommunication Company’s failure to report the three newly-established business branches in Taipei, Taichung, and Kaohsiung, has violated the provision of Article 7, Paragraph 1 of the Supervisory Regulations Governing Multi-Level Sales.
5. At the back of distributor’s application form, that is the contract signed between Summit Telecommunication Company and the participant, the Returned Good Method 1 for Clause 3 of “Business Regulation for Distributor” stipulated “Party B (that is the participant” shall retain the invoice for 14 days after joining….., Party A has rights to reject this application beyond deadline. …..deduct….tax on credit card payment, management and marketing costs”. With regard to contract rescission and contract termination, the business handbook has prescribed stipulations such as “the cellular phone must be returned to the Company within seven days, the Company will not take back the cellular phone in the case that the return is made after seven days, and the participant has to pay the price of cellular phone” and “no return can be made after six months”). It is almost without doubt that these stipulations were contrary to the provisions of Article 23-1 and Article 23-2 of the Fair Trade Law and violated Article 13 of the Supervisory Regulations Governing Multi-Level Sales.
6. Taking into consideration the motivation, purpose, and expected improper benefit of the unlawful act of Summit Telecommunication Company; the degree of the act’s harm to market order; the duration of the act’s harm to market order; benefits derived on account of the unlawful act; the scale, operating condition, sales and market position of the Company; whether or not the type of unlawful act involved in the violation has been the subject of correction or warning by the Central Competent Authority; types of, number of, and intervening time between past violations, and the punishment for such violations; remorse shown for the act and attitude of cooperation in the investigation; and other factors, therefore, Summit Telecommunication Company is ordered to cease the unlawful acts and an administrative fine of NT$1,000,000 was imposed according to the Article 42, fore part of Paragraph 2 and Paragraph 3 and the fore part of Article 41 of the Fair Trade Law.

Summarized by Wu, Hung-Guan;
Supervised by Hsu, Hung-Jen

Appendix:
Summit Telecommunication Co., Ltd.’s Uniform Invoice Number: 80641864