Kang Mei Daily Necessities Co., Ltd. engaged in multi-level sales and violated the Fair Trade Law

Chinese Taipei

Case:

Kang Mei Daily Necessities Co., Ltd. engaged in multi-level sales and violated the Fair Trade Law

Key Words:

multi-level sales, contract rescission, contract termination, participation contract, minor participant

Reference:

Fair Trade Commission Decision of October 13, 2005 (the 727th Commissioners’ Meeting); Disposition (94) Kung Ch’u Tzu No. 113

Industry:

Direct Selling Establishment (4812)

Relevant Laws:

Article 23-1(2), Article 23-2(2), Article 23-4 of the Fair Trade Law; Article 7(1), Article 12(1), Article 13, Article 14, Article 16 of the Supervisory Regulations Governing Multi-Level Sales

Summary:

1. The Fair Trade Commission dispatched personnel to the principal place of business of Kang Mei Daily Necessities Co., Ltd. (hereinafter referred to as Kang Mei Company) to carry out business inspection. The inspection found that when the participation contract was rescinded and terminated, the said Company deducted bonus paid to the upper level participant from the payment returned to the participant who withdrew from the plan and returned good. In addition, Kang Mei Company has changed Company’s representative but did not file a report with the Fair Trade Commission within the legally prescribed period. The participation contracts did not state clearly the statutory matters, including the relevant laws and regulations of multi-level sales, regulations related to the warranties against defects of goods or services, ways to handle return of good in the event of reasons attributable to the participant. The participation contract also did not comply with laws to state clearly conditions of withdrawal from the organization or plan, rights and obligations arising from the withdrawal. Kang Mei Company did not first obtain the written consent of the minor’s legal representative in the recruitment of minor as its participant.
2. Grounds for disposition:
   • In accordance with the provisions of Article 23-1 and Article 23-2 of the Fair Trade Law, in returning the payments made by the participant who withdraws and returns goods, the multi-level sales enterprise, in addition to the deduction of shipping costs required for the collection of returned goods as stipulated in the provision of Article 23-1 of the Fair Trade Law, can only deduct two other statutory items stipulated in the same Article of the Fair Trade Law, “any bonus or remuneration already paid to the participant that made an application of withdrawal and return goods for the purchase of the said returned goods” and “the amount of value decreased when there is a decreasing value of the returned goods”. However, Kang Mei Company has deducted bonus paid to the upper level participant from the payment returned to the participant who withdrew from the plan and returned good when the participation contract was rescinded and terminated.
   • Kang Mei Company has changed representative in May 2004, but the said Company did not file a report for the aforementioned alteration until August 12, 2005. Such conduct has violated the provision of Article 7, Paragraph 1 of the Supervisory Regulations Governing Multi-Level Sales.
   • Kang Mei Company did not comply with the provisions of Article 12, Paragraph 1 and Article 14 of the Supervisory Regulations Governing Multi-Level Sales, the participation contract did not include the full text of relevant laws and regulations of multi-level sales, regulations related to the warranties against defects of goods or services, and ways to handle return of good in the event of reasons attributable to the participant. Furthermore, most back pages of participation contracts (membership application form) signed between the said Company and several participants are left blank and the 26 articles in the original participation contract were not printed either.
   • Kang Mei Company only stipulated in the participation contract (membership application form) that “the participating member may make an application to terminate the contract within fourteen days to thirty days ………..”, but not included any additional regulation with regard to the rights and obligations arising from the participant’s withdrawal made thirty days after signing the contract. Such conduct has limited the rights of the participant to terminate the contract anytime by writing. The act of Kang Mei Company has violated the provision of Article 13 of the Supervisory Regulations Governing Multi-Level Sales.
   • In recruiting a minor to become its participant, Kang Mei Company did not attach the written consent of the legal representative to the participation contract. Even though the said Company argued that, the legal representative of the said minor participant was also its participant and the minor participant joined the plan under the guidance of his/her legal representative. However, in accordance with the provision of Article 16 of the Supervisory Regulations Governing Multi-Level Sales, Kang Mei Company still have to obtain the written consent of the said legal representative and attach it to the participation contract for record in order to protect the interest and right of the minor participant.
3. Taking into consideration the motivation, purpose, and expected improper benefit of the unlawful acts of Kang Mei Company; the degree of the act’s harm to trading order; the duration of the act’s harm to trading order; benefits derived on account of the unlawful act; scale of the enterprise; remorse shown for the act and attitude of cooperation in the investigation and other factors, therefore, Kang Mei Company is ordered to cease the unlawful acts immediately on the next day of receiving the disposition and a fine of NT$ 300 thousand is imposed according to the Article 42, Paragraph 2, Article 42, Paragraph 3 and the fore part of Article 41 of the Fair Trade Law.

Summarized by Li, Shih-Che;
Supervised by Hsu, Hung-Jen

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