LAU YING WAI v. EMPEROR REGENCY INTERNATIONAL LTD

DCCJ1600/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1600 OF 2013

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JUDGMENT

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Introduction

1.  This action concerns a so-called “timeshare” contract.  On 9 September 2005, the plaintiff entered into a contract with the defendant in which it was agreed that the plaintiff would pay a certain membership fee to the defendant and in return he would be entitled to occupy and use overseas holiday resorts for specified periods.  The total contract price is HK$108,400.  After paying HK$35,000 by monthly instalments, the plaintiff filed a claim at the Small Claims Tribunal on 31 July 2008 to ask for refund and to have the contract rescinded.  

2.  On 16 February 2009, due to some intervening events, the claim was adjourned sine die with liberty to restore.  On 6 March 2013, the plaintiff applied to restore the claim.  As the plaintiff is seeking declaratory remedy which is outside the jurisdiction of the Small Claims Tribunal, the claim was transferred to the District Court.

3.  The plaintiff seeks to rescind the Contract on the following grounds:-

(a)  the Contract was entered into under unconscionable circumstances under the Unconscionable Contracts Ordinance, Cap 458(“UCO”); and

(b)  the Contract was entered into under duress and/or undue influence.

The defendant’s absence

4.  The defendant has been absent at all the proceedings at the District Court.  Having considered all the affirmations of service filed by the plaintiff’s solicitors, I am satisfied that all the documents of this action had been properly served to the defendant.  I am also satisfied that the defendant had been put on sufficient notice of the trial.  The court will proceed with the trial in the absence of the defendant.

The plaintiff’s case

5.  In or about August 2005, the plaintiff received a phone call and was told that he had been awarded a holiday prize and some supermarket cash coupons and was invited to the defendant’s premises to receive the prize.  At the office of the defendant, he was subject to persistent persuasion by the staff of the defendant to join a “timeshare” scheme.  Under the scheme, a participant paid a membership fee and was entitled to occupy and use holiday resorts for specified periods. 

6.  After hours of persuasion, during which the plaintiff repeatedly requested to leave but was refused, the plaintiff was made to sign a contract and pay an amount of HK$5,000 by credit card as the initial payment of the membership fee.  After making the said payment, the staff of the defendant told the plaintiff that the total membership fee was HK$103,400 plus an administration fee of HK$5,000.  The total amount was HK$108,400 (“the Contract”).  According to the terms of the Contract, the plaintiff had to pay HK$500 every month for the next 6 months and then HK$1,000 every month until the membership fee was paid in full.

7.  The plaintiff said the staff of the defendant only read the contents of the Contract very quickly without explaining all the relevant terms.  He was not given sufficient time to read the Contract by himself.  He was never explained how he could use the holiday resorts.  He was not allowed to use his mobile phone to consult others.

8.  The plaintiff said he signed the Contract unwillingly as he had been subjected to persistent persuasion for more than five hours until midnight.  He worried that if he refused to sign the Contract, he would not be allowed to leave.  It is the plaintiff’s case that the Contract was entered into under unconscionable circumstances, duress and/or undue influence.

The defendant’s case

9.  The defendant has never filed any defence or witness statement and has been absent throughout the proceedings. Therefore, there is nothing from the defendant for the court to consider.

The Law

10.  The relevant provisions of the UCO are sections 5 and 6:-

“5.  If, with respect to a contract for sale of goods or supply of services in which one of the parties deals as consumer, the court finds the contract or any part of the contract to have been unconscionable in the circumstances relating to the contract at the time it was made, the court may:

(a)  refuse to enforce the contract;

(b)  enforce the remainder of the contract without the unconscionable part; and

(c)  limit the application of, or revise or alter, any unconscionable part so as to avoid any unconscionable result.

6.  In determining whether a contract or part of a contract was unconscionable in the circumstances relating to the contract at the time it was made, the court may have regard to (among other things):-

(a)  the relative strengths of the bargaining positions of the consumer and the other party;

(b)  whether, as a result of conduct engaged in by the other party, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;

(c)  whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or service;

(d)  whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the other party or a person acting on behalf of the other party in relation to the supply or possible supply of the goods or services; and

(e)  the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the other party.”

11.  For the purpose of this trial, the law concerning duress and undue influence can be stated briefly.  According to Duress, Undue Influence and Unconscionable Dealing, 2^nd Edition, para 2-002, there are two elements in the wrong of duress:-

(1)  pressure amounting to compulsion of the will of the victim, and

(2)  the illegitimacy of the pressure exerted.

12.  In other words, to prove duress it must be shown that the person affected was under pressure and the pressure was illegitimate.  Violence to the person and threats of such violence are of course illegitimate forms of pressure.  Imprisonment or threats of imprisonment are also recognized as illegitimate forms of pressure.

13.  At common law, duress was justified on the ground that the duress prevented the affected party from forming a full and independent resolution to contract.  The doctrine of undue influence has wider application than the law of duress.  It ensures that no person should be allowed to retain the benefit of his own fraud or wrongful act: Chitty on Contract, 31^st edition, vol 1, para 7-058.

14.  A transaction may be avoided if it is proved that a party obtained it by exploiting the relationship with the affected party by exerting emotional pressure on him.  If the transaction is obviously one-sided and has serious effects on the affected party, the presumption of undue influence will arise.    

Discussion

15.  As there is no evidence from the defendant, I can only consider the evidence of the plaintiff.  After careful consideration, I find his evidence of the plaintiff reasonable, logical and consistent.  His story is well supported by documentary evidence.  Without any evidence from the defendant to prove the contrary, I see no reason not to believe the plaintiff.  I find on balance that he has told the truth and I accept his evidence in full.

16.  Considered all the circumstances of the case, I am of the view that the Contract should be rescinded on the ground that it was unconscionable under UCO.  The following are the factors considered by this court:-

(1)  Firstly, the Contract was prepared by the defendant which contains all the standard terms that the plaintiff had no power to amend or challenge.  The bargaining power of the plaintiff was obviously much weaker than that of the defendant;

(2)  Secondly, it was questionable whether the plaintiff could understand the terms of the Contract and its ancillary documents.  Though the Contract itself consists only two pages, the plaintiff was made to sign several pages of acknowledgment in which he acknowledged the acceptance of various obligations under the Contract.  For layman, the contents of these documents were not easy to understand.  They involved complicated legal terms and concepts which have serious legal consequences.  The plaintiff should have been allowed to seek independent legal advice or at the very least to seek opinion from the others.  The fact was the plaintiff was denied to even use his mobile phone to contact his friends or family for advice.  Under these circumstances, the decision made by the plaintiff to enter into contract cannot be described as a conscionable one; and

(3)  Thirdly, I find as a matter of fact that the staff of the defendant had exerted pressure and undue influence on the plaintiff when they tried to persuade him to sign the Contract.  Before the Contract was signed, the plaintiff was subjected to about five hours of intense persuasion and during the time he was not allowed to leave and use his mobile phone.  It was almost midnight when the plaintiff finally yielded to the request of the staff to sign all the documents.  Such marketing practice was unethical and the plaintiff was put in a position where he really had no choice but to sign the Contract.

17.  Base on the above analysis, I find that the Contract was unconscionable under section 6 of the UCO.  Pursuant to section 5(1), the court makes an order that the Contract is unenforceable and should be rescinded in its entirety.

Order

18.  I make an order in the following terms:-

(1)  a declaration that the Contract to be rescinded;

(2)  the defendant to refund the plaintiff HK$35,000; and

(3)  interest, from the date of the Statement of Claim at judgment rate until satisfaction.

Costs

19.  The defendant shall pay the plaintiff’s costs in this action.  I therefore make a costs order nisi that the defendant to pay the plaintiff his costs, to be taxed if not agreed, with certificate for counsel.  This costs order will become absolute in the absence of any application to vary the same within 14 days.