Legislative Council of the Hong Kong Special Administrative Region

ISE08/19-20

Subject:

In recent years, online shopping has become a major trend in every market around the world. Online shopping allows consumers to buy and retailers to sell without time and geographical constraints.^{1Legend symbol denoting With online shopping, customers can choose from a wider range of products supplied by a variety of online retailers. In particular, they are no longer limited to shops nearby and can even buy from abroad online. Online shopping also benefits retailers by allowing them access to a wider pool of customers as online sale can take place at any time during the day. Added to this, retailers are no longer constrained by the geographical limitations of physical stores as they can sell their products locally as well as overseas through online channels.} Retailers can also save the costs of running a physical store from selling through an online platform.
Amid increasing popularity of online shopping, the value of global retail e-commerce sales almost doubled from US$1.9 trillion (HK$14.8 trillion) in 2016 to US$3.5 trillion (HK$27.2 trillion) in 2019.^{2Legend symbol denoting See eMarketer (2019).} In Hong Kong, the value of business receipts from selling of goods, services or information through electronic means amounted to HK$491.7 billion in 2018, up by 73% over 2012.^{3Legend symbol denoting See Census and Statistics Department (2020a).} Analysed by types of customers, business receipts from individual consumers contributed 60% of the total e-commerce receipts in 2018.
The rapid growth in online shopping witnesses the emergence of a new group of consumers known as e-consumers. While online shopping brings convenience to e-consumers, the distant nature of transacting online has led to challenges pertaining to consumer protection. E-consumers are not dealing face-to-face with retailers and cannot examine the product they are about to purchase. Instead, they often make buying decisions based on images and descriptions they view on a smartphone or a computer screen. There is no opportunity for them to "touch and feel" the product to determine how well it fits their taste and needs. It is likely for e-consumers to pay for products they do not like or which they would not have bought in a face-to-face shop. Indeed, returns of online purchases are relatively higher than those of physical stores.^{4Legend symbol denoting According to EcommerceBytes (2019), e-commerce sales have an average return rate of 30% compared with 8%-10% for physical stores.}
According to the World Economic Forum,^{5Legend symbol denoting See World Economic Forum (2019).} a comprehensive online consumer protection regime should cover three aspects of an online transaction, namely: (a) the "pre-purchase" stage (including provision of sufficient information for the products sold online); (b) the "purchase" stage (including rights on contract termination and mandatory cooling-off period); and (c) the "post-purchase" stage (including proper redress avenues such as customer-friendly goods return/refund policy and low-cost dispute resolution mechanism). For e-consumers, the "purchase" and "post-purchase" stages are particularly important in view of the distant nature of online shopping and the concerns over the quality and suitability of products purchased online.
This issue of Essentials studies e-consumer protection in Hong Kong, as the recent outbreak of coronavirus epidemic and more stay-at-home time has seen a spike in people shopping online.^{6Legend symbol denoting A leading local online retailer received an average of 32 600 orders per day in February 2020, representing a 165% increase from that of 12 300 a year-earlier period. See Lung (2020).} This is followed by a discussion of e-consumer protection regimes in the United Kingdom ("UK") and South Korea. Unlike Hong Kong, both places have enacted specific legislation to protect e-consumers with legal provisions setting out mandatory cooling-off period and customer-friendly goods return/refund policies. In addition, they have also put in place an alternative dispute resolution mechanism to enable e-consumers and online retailers to resolve their disputes in a simple, fast and low-cost manner outside court.

E-consumer protection in Hong Kong

Currently, there is no specific legislation regulating online retail business in Hong Kong. The existing Trade Descriptions Ordinance (Cap. 362) ("TDO") and Sale of Goods Ordinance (Cap. 26) ("SGO") are generic consumer protection laws protecting general consumers against unfair trade practices.^{7Legend symbol denoting The Trade Descriptions Ordinance prohibits specified unfair trade practices deployed by traders against consumers, including false trade descriptions, misleading omissions, aggressive commercial practices, bait advertising, bait-and-switch and wrongly accepting payment. The Sale of Good Ordinance provides that goods for sale must be of satisfactory quality, fit for their intended purposes and must correspond with the descriptions or sample.}
As generic consumer protection laws, TDO and SGO do not specifically address the distant nature of an online transaction. For pre-purchase stage, TDO and SGO do not contain provisions requiring online retailers to provide information such as contact details, procedures of order cancellation and goods refund/return policy. Neither do they set out mandatory cooling-off period^{8Legend symbol denoting According to Commerce and Economic Development Bureau (2019), cooling-off period refers to the period of time following conclusion of a contract whereby a supplier allows its customers to unilaterally cancel the contract without having to provide a reason. Following contract cancellation, the supplier needs to refund the amount paid by the customer and the customer's other payment obligations in the contract are also cancelled.} for purchase stage,^{9Legend symbol denoting In January 2019, the Government conducted a three-month public consultation to solicit public views on a proposal to stipulate a statutory cooling-off period for beauty and fitness services consumer contracts. Depending on the outcome of the public consultation, the Government aims to introduce the relevant bill into the Legislative Council in the 2019-2020 legislative session. See GovHK (2019).} which allows e-consumers to cancel their orders within a period of time for whatever reason. As to post-purchase stage, there is no standardized goods refund/return policies for online shopping.

Concerns over shopping online

The Consumer Council has seen increased number of complaints related to online shopping in recent years.^{10Legend symbol denoting In 2018-2019, the Consumer Council received 4 795 complaints related to online shopping, representing an increase of 54.6% over 2016-2017. See Consumer Council (2017) and (2019a).} This is particularly so during the recent outbreak of coronavirus epidemic with emergence of posts promoting the sale of face masks and sanitizing products on social media or auction platforms.^{11Legend symbol denoting By taking advantage of the tight supply of face masks and sanitizing products, consumers had been requested to pay in advance before the goods were received. In the first quarter of 2020, the Consumer Council received over 760 complaints relating to these transactions, mainly related to late delivery and refund disputes. Meanwhile, the Police reportedly received about 1 800 cases of face mask scams as at 20 April 2020, involving 3 900 victims and HK$56 million. See Consumer Council (2020) and The Standard (2020).} Based on the complaints received and a survey on online shopping platforms conducted in 2019,^{12Legend symbol denoting During August-September 2019, the Consumer Council shopped with nine online shopping platforms to evaluate their quality in handling purchase orders, product delivery, goods return and refund as well as customer services.} the Consumer Council has highlighted the following cases that might reflect the lack of specific e-consumer protection measures in Hong Kong^{13Legend symbol denoting See Consumer Council (2019b) and (2020).}:

(a)	unscrupulous traders opening a social account as a pretext for selling goods online without leaving any business and contact information. They then disappeared after customers deposited their payments into their personal accounts;
(b)	some e-customers waiting for long delivery time without any update on the order status;
(c)	low success rate for returning goods to or obtaining a refund from online shopping platforms;^{14Legend symbol denoting According to the 2019 survey, the Consumer Council made 54 purchases from nine online shopping platforms. The success rate for the staff of the Consumer Council to apply for the goods purchased to be returned or to obtain a refund from online shopping platforms was lower than 50%. In addition, the deadlines for goods return varied among the online shopping platforms surveyed, ranging from seven days to 90 days after the products were duly received. See Consumer Council (2019b).}
(d)	return procedures being so cumbersome that consumers often ended up paying for the high shipping cost and incurring loss in currency exchange rates; and
(e)	some e-consumers failing to receive full refund on non-delivery of goods but still being subject to handling charges.

E-consumer protection in the United Kingdom

The UK has a high Internet penetration rate with Internet access for almost nine out of every 10 households in 2019.^{15Legend symbol denoting See Ofcom (2019).} This, coupled with a high percentage of Internet users buying online,^{16Legend symbol denoting The proportion of UK Internet users who had purchased online within the last 12 months stood at a high of 87% in 2019. See European Commission (2020).} has put the UK as the world's 3^rd largest e-commerce market in 2019 with an estimated US$142 billion (HK$1,102 billion) in e-commerce sales.^{17Legend symbol denoting See eMarketer (2019).}
In the UK, online selling is regulated by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 ("CCRs") and the Consumer Rights Act 2015 ("CRA"). CCRs, which came into force in June 2014, apply to the sale of goods and services at a distance^{18Legend symbol denoting CCRs define distance contract as a contract concluded between a trader and a consumer under an organized distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded. See Legislation.gov.uk (2013).} (i.e. not face-to-face), which include online sales made from a website. The UK subsequently enacted CRA in 2015 with an objective to give consumers a number of new rights and remedies. CRA covers (a) goods/services ordered at home (for example through online, direct selling or mail order catalogue); (b) goods/services bought in a shop; and (c) digital content. Under CCRs and CRA, online sellers are required to comply with the requirements stipulated for each stage of an online transaction:

Pre-purchase stage

Transaction information: CCRs require online sellers to provide e-consumers with sufficient information for making informed purchase decisions through the Internet. The required information include (a) product information such as a description of the goods or services, the price (including taxes), details of any delivery costs and the arrangement for delivery; (b) identity of sellers and contact details; and (c) information about cancellation rights and goods return/refund policy. Sellers who fail to provide the required information will leave them open to having to refund the customers.
Fair contract terms: CRA further prohibits online sellers from imposing "unfair" contract terms on e-consumers. A term in a consumer contract will be defined by CRA as unfair if it "causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer". Following the finding of use of an unfair term, the regulator(s) may apply to a court for an injunction to restraint further use of an unfair term.

Purchase stage

Mandatory cooling-off period: subject to various exceptions/exemptions,^{19Legend symbol denoting The cooling-off period is not applicable to certain products or services such as contracts with value less than £42 (HK$404); goods which will deteriorate or expire rapidly; newspapers and magazines; and bespoke and customized goods.} e-customers are entitled under CCRs to return goods and be offered a refund if they change their mind after receiving the goods. They can cancel their online orders at any time during the cancellation period without giving any reason and incurring any liability. The cancellation period begins from the moment the order is placed and ends 14 days after the goods were delivered.

After-purchase stage

On-time deliveries: CRA sets out a default delivery period of 30 days, during which the seller needs to deliver unless a longer period has been agreed. If the seller fails to deliver as agreed, the e-consumer affected has the right to terminate the purchase and request a full refund.
Goods return policy: e-consumers have a legal right under CRA to reject goods that are of unsatisfactory quality, unfit for purpose or not as described and get a full refund.^{20Legend symbol denoting A refund must be given without undue delay, and in any event within 14 days beginning with the day on which the seller agrees that the consumer is entitled to a refund.} This right is limited to 30 days from the date they take ownership of the goods.^{21Legend symbol denoting If the e-consumer is outside the 30-day right to reject, he or she has to give the retailer one opportunity to repair or replace any goods which are of unsatisfactory quality, unfit for purpose or not as described. If the goods cannot be repaired or replaced, the e-consumer can claim a refund or price reduction should he or she wish to keep the goods.}
Repair/replacement: under CRA, if an e-consumer discovers the fault within the first six months of having the product, it is presumed to have been there since the time he or she took ownership of it - unless the retailer can prove otherwise. If an attempt at repair or replacement has failed, the e-consumer has the right to reject the goods for a full refund, or price reduction should he or she wish to keep the product.
Refund policy: CCRs allow e-consumers not only 14 days to decide whether to cancel an order, but also another 14 days to send the goods back. Sellers are required to refund the consumers within 14 days of either getting the goods back or the consumer providing evidence of having returned the goods (e.g. by providing a postage receipt from the post office), whichever is the sooner.

E-consumer protection in South Korea

South Korea has one of the highest Internet penetration rates in the world, with over 90% of households having Internet access. Coupled with prevalence of online shopping among Internet users,^{22Legend symbol denoting According to Info Cubic (2019), online shopping is popular in South Korea where 88.5% of the country's population used e-commerce platforms in 2019.} South Korea was ranked the world's 5^th largest e-commerce market in 2019 with an estimated US$103 billion (HK$800 billion) in e-commerce sales.
In 2002, the South Korean government enacted the Act on the Consumer Protection in Electronic Commerce ("CPEC") with subsequent amendments over the years. CPEC aims at protecting the rights and interests of consumers by prescribing matters relating to the fair trade of goods or services by means of electronic commerce transaction, mail order, etc. Similar to the e-consumer protection laws in the UK, CPEC regulates three aspects of an online transaction. These are (a) the "pre-purchase" stage (requiring sellers to list out essential information such as company contact details and contract terms); (b) the "purchase stage" (offering a cooling-off period of seven days);^{23Legend symbol denoting While e-consumers can terminate their online orders without any conditions, cancellation is not permitted where (i) the goods are destroyed or damaged by the e-consumer; (ii) the value of the goods is significantly diminished by the use or partial consumption by the e-consumer, or by the lapse of time; (iii) the packaging materials of certain goods are damaged; and (iv) the provision of any services or digital content has commenced.} and (c) the "post-purchase" stage (sellers arranging refund within three business days after receiving the returned goods).
CEPC also sets out an added protection at the "post-purchase" stage. If the goods are different from the display or advertisement, or any services performed are different from the contract terms, e-consumers may cancel the order within three months from the day they receive the goods or within 30 days from knowing or possibly knowing the fact.

Alternative dispute resolution mechanism

In addition to legislation on e-consumer protection, the UK and South Korea have also put in place an alternative dispute resolution mechanism ("ADR") outside court proceeding. In the UK, the Alternative Dispute Resolution Regulations 2015 promote ADR as a means of redress for consumers in relation to unsatisfactory services. In general, the Regulations do not require sellers to agree to use ADR for settling a consumer dispute. However, sellers are required to signpost customers to a certified ADR scheme when they cannot resolve a dispute through their own internal complaints process.
Likewise in South Korea, e-commerce dispute can be resolved through the ADR procedure managed by the E-Commerce Mediation Committee.^{24Legend symbol denoting The E-Commerce Mediation Committee is composed of experts and representatives from legal, academic, business, and consumer organizations specializing in e-documents and e-transactions. The committee members are appointed by the Minister of Science and ICT.} The Committee is tasked with (a) providing consulting and mediation services for the settlement of e-commerce disputes; and (b) resolving the disputes submitted to it within 45 days. This provides the avenue for quickly and effectively settling the e-commerce disputes and reducing the amount of litigation that would otherwise come into existence.

Concluding remarks

While online shopping brings convenience to e-consumers, the distant nature of transacting online has led to challenges pertaining to consumer protection, particularly at the "purchase" and "post-purchase" stages of an online transaction. However, there is currently no specific legislation regulating online retail business in Hong Kong. TDO and SGO are generic consumer protection laws protecting general consumers against unfair trade practices. In this connection, e-consumer protection regimes are more robust in the UK and South Korea with (a) the enactment of specific legislation to protect e-consumers; (b) the establishment of mandatory cooling-off period and customer-friendly goods return/refund policy; and (c) the use of low-cost ADR platform to settle e-commerce disputes.

Prepared by Gary NG
Research Office
Information Services Division
Legislative Council Secretariat
11 June 2020

Endnotes:

1.	With online shopping, customers can choose from a wider range of products supplied by a variety of online retailers. In particular, they are no longer limited to shops nearby and can even buy from abroad online. Online shopping also benefits retailers by allowing them access to a wider pool of customers as online sale can take place at any time during the day. Added to this, retailers are no longer constrained by the geographical limitations of physical stores as they can sell their products locally as well as overseas through online channels.
2.	See eMarketer (2019).
3.	See Census and Statistics Department (2020a).
4.	According to EcommerceBytes (2019), e-commerce sales have an average return rate of 30% compared with 8%-10% for physical stores.
5.	See World Economic Forum (2019).
6.	A leading local online retailer received an average of 32 600 orders per day in February 2020, representing a 165% increase from that of 12 300 a year-earlier period. See Lung (2020).
7.	The Trade Descriptions Ordinance prohibits specified unfair trade practices deployed by traders against consumers, including false trade descriptions, misleading omissions, aggressive commercial practices, bait advertising, bait-and-switch and wrongly accepting payment. The Sale of Good Ordinance provides that goods for sale must be of satisfactory quality, fit for their intended purposes and must correspond with the descriptions or sample.
8.	According to Commerce and Economic Development Bureau (2019), cooling-off period refers to the period of time following conclusion of a contract whereby a supplier allows its customers to unilaterally cancel the contract without having to provide a reason. Following contract cancellation, the supplier needs to refund the amount paid by the customer and the customer's other payment obligations in the contract are also cancelled.
9.	In January 2019, the Government conducted a three-month public consultation to solicit public views on a proposal to stipulate a statutory cooling-off period for beauty and fitness services consumer contracts. Depending on the outcome of the public consultation, the Government aims to introduce the relevant bill into the Legislative Council in the 2019-2020 legislative session. See GovHK (2019).
10.	In 2018-2019, the Consumer Council received 4 795 complaints related to online shopping, representing an increase of 54.6% over 2016-2017. See Consumer Council (2017) and (2019a).
11.	By taking advantage of the tight supply of face masks and sanitizing products, consumers had been requested to pay in advance before the goods were received. In the first quarter of 2020, the Consumer Council received over 760 complaints relating to these transactions, mainly related to late delivery and refund disputes. Meanwhile, the Police reportedly received about 1 800 cases of face mask scams as at 20 April 2020, involving 3 900 victims and HK$56 million. See Consumer Council (2020) and The Standard (2020).
12.	During August-September 2019, the Consumer Council shopped with nine online shopping platforms to evaluate their quality in handling purchase orders, product delivery, goods return and refund as well as customer services.
13.	See Consumer Council (2019b) and (2020).
14.	According to the 2019 survey, the Consumer Council made 54 purchases from nine online shopping platforms. The success rate for the staff of the Consumer Council to apply for the goods purchased to be returned or to obtain a refund from online shopping platforms was lower than 50%. In addition, the deadlines for goods return varied among the online shopping platforms surveyed, ranging from seven days to 90 days after the products were duly received. See Consumer Council (2019b).
15.	See Ofcom (2019).
16.	The proportion of UK Internet users who had purchased online within the last 12 months stood at a high of 87% in 2019. See European Commission (2020).
17.	See eMarketer (2019).
18.	CCRs define distance contract as a contract concluded between a trader and a consumer under an organized distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded. See Legislation.gov.uk (2013).
19.	The cooling-off period is not applicable to certain products or services such as contracts with value less than £42 (HK$404); goods which will deteriorate or expire rapidly; newspapers and magazines; and bespoke and customized goods.
20.	A refund must be given without undue delay, and in any event within 14 days beginning with the day on which the seller agrees that the consumer is entitled to a refund.
21.	If the e-consumer is outside the 30-day right to reject, he or she has to give the retailer one opportunity to repair or replace any goods which are of unsatisfactory quality, unfit for purpose or not as described. If the goods cannot be repaired or replaced, the e-consumer can claim a refund or price reduction should he or she wish to keep the goods.
22.	According to Info Cubic (2019), online shopping is popular in South Korea where 88.5% of the country's population used e-commerce platforms in 2019.
23.	While e-consumers can terminate their online orders without any conditions, cancellation is not permitted where (i) the goods are destroyed or damaged by the e-consumer; (ii) the value of the goods is significantly diminished by the use or partial consumption by the e-consumer, or by the lapse of time; (iii) the packaging materials of certain goods are damaged; and (iv) the provision of any services or digital content has commenced.
24.	The E-Commerce Mediation Committee is composed of experts and representatives from legal, academic, business, and consumer organizations specializing in e-documents and e-transactions. The committee members are appointed by the Minister of Science and ICT.

References:

Hong Kong
1.	Census and Statistics Department. (2014) Report on the Survey on Information Technology Usage and Penetration in the Business Sector for 2013.
2.	Census and Statistics Department. (2020a) Report on the Survey on Information Technology Usage and Penetration in the Business Sector for 2019.
3.	Census and Statistics Department. (2020b) Thematic Household Survey Report No. 69.
4.	Commerce and Economic Development Bureau. (2019) Public Consultation Paper on Statutory Cooling-Off Period: For Beauty and Fitness Services Consumer Contracts.
5.	Community Legal Learning Centre. (Undated) The Sale of Goods Ordinance.
6.	Consumer Council. (2016) Online Retail - A Study on Hong Kong Consumer Attitudes, Business Practices and Legal Protection.
7.	Consumer Council. (2017) Annual Report 2016-2017.
8.	Consumer Council. (2018) A Report to Advocate Mandatory Cooling-Off Period in Hong Kong.
9.	Consumer Council. (2019a) Annual Report 2018-2019.
10.	Consumer Council. (2019b) Online Shopping Platforms Survey: Claims on Goods Return Not Guaranteed with Less than 50% Success Rate in Purchase Trials.
11.	Consumer Council. (2020) Beware of Scams on Social Platforms amid the Epidemic Outbreak Be Rational When Purchasing Online to Prevent Irretrievable Loss.
12.	GovHK. (2019) Public consultation on statutory cooling-off period for beauty and fitness services consumer contracts launched.
13.	South China Morning Post. (2019) Hong Kong's Consumer Council urges e-commerce platforms to make it easier for online shoppers to return goods, obtain funds.
14.	The Standard. (2020) 31 nabbed over face masks scams.
15.	《網購退貨靠彩數？政策措施要追上時代步伐》，《香港01》，2019年10月17日。
Others
16.	eCommerceBytes. (2019) Product Returns: One Size Does Not Fit All.
17.	eMarketer. (2019) Global Ecommerce 2019.
18.	European Commission. (2020) E-commerce statistics for individuals.
19.	House of Commons Library, UK Parliament. (2016) Sale of consumer goods services and digital content at a distance.
20.	Info Cubic. (2019) How to Win the Hearts and Trust of Korean Consumers.
21.	Korea Legislation Research Institute. (2016) Act on the Consumer Protection in Electronic Commerce.
22.	Korea Ministry of Government Legislation. (Undated) Dispute Mediation Committee According to Area.
23.	Legislation.gov.uk. (2013) Consumer Contracts (Information, Cancellation and Additional Charges) Regulation 2013.
24.	Legislation.gov.uk. (2015a) Consumer Rights Act 2015.
25.	Legislation.gov.uk. (2015b) The Alternative Dispute Resolution for Consumer Disputes (Competent Authorities) Regulations 2015.
26.	Lung, T. (2020) HKTV Mall sets records as Hongkongers move online during coronavirus crisis.
27.	Marson, J. & Ferris, K. (2016) Business Law.
28.	Ministry of Strategy and Finance, Republic of Korea. (2016) Korea's E-Commerce Policy Experiences.
29.	Ofcom. (2019) Online Nation 2019 Report.
30.	UK Parliament. (2020) Consumer Rights Act 2015.
31.	World Economic Forum. (2019) The Global Governance of Online Consumer Protection and E-commerce.

^{Essentials are compiled for Members and Committees of the Legislative Council. They are not legal or other professional advice and shall not be relied on as such. Essentials are subject to copyright owned by The Legislative Council Commission (The Commission). The Commission permits accurate reproduction of Essentials for non-commercial use in a manner not adversely affecting the Legislative Council. Please refer to the Disclaimer and Copyright Notice on the Legislative Council website at www.legco.gov.hk for details. The paper number of this issue of Essentials is ISE08/19-20.}