LegCo Paper No. CB(1) 713/96-97
(These minutes have been seen
by the Administration)

Bills Committee on Estate Agents Bill

Minutes of Meeting held on Wednesday, 30 October 1996 at 10:45 am in Conference Room B of the Legislative Council Building

Members present :

    Hon Andrew CHENG Kar-foo (Chairman)
    Hon Mrs Selina CHOW, OBE, JP
    Hon Albert CHAN Wai-yip
    Hon LEE Wing-tat
    Hon LI Wah-ming
    Hon CHAN Yuen-han
    Dr Hon LAW Cheung-kwok
    Hon NGAN Kam-chuen
Members absent :
    Hon Edward S T HO, OBE, JP
    Hon Ronald ARCULLI, OBE, JP
    Hon James TO Kun-sun
    Hon CHAN Kam-lam
Public officers attending :
    Mr William SHIU
    Principal Assistant Secretary for Housing
    Ms Sherman CHAN
    Senior Assistant Law Draftsman (Acting)
Clerk in attendance :
    Mrs Vivian KAM
Staff in attendance :
    Mr Stephen LAM
    Assistant Legal Adviser 4
    Miss Becky YU
    Senior Assistant Secretary (1)3

I Confirmation of minutes of previous meeting

(LegCo Paper No. CB(1) 187/96-97)

The minutes of the meeting held on 9 July 1996 were confirmed.

II Meeting with the Administration

2. The Chairman reminded members that the Administration’s written response to the six major areas where Committee stage amendments to the Bill were being considered had been circulated vide LegCo Paper No. CB(1) 105/96-97. Members then discussed the response as follows.

Exclusion of developers’ subsidiary companies selling developers’ own properties from the application of the Bill (Clause 2)

3. Hon LEE Wing-tat said that as there was currently no legislation governing the sale of developers’ properties, it would be against the principle of consumer protection to exclude developers’ subsidiary companies selling developers’ own properties from the application of the Bill. He cautioned that property developers might set up subsidiary companies for the purpose of being exempted from the regulatory system, and considered a need for the Administration to draft Committee stage amendments so as to define properly the circumstances involved and eliminate possible grey areas. Some members asked whether developers’ subsidiary companies which engaged estate agents to sell their properties and paid them commission would in doing so, be included or excluded from the application of the Bill. They also held the view that the sale of completed properties by developers should be regarded as a form of estate agency work.

4. While acknowledging that developers should provide accurate sales description of flats put for sale, the Principal Assistant Secretary for Housing (PAS for H) emphasized that this fell outside the scope of the Bill and would be addressed by a separate piece of legislation to be introduced into the Legislative Council in the year 1997. In order to truly reflect the purview of the Bill and avoid undue disruptions to operations of property developers, the Administration was working with the Attorney General’s Chambers (AGC) with a view to excluding developers and their subsidiary companies selling developers’ own properties from the definition of estate agency work. Reference would be made to similar provisions in other legislation when making these amendments. PAS for H assured members that developers’ subsidiary companies selling properties other than those of their parent companies would come under the jurisdiction of the Bill, and that the Estate Agents Authority (EAA) would draw up guidelines to cover the different circumstances. The important points were to avoid creating grey areas while ensuring parity treatment for estate agency work. The Senior Assistant Law Draftsman (Acting) (SALD (Atg)) supplemented that the proposed exclusion would be subject to the important control that it only covered developers’ subsidiary companies representing parent companies in the sale of developers’ own properties and subsidiary companies of property developers acting on behalf of purchasers in property transactions would come within the target of the Bill. SALD (Atg) added that the relationship between subsidiary companies and their parent companies would be interpreted in the context of the Companies Ordinance.

5. Some members remained of the view that the Bill did not provide sufficient consumer protection for developers’ first sale, as in the case of the Forest Hill incident. SALD (Atg) advised that the proposed exclusion of developers and subsidiary companies selling their own properties had been made in the light of previous discussions on exemptions at earlier meetings. She emphasized that developers’ first sale would, as advised by PAS for H, be covered by the proposed separate legislation on description of flats on sale. A member remarked that it would be difficult to distinguish between developers’ first sale and sale in the secondary market having regard to the increased number of transactions through the transfer of companies. Another member held the view that consumers should be accorded adequate protection regardless of the mode of sale. SALD (Atg) advised that developers’ first sale would be deemed to have completed upon signing of the assignment.

6. As to whether the trade and such organizations as the Consumer Council would be consulted on the proposed exclusion, PAS for H said that the proposal had been made having regard to views previously expressed by parties concerned, but then it would be impractical for the Administration to consult each and every organization at the current stage. He added that the Administration would work out the details with the AGC and propose draft Committee stage amendments for consideration by the Bills Committee should members agree to the direction of this proposal.

7. Members held different views on the proposed amendment. While some agreed that developers’ subsidiary companies selling developers’ own properties should be excluded from the application of the Bill, others were opposed to such an exclusion. A member expressed concern on how the interest of purchasers of properties developed under non-consent schemes could be protected.

Investigation power (Clauses 29 and 55)

8. While members accepted the proposal for refining provisions in Clauses 29 and 55 on the extent of EAA’s power of investigation, the Chairman remarked that Clause 39(3) should also be reviewed as the requirement therein for EAA to disclose information about a licensed estate agent’s accounts to the Crown Prosecutor was questionable.

Provision of property information (Clause 37)

9. Members were generally supportive of the introduction of the "due diligence" concept. A member asked if the Administration could spell out the exact extent of the concept as the trade might have difficulty in interpreting the term; others appreciated the practical difficulty of drawing up an exhaustive description and preferred to leave this out to allow for flexibility. Some members considered a need for EAA to list out basic information which estate agents would be required to provide. SALD (Atg) agreed with members that it would be difficult to list out in an exhaustive way what constituted "due diligence". She advised that the concept, which was aimed at providing a defence for estate agents who had taken all reasonable steps to avoid contravention, had been commonly expressed in broad and general terms in other legislation. PAS for H supplemented that the Bill had provided for flexibility for EAA to prescribe the types of information required. The Assistant Legal Adviser (ALA) confirmed that the "due diligence" clause would create flexibility for the court in deciding on whether estate agents had tried their best to obtain and verify information.

10. Members were not convinced that the new infoline service by the Rating and Valuation Department (RVD) could allay the trade’s concern. They cautioned that as outlined in the report produced by the Research and Library Services Division of the LegCo Secretariat, access to property information was not as easy as that envisaged by the Administration, in particular those kept by the Buildings Department (BD). PAS for H advised that the Administration recognized the importance of public access to property-related information and that there were a number of channels through which property information could be obtained. Apart from the information system in the Land Registry (LR) and the infoline service on saleable area and date of completion of domestic properties, a facsimile line had also been made available to facilitate public access to information. He stressed that with the introduction of the "due diligence" concept and the decriminalization of breaches relating to provision of information, estate agents who had taken reasonable steps to comply with the requirements and inform clients concerned would not be unduly penalized, even in the event of non-availability of information. PAS for H added that while there were practical difficulties for BD to provide information regarding pre-war and non-residential premises, efforts had been made to improve the situation.

11. Members asked the Administration to advise the schedule for property data in BD to be fully computerized, and the time and costs required, currently and upon computerization, for obtaining such information as Occupation Permits, floor or building plans and other related information from BD. PAS for H undertook to liaise with BD and report back to the Bills Committee in due course on the progress of computerization but stressed that most information required under Clauses 37(2)(a) to (g) could be obtained from LR and RVD. A member considered it acceptable if estate agents who had taken reasonable steps to avoid contravention would be deemed to have exercised due diligence, while others emphasized the need for the Administration to facilitate public access to information.

Duties of estate agents (Clause 37)

12. Members were worried that the extent of consumer protection would be reduced, particularly in the cases of dual representation, if the term of "fair, open and honest" under Clause 37(3)(b) were to be deleted. They pointed out that the Bills Committee had not requested the Administration to remove the requirement for estate agents to conduct transactions in a "fair, open and honest" manner, but to consider re-phrasing the term. In response to some members on the substitutability of Clauses 37(1)(a) and 37(3)(b), ALA advised that as the targets of these two clauses were different, the former might not be able to provide the necessary protection for clients in the event of dual agency. SALD (Atg) explained that the term "fair, open and honest" in the context might mainly require full disclosure of information and the avoidance of possible conflict of interest. However, given the fact that the conceptual requirement of acting in a "fair, open and honest" manner was too vague to make this a satisfactory statutory duty, and that most of the salient elements constituting the term had been spelt out in Clauses 37(1)(a)(v) and (vii), the Legal Policy Division of AGC had suggested deletion of the term from the Bill. PAS for H supplemented that the Administration had an open mind on the proposed deletion and would welcome any views which members might have in this respect. The important point was to ensure customer protection.

13. While members generally supported retention of the principle of "fair, open and honest" as this was particularly important for transactions involving dual representation, they held different views on how this should be spelt out in the Bill. Some members considered a need for EAA to devise specific requirements for the term in the form of guidelines or regulations; others expressed reservations at such an approach as this might create grey areas for estate agents, and suggested defining in more concrete terms the manner in which dual representation should be conducted. A member remarked that while there was no significant difference between the two proposals, the former would have an advantage over the latter since subsequent changes could be made through subsidiary legislation.

Vicarious liability (Clause 45)

14. Members were supportive of the proposed deletion of Clause 45.

Offences (Clause 56)

15. Some members expressed reservations over the uniformity of penalties for contravention of Clause 37, in particular those of a more serious nature relating to the provision of false information in estate agency agreements such as ownership, subsisting incumbrances and users’ restrictions of properties concerned. Others considered that heavier penalties should be instituted against non-compliance of Clauses 37(1)(a)(v) to (vii), and that cases of willful deceit should be spelt out explicitly in Clause 56 as attracting criminal liability. In response, PAS for H said that the nature and seriousness of the offence as a whole were taken into account in determining the level of penalties under Clause 37 rather than focusing on the potential damages caused by different types of inaccurate property information, PAS for H assured members that solicitors concerned would be ultimately responsible for verifying such information as ownership, subsisting incumbrances and users’ restrictions of properties before the signing of the Agreement for Sale and Purchase to detect any irregularities which might affect the completion of transaction. SALD (Atg) supplemented that clients might institute civil proceedings against estate agents concerned in accordance with Clause 37(5) for any losses or damages incurred in the event of estate agents failing to comply with the requirements under Clause 37. Offences relating to deception, conspiracy to defraud and possibly forgery however would be liable to criminal sanctions. In reply to a related question, PAS for H advised that there were precedents in which losses suffered by a client could be recovered from an estate agent concerned if the purchaser could produce sufficient evidence to substantiate his claim that he would have gained had he engaged in another property transaction.

16. A member asked if it would be an offence for overseas registered estate agency companies to handle the sales of overseas properties after enactment of the Bill. PAS for H advised that this was a separate issue to be considered in the context of the Law Reform Commission (LRC)’s report on the sales descriptions of overseas uncompleted residential properties. LRC would draw up its final report taking into account public opinions collated during the consultation period which was still underway. SALD (Atg) confirmed that while the Bill had spelt out clearly the need for licences if estate agents operating in Hong Kong were to undertake estate agency work for the sale of properties locally or overseas, it did not cover the conduct of business of overseas registered estate agency companies outside Hong Kong. Members considered a need for the Administration to prescribe regulations to guard against possible abuse in this respect.

17. Before concluding, the Chairman advised that some members had requested further discussion of Clauses 15, 17, 20, 47 and 58 at the next meeting. Members who wished to discuss other clauses were requested to notify the Clerk.

III Any other business

18. Members agreed to cancel the next meeting on Thursday, 31 October 1996, and to postpone the meeting originally scheduled for Wednesday, 6 November 1996 to Wednesday, 13 November 1996, at 8:30 am to avoid clashing with a meeting of the Public Works Subcommittee.

19. There being no other business, the meeting closed at 12:45 pm.

Legislative Council Secretariat
16 January 1997

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