The Changing Landscape of Consumer Law in Singapore

For a lawyer, consumer law would generally encompass basic contract law and provisions which cover sale of goods and provision of services. As at 21 February 2000, 40 types of legislation have been identified as consumer-related or which confer consumer protection in some way or another.¹ They range from the Sale of Food Act (Cap 283), Medicines Act (Cap 176), Fisheries Act (Cap 111), right to the Factories Act (Cap 104); and deal with matters relating to preparation of food, prescription and labelling of medicine, regulations on the import and local processing of fish to ensure safety and the safeguarding of the health of workers employed in factories. Acts such as these are included in the arsenal of legislation which can be drawn upon to protect the consumer.

In determining the rights of consumers, however, it is necessary to look at the flip side of this, which would be, the responsibility of businesses. In looking at this topic it is critical to consider this important flip side which I believe has been evolving over the years, and, by the shape of things, is set to somewhat change the legal landscape in the way consumers and businesses determine their rights and responsibilities.

In 1996, the Consumers Association of Singapore (‘CASE’) began to sow the seeds for a Fair Trading Legislation in Singapore through the launch of the first ever National Consumer Week in Singapore. In September 1996 the then Minister for Information and the Arts and Minister for Health, Brigadier General (‘BG’) George Yeo, launched the week with the theme, ‘Towards a more Gracious Society — Consumers and Business in Partnership’.² This was the first time businesses were encouraged openly to declare their standards through codes of conduct, and the concept of dispute avoidance was introduced to the public in the hope of reducing disputes between businesses and consumers.

The strategy of dispute avoidance adopted from the Melbourne Fair Trading Office in Australia recognised that consumers are a business and hence it was important for both parties to recognise the need to create a fair trading environment which would result in a win-win strategy for consumers, businesses and the government. This strategy became the pivot for the push for a Fair Trading Act in Singapore. CASE then adopted the phrase ‘Consumers Are Business’ and the ‘Consumers Mean Business’ slogan, which still survives as a cornerstone of its policies today.

The strategy recognises that the consumer-business relationship can be likened to a partnership which will inevitably have its ups and downs, as in the case of matrimonial bonds which signify the life long partnership of man and wife, which also has its ups and downs.

In 1997, the author was tasked by CASE to form a committee to look into the possible introduction of a Fair Trading Legislation in Singapore. Such was formed with the following terms of reference:

The report issued recognised that globalisation and technological advancements, while empowering consumers by increasing their knowledge and choice, were also key drivers in making businesses focused and competitive. As such, it became necessary to propose a fair trading regime in Singapore to keep the balance in an environment of razor thin margins which had resulted in various acts of unconscionable conduct by businesses, and which if left unchecked, could degenerate to a situation of widespread cheating.

The report also identified various forms of unconscionable conduct like high pressure sales, bait and switch tactics which were used not only to lure consumers into non-existent bargains such as cheap airline tickets and furniture, but also job advertisements which preyed on the unwary and vulnerable, and baited the already hard pressed into ‘investments’ in commodities and the like, which often resulted in loss of money by the ‘investors’.

Although to some extent the problems relating to bait and switch job advertisements have been addressed through the passing of a new bill which outlawed ‘Bucket Shops’, namely the amendments to the Commodity Futures Act (Cap 48A) in May 2001, the laws as amended deal with specifically known mischiefs. These commodity bucket shops would in time look for new wine to put into the old bottle. Scams were just waiting to begin yet again. Hence the need to search for a more permanent solution. In addition, statistics were showing that high pressure sales tactics were often applied in the timeshare industry, and, more often than not, consumers were lured by greed and pressure to make money by way of timeshare investments. In a study mission to New Zealand in 2000, the Commerce Commission told the delegation led by CASE that ‘cowboy’ operators such as some timeshare companies relocated to Singapore after the introduction of the Fair Trading Legislation there. Unfair tactics were gradually also applied to non-traditional industries such as the mobile phone and motorcar industries. Tactics employed by such industries appeared to be playing less on consumer greed but were instead a combination of misrepresentations made by sales representatives accompanied by hardsell. But alas, such were only illusions meant to mislead or trick the unsuspecting consumers into committing themselves. Consumers were unwary or unsuspecting that the law of evidence makes the paper document signed by them supreme over any oral representations that may have been made to induce them into the transaction. Many such contracts have been signed blindly. In fact, some contracts entered into by consumers are so watertight that every conceivable defence had been signed away by the consumer through placing their initials to signify such. It is hoped that such regrettable situations are addressed through the introduction of a cooling off period in the proposed Act and would basically reverse the caveat emptor rule as such.

Aside from this, there were issues relating to false and misleading advertising — eg using fine print to hide what is advertised in bold print, misleading products’ origin and condition, promoting what cannot be delivered, false bargains where the deadline of a sale may be misleading, raising prices then discounting them on the pretext of a sale, ‘forever’ closing down sales, overcharging at the checkout counters — are all meant to be targets of the new Act and are problematic areas which need to be addressed.

After identifying the need for such legislation, the committee set about determining the level of business support for such legislation. They found that in fact the business community responded positively after some time to the message that there were indeed problems in the marketplace which existing laws could not address. It was also clear that no amendments to the existing legislation would allow the tackling of the mischief identified, and even if so, it would have been a massive job. Such mischiefs were essentially unconscionable conduct and which were similar but broad-based in nature. Similar problems cutting across various industries would entail the amendment of numerous specific statutes. As such it was felt to be too tedious a method to adopt. Businesses also appeared sold on the concept proven in Melbourne, Australia that a Fair Trading Legislation, coupled with a dispute avoidance strategy, would eventually reduce complaints, weed out the cowboys in the respective industries and protect consumers in the long run and, more importantly, thereafter reduce costs to them. This would reduce the costs of the legitimate players and reflect well on the industry concerned. A survey by the committee in November 1999 showed that 80% of the 880 businesses surveyed supported the need for such legislation and would benefit from them, as compared with a straw poll done on 27 September 1997 after the seminar on Fair Trading Legislation held by CASE. There was virtually no support for the new proposed legislation then.

The report recommended that the proposed legislation be cast in the widest possible way to address possible new mischiefs, which would evolve to defeat legislation, and hence the creation of a cause of action against misleading or deceptive conduct and/or unconscionable conduct. It was therefore proposed in the report that as a guide, illustrations be given to assist businesses and consumers in the identification of such unconscionable conduct. The committee also found that there was a desire by both consumers and businesses to have such an Act and to create a level playing field for businesses to compete on. Consumers would in turn have added protection.

The report was finalised and presented to the Ministry of Trade and Industry (‘MTI’) in August 2000. After due consideration, a taskforce was appointed by then Senior Minister of State for Trade and Industry, Mr Peter Chen, to look into the recommendations made. The taskforce was co-chaired by the author and Mr Ong Ye Kung, a Director from the MTI.

The taskforce consisted of industry representatives, regulators, Attorney-General’s Chambers and MTI officials. In its report to the Minister of Trade and Industry in May 2002, it recommended the need for such an Act, which was proposed to be called the Consumer Protection Fair Trading Act. The report was considered by the Minister and it has since been announced in Parliament that such a Bill should be discussed in Parliament by the end of this year.

A controversial issue would be whether there is a need to have a Fair Trading Office to administer the proposed Act. Such an office was recommended in the report by CASE. The author believes that the effectiveness of the proposed Act may not achieve its desired purpose of reducing complaints and disputes without a Fair Trading Office to act as an interface between consumers and businesses as distiller and evaluator of information. The consequence may be a rise in litigation due to the additional rights created.

The die has been cast for the legislation to forever change the way the marketplace is regulated through such an Act. The concurrent push for Good Business Practice, Dispute Avoidance, Consumer Business Partnership by CASE through its CASETRUST scheme was first launched in 1999, and relaunched with tighter and sharper criteria in April 2001, with the theme ‘Consumers Push Business to Excellence Through Consumer Confidence’. Such a push underpinned by the proposed Consumer Protection (Fair Trading) Act appears set to bring to bear all businesses who have yet to pull up their socks, as the reality of such legislation comes knocking at their doors and compels them to give consumers a fair deal. Whilst the anticipated Act may not create penalty provisions and hence statutory offences, a new regime of laws would have been set up to regulate the marketplace, which lawyers will have to grapple with. These are laws which will empower consumers with new rights with corresponding remedies and hence create fresh, but not necessarily known, obligations for businesses. The laws are meant to create a new order in the marketplace and pave the way for the eventual introduction of Competition Law into Singapore, which has been mentioned many times due to observations of ‘cartelistic’ behaviour in certain industries. Such observations occur when there are simultaneous and similar or identical price rises which stifle competition among businesses. More subtle forms of such anti-competitive behaviour occurs where retailers are forced to sell products at recommended prices, and not below, and manufacturers are disallowed to use price variation as a factor to induce competition, for example, in the supermarket trade. (The celebrated ‘Knife’ Brand case comes to mind.)

The MTI is believed to be seriously studying the introduction of Competition Law, particularly in the light of a possible Free Trade Agreement with the United States, set to be concluded shortly.

The push for a Fair Trading Legislation was not the only effort made to enhance consumer protection in Singapore. There were mounting concerns relating to bucket shops and pyramid selling operations, which affected thousands of unsuspecting consumers, who were effectively ‘conned-sumers’ as such. Whilst the methodology used above identified trades which were similar to that which were the target of the anticipated proposed Fair Trading Legislation, ie bait and switch advertisements, high pressure sales, false and misleading conduct and other kinds of unconscionable behaviour, the situation could not wait for the new legislative push which would have several further hurdles to undergo. Legislative reform under the circumstances had to take place in reaction to the problems that were mushrooming in the two industries. Reforms were introduced by way of amendments to existing legislation and subsidiary legislation as was appropriate. The reforms are described below.

In response to a question from Nominated MP Moris Ong in Parliament on 30 June 2000,⁴ Parliament was informed by the Minister for Trade and Industry BG George Yeo, that currently, the Commodities Futures Act covers only commodities that are traded on the Singapore Commodity Exchange, namely, rubber and coffee. Firms that trade in other commodities are not regulated. Some of these firms, commonly known as bucket shops, have enticed the public to open trading accounts with them. They engage in trading practices that are against the interest of the investors. MTI will be proposing amendments to the Commodities Futures Act to extend the Act to cover all commodities and associated derivatives, and to require any firm that wishes to trade in commodities to be licensed. However, to ensure that bona fide traders are not inconvenienced, several categories of traders (other than those trading in rubber and coffee) will be exempted from the licensing requirement. These categories will include principal-to-principal traders, over-the-counter traders and banks. The proposed amendments will help to stamp out bucket shops, without overly inconveniencing bona fide traders.

Details of the amendments to the Commodity Futures Act were announced on 28 December 2000, where public feedback was sought for the proposed amendments, which included higher penalties and punishment for offenders. The amendments to the Commodity Futures Act were passed on 16 May 2001 and came into effect on 27 June 2001. The Act in essence widened the scope to cover all commodities and even commodity trading, such as leverage commodity trading and spot commodity trading which required mandatory licensing of both firms and individual traders on commodity trading services — unless specifically exempted — from the Singapore Commodities Exchange. Stiffer penalties were imposed on those who traded without a licence, those engaged in, inter alia, fraudulent or misleading trading activity, price manipulation or false trading with fines of up to S$50,000 for individual traders and S$100,000 for corporations. Individuals could be jailed for up to a year and company directors up to three years. Companies were then given three months grace to apply for a licence.

The amendments had immediate effect as reported in The Straits Times on 3 December 2001. Complaints to CASE dropped from an average of 80 lodged from June to August that year to 17 from September till the date of the report. The report cited sources as saying many of the shops either closed down or were lying low, as they were aware that they were unable to fulfil the strict criteria of obtaining a licence. It was warned by the writer, as the then Chairman of the Consumer Affairs Committee in CASE, in the same report, that there were signs operators were said to be switching into indexes linked to trading in stocks and shares regulated by the Monetary Authority of Singapore (‘MAS’), but to date the situation seems to be fairly well contained. But it would not be surprising if operators find new ways to exploit human greed sooner rather than later, for as long as there are people who are there to succumb to temptation, there will be those ready to lure. It is hoped that the anticipated Consumer Protection (Fair Trading) Act will be passed and will deal with ‘unconscionable conduct’ before this can occur.

The line between multi-level marketing and pyramid selling is sometimes difficult to draw. It is not uncommon for even lawyers to be confused as to the terminology of the various schemes which are in fact different and can be briefly defined:

Of the above, pyramid selling is completely outlawed in Singapore and the position is governed by a multiplicity of Acts and Orders, namely:

The problem arises as to which multi-level marketing schemes are allowable under the law. The constant amendments to the legislation have not helped in providing a clear cut definition of what is or is not allowable under current law. It would appear that the waters are still murky, as not all multi-level marketing techniques are considered undesirable by the law. What is allowed under the law in fact is meant to encourage innovative sales and marketing schemes and tactics. The question really is: what are these innovative tactics, and when does ‘innovation’ become ‘undesirable’? This would turn on the interpretation of the excluded schemes and arrangements as defined in Order 2000, as amended by Order 2001 and effective 1 January 2001. The amendments provide for new definitions of Pyramid Selling Schemes/Arrangement, which arose from confusion by the public as to claims of legitimacy by companies. Whether such schemes were legitimate or not under Order 2000 was not sufficiently clear.

Clearly excluded, however, were insurance businesses which were registered approved or licensed under the Insurance Act (Cap 142) and regulations thereunder, and Master Franchise schemes and direct selling schemes which satisfied certain conditions defined.

In addition further safeguards were provided or imposed on direct selling companies. For example, participants are not required to provide any benefit or acquire any commodity to become a participant in the scheme, aside from the purchase of a demonstration equipment or material at a price not exceeding the cost. Also, salespersons should be entitled to full refunds under reasonable commercial terms, for inventories not sold within 60 days from the date of distribution of the commodity to the participant.

Interestingly, the behavioural checks identified in the new Order 2001 include the need to take reasonable steps to ensure there are no false and misleading representations relating to the scheme, omission of material particulars, engaging in conduct that is misleading or likely to mislead, or promoting a scheme or arrangement or commodity by the use of fraud, coercion, harassment, unconscionable or unlawful means. The inclusion of the term ‘unconscionable’ ahead of the proposed Fair Trading Legislation is significant as it was done after some lobbying by CASE.⁵ It would be interesting to see how the term ‘unconscionable’ will be interpreted by the courts here when such opportunity arises. Arguably that would be a policy consideration of what is innovative and permissible under the law, and what would be ‘morally’ justifiable as such. The interpretation of the word ‘unconscionable’ has been the subject of much debate in other jurisdictions and it is submitted it is a thin line to draw.

It is pertinent to note that whilst it is permissible for the sharing of commission from several layers of salespersons, such commission must be generated from the sales of the product or services in question, and not from the recruitment of additional participants into the scheme. This is fundamental to the legality of the scheme in question and an important test as such.

Penalties were raised in 2000. Fines were raised from S$30,000 to S$200,000, with jail terms of up to five years or both for offenders.

In addition, deterrence can be effected through the provision by the court of additional penalty not exceeding the amount or value or benefit which the promoter, participant received.

It must be borne in mind that there can be no innocent participation in an unlawful scheme, as all participants would be seen as having played a role in attracting others to the scheme. The government sees this as an important deterrent.

Whilst the above seems rather technical and difficult even for lawyers to grasp and understand, it is also important to note that though a scheme may be prima facie within the law, there is a danger of the scheme running foul at the stage of implementation. Particularly where the sharing of commission through the forming of additional layers of salespersons is allowed, and the layers get further and further away from administrative control. This adds difficulty to a participant’s consideration of the legitimacy of a scheme.

The law as it stands is still relatively untested and it appears that unlike the amendment of the Commodity Futures Act, which has brought immediate relief to consumers, the effectiveness of the amendments still has to be seen. Any test of the new provision in the Act in court will help clear some of the perhaps more murky areas.

Other major initiatives and ongoing reviews have also been taking place. The most major would be the possibility of introducing Competition Law which was hinted at by the then Minister of State for Trade and Industry, Mr Lim Swee Say, in answer to a question in Parliament when introducing the amended Bill to the Multi-level Marketing and Pyramid Selling (Prohibition) Act in answer to a question. He stated that his Ministry was actively monitoring the need for Competition Law and a commission to regulate competition, given that business competition is likely to grow even keener in the future.⁶ Whilst the possibility of the introduction of such a law is still under study, it is submitted that such a law would be a logical, and perhaps necessary, step in the light of the introduction of a Fair Trading Regime and the signing of more Free Trade Agreements with countries such as the US, Canada and European countries in the near future. This is because such Free Trade Agreements as already signed with New Zealand and Japan will pave the way for more trade and investments in Singapore. A freer flow of goods, services and people puts more pressure on the government to regulate competition. Issues that are possible areas of concern include price fixing, collusion in tendering for projects, unconscionable and misleading conduct and other behaviour of an anti-competitive nature. Such laws, if enacted, could give power to the state to investigate and put a check on such undesirable behaviour.

There is also a committee⁷ appointed by the Ministry of Law looking into the legislation relating to money lending, pawn broking and hire purchase, to consider the need for a uniform approach to be taken on such consumer credit; and where deliberations of the committee which the author is a member is still under review. Any move in this direction would in fact be in line with countries like the United Kingdom and Australia and where a single consumer Credit Act exists already.

Also recently introduced by the MAS is the Financial Advisers Act (A43/2001), which consolidates the regulatory regimes governing the provision of financial advisory services in respect of securities, futures and life insurance products (which were contained in different Acts), into a single legislation. This would provide a consistent set of requirements and regulations for market intermediaries engaging in similar activities across investment products⁸ and better protect consumers.

The above is but a short discourse of recent developments in Consumer Law which has tremendous impact on the conduct of business. The increasingly global nature of business has enhanced our consumer laws and created fresh obligations on businesses. The new order of things requires lawyers to take a step backwards to examine whether in fact they have been keeping up with the rapid developments of laws in all fronts. The changing nature of the way business is conducted will demand that lawyers who do not keep up with the new order of things may find themselves without a niche, as boundaries of business excellence, corporate governance and the law begin to blur and lawyers are expected to deliver services beyond the letter of the law.

1	Proposal for a Fair Trading Act August 2000 — submitted to Ministry of Trade and Industry by the Consumers Association of Singapore, Appendix 7.
2	The Straits Times, 22 September 1996.
3	Proposal for a Fair Trading Act (August 2000) by the Consumers Association of Singapore.
4	The Sunday Times, 2 July 2000.
5	In meetings with the Ministry of Trade and Industry and the Consumers Association of Singapore before the Amendments were proposed in Parliament.
6	Raised in Parliament by Mr Lim Swee Say then Minister of State Trade and Industry on 9 May 2000.
7	The Review Committee is chaired by former Justice Goh Joon Seng and members from the Ministry of Trade and Industry, Ministry of Law, the Monetary Authority of Singapore, private legal practitioners, the Law Faculty of the National University of Singapore and the Consumers Association of Singapore.
8	Extracted from the Financial Advisors Act 2001 Consultation Document by the Monetary Authority of Singapore issued on 21 March 2001.