Minutes of the Fourth Meeting of the Bills Committee
to study the Estate Agents Bill

Internal discussion

Papers tabled

The following papers were tabled at the meeting (subsequently issued to Members not present vide LegCo Paper No. HB 592/95-96) :

1. Chinese summary translation of the submission from Miss Anne CONNELL of Connell & Chan Associates Limited dated 9 January 1996 ;
2. further submission from Mr CHAM Kong dated 23 January 1996 ;
3. letter from Mr C N BROOKE of Brooke Hillier Parker dated 25 January 1996 ;
4. further submission from Mr John P WONG of Family Realty Cosmo City Inc., Realtor dated 29 January 1996 ;
5. submission from the Law Society of Hong Kong dated 30 January 1996 ;
6. speaking note of Miss Carol WEST of Dalgleish West & Associates Ltd. dated 30 January 1996;
7. English and Chinese submissions from Consumer Council; and
8. an updated summary table on submissions.

Time arrangement for meeting deputations

2. Mr Ronald ARCULLI referred to the schedule of meeting deputations and remarked that the Real Estate Developers Association of Hong Kong was a well-established and major representative body of the trade. He recommended that the Bills Committee should meet with its representatives in a time-slot of an equal length as other major bodies of the trade. Members also noted that Brooke Hillier Parker requested more time to meet with the Bills Committee because it was representing several major estate agencies. After discussion, Members agreed to meet the Real Estate Developers Association and the Brooke Hillier Parker for 20 minutes each at the next meeting to be held on 9 February 1996, instead of at this meeting.

Clerk

Research paper by the Research and Library Services Division

3. A paper entitled "Estate Agents Bill - An Analysis of Accessibility of Information Required under section 37(2)" prepared by Research and Library Services Division of the LegCo Secretariat had been issued to Members vide LegCo Paper No. HB 568/95-96. Members decided that the research staff should present the paper to them at the next meeting.

R & L
Services
Division

Meeting deputations

Law Society of Hong Kong

(Submission dated 30 January 1996 issued vide LegCo Paper No. HB 592/95-96)

4. Mr Christopher CHAN said that the Law Society of Hong Kong supported the Bill in principle on the ground that there should be some regulatory measures to protect public interest. Yet, the Law Society did not support strict and stringent legislation because this could put most of the estate agents out of trade.

5. Mr Anthony CHOW then briefed Members on their submission. The main points were (a) criminal sanction should only apply to fraud and dishonesty such as not disclosing offer to vendor or receiving commission without disclosure; disciplinary sanction could apply to other malpractices; (b) a "cooling period" should be allowed for preliminary agreement so that the buyer was permitted to rescind without penalty; and (c) the Estate Agents Authority (EAA) should be set up as soon as possible.

6. In response to Mr LEE Wing-tat and Mrs Selina CHOW’s questions regarding application of criminal sanction, Mr A CHOW remarked that disciplinary sanction would not be sufficient for estate agency as long as it was not a profession.

7. Mrs Selina CHOW further asked about the Law Society’s opinion on a point made by the trade which was that EAA should be largely composed of their members. Mr A CHOW replied that self-regulation would only achieve purpose for a matured trade.

8. Mr Ronald ARCULLI referred to clause 29 and clause 55(2)(d) of the Bill and sought the Law Society’s view on the appropriateness for EAA to possess an investigative power. Mr A CHOW answered that such power as well as that of criminal sanction would need to be appropriately exercised in cases such as agents not disclosing offer to vendor or receiving commission without disclosure.

9. Mr Albert CHAN asked how customers’ interest could be protected in view of the close and related interests between solicitors and estate agents. Mr A CHOW responded that the Bill could impose an obligation on the employers to disallow their employees to receive commission.

10. In response to Mr NGAN Kam-chuen’s question, Mr A CHOW agreed that there were already sanctions against dishonesty and fraud in the existing legislation. Yet new sanctions would still be required against other malpractices which had not been covered adequately, such as withholding offer and receiving commission without disclosure, and these sanctions should be clearly spelt out in the Bill.

The Consumer Council

(Submission dated January 1996 tabled at the meeting and issued to Members not present vide LegCo Paper No. HB 592/95-96)

11. Mrs CHAN WONG Shui briefed members on their submission. Mr LI Kai-ming supplemented that the six pieces of information required under clause 37(2) were essential and were usually available.

12. Mrs Selina CHOW asked the Consumer Council’s view about whether a criminal liability should arise if a licensee had relied on an information which was later found to be inaccurate. She said she had in mind the practical side of the business. Mr LI Ka-ming responded that estate agents had the responsibility to vet the accuracy of the information provided to their clients. They should receive criminal penalty if there were intention of fraud or deception. The future EAA should issue detailed guidelines in this respect.

13. Mr LEE Wing-tat asked whether the Consumer Council would support the idea of "cooling period" after the signing of preliminary agreement, during which a buyer could rescind the contract without penalty. He further sought the Consumer Council’s view on whether large estate agents would reap all benefits from the Bill. In this connection, the Chairman referred particularly to clause 47 regarding advertising and quoted some deputations’ view that the business of small estate agents would be adversely affected. Mrs CHAN cautioned that the subject needed thorough consideration since it could lead to numerous other problems or disputes. She continued to say that it was an obligation for an estate agent, large or small establishment alike, to conduct his business in a fair and honest manner and to provide accurate information, and in this regard, she could not see how large estate agents would be benefited. She considered that the trade associations could take a pro-active role to collect property information to be provided to smaller estate agencies so as to ensure fair competition. In response to Mr LEE’s further enquiry, Mrs CHAN confirmed that the Consumer Council had not received any proposed standard format of preliminary sale and purchase agreement, apart from the property inspection sheet.

14. Mr Albert CHAN asked how the Bill could protect the interest of consumers in view of the closed relationship between solicitors and property developers. Mrs CHAN replied that the issue of commission between solicitors and property developers did not form a subject of the Bill. The subject could perhaps be one area of study of the future EAA, and possibly with the assistance of the Independent Commission Against Corruption.

15. Mr NGAN Kam-chuen asked the opinion of the Consumer Council on the appropriate educational requirement for an estate agent’s licence in the view that the licensee was only required to conduct his business in a honest manner. Mrs CHAN responded that the Consumer Council would not suggest high educational standard to the future EAA. However, it was essential for a licensee to be literate so that he could perform the duties of explaining agreement to clients and searching property information.

Independent Commission Against Corruption (ICAC)

16. Mr A R SCOTT informed Members that the ICAC’s Corruption Prevention Department had conducted a study on malpractices by estate agents in 1990 and concluded that there should be a control and licensing mechanism to safeguard public interest. The Working Group on Regulation of Estate Agents which recommended the introduction of a licensing system to regulate the trade consisted of ICAC’s representatives. ICAC supported the new regulatory framework because it would establish a clear relationship between estate agents and clients. Creation of EAA as a public body would enable ICAC to examine its procedures and to provide corruption prevention advice to it when necessary. The code of ethic to be drawn up by the future EAA would also be helpful for ICAC in establishing evidence of corruption involving estate agents.

17. Mr Francis LEE then briefed Members on the numbers of corruption reports received by ICAC in respect of the six categories of corruption cases in 1994-95. In response to Mrs Selina CHOW’s enquiry, Mr LEE also undertook to provide the respective conviction rates for Members’ reference.

(Post-meeting notes : the relevant statistical information was provided in writing by ICAC after the meeting and issued to Members vide LegCo Paper No. HB 602/95-96.).

ICAC

18. Mr Albert CHAN asked the opinion of the ICAC on how the Bill could cover the issue of payment of commission by solicitors to estate agents. Mrs Selina CHOW also asked how the Bill could give sufficient deterrent effect against corruption on the trade. Mr LEE said that any agent who received advantage in the course of conducting business without the permission of his principal, committed an offence under section 9 of the Prevention of Bribery Ordinance. However, it was difficult to establish evidence for prosecution, particularly against the employer who had not made any direct contact himself. Mr SCOTT supplemented that the code of ethic would be helpful if it included restriction on fee splitting or on agents receiving fee from people engaging in conveyance, mortgage and insurance.

19. Dr LAW Cheung-kwok referred to the problem of estate agents withholding offer and asked how this malpractice which adversely affected the vendor could be prevented by the Bill. Mr K P CHAN said that the Bill required an estate agent to inform a vendor of any offer made and to disclose pecuniary and other beneficial interests in a transaction. Mr LEE also said that records were expected to be properly kept and thus evidence would be more readily available.

20. Mr CHAN Kam-lam sought the ICAC’s view on whether the Bill was insufficient in preventing corruption or illegal acceptance of advantage in the trade. Mr SCOTT remarked that the main objective of the Bill was to provide better regulation of the estate agency business, not to facilitate easy prosecution against corruption. The Bill had provided a proper balance in this regard. The regulatory framework which put obligations on the estate agents in conducting business, such as clear definition of responsibilities of estate agents and requirement for proper agency agreement, would overcome any existing loopholes.

21. At Members’ request, the ICAC agreed to provide two papers to Members after the meeting (a) an information paper explaining the difficulties in the investigation of corruption complaints and related crime involving estate agents and (b) ICAC’s report on malpractices of estate agents. Mrs Selina CHOW suggested and Mr Ronald ARCULLI concurred that ICAC should be invited to assist Members when the Bills Committee came to its clause-by-clause examination of the Bill.

ICAC

The Democratic Party

(Submission attached as Appendix 15 of the summary table issued vide LegCo Paper No. HB 468/95-96)

22. Mr NG Wing-fai briefed Members of the views of the Democratic Party on the Bill which had been set out in their submission. He also informed Members that some estate agents in Mongkok area were still advertising illegal property for sale (such as rooftop illegal building). This clearly demonstrated the need for monitoring and regulation in the trade. Members noted and thanked his views.

The Hong Kong Institute of Surveyors

(Submission attached as Appendix 22 of the summary table issued vide LegCo Paper No. HB 500/95-96)

23. Mr LEUNG Chun-ying informed Members that the Institute would submit a full position paper to the Bills Committee and the Housing Branch in two weeks’ time. Overall speaking, there was support to the spirit of the Bill. However, the objective of the Bill had been set too high for real purpose in the present-day social context. Due consideration should be given to the special nature of the local property market such as huge overall value, high transaction rate, high efficiency, and low estate agency fee, in setting down the objective of the Bill which should be at a practical and workable levels.

24. Mr LEUNG then pointed out the failure of the Bill in the definition of the term "estate agency work" which was so wide that it could include (a) subsidiary companies to sell the developers’ properties; (b) surveyors; (c) "non-surveyor" estate agents which attracted most of the complaints in the trade and which had a high turnover rate in general; (d) individuals who went between vendor and buyer; and (e) solicitors engaging in estate agency works such as in the tendering process and who were to be exempted from the provisions of the Bill. Mr LEUNG considered that members of the HK Institute of Surveyors should be exempted from the provisions of the Bill because they were subject to (a) governance of its Constitutions, Bye-laws and Rules of Conduct which imposed higher practice standards than the requirements set out in the Bill and (b) the Surveyors Registration Ordinance passed in 1991, which regulated the work of registered professional surveyors largely through the Surveyors Registration Board, the spirit of which was similar to that of the Bill.

25. The Chairman and Mr LEE Wing-tat referred to the Institute’s submission and asked whether it was their stance that there should be two sets of statutory controls to be applied to "surveyors" and "non-surveyors" estate agents. Mr LEUNG said same standard should be applied in order to maintain fairness, and it was only fair for the Bill to be imposed on "surveyors" estate agents as on the other parties if these other parties were also subject to the same set of statutory regulations similar to those governing the surveyors. As a matter of fact, if the Bill was enacted in its present form, most small estate agents would be driven out of business to the advantage of professional surveyors’ firms. In this regard, he stressed that the overall impact on the market should be considered.

26. Mr LEE Wah-ming referred to para. 1(b) of the submission and remarked that it was necessary to require estate agents to research and maintain various data about a property so as to protect consumer’s interest. In this regard, he consulted the Institute about the duties expected of the estate agents and he asked whether the Institute’s statutory regulations had included imprisonment as a penalty. Mr LEUNG referred to the requirement under clause 37(2)(d) regarding any restriction on the user of every particular property and said that it would be difficult for estate agents or even solicitors who were not specialised in property transaction to explain the information clearly to their clients. In addition, vigour requirements would increase the cost of property transaction which would be borne by consumers eventually. Mr LEUNG further explained that the Institute did not worry about the imposition of imprisonment but only pointed out that imprisonment was not included in similar estate agency legislations in other jurisdictions. Mr Augustine WONG also explained that since entry to the trade would be relatively restrictive after enactment of the Bill, revocation of licence would be sufficient deterrent.

27. Mr NGAN Kam-chuen referred to the Institute’s view that the objective of the Bill was impractical in the present-day social context and asked Mr LEUNG to name the conditions under which the Bill could achieve its set objective. Mr LEUNG gave one condition as when information specified in the Bill to be provided by an estate agent were all readily available.

28. Mr CHAN Kam-lam asked whether the Institute could accept completion of relevant training courses as a requirement for estate agent licence and wished to clarify whether the Institute was suggesting that different licences should be issued, one for large estate developers and another for general estate agents. Mr LEUNG replied that the Institute had yet to engage in a study on the most suitable licensing system in Hong Kong and they would provide input in due course if necessary.

United Association of Shau Ki Wan Estate Agency

(Submission attached as Appendix 7 of the summary table issued vide LegCo Paper No. HB 468/95-96)

29. Mr YU Fu-hong said that the Association supported the introduction of legislative framework to regulate the trade. However, it was unfair that the Bill did not specify any penalty for consumers who refused to pay commission after a successful transaction. The Bill also left too much power to the future EAA which might not represent the interest of small estate agents. The Association was of the view that all practitioners with two years’ experience in the trade should be eligible for a full licence without transitional licence and without the need to go through examination.

30. Messrs CHAN Chi-kit and TSANG Kam-ming also indicated their support to the introduction of a licensing system which could enhance the professionalism of the trade. However, they expressed concern that such a licensing system would adversely affect the jobs of the practitioners in the trade if the licensing requirements were set too high. They opposed that educational qualifications should be the licensing requirement. They urged Members to ensure that the Bill could create a favourable and fair operation environment for estate agents.

31. Mr KO Chik-ming also feared that the Bill would be in favour of the larger estate agents. The Chairman answered that the Bills Committee would scrutinise the Bill in a fair and open manner without favours.

32. Mr LI Wah-ming queried how professionalism of the trade could be established if practitioners would be eligible for licence automatically. Mr Albert CHAN also referred to the fact that knowledge of the trade, apart from conducting the business in a fair and honest manner, was essential and asked how these could be ensured if licence were to be issued automatically to existing practitioners. Mr YU acknowledged the need for professional knowledge which could be acquired through training. However, it was essential that the working opportunities of existing practitioners must be protected at the initial stage.

33. Mr CHAN Kam-lam asked whether the Association had other concerns on the Bill. Mr YU replied that since they had been conducting their business in a honest manner, they did not worry about the criminal liability and vicarious liability and they welcomed the stipulation of statutory guidelines.

34. Dr LAW Cheung-kwok asked the Association’s opinion on the objective criteria regarding trust and honesty. Mr YU said that a good working record without being accused of fraud and deceit would be a clear indication of honesty.

35. Mr NGAN Kam-chuen referred to the requirement for estate agent to keep a separate account for money received either by the client or on his behalf and asked what would be the impact on operating cost. Mr YU responded that the Association could assist the estate agents in lowering their operating cost by collective effort. It was hoped that consumers would not need to pay a higher amount of commission.

Miss Anne CONNELL/Miss Carol WEST/Mr William FUNG

(Submissions attached as Appendices 9-11 of the summary table issued vide LegCo Paper No. HB 468/95-96)

36. Mr William FUNG briefed Members on the submission. He drew Members’ attention to the difficulties in collecting the information as required by the Bill. He said that (a) other professionals who performed estate agency work as well should not be exempted from the Bill; (b) more training should be arranged for practitioners of the trade; (c) EAA should delegate certain authority to the trade association such as adjudication of disputes over commission and this could lower the administrative cost of the Authority; and (d) Members of the Bills Committee should arrange site visit to trade associations or estate agent companies so that they could have a clear understanding of their business operation. Miss Anne CONNELL and Miss Carol WEST also briefed Members on their submissions as set out in their speaking notes (which were subsequently issued vide LegCo Paper Nos. HB 591/95-96 and HB 592/95-96).

37. In response to Mr LI Wah-ming’s enquiry, Mr FUNG explained that his company would have to invest $10M in order to fulfil the requirements of the Bill and he envisaged that estate agents operating without the necessary capital could not survive.

38. Dr LAW Cheung-kwok asked about the estimated increase in cost in order to collect the necessary information as regards a particular property. Miss CONNELL estimated that it would cost about $400 - $500 for each property which had to be spent with no guarantee of return before viewing property. Small estate agents would not be able to support such kind of outlay. Mr Albert CHAN suggested and Miss CONNELL undertook to provide a detailed account of the additional expenses which would be incurred due to the enactment of the Bill for Members’ reference.

Clerk

Date of next meeting

39. The next meeting had been scheduled for Friday, 9 February 1996 at 8:30 a.m.. Members agreed that it was (a) to receive a presentation from the LegCo’s Research and Library Division; (b) to meet with more deputations; and (c) to continue discussion with the Administration.

40. There being no other business, the meeting ended at 1:20 p.m..

LegCo Secretariat
13 March 1996