Lessons From Asia

17-Nov-2016

Mob in Hand

Our colleagues in Hong Kong are having a very trying year.  There have been several major incidents in the past three months, and all have attracted significant media attention. Although the incidents are entirely unrelated, it has brought an otherwise fairly discrete industry squarely into the public eye during a Hong Kong election year.

Fire
In June, SC Storage in the Amoycan Industrial Centre, Ngau Tau Kok, Hong Kong, endured a major fire incident. A conversion located in an old industrial building, the seven-storey facility was fitted with standard steel sheeting divided spaces. The building was not fitted with a sprinkler system. Although Hong Kong law required all industrial buildings built after 1973 to have sprinklers, this industrial building was exempt as it was built in 1961. The fire was rated a four alarm fire (five being the highest rating possible), took more than four days to bring under control and was the longest burning fire in Hong Kong in the past 20 years. Two firefighters lost their lives fighting the fire, and many others were hospitalised. The media coverage of the event was highly emotional, and included numerous human interest reports of generous acts by locals offering support to the firefighters by way of meals, drinks and other assistance.

Sensationally, and in an unprecedented act, Hong Kong tourism stepped in and provided temporary accommodation for locals affected by the fire. Histrionic reporting drew parallels with other notorious fires, including the 1911 New York Triangle Shirtwaist Factory fire in which 146 sewing machinists died.

Media reports on the fire concentrated heavily on the fact that the storage facility operators did not know what was being stored in the spaces, ostensibly making the job of firefighters more difficult. Authorities highlighted the fact that due to unknown contents, firefighters were both potentially
using firefighting measures that would worsen, not subdue, the fire – such as using water on a petrochemical fire – and were exposed to indeterminate risks.  Media attention was focused on what was perceived as inadequate attempts by the facility to restrict the storage of dangerous goods; that is, merely by prohibiting their storage via the storage contract. Because the facility did not check what was being moved into storage or in any other practical way enforce this restriction clause, it was portrayed as being pointless.  Authorities raised suggestions that a safer approach would be for both the facility operator and the storer to have a copy of the key to the space so that the facility could open the space to check whether or not the storer was complying with the clause prohibiting the storage of certain items.

Of course, such a suggestion goes right to the very heart of self-storage law. Should the facility have a key or any means to access the space without using force, the nature of the storage relationship becomes one of bailment and a much higher duty of care applies to the facility. In Australia, New Zealand, Singapore, Hong Kong and the UK, as well as many other countries, we stringently avoid having the relationship between facility owner and storer interpreted as being a bailment through our practices – including not keeping a copy of the key – and legal agreements. We are watching the outcome of this debate closely. Although Hong Kong laws are not binding or set a precedent for Australia and New Zealand, approaches to the laws of bailment conform worldwide. 

It would be unprecedented for the law of bailment to develop in a way that would vary from the laws in other common law countries, including Australia and New Zealand. This is particularly relevant, as to date there has not been a single judicial decision in Australia or New Zealand which definitively excludes the laws of bailment applying to self-storage. Further, from a theoretical perspective, it would be impractical for self-storage to have a different look and feel in Hong Kong (ie. facility operators keep keys) to our industry. As a result of the fire, wholesale inspections of self-storage facilities across Hong Kong were undertaken by various government departments. Numerous ‘breaches’ of fire codes such as passageway width and fire evacuation irregularities were issued, and the inspections are currently ongoing. Less than three weeks after the SC Storage fire, a second self-storage fire ignited in the Cheong Fat Industrial building, which contained a number of self storage facilities, bringing further attention to the industry.

Again, this fire was treated emotionally by the press as there were children – allegedly squatters – injured by the fire. This second fire led to calls for a Hong Kong wide suspension of self-storage development inside industry buildings, as well as better regulation of the industry as a whole. 

Selling space incorrectly
The second problematic theme for the Hong Kong industry has been the apparent breach of the city’s Trade Description Ordinance by an employee of RedBox storage at their Sha Tin facility.  Undercover Customs and Excise officials were investigating the business after a complaint from a storer that they were sold a space described as being of a set size, when the space was in fact 20% smaller than described. It is our understanding that the manner in which the space was marketed and described was by width and length, similar to the manner in which we describe unit sizes here in Australia and New Zealand.

The Trade Description Ordinance (TDO) specifically outlaws businesses from making false, deceptive or misleading statements in the sale of goods and services. In Hong Kong this is a criminal offence, and the 32-year-old female employee of the facility who allegedly breached the ordinance was cuffed and forcibly removed from the facility by officials.  Note that the TDO also provides for management and business owners to be held responsible if they knew, condoned or ought to have known, that the deceptive behaviour was taking place. Maximum penalties for the offence are five years in prison and a $HK500,000 fine.  This matter is currently being litigated, and the outcome is not yet known. 

This matter is directly applicable to the Australian and New Zealand markets. It is a breach of both countries’ consumer protection laws to make false representations when selling goods or services to customers. The main difference in our countries is that the offence is not a criminal offence, and the management and owners of a business (including directors of a company) would be liable, to the exclusion of the staff member. 

The SSAA has presented educational sessions and articles on this matter many times in the past. It is important that members are aware that they have an obligation at law not to mislead customers with regard to the size of the spaces. Due to inherent variables in building layout, such as concrete supports, quirky building shapes in some conversions and so forth, it is common in the industry for unit measures to not precisely meet our industry ‘standard’ size descriptions of 3 x 4, 3 x 2, 3 x 6, and so forth. For example, a space described as a 3 x 4 might in fact measure 2.8 x 3.2 or some other variable close to the advertised 3 x 4. Unless the storer is warned that the measurement is approximate, this has a likely potential of being a breach of Australian and New Zealand Consumer laws. All facilities should ensure that they advertise their sizes as being approximate
measurements, and should also advise customers that if their needs are specific (such as needing to store a specific item the length of which will only fit in a certain sized space) then they should raise this with the facility so that an appropriate storage solution can be established.
Further, it is good practice to offer ALL new storers the opportunity to view the space before they enter into the storage agreement. 

This feeds into another area of consumer protection laws – namely, fit for purpose. Where a storer stores vulnerable items that really ought to be stored in climate controlled storage or other specialised storage, there is a potential that they may claim you held the space out as being fit for
their purpose if they were not offered the opportunity to view and reject the space.  Please note, they need not actually elect to see the space, just be offered the opportunity to view the space to ensure it is suitable for thier needs.  As the choice of space therefore rests with the storer (and was not chosen by the facility). there is an excellent defence to a legal claim that the facility asserted the space was fit for a specific purpose, such as wine storage, or other sensitive items.

Hong Kong – just bad timing?
The attention focused on the Hong Kong operators has been intense, and can be partially explained by the context in which the events occurred.  The Asia Association and the legal representatives of the companies involved tell us that the topic was highly emotional due to the death of two firemen, and has therefore encountered significant media and public interest. And as this is an election year in Hong Kong, with polls being held in September, politicians are tapping into this emotional subject and are eager to be seen to be ‘doing something’ about the issue. This has manifested itself in intense government scrutiny for the self-storage industry. As noted above, inspection of all self-storage facilities in Hong Kong has either taken place or is underway. The Asian SSA is working closely with authorities to ensure the Association can clearly convey to members the expectations of government officials in relation to both the selling of space and safety regulations. Because all laws are subject to interpretation, the SSA Asia is keen to see firm guidelines established around how spaces can be described or marketed in the selling process, both in media/
promotion and in the sales pitch process.

As these topics contain lessons not just for our Hong Kong compatriots but also operators here in Australia and New Zealand, we will update members as to the progress of our Hong Kong counterparts following this process.


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