Franchising a Hong Kong Business: Defining Responsibility for Customer Complaints, Refunds and Remedies

When a customer complains at a company-owned outlet, the owner can often authorise a refund on the spot. Once a business starts franchising, however, different companies may collect payments, deliver services and manage the brand. Simply requiring franchisees to “protect the brand’s reputation”, without specifying who takes over, who approves action and who pays, can turn even minor issues into disputes over responsibility. Before establishing a franchise network, test the customer remedy process in company-owned outlets, then incorporate it into the franchise agreement and operating documents.

1. Identify the contracting party and the complaints channel

Start by mapping each type of transaction: where the customer places the order, whom they pay, who fulfils it and which business entity appears on the receipt. In-store purchases, orders through head office’s website and transactions on third-party platforms may involve different companies contracting with the customer. Responsibility cannot be determined solely by which bank account ultimately receives the money.

Head office can provide a central customer service channel, but customers should be told clearly who handles their transaction and any refund, so that the brand name does not obscure the actual operator. The franchise agreement must also clarify whether head office merely refers complaints, acts on the franchisee’s behalf or assumes direct responsibility for specified transactions.

Create a responsibility matrix showing, for each type of transaction:

• The contracting party responsible to the customer and the contact point for enquiries;
• Who can access order, payment and fulfilment records;
• Who can process a refund through the original payment channel;
• The arrangements for taking over if the franchise outlet suspends trading or fails to respond.

Centralised complaint handling does not mean head office pays every refund. Nor can internal allocations of responsibility remove customers’ statutory rights.

2. Separate legal remedies from voluntary benefits in the refund policy

Hong Kong has no franchise-specific legislation, nor a statutory disclosure, registration or mandatory code-of-conduct regime that applies generally to franchise arrangements. The relationship between head office and franchisees is governed primarily by contract law and applicable legislation, including the Misrepresentation Ordinance. Mainland China’s Regulations on the Administration of Commercial Franchises are not the generally applicable rules for local franchising in Hong Kong.

For customer transactions, relevant provisions may include the implied terms on quality, fitness for purpose and correspondence with description under the Sale of Goods Ordinance, and requirements such as reasonable care and skill under the Supply of Services (Implied Terms) Ordinance. The Control of Exemption Clauses Ordinance may also restrict a business’s ability to exclude or limit liability. Misleading refund policies or sales representations may fall within the scope of the Trade Descriptions Ordinance. The appropriate remedy depends on the transaction and the facts: it is not accurate to say that a refund is always required, or that an exchange is always the only option.

The policy should distinguish between “remedies available under the law” and “voluntary returns and exchanges offered by the brand”. Hong Kong does not have a general, unconditional cooling-off period for ordinary retail transactions. However, once a brand promises additional returns or exchange rights, it should explain the conditions clearly and honour that promise. Do not treat a “no returns or exchanges” notice as a way to avoid all liability.

3. Set frontline authority and escalation criteria

The manual should do more than say “refer to head office for a discretionary decision”. Allocate authority according to the nature of the problem: frontline staff may resolve straightforward fulfilment errors after checking the facts, while repeat complaints, higher-value remedies and issues affecting several outlets should go to a designated manager for approval. The brand should set financial thresholds and time limits according to its actual risks, without presenting them as statutory standards.

Cases involving personal injury, suspected product safety issues or a batch affecting many customers must be escalated immediately. Preserve the relevant goods, batch details and transaction records, and assess whether supply should be suspended or statutory reporting obligations apply. Safety risks must not wait for the ordinary refund approval process.

For every case, record at least the customer’s request, verified facts, the promised response date, the person responsible and the outcome. Customer service staff should not admit legal liability before investigating. Nor should they require customers to withdraw public reviews before dealing with remedies to which those customers are legally entitled.

4. Specify upfront payments and final cost allocation in the agreement

The timing of a customer’s remedy should not depend entirely on when head office and the franchisee finish reconciling their accounts. The agreement can authorise upfront payments in urgent cases, but it should also specify notification, supporting documentation, verification and settlement procedures. This helps prevent head office from issuing refunds unilaterally and then making arbitrary deductions.

Costs should be allocated according to the cause of the problem, rather than automatically charged to whichever outlet receives the complaint. For example, an outlet’s operational error, incorrect promotional material supplied by head office and a defect in supplied goods may each call for different internal arrangements. Where the cause is unclear, follow the agreed interim process, then adjust the allocation in light of the evidence. There should also be a reasonable way to share costs where several factors contributed.

Distinguish between the refund itself, the cost of supplying replacements, payment platform fees and additional goodwill compensation. Whether a franchisee must pay for extra benefits offered at head office’s own initiative must be agreed in advance. These internal arrangements cannot be used to defeat lawful claims by customers or other third parties.

5. Test the process before incorporating it into franchise documents

Before formally recruiting franchisees, run through several scenarios in company-owned outlets: a missing receipt, an online order collected in-store, a franchise outlet refusing to respond and a customer seeking compensation beyond the policy. Check whether frontline staff can find transaction records, whether managers can approve action promptly and whether the process prevents duplicate compensation after a refund.

The franchise agreement should address authority, responsibility and cost allocation; the operations manual should cover procedures, forms and contact arrangements; and the customer-facing policy should explain how to make a request in plain language. All three must remain consistent. Where a change introduces new charges or alters responsibilities, do not rely solely on updating the manual. Follow the agreement’s variation procedure and seek legal advice.

Practical takeaway: Before launching a franchise network, complete a transaction responsibility matrix, establish a refund approval process and run a complaints-handling exercise. Customers need to know whom to contact, while franchisees need to know when they can act and when they must escalate. That is the foundation of sustainable brand protection.