David Partington discusses Compliance Statements, Timeshare and the Financial Ombudsman
Park Square BarristersHere is a typical statement from a consumer, who has already been persuaded to purchase a time share contract. After being manoeuvred into another sales presentation, it will go something like this;
“At this meeting I was informed by the sales representative that the membership which I had was a basic membership and was hard to sell because it did not have enough points to guarantee a good spot in high season. This obviously surprised me because that was not what I had been told when I bought my membership.
I was told that it would be best to upgrade my membership to make it more desirable. I was informed that based on my grievances that if I was to upgrade to a Premier Membership that they would prioritise the sale of the timeshare. The salesperson informed me that I would make up to £16,000 profit and they would prioritise the timeshare for an urgent sale. On the basis that they would assist us in selling the timeshare, I agreed to upgrade to a Premier membership for an additional £19,000…”
This is a classic pattern of repeat timeshare selling, where the client is offered a new contract or a supposedly upgraded membership on the basis that it gives the client an assured exit strategy from the old contract with which the client is dissatisfied but feels trapped because of the duration of the contract.
Then the client is invited to terms of documents which include “Declaration of Fair Sales Practice” and “Statement of Compliance”. These documents contains statements such as
“I/we agree that we have not entered into this purchase purely for financial gain”
“The primary purpose of our membership is to access holiday accommodation and is not a financial investment for a return. We also understand that the membership price paid does not necessarily reflect the market value of our membership.”
What then happens is – nothing. The product may be marketed for sale, but nothing comes of it because no one will take over the liability under the contract, and the client is left with the enduring annual management fees in the nature of a service charge as well as yet more Consumer Credit debt.
Many, if not almost all, timeshare contracts are funded by Consumer Credit Act finance, with loans being executed at the point of sale and the timeshare sales representatives being the salespeople for the finance.
To be precise, these are debtor-creditor-supplier agreements within section 12 of that Act. That opens the door to complaints about the way the finance was sold to the Financial Ombudsman. But the Ombudsman appears to be taking such “compliance statements” at face value. I do not believe that should be the case.
This raises the question of what is the status of such “compliance statements” in law, and how should they be combated?
One conceptual difficulty is that it seems to me that such statements are not terms of the contract as such. That seems to rule out attacking the validity of the statements by such avenues as the Unfair Contract Terms Act, or under the Unfair Terms in Consumer Contract Regulations, unless one regards them as part of the contract and in effect disguised “entire agreement” clauses; which is perhaps what they are. But I think the primary purpose of such clauses is to set up an evidential hurdle which blocks a claim in misrepresentation against the timeshare provider or the lender (under section 75 of the Consumer Credit Act). But if they are merely evidential, it must be a question of fact whether they were sufficient to ward off the effect of any misleading statement, or nullify any potential collateral contract, and the circumstances in which they were signed must be carefully explored. This does not appear to be happening.
My colleagues have helpfully referred me to cases in which collateral contracts have been created or courts have looked at the substance not the form of contracts. But it seems to me that this situation is different, where there is an attempt to “ward off” an action, whether in misrepresentation or collateral contract, by a document which the consumer is induced to sign with that very purpose in mind.
One further thought; the claims to the Ombudsman in the past have usually been submitted by the timeshare purchasers themselves, not legal professionals. As such they tend to lack clarity and coherence. They have tended to focus on section 75 of the Consumer Credit Act – deemed agency in cases of misrepresentation. However, they have ignored the potentially wider and more flexible tool of section 140A – the “unfair relationship” provision. This is in my view unsatisfactory as well. However, watch this space.
David Partington specialises in civil procedure, limitation, low-velocity-impact (LVI) claims and all aspects of the recovery of money, including constructive trust, tracing and restitutionary claims as well as associated forms of relief, including freezing orders.