Time Share Mis-Selling (2): An Introduction to the Jurisdictional IssuesDavid Partington
In my previous article, I made reference to the issue of private international law, sometimes referred to as the topic of “the conflict of laws”, which is just one of the many topics which have to be understood before one can properly grasp of the issues surrounding time share mis-selling and litigation.
Assume the following facts. The time share purchaser lives in and is ordinarily resident in England. The time share product itself relates to a property in Spain, or it could even allow for multiple placements in different countries. The time share provider is a company registered in Scotland. A dispute arises and the time share provider wishes to sue for its annual management fees. The time share purchaser alleges (say) breach of contract and wishes to get out of his or her time share contract. Who can sue where?
The starting point of private international law is the concept of “domicile”. Although different legal systems treat the concept of domicile in slightly different ways; for present purposes it is simply the country where the party has there long term residence and intention to reside: a concept much beloved of tax lawyers. Here we have an English domiciliary as a purchaser, and a Scottish domiciliary as time share provider. But the property is in another jurisdiction, and the usual rule is that matters concerning real property – rights in rem – usually fall to be dealt with under the laws of the country where the property is situated, although that depends on how you define rights in rem.
In private international law there are two fundamental issues that always have to be addressed. The first is: which courts have jurisdiction over the dispute which has arisen? The second is: which law should that court apply to determine the dispute? The law of the country with jurisdiction and the law applicable to the decision are not necessarily the same.
Most time share disputes will involve parties which are resident in and domiciled in the EU, albeit usually in different parts of it. For practical purposes therefore the starting point is the elegantly named is Regulation (EU) No. 1215/2012 (recast). I will refer to this as “the 2012 Regulation”.
The 2012 Regulation is simply the grandchild of the original 1968 Brussels Convention, which morphed in 2001 into the Brussels 1 Regulation. The purpose is to allocate jurisdiction on civil disputes to the appropriate jurisdiction to deal with the dispute.
The guiding principle of the 2012 Regulation and the instruments which came before it is that, subject to certain express exceptions, a person whether legal or natural may only be sued in the member state in which he or she or it has his, her or its habitual residence or domicile. This is enshrined in Article 4 of the 2012 Regulation, which provides that:
“Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.”
Some types of contract (for example insurance or employment) have their own particular regimes. However, the first exceptions to this rule are to be found in the “Special Jurisdiction” provisions in Article 7. These make express provision in respect of contract, “tort, delict or quasi delict”, restitution and certain other key causes of action where the place of performance is by definition a factor in defining the most appropriate jurisdiction. So, for example, in respect of contracts Article 7.1(a) provides that a person domiciled in a Member State may be sued
“in matters relating to a contract, in the courts for the place of performance of the obligation in question”
This rule often produces entertaining and difficult arguments about where “the place of performance” is, even though there are additional rules which define that in certain circumstances in Article 7.1(b).
In respect of “tort, delict or quasi-delict” (to take a simple and obvious example negligence causing a road traffic accident) there is a similar exception in Article 7(2), where a person domiciled in Member State may be sued “in the place where the harmful event occurred”.
There are certain cases in which the qualified principle cannot apply, and in line with accepted principles of private international law, an exclusive jurisdiction is conferred; The most important for the issue of time share issues are Articles 24(1) and 24(2).
Article 24(1) deals with proceedings concerning rights in respect of real property and states that exclusive jurisdiction is vested:
“in proceedings which have as their object rights in rem in immovable property or tenancies of immovable property, the courts of the Member State in which the property is situated.”
Article 24(2) confers a likewise exclusive jurisdiction in proceedings:
“which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons…”
on the Member State in which the company, legal person or association has its seat.
These latter provisions initially caused some confusion in the time share arena. In Jarrett v Barclays Bank Plc and others  EWCA Civ 847, The claimants brought proceedings in the UK against the lenders who had provided the finance to purchase the time share products based on misrepresentations made by the sellers. The ability to do this depends on the “deemed agency” provisions in the Consumer Credit Act 1974 (ss 56 and 75) where there is a debtor–creditor- supplier arrangement within the meaning of the Act, and is an important, indeed critical, aspect of time share litigation.
The lenders argued that such proceedings had “as their object” tenancies of immoveable property within the meaning of what was then Article 16 of the Brussels Convention, and therefore that the courts of the United Kingdom had no jurisdiction to hear the claims. That argument succeeded in the county court actions, but was comprehensively rejected by the Court of Appeal. These were cases about the relationship of lender and borrower governed by United Kingdom law; they were not about real property at all. That is a principle which in my view holds good almost all time share litigation or potential litigation, although there may be one specific and important exception to that which I mention at the end of this article.
In my view, the key to understanding jurisdiction issues in time share litigation is Article 17 of the 2012 Regulation. Article 17 deals with jurisdiction over “consumer contracts” and provides as follows:
Jurisdiction over consumer contracts
In matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession, jurisdiction shall be determined by this Section, without prejudice to Article 6 [i.e. where the defendant is not domiciled in a Member State] and point 5 of Article 7 [i.e. special rules relating to operations of a branch or agency], if:
- A contract for the sale of goods on instalment credit terms;
- It is a contract for a loan repayable by instalments, or for any other form of credit, made to finance the sale of goods; or
- In all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities.
Then one turns to the crucial provisions of Article 18, which provides as follows:
- A consumer may bring proceedings against the other party to a contract either in the courts of the Member State in which that party is domiciled or, regardless of the domicile of the other party, in the courts for the place where the consumer is domiciled.
- Proceedings may be brought against a consumer by the other party to the contract only in the courts of the Member State in which the consumer is domiciled.
- This Article shall not affect the right to bring a counter-claim in the court which, in accordance with this Section, the original claim is pending.
Time share “products” or agreements will invariably be “consumer contracts” within the meaning if Articles 17 and 18: they will fall into that category via Article 17.1(c) provided the other contracting party has “by any means” directed its activities to that Member State or several Member States including that Member State” which, in my opinion, includes any form or marketing or advertising.
Thus, the position is quite clear. If the purchaser/consumer is being sued, he must be sued by the other party/time share provider in the courts of the Member State in which the consumer is domiciled.
If the consumer wishes to go on the offensive and bring proceedings against the time share provider, he has a choice; he may bring the proceedings either in the courts of the Member State where the other party/time share provider is domiciled, or he may do so in his own courts: Article 18.1.
If the either the provider or the consumer brings an action, the other party has the right to bring a counterclaim in that forum: Article 18.3.
Article 25 of the 2012 Regulation does permit the parties to a choice of jurisdiction, but only in a limited way. Article 25 provides:
“If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”
Thus it would theoretically possible for the parties to choose another state to determine their dispute, but only in choosing another Member State. However, such an agreement can only be entered into in the conditions set out in Article 19, and the qualifications are extremely stringent.
Because the United Kingdom is not a unitary State for the purposes of civil jurisdiction it was/is also necessary to allocate jurisdiction between its constituent parts. That is done via the rules set out on Schedule 4 of the Civil Jurisdiction and Judgment 1982, as amended or inserted in 2001 (“Schedule 4”)
Schedule 4 of the CJJA 1982 substantially mirrors the Regulation. Again, the basic rule is that a person is to be sued in the part of the United Kingdom which is his or her domicile. As with the 2012 Regulation, certain special exceptions are made which mirror the Special Jurisdiction provisions in Article 7 of the 2012 Regulation.
- Rule 1 (General) 4 is the counterpart to Article 4 of the 2012 Regulation.
- Rule 3 (Special Jurisdiction) is the counterpart to Article 7.
- Rules 7 and 8 (Jurisdiction over consumer contracts) are the counterpart to Articles 17 and 18.
- Rule 11 (Exclusive jurisdiction) is the counterpart to Article 24.
- Rule 12 (Prorogation of jurisdiction) is the counterpart to Article 19.
Thus, in our imaginary example, the position is quite clear. If the time share provider wishes to sue for its management fees it must do so in England and the consumer/purchaser can defend and counterclaim if need be. If the purchaser wished to go on the offensive and start proceedings he can choose to issue either in England or in Scotland.
I mentioned above that there may be one important exception to that. I understand that there have been cases in Spain in which “perpetual” or very long term agreements have been struck down as void on the basis that they offend against perpetuity rules. One can see, I think, how such an action might very well be capable of fitting within Article 24(1). Such proceedings would seem to me to be capable of “having as their object rights in rem in immoveable property” because they go to the existence, or non existence, of a property right rather than being conceptually based breach of contract.
In another article I will explain the method by which choice of law is arrived at.