Timeshare Contracts and Redress – a Brief Introduction by David PartingtonDavid Partington
This is a brief introduction to what is a hugely complex topic, defending liability under seeking redress in respect of timeshare contracts. Before I do that, I need to explain two matters. One is the central “mischief” of timeshare contracts. The second is the structure of such contracts.
The central mischief is that clients find themselves bound to very long contractual obligations with no express “exit” provisions, although there are various policies which some companies say they operate in cases of extreme hardship, old age (say 75) or death. At the same time the client is bound to pay an annual management fee in the nature of a service charge, whether or not they are able to access the scheme, whether because of lack of availability of desired holidays or because of ill health and inability to travel for whatever reason. In my experience a standard annual charge is around the £1,500 mark.
The structure of the contracts follows a standard pattern. The actual contract is brief, never more than one page of small print. On the reverse there are standard form terms and conditions. These terms and conditions incorporate by reference hugely complicated documentation which ties the clients into, for example, the dense articles of association of a company limited by guarantee, or the constitution of an unincorporated association, plus a management company agreement and a trust deed.
The standard response to alleged liability under the contracts is an action in misrepresentation. However, there are a number of problems with such defence. One is simply the difficulty of proof where there are oral representations which are countered by express and contrary statements in the documents. But also there is often the issue of limitation of actions. Misrepresentation actions are subject to a six year limitation period. This is a problem because timeshare purchasers display a classic pattern of only realising what they have signed up to, or of growing dissatisfaction with the service, over time. So the remedy as such is timed out for purchases before 2011.
A purchaser may still have a right of recourse, although it is a purely defensive one in the sense that it seeks to strike down the offending contract (or the material parts of it) but does not yield damages.
In my view these contracts (or material parts of them) can be attacked under the Unfair Terms in Consumer Contracts Regulations 1994 – 1999 (“the UTCCRs). The UTCCRs implemented EU Directive 93/13/EEC. Although they have now been replaced by the Consumer Rights Act 2015, the majority of timeshare contracts which I see are subject to these Regulations.
But there is a problem because of the curious way in which the Directive and the UTCCRs are worded. In particular, Article 6(2)(a) provides:
(2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate–
(a) to the definition of the main subject matter of the contract, or
(b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.
Thus, in broad terms the UTCCRs seem to exclude the consideration of the “main subject matter of the contract” – the so called “core terms.” This was considered in detail by Kitchen J. in Office of Fair Trading v Ashbourne Management Services Limited  EWHC 1237 (Ch).
Ashbourne carried out management services for a large number of gyms. The Ashbourne contracts imposed a minimum membership period of between one and three years on members. The case is complex, but essentially the judge found that the minimum membership requirement was a so called “core term” of the contract, because it defined the period during which the member was entitled to use the gym’s facilities and, in return, had to pay a set monthly subscription. However, the judge then went on to hold that regulation 6(2)(a) only precluded the assessment of the fairness of a term by reference to the definition of the main subject matter of the contract; it did not preclude the assessment of the fairness of the term on other grounds. The judge based this distinction on his interpretation of the House of Lords’ statement in Director General of Fair Trading v. First National Bank  UKHL 52 that this regulation should be given no wider an interpretation than strictly necessary.
Pausing there, I make the following observations on Article 6(2). First, assessing a main terms of the contract is only precluded by Article 6(2) to the extent that the main term it is in plain intelligible language. My view is that the way the timeshare contracts are constructed may well fail this test in respect of their duration, and if not their duration then the obligation to pay the annual management charge for that duration. These are not terms which are printed in plain terms on the document the client signs. They are imported by the terms and conditions and they are elaborate and dense. It would take a corporate lawyer to get to grips with them.
Second, Article 6(2) allows consideration of “all the circumstances attending the conclusion of the contract.” Thus if there had been misrepresentation at the time the contract was taken out which was no longer actionable because of limitation, it could still be taken into account under Article 6(2).
Further in respect of Article 6(2), it seems to me that “all the circumstances attending the conclusion of the contract” can bring into play the Consumer Protection from Unfair Practices Regulations 2008 (“the CPRS”). The CPRS prohibit misleading or aggressive commercial practices or misleading omissions; all of which one can say are apt to describe the “high pressure” sales presentations which are associated with these contracts. Thus, in my opinion there is great room for cross referencing the UTTCRs with the CPRS.
Finally, regard should be had to Schedule 2 of the UTCCRs which contains an “indicative and non exhaustive list of terms which may be regarded as unfair”. These include a term which is
“irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract.”
This is, of course, exactly what the timeshare contracts do, via the terms and conditions which incorporate the complex scheme documentation.
As far as I am aware, no one else has advanced this analysis and these arguments have yet to be addressed by the courts. In my view, properly deployed the UTCCRs and CPRS may well provide a solid defence to claims under timeshare contracts.
But there is an alternative strategy. Almost all timeshare products are purchased with the aid of Consumer Credit Act regulated borrowing, which the clients sign up to at the same time they purchases the timeshare contract. The sales personnel act for both the timeshare provider and the lenders. These are debtor – creditor – supplier agreements within s. 12 of that Act.
This opens the door to Consumer Credit Act remedies against the lender. In the past, the focus has been on the usual “deemed agency” provisions in the case of breach of contract and misrepresentation under s. 75. However, there is an alternative and perhaps more attractive route, namely the “Unfair Relationship” provisions under s. 140A – 140D. These provisions have advantages over the standard misrepresentation action. One of these is the limitation period is longer, being based on a specialty. It thus seems that the limitation period is 12 years, but not starting to run until the relationship of debtor and creditor has ended. Next, there is an evidential advantage; the lender is unlikely to be able to challenge the factual assertions made by the borrowers.
A further advantage is that there is a wider test than the misrepresentation action. In assessing whether the relationship is unfair the court can take into account “any…thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).” This opens up the possibility of praying in aid infringements of the CPRS, even if the practice falls short of an actual misrepresentation. Finally, s.140A opens the door to flexible remedies under s.140B; one possibility is a radical one; that the lender must take over the client’s liability under the timeshare contract, or fund a buy out of that liability.
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.
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