WARNING – COLD CALL PITCH – CLAIMS AGAINST AZURE RESORTS PARENT COMPANY AND SHAREHOLDERS

We have been receiving a lot of enquiries and questions arising from a cold call pitch being used by an unregulated claims management company/timeshare paralegal. These cold calls have followed the liquidation of Azure Resorts.

The purpose of this note is to address this pitch to save us time in answering repetitive questions that are arising from the same.

This note will hopefully also educate the reader as to the correct legal position.

By way of background:

  1. Azure Resorts Limited, Azure Services Limited and Azure XP Limited went into liquidation in April 2020 (“the Companies”).
  2. In the case of the Island Residence Club/Golden Sands and the Heavenly Collection the relevant contracting party was Azure Resorts Limited and in respect to Azure Experiences Club the contracting party is Axure XP Limited. It follows that any claims would need to be directed against these companies.
  3. In addition to selling the Azure timeshare products the Companies are the managers of the timeshare Clubs. The Clubs have not gone into liquidation. It is the sellers and the managers of the Clubs that have gone into liquidation.
  4. The Companies are in Liquidation. A moratorium has been created which means that no court proceedings can be brought against the Companies.
  5. Until liquidators report it is unclear what, if anything, will be available to unsecured creditors. Recovery would seem unlikely, however.
  6. The Companies are part of a number of companies forming part of what is commonly described as the Azure Group.
  7. The Companies are subsidiaries of Island Hotels Group Holdings PLC (“the Parent Company”). The Parent Company is a company registered in Malta (company number C44855).
  8. The Corinthia Hotel Group is a major shareholder in the Parent Company (“the Shareholder”).
  9. If a “linked” loan or credit card was used to purchase timeshares a claim can be brought against a linked bank pursuant to sections 75 and 140A of the Consumer Credit Ac 1974. Any such claim would of course be subject to proving an actionable misrepresentation and making the appropriate and persuasive legal arguments.

The cold calling pitch is as follows:

  1. The Companies have gone into liquidation (correct)
  2. You can bring a claim against the Parent Company and the Shareholder (not correct).
  3. Money has been put aside and your claim will be settled quickly (not correct).

The above pitch is highly dangerous as it is encouraging unsustainable claims which could only be pursued if highly risky and expensive litigation is pursued. Given the complexity of such litigation is probable that the cold caller will do nothing to pursue the claim. In any event the cold caller does not identify the lawyer that will be dealing with the case and how they would address the risk of adverse costs. In litigation costs follow the event which means that the loser pays the winner’s costs. Costs orders could be ruinous to the unsuccessful litigant.

As we shall explain below claims against Parent Companies and Shareholders are extremely risky as the usual rule is that Parent companies are not liable for the acts of their subsidiaries and shareholders are not liable for the acts of the Company.

Parents and subsidiaries

 The separate personality of a company applies rigorously to the relationship between parent and subsidiary companies. Each such company is separate and distinct from the other. The fact that the parent owns 100% of the shares in the subsidiary is no reason to attribute the acts or liabilities of the subsidiary to the shareholder, or vice-versa.

This was made clear in Adams v Cape Industries Plc [1990] Ch 433  (Slade LJ at paragraph 537 A-C). The Court of Appeal considered whether two English companies were present in the State of Illinois so as to facilitate the enforcement in England of default judgments obtained from the Texas Federal District Court against them. The activities of wholly-owned subsidiary companies, registered in Illinois, were alleged to amount to the presence of the English companies in Illinois. The Court of Appeal rejected that submission. It confirmed that a company was only likely to be present in a particular jurisdiction by having a fixed place of business from which it has carried on business through employees or agents. The separate legal personality of each company had to be given effect. The English companies had no such presence in Texas. The activities of the subsidiaries, which were neither branch offices nor agents of the English companies, were not enough.

Single economic unit

Absent specific circumstances, including taxation and EU competition law, there is no general principle of law by which companies within the same group may be treated as a “single economic unit”, so that claims may be brought against one company for the acts and omissions of another company.

The Court of Appeal made this clear in Adams (at paragraphs 531 and 537), where it rejected the submission that Cape and its subsidiaries should be treated as one for the purposes of tort liability because this reflected the “commercial reality”. The Court of Appeal considered a series of cases in which the “single economic theory” had found favour, particularly DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 1 WLR 852 (Lord Denning at paragraph 860 and Goff LJ at paragraph 861). Slade LJ noted that the House of Lords had doubted the Court of Appeal’s application of the principle of piercing the corporate veil in the DHN case in Woolfson v Strathclyde Regional Council [1978] SC (HL) 90 (at paragraph 96).

Agency

Companies may act as agents for other companies, whether part of the same group or not. Whether an agency relationship exists in any given case depends on the application of the principles of the law of agency to the facts.

In Adams (at paragraphs 545, 547 and 549), the Court of Appeal stated that, apart from the category of a branch office, in order to establish an agency relationship one would be looking for a situation where a representative of the company has, for more than a minimal period of time, carried on the company’s business at or from a fixed place of business. This will often be demonstrated by a written agency agreement or other clear circumstances demonstrating that the alleged agent is carrying on the principal’s business, such as the ability to commit the principal to contractual obligations. Acting as a mere intermediary is not enough.

It is not possible to pierce the veil in order to advance claims for the breach of a contract between two companies against the controlling shareholder of one of them. The attempt to rely on the law of undisclosed principal to support that contention failed in VTB Capital Plc v Nutritek International Corp [2013] UKSC 5 (Lord Neuberger at paragraph 141).

 

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