Club La Costa and Diamond Resorts Claims – Financial Ombudsman Service Update
As we are in a new year, we thought it would be an opportune time to update regarding the developments with the Financial Ombudsman Service (“FOS”) and the progress of the similar fact complaints being lodged by clients being represented by this firm.
The Similar Fact Cases
Athena Law has over the last few years been acting for hundreds of unhappy timeshare owners who have consulted us regarding timeshare products purchased from Club La Costa, Diamond Resorts, and others. The products in question include:
- Traditional timeshare, namely fixed week holiday accommodation.
- “Points” systems, whereby you purchase membership in a points club and are given an annual allocation of points which are then exchanged for holidays.
- Fractional ownership products.
Each of our clients complain that they entered into timeshare purchase agreements following lengthy and high-pressure sales meetings and without any real understanding of what they were purchasing, and the risks and liabilities associated with the same. They allege that during the sales meetings timeshare salesmen made numerous false promises as to the value of what was being purchased, the availability and quality of holidays and the ability to re-sell what they were told was “property” on the open market. Instead of acquiring cheaper, exclusive holidays and a product of value, our clients commonly complain that they purchased a product which merely entitled them to a holiday at resorts which were open to the public and that they were having in return to pay annual maintenance fees. The maintenance fees escalated each year and they found there was no second hand re-sale market for what they had purchased. This left them in a position where they either had to continue paying long term management fees or alternatively pay to the timeshare developer an exit fee which would also involve them walking away from what was a significant financial investment.
Spanish Lawyers confirm Claims in Spain are running into difficulties
Regarding timeshare salesmen, we are aware of many of these individuals now running unregulated claims companies. These companies are continuing to promote claims in Spain. We have written at length on our website about the difficulties of pursuing claims in Spain. We do not wish to go over old ground. Our previous articles are available on our website to be read. The writer has specialised in this area for over 10 years. Claims are being brought in Spain and in many cases although Judgments have been obtained, it is our understanding that there is extreme difficulty in enforcing such Judgments. In fact, the writer has yet to hear from anyone that has obtained a Judgment and actually received their compensation. In the case of Club La Costa, claims are being brought against various selling companies in the Club La Costa Group which are now in liquidation. Again, we have written at length regarding the Club La Costa administration and, put simply, reports to date filed by the company’s administrators would indicate there is little prospect of any recovery for unsecured creditors. Indeed, a reputable firm of Spanish Lawyers reached out to us recently to see if we can help their clients. It is worth quoting from the communication which is a frank disclosure of the difficulties being faced in pursuing claims in Spain:
“We are writing to you to explore the possibility of working with you in relation to our British clients who have engaged our legal services in order to cancel their timeshare contracts with Club La Costa and other Spanish based timeshare companies and to recover the sums involved.
As you will be aware, Club La Costa is in insolvency proceedings so the possibility of recovering monies for our clients from CLC is very limited.”
Claims against UK Financial Institutions as an Alternative
Given the obvious difficulties in making a claim in Spain, this firm’s focus has been pursuing claims against UK financial institutions who provided linked finance to facilitate and encourage consumers to purchase these products. The claims have been brought pursuant to Section 75 of the Consumer Credit Act 1974 (breach of contract and misrepresentation) and Section 140A of the Consumer Credit Act 1974 (unfair relationship).
In order to prepare effective complaints on behalf of our clients, each of our clients have submitted a detailed, bespoke witness statement.
We have undertaken analysis of contractual terms and scheme rules which, it is alleged, in addition to the sales process, gives rise to actionable misrepresentations or an unfair relationship. Each complaint that has been made has been supported by similar fact evidence and extensive legal submissions.
It has been a time-consuming exercise as this firm is representing hundreds of complainants, but in total there are most probably thousands of complainants pursuing similar complaints, either independently or through other representatives.
In each case the banks have either adopted the deliberate tactic of refusing to issue a final response under their complaint handling rules or have denied liability. The major banks involved are Shawbrook Bank, Barclays Partner Finance, Hitachi, and Honeycomb Finance.
Obviously, the difficulty in pursuing an isolated case is in respect of the allegations of misrepresentation that it would be a client’s word against the word of a timeshare developer. It is therefore important that the Financial Ombudsman Service approaches the complaints as a collective issue rather than dealing with claims on an ad hoc basis. FOS has adopted this process, analysing scheme rules, reviewing evidence submitted by complainants to identify the common complaints, engaging with the banks and timeshare developers to better understand products and how they were sold, obtaining disclosure from the banks and timeshare developers including sales materials and training materials. As an example of what has been revealed we have obtained disclosure of training manuals and training slides which have assisted FOS in better understanding how timeshare salesmen are trained to sell these products.
The difficulty caused by the weight of claims is the length of time it has taken FOS to reach a resolution. We are pleased to say, however, that following a number of years an ongoing review and being engaged in making extensive legal submissions, we have now started to see some progress.
FOS issues Decisions
Shortly prior to Christmas 2021, Barclays Partner Finance have, without admission of liability, settled a significant number of claims connected with the purchase of timeshare in Malta from a company called Azure Resorts. To date Athena Law has recovered in excess of £2m compensation for these clients. Other claims, which have yet to be settled, concerned and associated with Azure Resorts, continue to be pursued and we are hopeful that a favourable resolution will be forthcoming shortly.
The other and most significant development has been the publication by FOS of decisions against Barclays Partner Finance and Shawbrook Bank, related to the purchase of fractional ownership products from Club La Costa and Diamond Resorts. These decisions are publicly available via the FOS website and in respect of the Diamond Resorts/Shawbrook case Athena Law is referenced as representative for the Complainant.
Regarding the decisions, both have upheld complaints on broadly the same basis. Taking the Diamond Resorts/Shawbrook decision as an example, the Ombudsman made the following findings.
In the decision FOS reached the conclusion that the complaint should be upheld on the basis that Shawbrook Bank should not have rejected the complainant’s complaint of an unfair relationship pursuant to Section 140A of the Consumer Credit Act 1974. In reaching this decision the Ombudsman concluded as follows:
- That Diamond Resorts was deemed to be Shawbrook’s agent for the purposes of all pre contractual negotiations. Significantly it also held that Shawbrook were responsible for both Diamond’s acts and omissions.
- The fractional property contract was, contrary to how it was presented and sold, not a timeshare contract. The consequence of that was not agreement excluded from being a collective investment scheme as defined by Section 235 of the Financial Services and Markets Act 2000. In this case the complainant had upgraded from their membership in the European collection when purchasing the fractional ownership product from Diamond. The Ombudsman also found that the complainants had not gained additional overnight accommodation rights when making their purchase, hence the fractional agreement was not technically a timeshare contract. The significance of this was that Diamond was not authorised to undertake regulated activities, namely the marketing and sale of a collective investment scheme.
- Regarding the unfair relationship allegations FOS spent a significant amount of time in considering the contractual documents, including the purchase agreement, the terms and conditions and the scheme rules, which together made up the agreement to purchase the fractional product from Diamond Resorts. Undertaking this analysis, the Ombudsman found:
- The fractional owners club agreement involved marketing and sale of an investment contrary to regulation 14(3) of the Timeshare Regulations. The Ombudsman was particularly critical of the way in which Diamond had marketed the product because there was an implication there would be future financial returns as a consequence of entering into the purchase agreement and related loan with Shawbrook and that further it made no difference to that analysis that the return would be less than the original acquisition cost.
- Diamond failed to provide sufficient information as required by the Timeshare Regulations. In particular the Ombudsman found that there was a requirement upon Diamond that in respect of fractional products, purchasers should know the market value of the property they were purportedly purchasing and information which may have a bearing on the ultimate valuation of the property both at the time it is being purchased and in the future, including information regarding the market, risks associated with that market and significant matters which could impact upon the viability of the resort and the financial owners club.
- There was inherent unfairness within the scheme rules insofar as non-payment of management charges could result in a suspension of the upgrade agreement and then, following notice, termination of the same, resulting in purchasers losing their investment whilst still being liable to repay the loan. Yet further in connection with that foreclosure clause, the Ombudsman was critical that Diamond had failed to provide information that would enable the purchaser to make an informed decision of the implication of such clause and that consequently there was unfairness under Section 140A of the Consumer Credit Act 1974.
As a consequence of the findings above, the Ombudsman found that the fractional ownership produce should not have been sold, or alternatively that the complainant would not have purchased the upgrade had they been provided with the key information referenced above. The Ombudsman then considered what would be a fair and reasonable remedy and held that the complainant should be compensated by:
- Shawbrook returning all of the loan payments.
- Shawbrook paying simple interest at 8% per annum on each of the net repayments; and
- Shawbrook indemnifying the complainant against liability arising from and connected with the fractional property purchase agreement including in particular liability to pay annual maintenance fees to Shawbrook.
The decision in question is lengthy and is followed by an extensive review by FOS and legal submissions from representatives acting for both the complainants (Athena Law) and solicitors and counsel acting for Shawbrook.
Obviously the decisions of the test cases involving Diamond Resorts and Club La Costa are welcome as hopefully this will determine the principles that FOS will apply in considering complaints of this nature and related to these products. This firm is now engaging with FOS as to how the aforesaid principles will now be applied to any similar cases and the timescale to a resolution.
Again, we reiterate that there are a significant number of complaints and it may take some time, ultimately, for outstanding complaints to be reviewed by FOS and FOS has made it clear that while it will have a consistent approach to timeshare complaints each case will still have to be looked at on its own merits.
Complaints with the FOS have become further complicated by the fact that the Banks have now made an application to the High Court to have the FOS decisions judicially reviewed.
Judicial review (“JR”) is the process of challenging the lawfulness of decisions of public authorities, usually local or central government. The court has a “supervisory” role – making sure the decision maker acts lawfully. It is important to understand that a JR is not a re-run on the merits of the decision but a challenge to the lawfulness of the decision that was made. In our opinion the banks have an uphill task in succeeding on a judicial review application, not least because under the FOS scheme rules, FOS has a very wide discretion as part of its decision-making process (it is entitled to arrive at conclusions that it regards as “fair and reasonable”). Further the decisions are in our opinion both thought out and give reasons for the conclusions arrived at and has found mis-selling on alternative grounds.
Due to the limited grounds available and high threshold test, judicial review proceedings of FOS decisions are relatively rare. Nevertheless, judicial review proceedings will undoubtedly delay the implementation of the attached decision to other (similar complaints).
Why use Stephen Boyd and Athena?
One word. Specialism. Mr. Boyd has experience in resolving timeshare disputes and presenting claims against UK Financial Institutions. We have a wealth of similar fact evidence and legal arguments developed over many years which give our clients the best chance of success.
Further, in respect to Club la Costa and Diamond this firm is involved in the Judicial Review proceedings as it acts for an interested party in that litigation.
The writer in addition to having a niche timeshare dispute resolution practice has continued and continues to undertake heavy and complex commercial litigation cases – including Libel and commercial contract disputes. He has run cases to the Court of Appeal and is presently instructed to act for a Respondent in a commercial case which is presently before the Supreme Court. The skills that have been developed over years as a litigator are deployed to give clients the best prospect of success.