TESS has been asked to advise the Timeshare Consumer Association Limited (TCA) on a variety of issues arising out of timeshare agreements. Some of the issues are defined in a set of written Instructions received on 27 May 2015. Subsequent to receipt of those Instructions, I have had the benefit of a lengthy telephone discussion with my instructing party and Mr. David Cox. Those discussions served to clarify some of the issues I address.

The issues are these:

There are consumers who have entered into timeshare agreements in Spain (i.e. pursuant to contracts governed by Spanish law). Following recent decisions by the Spanish Supreme Court, those contracts may well be void. As I understand the position the Spanish timeshare contracts contain a clause which obliges the consumer to pay maintenance fees - by joining a “club”. This maintenance obligation, as I understand it, is the subject of a separate contract between the consumer and the club – If the consumer is domiciled in the UK any claim would have to be made in the UK and against a UK citizen. This being so the dispute is ultimately governed by English law. The issue is this: How does a consumer stand viz-a-viz his obligations to continue to pay maintenance fees when the Spanish contract is void?

TCA is aware of a number of consumers who have entered into contracts involving timeshare points systems. Do such contracts fall within the definition of “long-term holiday product contracts” set out under Regulation 8 of the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010? If they do, can they be terminated at the initiative of the consumer following the procedure laid down in Regulation 24?

I deal with the issues in turn.

Issue A

The relevant background is as follows.

There are consumers who have entered into contracts in Spain giving them timeshare rights in Spanish properties. These are, typically, fixed week timeshares or floating week timeshares. In each case the contracts are governed by Spanish law, and were entered into after 5 January 1999.

These contracts, I am told, contain a clause which binds the consumer into an obligation to pay ongoing maintenance fees towards the upkeep of the Spanish property. I understand that the vehicle by which this is achieved is via membership of a club: the consumer must join a club - in the UK - and then pay an annual fee as maintenance.

I must emphasise that I have not seen the clause in the Spanish contract which creates this obligation, (a point I made to my instructing party). I am not sure I have seen, either, a sample maintenance contract between any consumer and the club referred to. I am assuming that the relationship between the consumer and the club is contractual: I wonder how, otherwise, the club would proceed to enforce the maintenance obligation on the consumer. If I am wrong about this - so that there is, in fact, no separate contract between the consumer and the maintenance club - my instructing party will no doubt draw this to my attention.

Earlier this year, two cases involving timeshare agreements reached the Spanish Supreme Court. One of them (Maria Rosa -v- Anfi Sales SL) concerned a fixed timeshare agreement. The other (Eusebio & Antonieta -v- Banco Guipuzcoano SA) concerned a floating agreement. Both agreements were governed by Spanish law.

The Court held that both agreements were void ab initio. In the Maria Rosa case, this was because the terms of her agreement were contrary to provisions under Spanish National Legislation Law 42/98 - specifically, because the term of her agreement was not limited to a maximum duration of 50 years. In the Eusebio case, the agreement was held to be void because it failed to specify the particular property comprising the subject of the agreement (again contrary to Law 42/98).

I understand that TCA is aware of many consumers who are party to Spanish timeshare contracts which may be framed in terms similar to those in the cases concerned. Those consumers, therefore, may have strong grounds to exit their agreements - assuming they can show that the same are, equally, void.

Assuming that these consumers proceed accordingly, they will cease to owe any obligations to the party with whom they contracted in Spain. (Indeed, they may have an entitlement to be repaid any sums they have already spent during the life of the agreement, according to Spanish jurisprudence).

But what, then, will be the position regarding the maintenance obligations they signed up to when they entered into the Spanish timeshare contracts? Does it follow that consumers can, similarly, step away from those obligations without fear of reprisal?

In English law, a contract may be discharged under the so-named doctrine of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil the contract, or transforms the obligation to perform into a radically different obligation from that which was undertaken at the moment of entry into the contract. The doctrine has been formulated in the following terms:

“Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance…”

On the facts under consideration here, I think consumers would have strong grounds to argue that the maintenance agreement has been frustrated. If they have (Spanish) timeshare contracts which are void, and if they notify the party with whom they contracted in Spain that they regard themselves as being discharged from any further obligations under the Spanish agreement, then it is impossible to deny that outstanding obligations under the maintenance agreement will have significantly altered in character. If those obligations continue, consumers will be paying to maintain timeshare properties in which they have no interest whatsoever. That is not an obligation which the parties to a maintenance contract could reasonably have contemplated at the time that contract was made. It is a situation which arises because of a supervening event, namely the recognition by the Spanish Supreme Court that the timeshare contract which gives meaning to (and justification for) the maintenance contract is void. In these altered circumstances, it would plainly be unjust to require consumers to continue to pay maintenance fees. The proper outcome ought to be that the maintenance company (or “club”) is discharged from further maintenance services, and the consumer is discharged from any obligation to make further payments.

I consider that consumers will need to act with care if they decide to notify the maintenance service provider that they regard themselves as discharged from making further maintenance payments. In all cases, the starting point must be that the Spanish timeshare contract is void. Consumers will, therefore, need to be astute to ensure that their own Spanish contracts fall full square within the scope of the recent decisions published by the Spanish Supreme Court.

Per Lord Simon in National Carriers Limited -v- Panalpina (Northern) Limited [1981] AC 675

Posted on: 26th June 2015