Memorandum by Professor Geraint Howells
(University of Lancaster) and Dr Christian Twigg-Flesner (University
of Hull)
GENERAL OBSERVATIONS
This proposal has come at a rather unfortunate
time. The Timeshare Directive forms part of the on-going Acquis
Review. This may be primarily concerned with the purchase
of goods by consumers in a crossborder context (hence the focus
of the recent Green Paper on the Review of the Acquis on
the directives on unfair terms, consumer sales and distance selling,
in particular), but the Green Paper does include a number
of general issues, such as definitions common to all the consumer
directives, as well as a streamlined right of withdrawal. One
possible outcome is a horizontal directive dealing with general
contract law issues, but any decision will await the work on the
draft Common Frame of Reference on European Contract Law (CFR)
which has yet to be completed. That document should provide both
common definitions and coherent model rules. A horizontal directive
need not preclude the continued existence and reform of vertical
directives, like that of the Timeshare Directive currently under
consideration, but clearly any such measures should build on the
horizontal directive and use consistent terminology.
There are obvious gaps in the current Timeshare
Directive that need to be addressed (holiday-clubs and contracts
of a duration shorter than 36 months), and these may justify reforms
occurring before the major review of the acquis is completed,
but it should be borne in mind that eventually the concepts may
need to be reformed again to bring them into line with any horizontal
measure. Indeed the Art 1(2) derogation from the full harmonisation
is said to be justified (at p 9 of proposal) because of the possibility
of having to conform with the horizontal directive (although it
actually would not be needed for that purpose). The horizontal
directive is far more likely to tinker with definitions, and,
as acknowledged by the Commission (p 37 Commission Staff Working
Document), to deal with common approaches to matter such as impact
of failure to disclose pre-contractual information and modalities
for exercising the right to withdraw.
Furthermore, the Green Paper has mooted
the possibility of more extensive "full harmonisation",
ie, harmonisation without a minimum clause, removing the scope
for Member States to deviate from the standard set by a directive
by providing greater protection for consumers. Inevitably, there
is a danger of needing immediate revision if the proposed `horizontal
instrument' were to materialise and suggest different solutions
than adopted in this Directive. Equally, the experience of this
Directive may be that some sectors need different solutions and
indeed that some national experimentation with rules above the
European level have been useful experiences for the general reform
process. We expand on this, where appropriate, in our replies
to the specific questions raised by the Committee.
SPECIFIC QUESTIONS
RAISED BY
THE SUB-COMMITTEE
OVERVIEW
1. With regard to measures intended to safeguard
timeshare consumers, what is the rationale for binding legislation
rather than a voluntary agreement?
Self-regulation works where an industry is generally
willing to take responsibility for its own actions and to adopt
a standard of performance which treats consumers fairly. At a
national level, this can work well. The Office of Fair Trading
initially had bad experiences with the use of codes, but has revamped
its "Approved Code" scheme and this has the potential
to bring real advantages to consumers. However, in a cross-border
context, achieving agreement between businesses is likely to be
more difficult. Furthermore, in a sector where the proportion
of "rogues" appears to be high, any voluntary agreement
is likely to cover only a limited proportion of players, leaving
a significant section of the market uncovered. Adopting binding
legislation would cover the sector as a whole, and could make
cross-border policing and enforcement more effective.
2. In this policy area, what do you consider
to be the respective roles of EC law and national law?
The Timeshare market is largely a cross-border
market, and it seems appropriate that EC law creates the general
framework setting out the obligations of timeshare providers,
as well as rights and duties of consumers.
The current framework is of a minimum character
and contains gaps. In many Member States, national law provides
a higher level of consumer protection (see the findings of the
EU Consumer Law Compendium—Comparative Analysis),
and the experience in those countries should influence the development
of a stronger EU-wide framework. There may be scope for harmonising
some rules at a maximum level fixed by the Directive in order
to promote certainty in the market for both traders and consumers.
3. What has been your experience of the existing
Directive? What, in your view, are its strengths and weaknesses?
We have no practical experience with the operation
of the Directive. We are aware that limitations to its scope (eg,
three-year minimum) have resulted in market practices seeking
to evade the scope of the legislation. There have also been reported
problems in post-sale areas such as maintenance fees and reselling.
SCOPE AND
DEFINITIONS
4. What is your view of the scope and definitions
contained in the draft Proposal (Articles 1 and 2)? Might they
be expanded, clarified or reduced? If so, how might this be achieved?
Article 1: (Para (1), 3rd part) We noted
earlier that the CFR has not yet been adopted. As the CFR proposes
model rules, and the Green Paper moots the introduction
of general remedies for breach of consumer contracts, this provision
may be overtaken by developments.
(Para 2): This effectively applies a minimum
harmonisation standard to many aspects of the right of withdrawal.
However, as the Green Paper proposes a "horizontal
instrument" with general rules on the right of withdrawal
(and the CFR will contain detailed rules on this matter) which
will probably be of a full harmonisation standard, this provision
may soon become redundant. It remains open for discussion whether
the nature of timeshares justifies differentiation from a general
norm, which is likely to be fixed at 14 days (see below).
Article 2: We note the use of the word
"consideration" in various definitions, without itself
being defined.. It is used here in a sense which is akin to the
technical meaning of the word in English contract law. Intuitively,
this may seem like something that we would welcome, but we have
several reservations: (i) terminology in EU measures has to be
given a European meaning—and subsequent interpretation by
the ECJ may result in a meaning given to "consideration"
at odds with domestic law; (ii) the term "consideration"
is peculiar to English law, and likely to be unfamiliar in most
other EU jurisdictions; and (iii) if a term reflecting the notion
of "consideration" is needed, the outcome of the CFR
project should be awaited.
We welcome the reduction to one year rather
than three years in the length of contract regulated, but wonder
whether there is the need for any minimum duration of the contract.
This reduces the possibility of evasion, but does not remove the
risks associated with "trial packs" entirely.
We appreciate the concerns of the legitimate
timeshare industry in having timeshare-like products regulated
in the same legislation. An industry that has attempted to clean
up its act risks being tarred by association with actors accused
of tactics that their industry used to be known for. On balance,
however, we do think it is the best practice to regulate these
related actors under the Timeshare Directive and doubt the general
public's opinion of timeshare will be affected simply because
the various products are dealt with in the same legislation.
The explanatory memorandum suggests that "multi-annual"
reservations of hotel rooms are not covered if they are merely
"reservations"—but that assumes that a reservation
is not a contract. Whether or not that is the case may well depend
on the terms of the "reservation agreement", and this
strikes us as a grey area.
At a more technical level, the definitions of
"exchange" appears to us to be circular. The definition
of "exchange" defines the noun in terms of a verb which
is left undefined.
The Green Paper has consulted on the
appropriate general definition of "consumer" and "business"
that should be adopted at the European level. We notice that in
this proposal, a decision has already been taken which opts for
the narrower of the two alternatives presented in the Green
Paper.
We are not sure if the term "ancillary
contract" is broadly enough defined. The trouble lies in
the word "subordinate". Would for example contracts
to upgrade or obtain cash-back be subordinate or merely ancillary
or related? These latter terms may be a better way of defining
such agreements.
INFORMATION PROVISION
5. On the basis of your own experience, what
is your assessment of the proposals relating to information provision
and advertising (Article 3 and Annexes)?
We do not have direct experience with the practical
application of the current information duties. However, we have
both undertaken research into the provision of information as
a legal tool generally. In our view, careful thought needs to
be given to the number of items of information that are given
to a consumer. In particular, consumers may find it difficult
to absorb all this information unless it is structured in a more
logical manner, and breaks the information down into clearly identifiable
chunks. The nature of the timeshare contract means that extensive
information may be necessary. The CFR will contain a general provision
that would assist with the restructuring of the individual items
of information under broader headings (main characteristics, price,
etc) that could make this information more accessible. We are
concerned that the provision of information still depends upon
a request being made so that the first time a consumer sees all
the terms is in the contract s/he signs. A better approach might
be to require traders to offer a prospectus containing all the
information during there first negotiation with the consumer.
6. How can consumers generally be best informed
by national governments or other bodies about their rights in
relation to this Directive (Article 10(1))?
Any information should be given to consumers
in a manner and at a point in time when they are most likely to
understand this information. Information targeted at consumers
in resorts and at airports and seaports can be particularly useful.
THE RIGHT
OF WITHDRAWAL
7. How satisfactory, from the consumer's perspective,
are the provisions on the right of withdrawal (Article 4(3) and
Article 5)?
Art. 4(3): This seems to be a sensible
provision. It may, however, be beneficial if guidance issued by
the relevant government department could suggest a suitable form
of words, to minimise the risk of providing imprecise information
to consumers.
The requirement that consumers should sign the
relevant contractual clauses can be beneficial, provided that
these clauses are presented in plain and intelligible language.
Art.5: We notice that this proposal fixes
the withdrawal period at 14 days, whereas the Green Paper has
raised this as a matter for consultation. One can debate whether
a 14-day period is any better than a seven-day period: arguably,
after a fortnight, the consumer will have returned home and should
be in a better position to rethink his decision. It has been mooted
that a longer period, say 21 or 28 days, might even be appropriate
and we think timeshares might be an exception to any general rule.
There may be an argument for a period of reflection between offer
and sending the agreement for signing (as applies under section
58 Consumer Credit Act 1974 for withdrawal from prospective land
mortgages).[1]
The act of withdrawing from a contract can be difficult for consumers
who feel morally bound by the contract. A positive affirmation
of consent when they have returned home or even a week after the
initial encounter with the trader when on holiday is more likely
to ensure that the decision is a measured one.
However, a consumer will not really know whether
the decision was a good one until he has made use of the property.
A major problem is the lack of a resale market, which is often
hampered by penalty clauses of consumers seek to sell. Such clauses
should be prohibited. More fundamentally we agree with the idea
that after a set period (say five years) consumers should have
the right to cancel the contract. Otherwise they can be fixed
with having bought the right to be charged ever escalating maintenance
and management fees for the rest of their life.
The time-period in Article 5(1) suffers from
the same problem as many others: the lack of clarity as to what
is meant by "days"—is it working days or calendar
days? Presumably, reference can be made to Regulation 1182/71
(3 June 1971), a little-known Regulation determining the rules
applicable to periods, dates and time-limits ((1971) O.J. L 124/1),
which suggests that "days" includes weekend days and
public holidays (Art.3(3) of the Regulation), so "days"
in this proposal must mean "calendar days". Again, greater
clarity is expected from the CFR, once adopted. But the uncertainty
over the meaning of "days" could be problematic.
Nothing is said about the formalities for exercising
the right of withdrawal, although the CFR and the possible Horizontal
Instrument are likely to provide more detailed rules on this.
These provisions may therefore need to change before the final
Directive is adopted/implemented.
The provision in Art.5(6) is obscure: paragraph
(3) does not provide for a separate right of withdrawal; rather,
it extends the right of withdrawal in certain circumstances. This
is a drafting matter, rather than a substantive problem, although
it reflects once more the fact that European legislation is not
always drafted with sufficient care.
8. One of the aims of the provisions is to
establish a more consistent regime across Member States. To what
extent is this achieved, particularly given the flexibility enshrined
within Article 1(2) which allows Member States to apply more stringent
national provisions relating to aspects of the right of withdrawal?
As stated above, it seems to us that the apparent
flexibility in Art.1(2) may soon be overtaken by whatever emerges
from the Green Paper on the review of the consumer acquis.
Experience shows that Member States do adopted different rules,
with some specifying clear formalities for the exercise of the
right of withdrawal. That being the case, there is a risk that
the most potent right given to consumers could be rather difficult
to exercise in practice—at least until there has been greater
harmonisation. Herein lies one of the paradoxes of the maximal
harmonisation debate. Those in favour of total harmonisation would
only allow withdrawal by the manner specified in the Directive.
However, there is no telling how flexible that standard will be.
It would of course be unacceptable to the United Kingdom if the
restrictive approach of some states requiring a notary was followed,
but so long as the directive specifies certain minimum standards
consumers cannot be harmed by more favourable rules and traders
cannot be disadvantaged if they receive notification by equivalent
means. Incidentally the UK Government requires the contract to
set out precise wording on the right of withdrawal and this may
be threatened by the maximal harmonisation approach.
ADVANCE PAYMENTS
9. How can consumers best be protected from
any demand to make advance payments before the end of the period
during which the consumer may exercise the right of withdrawal
(Article 6(1))?
An outright prohibition, combined with strong
sanctions (including the criminal law), are the best way forward.
The question of whether the EU can require criminal sanctions
is currently the matter of much debate and ongoing litigation
in the European Court of Justice.[2]
Unfortunately, it is unlikely that rogue traders
can be prevented entirely from acting in breach of the law. A
high-profile advertising campaign timed to co-incide with implementing
legislation coming into force may help to make consumers more
aware of this prohibition.
10. How significant a problem for consumers
have advance payments been in the resale market (Article 6(2))?
We do not have any information to comment on
this point.
REDRESS
11. What are your views on the provisions
relating to judicial, administration and out-of court redress
(Article 9 and Article 10(2))?
These provisions are found in many consumer
law directives. The injunction procedure is now becoming an established
alternative to criminal prosecution. So long as criminal sanctions
remain as the ultimate deterrent and trading standards are given
audience rights and properly trained to appear in the county court
this is a welcome development.
Out of court redress mechanism should be encouraged.
We are not aware of how effective such mechanisms are in the timeshare
sector.
SANCTIONS, MONITORING
AND ENFORCEMENT
12. The proposed Directive expands the current
requirement for penalties against infringements of the legislation
(Article 11). What is your view on the level of sanctions imposed
by Member States for infringements of the current Directive, and
on the efficacy of monitoring and enforcement across the EU?
We are not aware of any statistics on the penalties
invoked or have knowledge of enforcement practices. As a rule
for economic consumer offences the fines are not at a deterrent
level. Perhaps as important are the rules on director's disqualification
to prevent rogue traders simply establishing new companies.
13. With particular relation to enforcement,
do you consider that the relationship between the proposed new
Directive and the provisions of the Unfair Commercial Practices
Directive[3]
is sufficiently clear?
The Timeshare Directive largely deals with contractual
issues, whereas the UCPD is expressed to be without prejudice
to contract law (Art 3(2) UCPD). The UCPD will be useful for traders
whose advertising campaigns and selling techniques amount to an
unfair commercial practice (applying the criteria of that measure).
An obvious overlap arises with regard to a failure to provide
the information required by Article 3 of the Timeshare proposal.
Such a failure would have an effect between the parties to the
contract as the withdrawal period would be extended. It would
also constitute an unfair commercial practice, because this information
is regarded as material information and not providing this is
a "misleading omission". As the UCPD is not intended
to have any impact on the specific contract, the relationship
between the two measures seems reasonably clear.
OUTSTANDING ISSUES
14. Are there any significant issues in the
timeshare market that the proposed new Directive has failed to
address?
The original Directive did a good job of tidying
up the marketing of timeshares and this Directive effectively
extends that to analogous products. However, we sense there continue
to be problems in the post-sale situation where dissatisfied consumers
or those whose position has changed are left with a product of
little value that is hard to sell and the risk of long term and
ever escalating costs. We have already noted the idea of a right
to cancel after say five years; but if management of the resorts
was democratised to the consumer owners with no (or only administrative)
involvement of developers some of the problems may resolve themselves.
On exchanges, problems arise with availability
(with the allegation being that some banked property is let to
known owners reducing the choice for them in the scheme). Would
one way of ensuring this is not encouraged to be to allow refunds
of exchange fees if reasonable requests cannot be satisfied? Also
there are suggestions that points needed to exchange are not always
clearly set out or values can be changed. This seems a problem
common to all schemes based on points and greater clarity on how
points are allocated and how they can be amended (say as a property
becomes older) need to be devised in consultation with consumer
bodies and consumers informed.
The idea of a holiday in the sun is particularly
appealing to those of us who enjoy the United Kingdom climate
and whose citizens form the largest market for timeshares. Timeshares
have diminished in popularity in part due to the growth of overseas
ownership and the rise of cheap package travel options. It is
important that these products represent value for money consumers,
but also that consumers are assured of minimum legal security
or else—like "Akerlof's lemon"[4]—they
will be shunned by consumers. In other words a fair legal environment
is needed by the reputable industry as much as by the consumer.
This proposal goes a long way towards regulating a market that
is very attractive to those who seek to exploit aspirations and
dreams of continuing the holiday spirit. Our concerns are mainly
that as far as possible its content should be aligned with general
EU developments in consumer contract law. However, we appreciate
the good will in seeking to reform the law at the earliest opportunity
to address real consumer concerns that call for intervention at
the European level.
12 September 2007
1 French law implementing the period requires offers
to be maintained for seven days, but this is not a reflection
period as the consumer can accept the offer at any time it simply
regulates the period during which the seller is bound by his offer. Back
2
Case C-440/05 Commission of the European Communities v
Council of the European Union. Back
3
Directive 2005/29/EC of the European Parliament and of the Council
of 11 May 2005 concerning unfair business-to-consumer commercial
practices in the internal market. OJ L149 11.06.05 p 122-139. Back
4
Akerlof, G. (1970). "The market for `Lemons': Quality Uncertainty
and the Market Mechanism", 84, Journal of Law and Economics,
488-500. Back
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