The NCC announced late last year that it would be serving papers on Club Leisure Group, one of the biggest purveyors of points and club membership in the timeshare market. The NCC’s application to the National Consumer Tribunal (NCT) to make various orders against the respondents is supported by an affidavit by VelaphiMabuza, a senior inspector at the NCC, who pulls no punches when outlining what he calls a:“scam”
June 13 2015 at 07:30pm
By Angelique Arde
Colin Daniel
The National Consumer Commission (NCC) has finally launched its case against Club Leisure Group, Flexi Holiday Club and two of its directors, Anthony Ridl and Stuart Lamont, as well as trusts controlled by Ridl and Lamont. They are among 27 respondents in the matter.
The NCC announced late last year that it would be serving papers on Club Leisure Group, one of the biggest purveyors of points and club membership in the timeshare market. The NCC’s application to the National Consumer Tribunal (NCT) to make various orders against the respondents is supported by an affidavit by VelaphiMabuza, a senior inspector at the NCC, who pulls no punches when outlining what he calls a “scam”.
Mabuza says what makes the activities of the respondents a “scam” is that they are selling points as timeshare, whereas the club that the owner of points must join does not own the timeshare units. Instead, the units are held substantially by entities under the control of Ridl and Lamont, including Flexi Club Property Holdings. The latter is a private company not to be confused with Flexi Holiday Club. Mabuza says Flexi Holiday Club “pretends” to be a common law club, but it is a “front established purely for tax fraud purposes”.
The respondents “have managed to create a false impression of the existence of a club on the basis of ownership of points in order to justify club membership fees, which are used by the trustees of the trusts to further the objectives of the trusts,” Mabuza says.
His affidavit reveals that ownership of the Club Leisure Group is principally through Ridl and Lamont’s family trusts, the Eagle Trust and the Hibiscus Trust.
Mabuza describes this as “an illegal and ambitious takeover of … a substantial part of the South African holiday property market by only two men”.
“The respondents have used consumers to amass massive capital assets without spending a dime, by selling ‘points’ as timeshare, and taking such funds and buying the actual timeshare and placing it in trusts in which they are the sole owners and beneficiaries.”
These trusts are “hidden behind the entire scheme, which on paper and in the main comprise Club Leisure Group”.
Although the two trusts and Flexi Club Property Holdings are “at the helm of ownership of assets”, Mabuza says the real issue is the misrepresentation to consumers that they acquire timeshare from Club Leisure Development and that “consumers are club members”. That lies at the heart of the illegality of the scheme, he says.
In fact, what consumers acquire is “a worthless piece of paper”, Mabuza says. The respondents sell points as timeshare, but no timeshare is registered in the consumer’s name. “Instead, a worthless piece of paper [called a ‘certificate of purchase’], which is not known in South African law to show ownership of timeshare, is issued as proof that the consumer is the owner of timeshare.” He says this piece of paper contradicts the respondents’ statements that points must be used within two or three years, depending on the club, or that the points expire. If you genuinely owned timeshare, it could never expire.
The NCC says it expects the respondents to argue that the certificate of purchase shows ownership of points and not ownership of timeshare, which contradicts the position they have presented to the NCC, and backed up with “advisory” (legal) opinion, that the points are timeshare.
Mabuza says Club Leisure Group has no genuine member-established and member-controlled clubs. Besides, if members were buying timeshare, why would it be necessary for them to join a club, he asks. In a normal transaction for the purchase of timeshare, one doesn’t become a member of a club, but a member of a body corporate or a homeowners’ association. These are defined in law for the common interest of members who are actual property owners.
The real purpose of the “clubs” is the collection of membership fees, Mabuza says. Since the club is a common law club, it is exempt from the Income Tax Act.
Club Leisure Group has more than 200 000 members in its clubs. If, as an example, the lowest amount that each member pays as membership fees is R250 a month, it means the total collected in the group by way of monthly club membership fees is “an extremely conservative” R50 million a month, he says.
Mabuza says the respondents use a convolution of four agreements in one document deliberately to confuse consumers as to the true type and nature of the legal relationship created when they sign agreements. The one document includes: a “club membership agreement”, a “points purchase agreement”, an “application for club membership” and a “credit agreement”.
He says that in one document a consumer applies to be a club member, but in the same document he actually signs for club membership. And in the same document, he applies for credit to purchase points and enters into a purchase agreement, which presupposes he has been approved for credit.
“The confusion as to whether he is applying for credit to buy points or whether he is actually buying points is made worse by the fact that he pays a deposit … on the spot, when he is meant to be making an application for credit to purchase timeshare.”
These four agreements have conflicting and irreconcilable differences to the detriment of the consumer and to the total benefit of the respondents, Mabuza says. It is intended “to deceive and to conceal or disguise the nature, location and true source of ownership of assets, and the true ownership and control of the proceeds of the respondents’ unlawful activities.”
When buying timeshare (a section in a sectional title scheme or shares in a share block), the seller will buy these assets in cash or through a credit facility granted by a bank or a developer. Mabuza says the respondents allege that a consumer is provided with an “unsecured loan” which means it is a personal loan. But money is never paid by the respondents into the consumer’s bank account. “The design of the contract is to mislead that it is a credit agreement.” The Club Leisure Group companies or “clubs” do not give or pay a cent to any consumer but take payment from consumers by credit card, cheque, debit order or cash.
Mabuza says it is unlawful to mislead consumers into believing they have been provided with an unsecured credit facility to buy assets they will never own.
Club Leisure Development is not a developer, but an ordinary buyer and owner of timeshare. If it were selling timeshare to consumers, it would lose ownership of timeshare to the buyers; however, this is not the case. The company is a front, the NCC says, “established to mislead consumers into believing that they are dealing with and buying timeshare from a timeshare development company, whilst this is not true”.
In terms of the “simulated transactions” performed by the respondents, consumers are not, and never were intended to be, owners of assets, Mabuza says. “Any submission that they [Club Leisure Development] are a property development company which invests capital into the development of these assets and sells them to consumers is misleading and amounts to a false and fraudulent misrepresentation to consumers.”
Mabuza says the only way to use consumers to fund the acquisition of property for the trusts, as well as to acquire funds for the payment of levies for which the trusts are liable (in all the developments where the trusts own assets), is to have consumers believe that they have bought timeshare, are club members and that their clubs own the assets that their money is used to maintain. “Otherwise, it would not make sense to anyone that the money that he/she is paying is used to purchase assets to which he/she does not have a right,” Mabuza says.
Mabuza’s affidavit states that, in March 2013, the NCC carried out an assessment of consumer complaints relating to timeshare. This was to decide whether or not an investigation was justified. At the time, the NCC had more than 500 complaints against various industry players that deal in so-called points. His affidavit says there was not a single complaint against what the industry calls a “traditional” timeshare scheme.
The assessment revealed common complaints, namely that consumers were, among other things:
* Misled into believing that points are an investment;
* Refused the right to cancel contracts;
* Subject to unfair contract terms;
* Reported to credit bureaus;
* Being issued with summonses;
* Having property attached; and
* Unable to make bookings due to unavailability.
But the real root of the problem, Mabuza says, is the absence of laws dealing with the sale of points. The respondents’ conduct of selling points as timeshare is “in circumvention and manipulation of the isolated provisions of the Property Time-sharing Control Act”.
The respondents have 15 business days to oppose the application, by serving an answering affidavit to the NCC. The NCC then has 10 business days to reply. Thereafter, the parties wait until the NCT sets the date for the hearing.
After the hearing, the tribunal will consider its verdict and give judgment. Parties have the option to appeal the judgment.
The NCC is the regulator of consumer affairs and was established in terms of the Consumer Protection Act to enforce the Act. It investigates transgressions of the Act and refers matters to the tribunal.
Personal Finance will continue to monitor developments in the case.
WHAT THE COMMISSION WANTS THE TRIBUNAL TO DO
The National Consumer Commission (NCC) is applying to the National Consumer Tribunal for an order to declare as “prohibited conduct” certain acts of Club Leisure Group and other respondents. Specifically, the NCC wants the tribunal to hand down the following orders:
* That the marketing and sale of points as timeshare in terms of the Property Time-sharing Control Act and/or the Share Blocks Control Act by any of the respondents is declared unconscionable conduct;
* If it is argued that points are not timeshare, that the sale of points as anything of value or anything that gives a consumer any type or class of legal right amounts to unconscionable conduct;
* Alternatively, if they argue that they are not selling points, that their contracts be redesigned to indicate that a consumer is subscribing to an ordinary club membership and has a right to terminate or resign from the club at any time;
* That the collection of levies from consumers who have bought points amounts to unconscionable conduct;
* That the respondents’ selling of points as timeshare, as defined in the Property Time-sharing Control Act, is declared a fraudulent scheme;
* That it is deceptive and misleading not to separate and distinguish between an “application for club membership”, a “subscription of club membership”, an “application for credit to purchase points” and a “purchase agreement” for the cash sale of points;
* That it is unconscionable conduct for Flexi Holiday Club to market or pass itself off as a common law club when it is not a common law club that is owned and controlled – with the assets owned and controlled – by club members; and
* That it is unconscionable conduct to pass off an agreement as a “credit agreement” when it is not a credit agreement and where no credit is provided to the consumer.
‘LEGAL KNOWLEDGE REQUIRED’
Consumers would need specialised knowledge of property law to see “that the wool is being pulled over their eyes”, VelaphiMabuza, a senior inspector at the National Consumer Commission (NCC), says.
In his affidavit spelling out the NCC’s case against Club Leisure Group (CLG), Flexi Club and related clubs and companies, he says that consumers would need to know all the laws governing sectional title, share block and timeshare in order to avoid falling for a marketing and sales pitch by the respondents.
Consumers would need to know the difference between a legal entity called a club and a legal entity called a trust. They would need a “sophisticated understanding of the law” to question why a private company owns a club that they are supposed to be the owners of, and why a private company owns the very properties that club members/consumers pay for, “and yet they are not the shareholders of the company that owns the assets that they paid for”.
That does not mean to say that sophisticated consumers have not bought points from CLG companies. Mabuza says consumers of “high social standing” and high educational qualifications enjoy preferential treatment that blinds them from seeing the scheme for what it is.
“There are even judges of the High Court who are members of Flexi Club, and the only explanation why they have not seen the scheme for what it is, is precisely because they would be given preferential treatment and may never wake up to the reality that the scheme from which they are enjoying benefits is funded [by] causing many ordinary consumers unbearable pain and suffering,” Mabuza says
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk