408 PRETORIA, 10 1999 No.
Minister of Trade and Industry, do hereby, in terms of section 10(3) of the Consumer Affairs (Unfair Business Practices) Act, 1988 (Act No. 71 of 1988), publish the report of the Business Practices Committee on the result of an investigation made by the Committee pursuant to General Notice 1950 of 1997 as published in Government Gazette No. 18531 dated 12 December 1997, as set out in the Schedule.
1988 (Wet No.
The Business Practices Committee (the Committee) was established in terms of section 2 of the Harmful Business Practices Act, 71 of 1988 (the Act). The purpose of the Act is to provide for the prohibition or control of harmful business practices. A "harmful business practice" is any business practice that, directly or indirectly, has or is likely to have the effect of harming the relations between businesses and consumers, unreasonably prejudicing any any consumer.
Before discussing the complaint received by the Committee it might be useful to explain a number of terms used in the time sharing industry, such as timeshare pooling systems and points fights, a trust and the management associations and its functions.
In terms of the Act the could a section 8(1)(a) investigation into the business practices of a particular entity or individual.
Notice of a section investigation is published in the Government Gazette.
A timeshare pooling scheme (points club) consists of a number of timesharing weeks or stock "deposited" by timeshare owners in exchange for points in the pool. Further stock for the pool purchased by the company selling points (the vendor company or the points club) to increase its stock. The increased stock the timeshare owners a choice of and makes possible the selling of points to other members of the pooling scheme. In a timeshare pooling scheme timeshare rights are derived from agreements reached between the administrator of the pooling scheme and owner of the timesharing interest.
The Property Timesharing Control Act, 1983 (Act of 1983) sets out stringent requirements for all timesharing schemes regarding the scheme documentation and the administration of the scheme. In terms of the definition contained the Property Timesharing Control Act, pooling schemes are based on a timeshare scheme under pined by a trust or a club.
It was stated above that the vendor company purchases timesharing interests. These interests consist of proprietary rights (timeshare weeks) and usage rights (pool points purchased by those that did not contribute any timeshare weeks). The vendor company registers these rights in the name of the property-owning trust.
It was also stated above that the vendor company buys stock or time share weeks for the pool. As a quo the trust retains the proprietary rights of the timesharing and the use rights (to the accommodation and facilities of a resort) back to the vendor company as points rights or accommodation credits. This enables the vendor company to sell the use rights to clients. The trust in which the timeshare interests are registered protects clients' investments.
The points rights or accommodation credits allocated to a specific timesharing interest depends on the grading of the resort, the size of the unit, the resort amenities and the time of the year the unit is available. Vendor companies administering points schemes compile points tables or guides wherein they grade the resorts in which they acquired weeks and allocate points in respect of the usage rights.
Control Act, 1980 (Act No. 59 of 1980) and Sectional Titles Act, 1971 (Act No. 66 of 1971) must be adhered to. For example, in a typical points scheme with a registered trust, the total points annually assigned to a unit are usually ensconced in the constitution of the vendor company. This ensures that the vendor company cannot diminish or increase the value of the usage rights at will.
The management association is the representative body of the members of the pooling scheme. The management association by virtue of its constitution is the of the thereby completing the commercial circle and contractual relationships of the various parties in the scheme. The absence of a trust implies that the "points fights" sold to clients have no legal origin. The purpose of the is to hold to the weeks for the benefit of the management association.
The management association carries out the duties set out in the constitution of the vendor company as required by the Property Time Share Control Act.
to pay levies due to the resorts where the timesharing interests emanate from.
In summary, the vendor company operates the pooling scheme according to the is constituted to safeguard and hold title to accommodation included in the scheme according to the provisions of the trust deed.
The activities of and came to the attention of the Committee when a consumer who was a member of a timeshare points club ("A"), received a letter from inviting her to join Leisure Club. Leisure Club also operated a timeshare points club. She was informed that she could become a member of Leisure Club at no additional cost and would receive the same number of timeshare usage points as she had with "A". Should she to become a member of Leisure Club, the premiums due to "A" would have been paid to Leisure Club.
Officials of the Committee visited on various occasions and held discussions with and his attorney. The investigation by the Committee was frustrated on many occasions. The following serve as examples.
29 April 1996: The Committee received a complaint from against The allegations were, that did not have a registered trust, the being sold to members therefore had no "legal origin", the vendor had not registered with the Estate Agents Board and did not possess a fidelity certificate and that a management association had not been formed.
08 May 1996: The Committee faxed letter to about the complaint received.
16 May 1996: sent a fax to the Committee in which it was stated that it would the assistance of the Committee as it believed that the was drawn into the on a daily basis.
visited the of the attorney in Durban.
sent the Committee a fax in which alleged that the trust account (see section 2) was in the process of being registered.
13 June 1996: The Committee received a fax from in which the Committee was requested to conduct a section 8(1)(a) investigation.
12 July 1996: The attorney sent a fax to the Committee in which he referred to sections 23 and 24 of the Constitution of the Republic of South Africa.
"Should your client not comply with this request before on 24 October 1996 the Committee would be left with no alternative than to publish its intention of formally investigating your client's business activities in the Government Gazette".
28 October 1996: The Committee received a letter from the attorney in which he stated that he would revert to the Committee in due course.
04 November 1996: The attorney faxed a letter to the Committee. He said that his client's instruction was that he would bring an application against " such official in his personal capacity; report the matter to and refer the matter to the Minister of Trade and Industry for an enquiry".
21 November 1996: The Committee invited and his attorney to meet the Committee on 5 December 1996.
)(c) or a 8(1)(a) investigation into the business practices of a or individual.
investigation enables the to make such preliminary investigation as it may consider necessary into, or confer with any interested party in with, any harmful business practice which allegedly exists or may come into existence.
)(c) investigations is not published in the Government Gazette as opposed to 8(1)(a) investigations. The of investigations is to enable the Committee to make a more informed decision as to whether a 8(1)(a) investigation is called for. The Minister of Trade and Industry is not empowered to make any decisions on the strength a section investigation. He may do so in terms of a 8 investigation.
(the meeting on 5 1996) but will expect a , written once the meeting has been held.
An called the attorney and it was agreed that a meeting would beheld at the offices of the attorney on 20 February 1997. The meeting of 20 February 1997 was attended by the the attorney and two officials. On the same date the attorney wrote to the Committee stating that his client " hereby gives his irrevocable and unequivocal undertaking to comply with the code" and "We will be forwarding you all other requirements relating to the trust account, audited certificates, stock holding and constitution".
22 May 1997: The Committee received two more complaints against Leisure Club.
the Committee had already resolved on 24 October 1996, more than a year ago, to undertake a section 8(1)(a) investigation in terms of the Act into the business practices of your client, your client gave his and unequivocal to comply with the code and that you would be forwarding all other requirements relating to the trust account, audited certificates, stock holding and constitution as arranged during our meeting in Durban on 20 1997, and the required information and documents have not yet been furnished to the it is clear that the Committee have bent over backwards to accommodate your client.
In a letter dated 10 November 1997 the attorney wrote the following to the Committee: "Be that as it may, our mandate has ended and our files are now closed".
On 20 February 1997 he stated in a the Committee that his client " his and unequivocal undertaking to comply the code". In a letter dated 19 December 1997 to the attorney the Committee wrote: "Now your client contends that he does not know in what respects he is in breach of the code. He must have known in February 1997 in what the code was breached, otherwise he could not have given an undertaking to comply with the code".
Also on 19 December 1997 the Committee said that officials of the Committee should meet with the attorney and at his offices to finalise the investigation. It was put to attorney that rather than a vague "undertaking to comply with the code", his client could spell out exactly what he will comply with and when he would do so.
It was established that the structures which were set in place according to the constitution of the club were nonoperational. For example, the non registration trust.
This concerned the Committee because as sole shareholder owned these weeks and not the trust as required by the Property Time Share Control Act.
also did not see to it that a management association was put in place. He administered Leisure Club as a management association, in spite of the sales agreements specifying that he could not be involved with the managing association. The structures that did exist, were cumbersome and ineffectual.
The members were at risk as to both the assets of Leisure Club (the registration of a trust) and the making of reservations at the resorts. It was also evident from the levy statements that the fees collected from Leisure Club's members, could not meet the levy commitments of the different resorts. The non-payment of these levies resulted in the accommodation rights of the units not being available to clients.
At some stage after the commencement of the investigation, did register a trust. This trust, however, was not a but resembled a trust with as the only trustee. He thus had sole discretion over funds. The trust registered by defeated the requirement of a owning trust. It was found that a significant portion of the of Leisure Club consisted of weeks ceded to the family put the members that had bought points at severe risk.
An important marketing strategy employed by pooling schemes is that members not purchase points to buy a full week's They are afforded the to buy fewer points at a time which could be supplemented at a later stage. lesser number of points bought could also accumulated by the which would him to enjoy a s accommodation, say year. Another marketing strategy is that members could visit any of their choice and they were not to the resort they have originally bought a timeshare These two marketing strategies were also exercised by However, the successful application thereof was possible only if has had stock available at the resort requested by the member.
This represented 20 resorts in which had at its disposal 92 weeks. Yet, most of these were not transferred to and were still registered in names of clients. Thus, a number of weeks were registered in the name of and other in the names of the original owners. The weeks had to be transferred to a trust to ensure that members that bought points indeed had assets. sold points rights to 118 clients. The available stock did not match or exceed the stock acquired by clients. Several clients of were still indebted to because the latter financed their purchases of points. Others were also considerably in arrears with payment of their annual membership fees to Leisure Club due to the inadequate administration of the scheme. A brochure used in the marketing of the scheme showed 90 different each with an allocation of 52 weeks per unit. This was not true and could have misled clients.
The constitution of the management association only followed the basic provisions contained in pooling schemes. There was no protection for the clients the constitution did not provide for meetings of the association. The constitution also stated that the one trustee at date of the adoption of the constitution would be the sole executive committee member. The owners in the scheme apparently had no representation whatsoever in the management association.
There were also provisions in the constitution that the executive committee dispose of the sole and exclusive right to amend the constitution and to set the rules pertaining to the generation of income and the allocation of expenditure.
was only director of trustee of the "family" trust, and member of the executive committee.
A further concern of the Committee was the provision in the sale agreements that would, free of charge, increase the points purchased by a member by 50 percent every year. The effect of this provision was that was obligated to buy additional weeks to enable the allocation of these additional points. additional points not generate any income for and represented an indirect expenditure. This provision seriously jeopardized the points availability and stock.
Where a time sharing scheme is based on a club or a trust, and the rights of members are expressed in points, such schemes, in terms of the Committee's Consumer Code for the Time-Sharing must furnish the Committee with a certificate from an auditor verifying the following.
The stock of time sharing held by the club/trust is sufficient to satisfy the number of points or rights held by club/trust members. The certificate must indicate the average points or similar identification system, required by such member to occupy peak, mid and low season weeks, the number of weeks held and the number of members which fall into these three categories, with due regard to the grading system used by the time sharing scheme.
The levies due and payable by the have been paid.
Systems employed by the club/trust are capable of performing, monitoring and executing the functions, control and provisions contained in the scheme documentation.
(e)The alienation of time sharing in such a club/trust time sharing scheme shall provide prospective purchasers at each point of sale with a schedule reflecting the names of the resorts, and also the number of weeks in those resorts held by the club/trust timesharing scheme. Such schedule shall reflect a minimum number of so hold. It shall not be a contravention if in fact the scheme held more than the stock of time sharing so described, at the time of sale.
did not comply with any of these provisions.
He said that he accept the merging of Leisure Club existing points pooling scheme which is also a member of Such a step would ensure the protection of the owners' timesharing interests.
The contracts entered into by consumers with Leisure Club were to their extreme disadvantage. Leisure Club was an inappropriate vehicle for these types of agreements. The accounting, management and administrative practices of Leisure Club were insufficient. No grounds justifying the practices in the public interest have been found.
The Committee finds that the business practices of and Leisure Club constitute harmful business practices. It has been shown that the were not able to manage a pooling system.
the parties were to be allowed to operate a similar scheme, it is likely that an unsuspecting public would be exposed to losses.
under section 12 (l)(c) of the Act direct the parties to refrain from the application or continuation of any business practice as described in paragraph(a) above, and to cease to have any interest in a business or type of business which applies to such a business practice or to derive any income therefrom and to refrain from at any any interest in or deriving any income from a business or type of business applying such a business practice.
Development trading as Leisure Club and or any employee, agent or representative of a business in which they have an interest, in the of business, sell or offer for sale any type of timeshare or pooling scheme to the public or receive funds from potential timeshares or timeshare rights pooling schemes from buyers while complying with the conditions of full membership or associate membership of the Time Share Institute of South Africa.
Trade and after having considered a report by the Business Practices Committee in relation to an investigation of which notice was given in Notice 1950 published in Government Gazette No.
18531 of 12 December 1997, which report was published in Notice 1136 in Government Gazette No.
Act, 1988 (Act No. 71 of 1988), as set out in the Schedule.
unless the comply with the conditions of full membership or associate membership of the Timeshare Institute of South Africa.
Development trading as Leisure Club, (ID 6205095167085), and any employee, agent or representative of any of the above-mentioned.
The harmful business practice is hereby declared unlawful in respect of the parties.
refrain from at any time obtaining any interest in or deriving any income from a business or type of business applying the harmful business practice.
This notice shall come into operation upon the date of publication hereof.
Committee: Report 71: Report 71: in in terms of 10 (1) . . . . . . . . . . . . . . . . . . . . . . . . 20170 van 10 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 20170 1137 do.: do.: Notice in terms 12 (1) (b) and (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1137 do.: do.: in van 12 (1) (b) en (c) . . . . . . . . . . . . . . . . . . . . . . . . . . ..