HL Deb 13 March 1992 vol 536 cc1542-9

2.9 p.m.

The Earl of Portsmouth

My Lords, I beg to move that this Bill be now read a second time.

In the dying days of this Parliament I hope to persuade your Lordships to pass this long overdue and greatly needed consumer protection Bill. In many ways the timeshare concept is admirable and it is not the purpose of this Bill to criticise it or to interfere with its availability. According to the best estimates, there were by 1990 about half a million timeshare owners across Europe, with a quarter of a million people becoming timeshare owners in this country during the past five years. Surely that would not be the case if thousands of individuals and their families were not happy with the timeshares that they had purchased. However, there is another and darker side to the story.

Regrettably, the timeshare industry has attracted more than its fair share of sharks. It is to their activities that the Bill is directed. Despite its length, which has much to do with ensuring that it is watertight in order to prevent evasion by unscrupulous people, the purpose of the Bill is simple. It compels all vendors of timeshare within the United Kingdom, and in certain circumstances outside the jurisdiction, to allow a minimum 14-day cooling-off period. During that time potential purchasers have a chance to change their minds, thus adding timeshare to the list of situations in which the consumer can be pressurised and therefore needs a degree of protection; for example, life insurance and doorstep selling.

I am sure that many noble Lords, and indeed most households in the country, have received a circular which appears to announce that they have "won" a glittering prize—perhaps a car or a holiday in some exotic place—and that all they have to do is to attend a friendly holiday presentation in order to collect it. People who fall for that approach either through naivety or optimism are likely to be subjected to anything up to seven hours of hard sales technique. Every trick in the book is used to persuade them to sign the contracts. Many succumb, but in the light of day, when free from the pressure of the salesman, they come to regret it.

With all too few exceptions it is then too late. Some contracts may appear to include a cooling-off period but when that is tested often the assurance counts for nothing. Sometimes release from a contract can be bought by forfeiting the contract or by paying a percentage of its price. Often people are stuck with a contract that they do not want and, even worse, may not be able to afford. It is not surprising that local authority trading standards departments receive some 10,000 complaints a year about timeshare. Approximately one-third of those relate to the absence of an obligatory cooling-off period. Surely that is proof positive that a substantial number of purchasers of timeshare come to regret their purchase. It also says much about the effectiveness of the sales techniques to which they have been subjected.

I now turn to the Bill. Although it is simple in concept, it consists of 13 clauses and one schedule. There are three reasons for that. First, as I previously mentioned, it is to ensure that it is watertight. Secondly, it is necessary to include provision for enforcement. That is inevitably a lengthy process since in creating a criminal offence one must define precisely the nature of the offence and the defences available against it. Thirdly, since many timeshare agreements are accompanied by credit agreements, it is necessary to provide the proper machinery for the cancellation of these.

Clause 1 of the Bill consists of definitions. It defines the contracts to which the Bill applies; that is, any contract which is governed by the law of the United Kingdom, whether made in the UK or abroad. That is important because many timeshare contracts specify that they are not subject to UK law. Isle of Man or Channel Island law is frequently invoked. This measure makes it impossible for timeshare companies to use that as a device to get round the provisions of the Bill. The honourable Member for Basingstoke, who introduced the Bill in another place, told me that a great deal of attention was given to whether the provisions of the Bill may be extended to contracts not signed under UK law but later disputed in the United Kingdom courts. He was advised by some experts that it would undoubtedly prove to be a legal minefield which was best left alone. He accepted that advice and I am afraid that I am not sufficiently knowledgeable to argue with it.

Disputes about timeshare contracts not signed under UK law are best resolved in the courts of the appropriate country. If judgment is obtained in a foreign court, it is enforceable in the UK in accordance with the normal principles of private international law as applied under the Civil Jurisdiction and Judgements Act 1982.

Clause 1 also defines what is meant by timeshare accommodation, timeshare rights, timeshare agreements and timeshare credit agreements. As your Lordships will appreciate, this is a complex Bill. It is important that it does not inadvertently catch non-timeshare actions such as the granting of leases, student lettings or repeat hotel bookings.

Clauses 2 and 3 are the meat of the Bill. Clause 2 makes it obligatory for anyone selling timeshare by way of business (the "offeror" in the language of the Bill) to make the offeree (also in the language of the Bill) aware of his rights for at least 14 days after the agreement has been made to cancel the agreement. The Bill makes it a criminal offence for the offeror not to do that.

Clause 3 contains parallel provisions for timeshare credit agreements which often form part of the total timeshare package. However, there is one exception: failure to provide notice of credit agreement cancellation rights will not be a criminal offence. The reason for that is that no criminal offence is created under the cooling-off provisions of the Consumer Credit Act 1974. It would be wrong to adopt a stricter approach in the case of the selling of timeshare. There are those who advocate cooling-off periods of seven, 14, 21 and 28 days. Fourteen days was the length of time which the Director General of Fair Trading recommended for a cooling-off period in his 1990 report on the timeshare industry. Therefore, that has been adopted in this Bill.

Clause 4 contains certain supplementary provisions to Clauses 2 and 3: first, the offeree has no cancellation rights if he is acting in the course of business; secondly, a blank notice of cancellation must accompany notice of cancellation rights; thirdly, that notice must be in such form as may be prescribed; and, fourthly, agreements are not invalidated by contravention of Clauses 2 and 3. That last provision enables the purchaser/offeree to have the right to enforce the agreement if he wishes. It does not affect his cancellation rights.

Clauses 5 and 6 make provision for the purchaser's rights under the Bill to cancel a timeshare agreement or timeshare finance agreement. The basic right is contained in subsection (1) of both clauses. Subsection (2) extends the right of cancellation indefinitely if the purchaser has not been notified of his rights. However, that is subject to subsection (3) which says that if the purchaser affirms the agreement after 14 days, then he loses his cancellation rights. It is for the courts to decide what constitutes affirmation, but basically it means that the purchaser loses his right to cancel if by a positive action he has made it perfectly clear that he is happy with the agreement.

Clauses 5 and 6 make provision for what happens after the agreement is cancelled. The purchaser is entitled to the return of any deposit or moneys he may have paid over. In the case of a credit agreement, the position may be complicated by the involvement of the third party—the finance company. The consequences of cancellation are therefore set out in more detail in a separate clause, Clause 7.

Except for necessary changes in wording, Clause 7 is identical with subsections (1) to (3) of Section 71 of the Consumer Credit Act. It is important that the provisions of the Timeshare Bill should be consistent with the broader legislation regarding consumer agreements.

The rest of the Bill contains standard and technical provisions. Clauses 8 to 11 are standard provisions regarding enforcement. They are more or less drawn word for word from the Property Misdescriptions Act 1991. Clause 8 allows timeshare sellers a due diligence defence in the event of failure to provide the purchaser with a cooling-off notice and places certain conditions on the defendant if he wishes to claim that his omission was due to false information or the fault of another.

Clause 9 makes it possible to prosecute employees of timeshare companies in appropriate circumstances and also renders directors and managers of bodies corporate, or members of partnerships in Scotland, liable if an offence is committed. Clause 10 calls up the enforcement schedule. Clause 11 lays down time limits for prosecutions.

Clause 12 contains a number of general provisions which are grouped together here for convenience. Subsection (1) makes it clear that a cancellation notice does not have to be in a prescribed form to be effective. Subsections (2) and (5) are designed to ensure compatibility with the Consumer Credit Act. Subsection (3) allows for notices of cancellation getting lost in the post—or timeshare companies claiming that they have been. Subsection (4) is important since it ensures that the purchaser cannot sign away his right to cancel. Subsection (6) contains certain necessary definitions, and subsections (7) and (8) contain the necessary order-making powers. Clause 13 contains the Short Title and provides for entry into force and application in Northern Ireland.

Finally, the enforcement schedule contains standard provisions laying a duty of enforcement on local authority trading standards departments (the Department of Economic Development in Northern Ireland) and giving powers regarding the production and seizure of documents and information stored on computers.

I hope that I have made myself clear. The Bill received a warm welcome on all sides in another place and completed its stages there unamended and unopposed. Not only that, it also has the backing of the legitimate operators in the timeshare industry and of the timeshare council. I hope that your Lordships will accept my apologies if I have been long-winded but the matter needed some explanation. However, I believe in the Bill's simple objectives and warmly commend it to your Lordships.

Moved, That the Bill be now read a second time.—(The Earl of Portsmouth.)

2.24 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Earl, Lord Portsmouth, for introducing the Timeshare Bill. It is a Private Member's Bill and I therefore make clear that I am speaking only for myself and not for my party. I have a general welcome for the Bill. I am sure that the noble Earl is right in saying that the measure is generally desirable. The whole area of timeshares requires to be addressed in legislation.

I have four observations about this Bill which might be considered relevant. First, I understand that the question of timeshare is being considered by the European Commission. Perhaps the Minister will be able to correct me, but I understand that a Community-wide solution to the timeshare problem may well emerge at some fairly close future point, in which case this Bill will either be relevant and apposite or it will have to be totally revised. There is a little questionmark as to whether it is wise to go ahead with this measure if we are to revise it completely in a very short period of time as a result of Community activity.

My second point refers to the expression in Clause 1(7) to which the noble Earl referred about the law of the United Kingdom. I have had some communication with the Minister on that point. It is settled private international law that there is no such body of law known as the law of the United Kingdom. I understand that there are many statutes that apply to the whole of the United Kingdom and that it can be said that there is such a thing as a "concept" of the law of the United Kingdom. Nevertheless, there is no such thing as the law of the United Kingdom. There is the law of constituent parts for the United Kingdom but that is a different matter. I understand why the expression has been included and the noble Earl explained quite carefully why. If one is dealing with statutes, then it is possible that as regards criminal offences there can be various interpretations of what is and what is not the law of the United Kingdom which would play a role.

On the other hand, if one is dealing with contracts and private international law, there seems to be a much greater problem if the contract itself is expressly written to be governed by the law of the United Kingdom. One cannot have jurisdiction of a concept, but one can have jurisdiction of a law. When the noble Lord the Minister comes to reply I ask him to comment on that observation because it seems to me and to the Law Society of Scotland, which has advised me on this matter, that it is an anomaly. That has nothing to do with the fact that Scotland has separate law from England and Wales and from Northern Ireland, but is simply a general comment which the Scottish Law Society has been kind enough to make.

The third point is the provisions in Clause 4(3) which provide that, An agreement is not invalidated by reason of a contravention of section 2 or 3". The Bill is concerned to provide obligations to give notice of a right to cancel a timeshare agreement and that is provided for in Clauses 2 and 3. A failure to comply with these provisions results in criminal penalties. That is all very well but it does not help the person who has signed the contract. If one has signed a contract it does not help to get out of it if one knows that the other signatory is in prison or has suffered a fine. What is required is some arrangement that sanctions for violating Clauses 2 and 3 should not only be criminal, but the ability to cancel the agreement.

My fourth observation concerns the cooling-off period. In property transactions, generally speaking there is no cooling-off period. It is certainly a question as to whether a cooling-off period should be extended to all property transactions. A cooling-off period is useful only if there has been full disclosure of what is on offer and sold. For instance, as regards a house purchase it is a question of caveat emptor. The buyer will take such precautions as he or she feels necessary to ensure that he or she is perfectly certain about what is on offer.

If there is no full disclosure in the case of a timeshare, then the cooling-off period seems to have slightly less relevance. A cooling-off period is useful only if there has been full disclosure by the timeshare operator prior to the contract. That full disclosure would have to include, for instance, how the development is to be financed; what steps are taken to ensure that it will be completed with all the facilities that have been advertised; what guarantee there may be that services will be provided and what the relationship is between the developer and manager of the timeshare. Unless all these things are disclosed prior to the signature of the contract, a 14-day cooling-off period does not seem to me to have a great deal of relevance.

Those are four observations which I offer to your Lordships. It is not my intention at all to oppose the Second Reading of this Bill or to move any amendments when we come to Committee stage, if indeed we do. But I hope very much that the Minister, when he comes to reply to the debate, will be able to reassure me on the points that I have made.

2.30 p.m.

Lord Reay

My Lords, I should like to thank my noble friend for introducing this Bill and congratulate him on the way in which he did so. As he made plain, it is quite a complex measure, but nevertheless he made clear to the House the nature and the purpose of the Bill and indeed the need for it.

I should like to emphasise that this Bill is not an attack on timeshare as a product, whether it is timeshare properties, as we normally understand them, timeshare caravans or timeshare fishing rights. There are many thousands of satisfied timeshare owners in the United Kingdom and around the world, I have no doubt. I am sure that there will be many more in the future. The Bill aims to help those who find themselves committed to purchasing timeshare properties that they do not want and may not be able to afford simply because they have succumbed to dishonest and unethical selling tactics.

There is not much that I can add to the exposition which my noble friend has given, but perhaps I could say a bit about the background of the Bill, outline the Government's position and deal with some of the matters raised by the noble Lord, Lord Williams. In 1990 in response to a request from my right honourable friend the Secretary of State for Trade and Industry, the Director General of Fair Trading conducted an inquiry into the timeshare industry and published a report on its problems which included a comprehensive set of recommendations for action. Among these was a right for the consumer—the "offeree"—to withdraw from the contract without penalty during a 14-day cooling-off period. The director general also recommended that in view of the international nature of timeshare the European Commission should consider measures to control abuses in the industry throughout the European Community.

We agreed with that recommendation and last February, therefore, the Government asked the European Commission to bring forward a directive addressing the problems which the Director General of Fair Trading had identified. I am glad to say that the Commission has reacted positively to our suggestion and has drafted a directive which I understand it hopes shortly to be able to submit to the Council of Ministers. If, as we certainly hope, that happens within the next few months, we would attach priority to carrying it forward during our presidency.

We are assured that the directive will include a cooling-off period and it might then appear that the Bill before us will thus simply duplicate what European legislation is likely to provide for. But we cannot be sure what any ultimate European measure is likely to look like, nor when it is likely to arrive. The Community wheels grind surely but slowly.

Meanwhile, the mischief which we are addressing is with us here and now. Despite all the publicity which these operators have rightly attracted, unethical and unacceptable practices by timeshare sales companies continue. That is the reason why we support the Bill before us.

These practices are all too often effective because they catch the consumer when he is vulnerable and he is bullied—I do not think that that is too strong a word—into signing a contract which as soon as he has had time to reflect he regrets. We believe a cooling-off period, which is what this Bill provides, should do much to make such tactics ineffective. This Bill should draw the teeth of the sharks which currently disfigure what is otherwise a respectable industry. We believe that this should be done straightaway if their victims are to be protected. It is for that reason that we support the Bill.

The noble Lord, Lord Williams, asked why the agreement is not invalidated when notice is not given. It is in case the purchaser wishes to enforce it against the seller. There is no reason why he should be deprived of his right to do that. With regard to the law of the United Kingdom, the noble Lord referred to the fact that I had written to him on the subject. The answer is that if Clause 1(7) (a) did not refer to the law of the United Kingdom it would be open to the parties to provide that their contract was governed by the law of the United Kingdom and thereby avoid the application of the Bill. The reference therefore avoids what would be an unsatisfactory result. I commend the Bill to the House.

2.36 p.m.

The Earl of Portsmouth

My Lords, I thank my noble friend the Minister and the noble Lord, Lord Williams of Elvel, for their kind words and for the welcome they have given to the Bill. Perhaps I may deal briefly with the points raised by the noble Lord, Lord Williams. First, on the European dimension, it will take time to get a solution onto the statute book. In the meantime, if nothing is done, there will be potential purchasers of timeshare who will not enjoy the protection that the Bill will give. We do not know for how long they would remain unprotected.

On the noble Lord's second point, I am no expert on the finer points of law regarding contracts and the overseas dimensions. I believe that the Bill does the best possible. On the noble Lord's third point, I believe that the Bill will have a powerful deterrent effect and therefore one would hope that people will not find themselves in the position of having to fulfil these contracts despite the fact that the offeror who has committed the criminal offence is in prison. Fourthly, the noble Lord touched on the subject of caveat emptor. The Bill seeks only to address this specific problem to do with the timeshare industry. It does not cover all the problems. It is not intended to absolve purchasers, and potential purchasers, of timeshare of the necessity of making the proper inquiries and searches. I believe that the 14-day period is sufficient not just as a cooling off period but that it also gives time, if someone is really in a hurry to make a purchase, to carry out the proper searches and inquiries. I have nothing further to add except to say that I look forward to seeing the Bill become law. I commend it to the House.

On Question, Bill read a second time; Committee negatived.

Then, Standing Order No. 44 having been suspended (pursuant to Resolution of 12th March), Bill read a third time, and passed.