Pt Royal Bali Leisure & Anor v Hutchinson & Co Trust Company Ltd, Court of Appeal - Chancery Division, May 13, 2004,  EWHC 1014 (Ch)
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Neutral Citation Number:  EWHC 1014 (Ch)Case No: HC02CO2699IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONRoyal Courts of JusticeStrand, London, WC2A 2LLDate: 13/05/2004Before :THE HONOURABLE MR JUSTICE DAVID RICHARDS- - - - - - - - - - - - - - - - - - - - -Between :- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -Sean Brannigan (instructed by Charles Russell) for the ClaimantsRichard Southall (instructed by Herrington & Carmichael) for the DefendantHearing dates: 21, 22, 23, 26, 27, 28, 29 & 30 January 2004 and 2, 3 & 4 February 2004- - - - - - - - - - - - - - - - - - - - -JudgmentMr Justice David Richards: Introduction1. The claims in this action arise out of two timeshare developments in Bali, Indonesia. The first Claimant, PT Royal Bali Leisure (RBL), is a company incorporated in Indonesia. It developed a timeshare resort called the Peninsula Beach Resort. The second Claimant, PT Jazirah Pemasaran Internasional, trading as Peninsula Marketing International, (PMI) is also incorporated in Indonesia and was established to market the Peninsula Beach Resort. Before that resort was ready to market, PMI was engaged by an unconnected developer to market a separate timeshare resort called Villa Lalu. Both Claimants are owned and operated by two brothers, Roger and Alan Thomas.2. Timesharing is a relatively recent phenomenon. It operates on the basis that a developer of a resort, hotel or other property sells to purchasers the right to use the property or part of it for a particular week or other period each year for a fixed number of years. Frequently developers engage marketing companies in order to market the timeshares. Timeshare exchange companies exist to enable timeshare owners to exchange use of their timeshare in one resort for use of another timeshare in a different resort. A resort's membership of a popular timeshare exchange is a strong selling point.3. There are obvious risks associated with timesharing which have resulted in a good deal of adverse publicity. From the purchaser's point of view, the most obvious risks are that, having bought and paid for a timeshare, the developer fails to develop or maintain the resort; that the timeshare rights are defeated by a sale of the resort; that there may be over-selling of timeshare rights; or that the developer or resort owner may become insolvent. Other participants also face risks. A marketer may find that he sells timeshares which the developer is unable to provide. A developer may be defrauded by a marketer who collects payments for the sale of timeshares but does not account for them to the developer. A timeshare exchange may admit a resort, facilitate exchanges and then find that timeshares in a particular resort are unavailable for any of the reasons mentioned above. These problems are compounded by the fact that timesharing is an international business, with resorts in a large number of different countries, each with their own property laws, and timeshare owners also coming from a large number of different countries.4. There is therefore pressure to find means whereby protection can be provided to all participants, so that each can feel a reasonable level of confidence in the performance by the others of their obligations. The provision of such protection is the business of the Defendant, Hutchinson & Co Trust Company Limited (HTC). It is owned by Peter Hutchinson who set it up in 1990. His previous experience was in the travel industry, more recently in providing collection agency services for resorts, including some operating as timeshares.5. The particular form of protection developed by HTC is intended to combine English trust law with the local property law of the country of the resort. A separate trust is established in respect of each resort with HTC as the trustee. The principal asset of the trust are the shares in a non-trading company, usually incorporated in England, to which is transferred title to the resort. Title may be freehold or leasehold or the equivalent under local law. This ensures that the developer cannot dispose of or encumber title to the resort to the disadvantage of the timeshare owners. Similarly it provides protection to timeshare exchange companies. The beneficiaries of the trust are the timeshare owners and the developer, securing their respective interests. The trust is governed by English law, while title to the resort is transferred and held subject to the local property law. HTC does not itself market the resorts nor is it responsible for their management. Its function is limited to protection of the legal rights of occupation of the timeshare owners. Maintenance of the resort and other continuing obligations are a matter for the timeshare owners and development or management companies. HTC may also act as a stakeholder for money paid for the purchase of timeshare interests, but that function does not feature in this case.6. HTC is currently trustee of some 60 resorts in Europe, 6 in India, 25 in the Far East and 8 elsewhere. It first became involved in Indonesia towards the end of 1995 in relation to a resort called the Royal Bali Beach Club. From the point of view of resort developers and marketers, the appointment of a trustee such as HTC is seen as a strong selling point. This is all the greater where resorts are located in countries which are regarded by prospective purchasers as politically unstable.7. HTC was appointed as the trustee of both the resorts relevant to these proceedings. In the case of the Peninsula Beach Resort, it was appointed by RBL under a written contract made on 16 July 1998. An interest in the Resort was later transferred to an owning company incorporated in England and held by HTC as trustee, and timeshare rights in the Resort were marketed on that basis. Subsequently, doubts were raised as to whether under Indonesian law a foreign-incorporated company could hold an interest in land. It is RBL's case that it cannot do so, and that therefore no good title was vested in the owning company and HTC was in breach of contract in not establishing a trust structure which could achieve its object. It claims damages for breach of contract. In relation to Villa Lalu, PMI's case is not only that the trust structure would have failed for the same reason as the trust for Peninsula Beach Resort but also and more importantly that the developer did not have title to the property for the full period of the 25-year timeshares marketed by PMI as agent for the developer. PMI had no contract with HTC but its case is that it relied on HTC to ensure the developer had a sufficient marketable title and that it is entitled to damages in negligence for the loss which it suffered. HTC's Promotional Material8. HTC produced promotional material comprising documents and videos. This material was supplied to prospective developer clients by way of explanation and promotion of its role and services. For the purposes of this case, it is the material supplied to Roger Thomas in July 1998 which is significant. It is his evidence that he placed reliance on that material in relation to both RBL as developer of the Peninsula Beach Resort and PMI as marketing company for Villa Lalu. 9. The documents supplied to Roger Thomas were a three-fold leaflet entitled "Hutchinson - Service and Security - A Progressive Force in the Timeshare Industry" and eight other documents. The three-fold leaflet contains this description of HTC's role, under a heading "What does a Trustee do":"The Trustee's prime responsibility is to protect the interests of the timeshare purchaser, by ensuring that good title to the use of the timeshare weeks is held by the Developer and transferred, on sale, to the Purchaser. By extension, this principle can also be applied to the protection of the Marketer of a project.A Deed of Trust is signed, which provides the Trustee with the rules and guidelines for the operation of its day to day activities, and outlines the control over the rights to use the timeshare apartments which is vested in the Trustee.This control can take many forms, the choice of which is normally left to the Developer. The one over-riding factor is that the control must enable the Trustee to confirm to the individual Purchaser that their legal rights to use will be respected, no matter what happens to the various parties in the future.In some countries the concept of trust is not well developed, but the combination of UK Trust Law with the property laws of the country in which the resort is situated, provide a system with huge benefits to Developer, Purchaser and Marketer.The Trust Property is protected from the demise of the Trustee by English Law, whilst any Purchaser's funds held by the Trustee are protected both by the Professional Indemnity Insurance and by the "Acknowledgement of Trust" provided by the Trustee's banker confirming that the client bank accounts are protected against the financial failure of the Trust Company itself."10. Elsewhere in the leaflet it is said that the trust structure "remains flexible and adaptable enough to function in any country or legal jurisdiction" and "provides protection of the interests of Purchasers, Developers and Marketers alike". The provision of protection by means of the trust system to all three categories of party (purchaser, developer and marketer) is repeated in other parts of the leaflet and in some of the other promotional material. For example a document headed "The Trustee System - Its Strengths and Advantages" states at paragraph 9:"Independent Marketers Developers selling through independent marketers can offer the Marketer and his client security, whilst protecting the developers own position. The Trust System can be adapted to prevent the situation that has arisen in the past whereby a Developer has lost many hundreds of thousands of dollars to an unscrupulous Marketer."11. A document headed "Guidelines for Developers - Chronological Schedule of...
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