Timeshare developer Club La Costa World liable for fraud, Malaga Court of Appeal rules

Málaga-based law firm M1 Legal, working alongside European Consumer Claims, represented a British client at the Málaga Court of Appeal in a claim against Resort Development Organisation member Club La Costa World.

The Málaga Court of Appeal (Appeal proceeding Nº 104/18) heard the matter on 11 February 2020 and issued its ruling against Club La Costa (UK) PLC – Sucursal en España (Spanish branch) on 24 April 2020.

The key issue on appeal was which Club La Costa entity should be held liable for the group’s activities in Spain. Although the purchase contract was signed by Club La Costa Leisure Ltd and the maintenance fees were paid to Club La Costa Resort Management Ltd (both Isle of Man companies), the Court of Appeal found that Club La Costa (UK) PLC – Sucursal en España was the responsible company for Club La Costa’s activities carried out through the group.

The Tribunal said this justified applying the “lifting the corporate veil” doctrine. In doing so, it referred to an earlier Málaga Court of Appeal ruling (SAP Málaga 507/2003) in which the defendant was Paradise Trading SLU, also a Club La Costa company:

“In fact, they are a conglomerate of companies where the intention is to avoid the legitimate rights of the clients through the instrumental mechanism of diluting their contractual obligations and the ownership of the affected properties, with the purpose of hiding and protecting the solvent company that could comply with the obligations acquired...Therefore, the fraudulent use of all these companies with the purpose of causing damages to third-parties (clients) lead to the doctrine of lifting the veil”.

In this case, the Court of Appeal noted that the vendor company, Club La Costa Leisure Limited, had been dissolved. It also highlighted that the maintenance-fees company, Club La Costa Resort Management Ltd, while based in the Isle of Man, was using telephone landlines connected to Málaga, and that Club La Costa (UK) PLC – Sucursal en España was the Spanish entity representing the parent company, Club La Costa (UK) PLC. The Court of Appeal stated that “The fact that the contractual company is dissolved is not a reason for no-one to be liable. Furthermore being that the Club La Costa group receives the maintenance fees it is not acceptable for it to enjoy rights without obligations”.

As a result, the Court of Appeal agreed that action could be brought against Club La Costa (UK) PLC – Sucursal en España, which the Court found to be the only company within the Club La Costa group resident in Spain (Málaga), where the resort is located. The Court also found, on reviewing the timeshare purchase contract, that it did not comply with Spanish timeshare legislation, irrespective of which legal entity was named as the vendor on the agreement.

The client paid £30,303 for his timeshare in October 2011. The Court ordered that he should receive £26,061 plus £8,203 (advanced payment), together with interest and legal fees.

M1 Legal spokesperson Sharon Johnson said: “This is one of thousands of cases against the web of Club La Costa World companies.” She added: “M1 Legal alone currently have 561 cases in the courts against them with a value of £11.9 million”.

To read the full judgement in Spanish – CLICK HERE

To read the abbreviated judgement in English – CLICK HERE