Zimbali timeshare owners score legal victory in multimillion-rand claim for contract breach

14 Jul 2024

The Heritage Place villas in the Zimbali Estate were marketed as a luxury development. The owners allege they bought a stake in a timeshare that was not only infested with cockroaches, but had shoddy furnishings and towels, leaks, blocked drains, stained and stinking carpets and cushions, broken air conditioning and zero parking.

Four owners of shares in Heritage Place villas on the Zimbali Estate outside Ballito are one step closer to getting their millions refunded, after the KwaZulu-Natal Division of the High Court in Durban cleared the path for their matter to finally be heard — and imposed a costs order against one of the two defendants.

The timeshare owners are taking both the developer, IFA Fair-Zim Hotel and Resort, and the relevant Zimbali shareblock companies, to court for breach of contract.

Heritage Place has 18 villas, with the same number of separate shareblock companies.

This was a test case on behalf of two of the owners, who are each suing separate shareblock companies that own “their” villas.

They argue that they were promised — and paid for — shares in a luxury timeshare – but what they received turned out to be lemons.

The claimants had paid between R825,000 and R2.5-million for three weeks’ annual accommodation in a “villa” of between two and five bedrooms on the estate.

They also had the right to unlimited “heritage time” in the villa, if it had not been booked. This was later reduced to a maximum of two weeks.

The villas cost between R6-million to R7-million to build, with stakes sold to 13 shareholders per villa.

The claimants’ attorney, Trudie Broekmann, says the Buyer’s Guide supplied to them had promised a private residence club that would offer all the services and amenities of a five-star hotel.

Instead, what they received were cockroach infestations, shoddy furnishings and towels, leaks, blocked drains, stained and stinking carpets and cushions, broken air conditioning and no parking. They were reliant on golf carts to transport their luggage to the units as there was no parking nearby. Levies run to more than R75,000 a year for a four-bedroom villa.

Zimbali Heritage Place (formerly Fairmont Heritage Place) also offered owners an exchange scheme to luxury resorts worldwide, including The Savoy in London and Raffles in Singapore, but the levies charged for these exchanges made it uneconomical.

Their “investment” has become a liability as the resale value is worth only about half of what they paid for it. In one case, an owner who bought his shares for R1.05-million was forced to sell for R150,000, losing 85% of his purchase price.

On the board of each shareblock company, the developer appoints a majority of directors, Broekmann says. One director represents the owners and three directors represent the developer, so the owners are always outvoted.

Zimbali was placed in business rescue in September 2020 by its Kuwait-based owner, IFA Hotels & Resorts. The group first invested in the hotel in 2003, reports News24, after paying R65-million for a 50% stake in the resort which it bought from Moreland, the property development arm of sugar producer Tongaat Hulett.

In March 2021, IOL reported that the Capital Hotels Group had reached an agreement with the Fairmont Zimbali Hotel’s business rescue practitioner to buy the property in a R240-million deal. Broekmann says its shares were sold for R1 to the Capital Apartments and Hotels Group (Pty) Ltd, which meant that the association with Fairmont Hotels and Resorts came to an end, which also put a stop to any such international exchanges.

Rights reinforced

Last week’s ruling not only enables the owners to further pursue their legal action against both developer and the shareblock company, but it reinforces consumers’ rights to take matters straight to court, instead of lodging cases with dispute resolution entities.

The Consumer Protection Act (CPA) requires consumers to first attempt to resolve their disputes with suppliers in other forums, such as an applicable ombudsman or another dispute resolution agent before they can go to court. One of the exceptions raised by the defence was that the applicants did not seek redress as stipulated by the CPA.

In 2022, Prof Riette du Plessis from Wits University wrote in the Stellenbosch Law Review that watchdogs accredited under the CPA fail to support consumers.

Many complaints heard by the courts and the National Consumer Tribunal regarding defective goods involve second-hand cars, which are initially brought to the Motor Industry Ombudsman of South Africa (Miosa) but end up in contempt findings. Miosa then terminates the process and the consumer has to approach the National Consumer Commission, which is empowered to investigate but avoids individual consumer complaints. Only it can approach the Tribunal for a determination.

Du Plessis said processes in the CPA are not clearly delineated, which results in unnecessary cross-referrals between different redress mechanisms and calls for an alternative route to ensure the enforcement of consumer rights and redress.

Practically, in this case, it means that consumers with complaints about the timeshare sector first need to approach the Consumer Goods and Services Ombudsman and the Vacation Ownership Association of SA and exhaust all other dispute resolution mechanisms before they can go to court. That can take years, by which time the claim could be prescribed.

One of the exceptions raised by the defence was that the owners did not seek redress as stipulated by the CPA.

On 4 July, Judge Rashid Vahed said that Section 69 of the CPA has presented considerable difficulty and is the source of conflicting judgments in the high court, which the Supreme Court of Appeal has provided certainty on by relying on section 34 of the Constitution, which guarantees the right to access to court.

The CPA prohibits suppliers from charging unfair prices or misleading buyers. Additionally, under the Companies Act, shareholders like the claimants might have the right to sell their shares back to the company at the original purchase price if the company managing the villas is poorly run and disregards their interests.

Broekmann said her clients are delighted with the outcome. “They feel vindicated, and they are resolute to continue to take the matter to trial. They’re expecting a big win.”

Eugene Bester, Zimbali’s lawyer, declined to comment on the judgment other than to say the matter is at the exception stage (where the legal basis of a claim or defence is being challenged, rather than its factual accuracy) and will still go to trial.

However, the judgment dismissed the exception as “devoid of merit” with costs, which includes the costs of two counsel. DM

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