Mitsubishi HC Capital UK PLC · DRN-5855158

The complaint Mr R’s complaint is, in essence, that Mitsubishi HC Capital UK PLC, trading as Novuna Consumer Finance, (the ‘Lender’) acted unfairly and unreasonably by (1) being party to an unfair credit relationship with him under Section 140A of the Consumer Credit Act 1974 (as amended) (the ‘CCA’) and (2) deciding against paying claims under Section 75 of the CCA. What happened Mr R and his wife, Mrs R, purchased membership of a timeshare (the ‘Fractional Club’) from a timeshare provider (the ‘Supplier’) on 1 November 2015 (the ‘Time of Sale’). They entered into an agreement with the Supplier to buy 1,200 fractional points at a cost of £12,421 (the ‘Purchase Agreement’). Fractional Club membership was asset backed – which meant it gave Mr and Mrs R more than just holiday rights. It also included a share in the net sale proceeds of a property named on the Purchase Agreement (the ‘Allocated Property’) after their membership term ends. Mr R paid for his Fractional Club membership by taking finance of £12,421 from the Lender (the ‘Credit Agreement’) in his sole name. For that reason, I’ll mainly refer to Mr R for the remainder of this decision unless it’s appropriate to do otherwise. Mr R – using a professional representative (the ‘PR’) – wrote to the Lender on 1 August 2022 (the ‘Letter of Complaint’) to complain about: 1. Misrepresentations by the Supplier at the Time of Sale giving him a claim against the Lender under Section 75 of the CCA, which the Lender failed to accept and pay. 2. A breach of contract by the Supplier giving him a claim against the Lender under Section 75 of the CCA, which the Lender failed to accept and pay. 3. The Lender being party to an unfair credit relationship under the Credit Agreement and related Purchase Agreement for the purposes of Section 140A of the CCA. I’ll return to this in more detail below. 4. The decision to lend being irresponsible because the Lender did not carry out the right creditworthiness assessment. 5. The Credit Agreement being unenforceable because it was not arranged by a credit broker regulated by the Financial Conduct Authority (the ‘FCA’) to carry out such an activity. Section 140A of the CCA: the Lender’s participation in an unfair credit relationship The Letter of Complaint set out several reasons why Mr R says that the credit relationship between him and the Lender was unfair to him under Section 140A of the CCA. In summary, they include the following: 1. Fractional Club membership was marketed and sold to him as an investment in breach of Regulation 14(3) of the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (the ‘Timeshare Regulations’). 2. The contractual terms of the CCA were unfair contract terms under the Consumer Rights

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Act 2015 (‘CRA’). 3. The decision to lend was irresponsible because the Lender didn’t carry out the right creditworthiness assessment. 4. The Lender failed to disclose to Mr R that it paid commission to the Supplier as the credit broker. The Lender dealt with Mr R’s concerns as a complaint and issued its final response letter on 26 January 2023, rejecting it on every ground. Mr R had, by that time, referred the complaint to the Financial Ombudsman Service. It was assessed by two Investigators with the second, having considered the information on file, not upholding the complaint on its merits. Mr R disagreed with the Investigator’s assessment and asked for an Ombudsman’s decision. The Lender has also questioned whether this service had the power to consider the complaint since it believed it was made late. The complaint was passed to me to review afresh. I issued a provisional decision that included the following: ‘The legal and regulatory context In considering what is fair and reasonable in all the circumstances of the complaint, I am required under DISP 3.6.4R to take into account: relevant (i) law and regulations; (ii) regulators’ rules, guidance and standards; and (iii) codes of practice; and (where appropriate), what I consider to have been good industry practice at the relevant time. I will refer to and set out several regulatory requirements, legal concepts and guidance in this decision, but I am satisfied that of particular relevance to this complaint is: • The CCA (including Section 75 and Sections 140A-140C). • The law on misrepresentation. • The Timeshare Regulations. • The CRA. • The Consumer Protection from Unfair Trading Regulations 2008 (the ‘CPUT Regulations’). • Case law on Section 140A of the CCA – including, in particular: • The Supreme Court’s judgment in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 (‘Plevin’) (which remains the leading case in this area). • Scotland v British Credit Trust [2014] EWCA Civ 790 (‘Scotland and Reast’) • Patel v Patel [2009] EWHC 3264 (QB) (‘Patel’). • The Supreme Court’s judgment in Smith v Royal Bank of Scotland Plc [2023] UKSC 34 (‘Smith’). • Carney v NM Rothschild & Sons Ltd [2018] EWHC 958 (‘Carney’). • Kerrigan v Elevate Credit International Ltd [2020] EWHC 2169 (Comm) (‘Kerrigan’). • R (on the application of Shawbrook Bank Ltd) v Financial Ombudsman Service Ltd and R (on the application of Clydesdale Financial Services Ltd (t/a Barclays Partner Finance)) v Financial Ombudsman Service [2023] EWHC 1069 (Admin) (‘Shawbrook & BPF v FOS’). Good industry practice – the RDO Code The Timeshare Regulations provided a regulatory framework. But as the parties to this

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complaint already know, I am also required to take into account, when appropriate, what I consider to have been good industry practice at the relevant time – which, in this complaint, includes the Resort Development Organisation’s Code of Conduct dated 1 January 2010 (the ‘RDO Code’). What I’ve provisionally decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I conclude that: 1. Mr R’s complaint about a credit relationship with the Lender that was unfair to him is within our jurisdiction because it was made within the time limits set out in DISP 2.8.2 R (2). 2. That said, for the reasons I give below, [I think] the credit relationship was unfair. I’ll explain my reasons for my conclusions below. Jurisdiction Section 2 of the Rules set out in DISP covers whether Mr R’s complaint was made in time for the purposes of allowing the Financial Ombudsman Service to consider them. This is what DISP 2.8.2 R says (insofar as it’s relevant to this complaint): ‘The Ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service: […] (2) more than: (a) six years after the event complained of; or (if later) (b) three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint; unless the complainant referred the complaint to the respondent or to the Ombudsman within that period and has a written acknowledgement or some other record of the complaint having been received; […] unless: […] (3) in the view of the Ombudsman, the failure to comply with the time limits in DISP 2.8.2 R […] was as a result of exceptional circumstances; or […]’ The event complained about for the purposes of DISP 2.8.2 R (2)(a) is the allegation that the Lender was party to an unfair credit relationship with Mr R and, during the currency of that relationship, it perpetuated the unfairness, failing in its responsibilities to take the necessary steps to correct the situation. The Credit Agreement and, in turn, Mr R’s credit relationship with the Lender ended on 6 December 2016. But the complaint about that credit relationship was first made to the

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Lender on 1 August 2022. So, Mr R complained within six years of the event complained about. I note that Mr R repaid a significant amount of his outstanding balance on 16 February 2016. If I took that to be the date the relationship ended, then the complaint would have been made more than six years later. But I don’t believe that the credit relationship ended on 16 February 2016 as Mr R’s relevant annual statement for the account shows an outstanding balance remained until 6 December 2016. With that being the case, there is no need for me to go on and consider the three-year part of the Rules as the complaint is, I believe, one that I can look at. The merits of the complaint And having considered the merits of the complaint, I currently think that it should be upheld because the Supplier breached Regulation 14(3) of the Timeshare Regulations by marketing and/or selling Fractional Club membership to Mr R as an investment, which, in the circumstances of this complaint, rendered the credit relationship between him and the Lender unfair to him for the purposes of Section 140A of the CCA. However, before I explain why, I want to make it clear that my role as an Ombudsman is not to address every single point that has been made to date. Instead, it is to decide what is fair and reasonable in the circumstances of this complaint. So, while I recognise that there are a number of aspects to Mr R’s complaint, it isn’t necessary to make formal findings on all of them. That’s because, even if those aspects of the complaint ought to succeed, the redress I’m currently proposing puts Mr R in the same or a better position than he would be if the redress was limited to, for example, misrepresentation. What’s more, I have made my decision on the balance of probabilities – which means I have based it on what I think is more likely than not to have happened given the available evidence and the wider circumstances. Section 140A of the CCA: did the Lender participate in an unfair credit relationship? As Section 140A of the CCA is relevant law, I do have to consider it. So, in determining what is fair and reasonable in all the circumstances of the case, I will consider whether the credit relationship between the Mr R and the Lender was unfair. Under Section 140A of the CCA, a debtor-creditor relationship can be found to have been or be unfair to the debtor because of one or more of the following: the terms of the credit agreement itself; how the creditor exercised or enforced its rights under the agreement; and any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement) (s.140A(1) CCA). Such a finding may also be based on the terms of any related agreement (which here, includes the Purchase Agreement) and, when combined with Section 56 of the CCA, on anything done or not done by the supplier on the creditor’s behalf before the making of the credit agreement or any related agreement. Section 56 plays an important role in the CCA because it defines the terms “antecedent negotiations” and “negotiator”. As a result, it provides a foundation for a number of provisions that follow it. But it also creates a statutory agency in particular circumstances. And while Section 56(1) sets out three of them, the most relevant to this complaint are negotiations conducted by the supplier in relation to a transaction financed or proposed to be

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financed by a debtor-creditor-supplier agreement. A debtor-creditor-supplier agreement is defined by Section 12(b) of the CCA as “a restricted- use credit agreement which falls within section 11(1)(b) and is made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier […]”. And Section 11(1)(b) of the CCA says that a restricted-use credit agreement is a regulated credit agreement used to “finance a transaction between the debtor and a person (the ‘supplier’) other than the creditor […] and “restricted-use credit” shall be construed accordingly.” The Lender doesn’t dispute that there was a pre-existing arrangement between it and the Supplier. So, the negotiations conducted by the Supplier during the sale of Mr R’s membership of the Fractional Club were conducted in relation to a transaction financed or proposed to be financed by a debtor-creditor-supplier agreement as defined by Section 12(b). That made them antecedent negotiations under Section 56(1)(c) – which, in turn, meant that they were conducted by the Supplier as an agent for the Lender as per Section 56(2). And such antecedent negotiations were “any other thing done (or not done) by, or on behalf of, the creditor” under s.140A(1)(c) CCA. Antecedent negotiations under Section 56 cover both the acts and omissions of the Supplier, as Lord Sumption made clear in Plevin, at paragraph 31: “[Section] 56 provides that [when] antecedent negotiations for a debtor-creditor-supplier agreement are conducted by a credit-broker or the supplier, the negotiations are “deemed to be conducted by the negotiator in the capacity of agent of the creditor as well as in his actual capacity”. The result is that the debtor’s statutory rights of withdrawal from prospective agreements, cancellation and rescission may arise on account of the conduct of the negotiator whether or not he was the creditor’s agent.’ […] Sections 56 and 140A(3) provide for a deemed agency, even in a case where there is no actual one. […] These provisions are there because without them the creditor’s responsibility would be engaged only by its own acts or omissions or those of its agents.” And this was recognised by Mrs Justice Collins Rice in Shawbrook & BPF v FOS at paragraph 135: “By virtue of the deemed agency provision of s.56, therefore, acts or omissions ‘by or on behalf of’ the bank within s.140A(1)(c) may include acts or omissions of the timeshare company in ‘antecedent negotiations’ with the consumer”. In the case of Scotland & Reast, the Court of Appeal said, at paragraph 56, that the effect of Section 56(2) of the CCA meant that “negotiations are deemed to have been conducted by the negotiator as agent for the creditor, and that is so irrespective of what the position would have been at common law” before going on to say the following in paragraph 74: “[...] there is nothing in the wording of s.56(2) to suggest any legislative intent to limit its application so as to exclude s.140A. Moreover, the words in s.140A(1)(c) "any other thing done (or not done) by, or on behalf of, the creditor" are entirely apposite to include antecedent negotiations falling within the scope of s.56(1)(c) and which are deemed by s.56(2) to have been conducted by the supplier as agent of the creditor. Indeed the purpose of s.56(2) is to render the creditor responsible for such statements made by the negotiator and so it seems to me wholly consistent with the scheme of the Act that, where appropriate, they should be taken into account in assessing whether the relationship between the creditor and the debtor is unfair.”1 1 The Court of Appeal’s decision in Scotland was recently followed in Smith.

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So, the Supplier is deemed to be Lender’s statutory agent for the purpose of the pre- contractual negotiations. However, an assessment of unfairness under Section 140A isn’t limited to what happened immediately before or at the time a credit agreement and related agreement were entered into. The High Court held in Patel (which was recently approved by the Supreme Court in the case of Smith), that determining whether or not the relationship complained of was unfair had to be made “having regard to the entirety of the relationship and all potentially relevant matters up to the time of making the determination” – which was the date of the trial in the case of an existing credit relationship or otherwise the date the credit relationship ended. The breadth of the unfair relationship test under Section 140A, therefore, is stark. But it isn’t a right afforded to a debtor simply because of a breach of a legal or equitable duty. As the Supreme Court said in Plevin (at paragraph 17): “Section 140A […] does not impose any obligation and is not concerned with the question whether the creditor or anyone else is in breach of a duty. It is concerned with […] whether the creditor’s relationship with the debtor was unfair.” Instead, it was said by the Supreme Court in Plevin that the protection afforded to debtors by Section 140A is the consequence of all of the relevant facts. I have considered the entirety of the credit relationship between Mr R and the Lender along with all of the circumstances of the complaint and I think the credit relationship between them was likely to have been rendered unfair for the purposes of Section 140A. When coming to that conclusion, and in carrying out my analysis, I have looked at: 1. The Supplier’s sales and marketing practices at the Time of Sale – which includes training material that I think is likely to be relevant to the sale; 2. The provision of information by the Supplier at the Time of Sale, including the contractual documentation and disclaimers made by the Supplier; 3. Evidence provided by both parties on what was likely to have been said and/or done at the Time of Sale; and 4. The inherent probabilities of the sale given its circumstances. I have then considered the impact of these on the fairness of the credit relationship between Mr R and the Lender. The Supplier’s breach of Regulation 14(3) of the Timeshare Regulations The Lender does not dispute, and I am satisfied, that Mr R’s Fractional Club membership met the definition of a “timeshare contract” and was a “regulated contract” for the purposes of the Timeshare Regulations. Regulation 14(3) of the Timeshare Regulations prohibited the Supplier from marketing or selling Fractional Club membership as an investment. This is what the provision said at the Time of Sale: “A trader must not market or sell a proposed timeshare contract or long-term holiday product contract as an investment if the proposed contract would be a regulated contract.” But Mr R says that the Supplier did exactly that at the Time of Sale – saying the following during the course of this complaint:

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‘On the Promotional free holiday [the Supplier] said things had all changed and we could buy a portion of a property. The value could increase by 1.5% a year so that at the end of the time we could get some money back that would cover the costs and maybe a bit more. So we went ahead. At the time we had an endowment coming out so we thought why not put it into a timeshare.’ Mr R alleges, therefore, that the Supplier breached Regulation 14(3) at the Time of Sale because he was told by the Supplier that he would get his money back or more during the sale of Fractional Club membership. The term “investment” is not defined in the Timeshare Regulations. In Shawbrook & BPF v FOS, the parties agreed that, by reference to the decided authorities, “an investment is a transaction in which money or other property is laid out in the expectation or hope of financial gain or profit” at [56]. I will use the same definition. Mr R’s share in the Allocated Property clearly, in my view, constituted an investment as it offered him the prospect of a financial return – whether or not, like all investments, that was more than what he first put into it. But the fact that Fractional Club membership included an investment element did not, itself, transgress the prohibition in Regulation 14(3). That provision prohibits the marketing and selling of a timeshare contract as an investment. It doesn’t prohibit the mere existence of an investment element in a timeshare contract or prohibit the marketing and selling of such a timeshare contract per se. In other words, the Timeshare Regulations did not ban products such as the Fractional Club. They just regulated how such products were marketed and sold. To conclude, therefore, that Fractional Club membership was marketed or sold to Mr R as an investment in breach of Regulation 14(3), I have to be persuaded that it was more likely than not that the Supplier marketed and/or sold membership to him as an investment, i.e. told him or led him to believe that Fractional Club membership offered him the prospect of a financial gain (i.e., a profit) given the facts and circumstances of this complaint. There is evidence in this complaint that the Supplier made efforts to avoid specifically describing membership of the Fractional Club as an ‘investment’ or quantifying to prospective purchasers, such as Mr R, the financial value of his share in the net sales proceeds of the Allocated Property along with the investment considerations, risks and rewards attached to them. There were, for instance, disclaimers in the contemporaneous paperwork that state that Fractional Club membership was not sold to Mr R as an investment. However, weighing up what happened in practice is, in my view, rarely as simple as looking at the contemporaneous paperwork especially when considering what happened during a face-to-face sales process. And there are a number of strands to Mr R’s allegation that the Supplier breached Regulation 14(3) at the Time of Sale, including that membership of the Fractional Club could make him a financial gain and/or would retain or increase in value. So, I have considered: (1) whether it is more likely than not that the Supplier, at the Time of Sale, sold or marketed membership of the Fractional Club as an investment, i.e. told Mr R or led him to believe during the marketing and/or sales process that membership of the Fractional Club was an investment and/or offered him the prospect of a financial gain (i.e., a profit); and, in turn (2) whether the Supplier’s actions constitute a breach of Regulation 14(3).

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And for reasons I’ll now come on to, given the facts and circumstances of this complaint, I think the answer to both of these questions is ‘yes’. How the Supplier marketed and sold the Fractional Club membership During the course of the Financial Ombudsman Service’s work on complaints about the sale of timeshares, the Supplier has provided training material used to prepare its sales representatives – including: 1. a document called the 2013/2014 Sales Induction Training (the ‘2013/2014 Induction Training’); 2. screenshots of a Electronic Sales Aid (the ‘ESA’); and 3. a document called the “FPOC2 Fly Buy Induction Training Manual” (the ‘Fractional Club Training Manual’) Neither the 2013/2014 Induction Training nor the ESA I’ve seen included notes of any kind. However, the Fractional Club Training Manual includes very similar slides to those used in the ESA. And according to the Supplier, the Fractional Club Training Manual (or something similar) was used by it to train its sales representatives at the Time of Sale. So, it seems to me that the Training Manual is reasonably indicative of: (1) the training the Supplier’s sales representatives would have got before selling Fractional Club membership; and (2) how the sales representatives would have framed the Supplier’s multimedia presentation (i.e., the ESA) during the sale of Fractional Club membership to prospective members – including Mr R. The “Game Plan” on page 23 of the Fractional Club Training Manual indicates that, of the first 12 to 25 minutes, most of that time would have been spent taking prospective members through a comparison between “renting” and “owning” along with how membership of the Fractional Club worked and what it was intended to achieve. Page 32 of the Fractional Club Training Manual covered how the Supplier’s sales representatives should address that comparison in more detail – indicating that they would have tried to demonstrate that there were financial advantages to owning property, over 10 years for example, rather than renting:

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Indeed, one of the advantages of ownership referred to in the slide above is that it makes more financial sense than renting because owners “are building equity in their property”. And as an owner’s equity in their property is built over time as the value of the asset increases relative to the size of the mortgage secured against it, one of the advantages of ownership over renting was portrayed in terms that played on the opportunity ownership gave prospective members of the Fractional Club to accumulate wealth over time. I acknowledge that the slides don’t include express reference to the “investment” benefit of ownership. But the description alludes to much the same concept. It was simply rephrased in the language of “building equity”. And with that being the case, it seems to me that the approach to marketing Fractional Club membership was to strongly imply that ‘owning’ fractional points was a way of building wealth over time, similar to home ownership. Page 33 of the Fractional Club Training Manual then moved the Supplier’s sales representatives onto a cost comparison between “renting” holidays and “owning” them. Sales representatives were told to ask prospective members to tell them what they’d own if they just paid for holidays every year in contrast to spending the same amount of money to “own” their holidays – thus laying the groundwork necessary to demonstrating the advantages of Fractional Club membership:

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With the groundwork laid, sales representatives were then taken to the part of the ESA that explained how Fractional Club membership worked. And, on pages 41 and 42 of the Fractional Club Training Manual, this is what sales representatives were told to say to prospective members when explaining what a ‘fraction’ was: “FPOC = small piece of […] World apartment which equals ownership of bricks and mortar […] Major benefit is the property is sold in nineteen years (optimum period to cover peaks and troughs in the market) when sold you will get your share of the proceeds of the sale

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SUMMARISE LAST SLIDE: FPOC equals a passport to fantastic holidays for 19 years with a return at the end of that period. When was the last time you went on holiday and got some money back? How would you feel if there was an opportunity of doing that? […] LINK: Many people join us every day and one of the main questions they have is “how can we be sure our interests are taken care of for the full 19 years? As it is very important you understand how we ensure that, I am going to ask Paul to come over and explain this in more details for you. […] “Handover: (Manager’s name) John and Mary love FPOC and have told me the best for them is…………………………..Would you mind explaining to them how their interest will be protected over the next 19 year[s]?” (My emphasis added) The Fractional Club Training Manual doesn’t give any immediate context to what the manager would have said to prospective members in answer to the question posed by the sales representative at the handover. Page 43 of the manual has the word “script” on it but otherwise it’s blank. However, after the Manual covered areas like the types of holiday and accommodation on offer to members, it went onto “resort management”, at which point page 61 said this: “T/O will explain slides emphasising that they only pay a fraction of maintaining the entire property. It also ensures property is kept in peak condition to maximise the return in 19 years[’] time. […] CLOSE: I am sure you will agree with us that this management fee is an extremely important part of the equation as it ensures the property is maintained in pristine condition so at the end of the 19 year period, when the property is sold, you can get the maximum return. So I take it, like our owners, there is nothing about the management fee that would stop you taking you holidays with us in the future?...” (My emphasis added) By page 68 of the Fractional Training Manual, sales representatives were moved on to the holiday budget of prospective members. Included in the ESA were a number of holiday comparisons. It isn’t entirely clear to me what the relevant parts of the ESA were designed to show prospective members. But it seems that prospective members would have been shown that there was the prospect of a “return”. For example, on page 69 of the Fractional Club Induction Training Manual, it included the following screenshots of the ESA along with the context the Supplier’s sales representatives were told to give to them:

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[…] “We also agreed that you would get nothing back from the travel agent at the end of this holiday period. Remember with your fraction at the end of the 19 year period, you will get some money back from the sale, so even if you only got a small part of your initial outlay, say £5,000 it would still be more than you would get renting your holidays from a travel agent, wouldn’t it?” I acknowledge that the slides above set out a “return” that is less than the total cost of the holidays and the “initial outlay”. But that was just an example and, given the way in which it was positioned in the Training Manual, the language did leave open the possibility that the return could be equal to if not more than the initial outlay. Furthermore, the slides above

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represent Fractional Club membership as: (1) The right to receive holiday rights for 19 years whose market value significantly exceeds the costs to a Fractional Club member; plus (2) A significant financial return at the end of the membership term. And to consumers (like Mr R) who were looking to buy holidays anyway, the comparison the slides make between the costs of Fractional Club membership and the higher cost of buying holidays on the open market was likely to have suggested to them that the financial return was in fact an overall profit. I also acknowledge that there was no comparison between the expected level of financial return and the purchase price of Fractional Club membership. However, if I were to only concern myself with express efforts to quantify to Mr R the financial value of the proprietary interest he was offered, I think that would involve taking too narrow a view of the prohibition against marketing and selling timeshares as an investment in Regulation 14(3). When the Government consulted on the implementation of the Timeshare Regulations, it discussed what marketing or selling a timeshare as an investment might look like – saying that ‘[a] trader must not market or sell a timeshare or [long-term] holiday product as an investment. For example, there should not be any inference that the cost of the contract would be recoupable at a profit in the future (see regulation 14(3)).”2 And in my view that must have been correct because it would defeat the consumer-protection purpose of Regulation 14(3) if the concepts of marketing and selling a timeshare as an investment were interpreted too restrictively. So, if a supplier implied to consumers that future financial returns (in the sense of possible profits) from a timeshare were a good reason to purchase it, I think its conduct was likely to have fallen foul of the prohibition against marketing or selling the product as an investment. Indeed, if I’m wrong about that, I find it difficult to explain why, in paragraphs 77 and 78 followed by 99 and 100 of Shawbrook & BPF v FOS when, Mrs Justice Collins Rice said the following: “[…] I endorse the observation made by Mr Jaffey KC, Counsel for BPF, that, whatever the position in principle, it is apparently a major challenge in practice for timeshare companies to market fractional ownership timeshares consistently with Reg.14(3). […] Getting the governance principles and paperwork right may not be quite enough. The problem comes back to the difficulty in articulating the intrinsic benefit of fractional ownership over any other timeshare from an individual consumer perspective. […] If it is not a prospect of getting more back from the ultimate proceeds of sale than the fractional ownership cost in the first place, what exactly is the benefit? […] What the interim use or value to a consumer is of a prospective share in the proceeds of a postponed sale of a property owned by a timeshare company – one they have no right to stay in meanwhile – is persistently elusive.” “[...] although the point is more latent in the first decision than in the second, it is clear that both ombudsmen viewed fractional ownership timeshares – simply by virtue of the interest they confer in the sale proceeds of real property unattached to any right to stay in it, and the prospect they undoubtedly hold out of at least 'something back' – as products which are 2 The Department for Business Innovation & Skills “Consultation on Implementation of EU Directive 2008/122/EC on Timeshare, Long-Term Holiday Products, Resale and Exchange Contracts (July 2010)”. https://assets.publishing.service.gov.uk/media/5a78d54ded915d0422065b2a/10-500-consultation- directive-timeshare-holiday.pdf

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inherently dangerous for consumers. It is a concern that, however scrupulously a fractional ownership timeshare is marketed otherwise, its offer of a 'bonus' property right and a 'return' of (if not on) cash at the end of a moderate term of years may well taste and feel like an investment to consumers who are putting money, loyalty, hope and desire into their purchase anyway. Any timeshare contract is a promise, or at the very least a prospect, of long-term delight. [...] A timeshare-plus contract suggests a prospect of happiness-plus. And a timeshare plus 'property rights' and 'money back' suggests adding the gold of solidity and lasting value to the silver of transient holiday joy.” I think the Supplier’s sales representatives were encouraged to make prospective Fractional Club members consider the advantages of owning something and view membership as an opportunity to build equity in an allocated property rather than simply paying for holidays in the usual way. That was likely to have been reinforced throughout the Supplier’s sales presentations by the use of phrases such as “bricks and mortar” and notions that prospective members were building equity in something tangible that could make them some money at the end. And as the Fractional Club Training Manual suggests that much would have been made of the possibility of prospective members maximising their returns (e.g., by pointing out that one of the major benefits of a 19-year membership term was that it was an optimum period of time to see out peaks and troughs in the market), I think the language used during the Supplier’s sales presentations was likely to have been consistent with the idea that Fractional Club membership was an investment. Overall, therefore, as the slides I’ve referred to above seem to me to reflect the training the Supplier’s sales representatives would have got before selling Fractional Club membership and, in turn, how they would have probably framed the sale of the Fractional Club to prospective members, they indicate that the Supplier’s sales representative was likely to have led Mr R to believe that membership of the Fractional Club was an investment that may led to a financial gain (i.e., a profit) in the future. And with that being the case, I don’t find Mr and Mrs R either implausible or hard to believe when they say they were told ‘we could get some money back that would cover the costs and maybe a bit more’. On the contrary, in the absence of evidence to persuade me otherwise, I think that’s likely to be what Mr R was led by the Supplier to believe at the relevant time. And for that reason, I think the Supplier breached Regulation 14(3) of the Timeshare Regulations. Was the credit relationship between the Lender and Mr R rendered unfair? Having found that the Supplier breached Regulation 14(3) of the Timeshare Regulations at the Time of Sale, I now need to consider what impact that breach had on the fairness of the credit relationship between Mr R and the Lender under the Credit Agreement and related Purchase Agreement. As the Supreme Court’s judgment in Plevin makes clear, it does not automatically follow that regulatory breaches create unfairness for the purposes of Section 140A. Such breaches and their consequences (if there are any) must be considered in the round, rather than in a narrow or technical way. I am also mindful of what HHJ Waksman QC (as he then was) and HHJ Worster had to say in Carney and Kerrigan (respectively) on causation. In Carney, HHJ Waksman QC said the following in paragraph 51: “[…] In cases of wrong advice and misrepresentation, it would be odd if any relief could be considered if they did not have at least some material impact on the debtor when deciding whether or not to enter the agreement. […] in a case like the one before me, if in fact the

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debtors would have entered into the agreement in any event, this must surely count against a finding of unfair relationship under s140A. […]” And in Kerrigan, HHJ Worster said this in paragraphs 213 and 214: “[…] The terms of section 140A(1) CCA do not impose a requirement of “causation” in the sense that the debtor must show that a breach caused a loss for an award of substantial damages to be made. The focus is on the unfairness of the relationship, and the court's approach to the granting of relief is informed by that, rather than by a demonstration that a particular act caused a particular loss. Section 140A(1) provides only that the court may make an order if it determines that the relationship is unfair to the debtor. […] […] There is a link between (i) the failings of the creditor which lead to the unfairness in the relationship, (ii) the unfairness itself, and (iii) the relief. It is not to be analysed in the sort of linear terms which arise when considering causation proper. The court is to have regard to all the relevant circumstances when determining whether the relationship is unfair, and the same sort of approach applies when considering what relief is required to remedy that unfairness. […]” So, it seems to me that, if I am to conclude that a breach of Regulation 14(3) led to a credit relationship between Mr R and the Lender that was unfair to him and warranted relief as a result, whether the Supplier’s breach of Regulation 14(3) (which, having taken place during its antecedent negotiations with Mr R, is covered by Section 56 of the CCA, falls within the notion of "any other thing done (or not done) by, or on behalf of, the creditor" for the purposes of 140(1)(c) of the CCA and deemed to be something done by the Lender) led him to enter into the Purchase Agreement and the Credit Agreement is an important consideration. I think Mr and Mrs R’s written statement of recollections of the Time of Sale, as provided by the PR, is helpful in this regard given that they were present during the sales meeting. I note that the statement is undated and unsigned, but I believe the supporting evidence indicates that this is a broadly accurate reflection of their recollections from the Time of Sale. I say that because, for example, the contents of the statement are in line with the call notes dated 22 March 2022 also provided by the PR. Elements of the statement (and call notes) are also reflected in the Letter of Complaint of a few months later, which includes for example the very specific recollection that Mr and Mrs R were told the value of the relevant asset stood to increase by 1.5% a year. On my reading of Mr and Mrs R’s statement, the prospect of a financial gain from Fractional Club membership was an important and motivating factor when they decided to go ahead with their purchase. Although they don’t use the specific term ‘investment’ themselves, I don’t see what else they could reasonably mean by ‘get some money back… and maybe a bit more’ within the context of this sale. That doesn’t mean Mr and Mrs R were not interested in holidays. The call notes on which the statement was based, and their holiday booking history, demonstrate that they were. And that is not surprising given the nature of the product at the centre of this complaint. But as Mr R says (plausibly in my view) that Fractional Club membership was marketed and sold to him at the Time of Sale as something that offered him more than just holiday rights, on the balance of probabilities, I think his purchase was motivated by his share in the Allocated Property and the possibility of a profit as that share was one of the defining features of membership that marked it apart from the more ‘standard’ type of timeshare available to them. And with that being the case, I think the Supplier’s breach of Regulation 14(3) was material to the decision he ultimately made.

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Mr R has not said or suggested, for example, that he would have pressed ahead with the purchase in question had the Supplier not led him to believe that Fractional Club membership was an appealing investment opportunity. And as he faced the prospect of borrowing and repaying a substantial sum of money while subjecting himself to long-term financial commitments, had he not been encouraged by the prospect of a financial gain from membership of the Fractional Club, I’m not persuaded that he would have pressed ahead with his purchase regardless. Conclusion Given the facts and circumstances of this complaint, I think the Lender participated in and perpetuated an unfair credit relationship with Mr R under the Credit Agreement and related Purchase Agreement for the purposes of Section 140A. And with that being the case, taking everything into account, I think it is fair and reasonable that I uphold this complaint.’ At that point in my provisional decision, I set out my thoughts on how the Lender might fairly compensate Mr R as a result. I gave both parties the opportunity to respond before I reconsidered the complaint. The PR confirmed it had no additional comments. The Lender explained why it didn’t agree with my provisional decision. Although the Lender detailed its reasoning regarding the merits of the complaint, it was silent on my finding that the complaint was one this service had the power to consider. I issued a further decision confirming my decision that Mr R’s complaint was within this service’s jurisdiction. So, the focus of this decision is on the merits of that complaint. In that regard, the Lender said in summary: • Not much weight should be placed on the handwritten evidence provided since it could have been made based on leading questions and was not direct evidence from Mr R. • The witness statement is unsigned and undated and was provided well after the original complaint was made in 2022. This undermined its credibility and evidential value. • The claims made in the statement lacked sufficient context and insight. It was accepted that the statement included a recollection of a potential annual increase of 1.5% but there were no substantiating details to support the claim. • Mr R has continued to use his membership, which indicated he was motivated to buy it to take holidays rather than being mis-led. • Mr R’s motivation to use the membership for holidaying was further evidenced by the Supplier’s contact notes from immediately after the Time of Sale. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I remain of the view that the complaint should be upheld. However, before I explain why, I want to remind the parties that my role as an Ombudsman is not to address every single point that has been made to date. Instead, it is to decide what is fair and reasonable in the circumstances of this complaint. So, while I recognise that there are a number of aspects to Mr R’s complaint, and to the Lender’s responses to it, it isn’t necessary to make formal findings on all of them.

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What’s more, I have made my decision on the balance of probabilities – which means I have based it on what I think is more likely than not to have happened given the available evidence and the wider circumstances. I understand that the Lender has doubts as to how and when the handwritten notes I referred to in my provisional decision came about. But in my view their contents are consistent with the contents of Mr R’s written statement which was provided to this service at our request in July 2023. They are also consistent with the Letter of Complaint sent to the Lender in August 2022. As I mentioned in my provisional decision, Mr R specifically recalled in the statement that he’d been told the value of the asset could increase by 1.5% a year. This recollection is echoed in the Letter of Complaint and the handwritten notes. Other recollections are also broadly consistent. The Lender hasn’t produced persuasive evidence that leads me to think that its suspicions about the statement or the handwritten notes are founded. So, while I accept it’s possible that the statement and handwritten notes were compiled later than the PR states, I don’t think that’s likely in this case. I don’t think, given the lack of evidence to support the Lender’s allegations, that it would be fair to disregard what was said in those documents. Having accepted that the statement and handwritten notes were likely compiled in or around March 2022, I’ve reconsidered whether they support Mr R’s complaint. In doing so, I’ve thought about the Lender’s reservations that they lack context and fail to provide meaningful insight into the events at the Time of Sale. I must weigh that against the fact that the recollections were given by Mr R around seven years after the Time of Sale. With that in mind, I don’t find it surprising that he perhaps wasn’t able to recall absolutely everything that took place. And it may be that he was told little about the investment aspect other than what he recalls – that is, that he was buying a portion of a property which could increase in value each year by 1.5%, meaning by the end of the term he stood to ‘get some money back that would cover the costs and maybe a bit more.’ Overall, I think there is a core of acceptable evidence from Mr R such that I don’t consider his testimony to be unreliable or lacking in credibility as the Lender suggests. As a result, and having reconsidered everything that has been provided, I remain satisfied on balance that the Fractional Club membership was sold and marketed in breach of Regulation 14(3) of the Timeshare Regulations. In terms of whether the breach of Regulation 14(3) was material to Mr R, I’ve considered the Lender’s points that his continued use of the membership to take holidays and the Supplier’s contact notes from 2015 suggest he was motivated by holidaying rather than investing. I don’t find it surprising that Mr R would seek to use the features of the membership he’d paid a substantial amount of money for. The handwritten notes, which include ‘get good hols’, and the Supplier’s contact notes also support that. However, the testimony as a whole indicates to me that Mr R wouldn’t have proceeded without the perceived potential to make a profit. With that being the case, I’m still satisfied that the Lender participated in and perpetuated an unfair credit relationship with Mr R under the Credit Agreement and related Purchase Agreement for the purposes of Section 140A. It follows that I remain of the view that this complaint should be upheld.

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Putting things right Having found that Mr R would not have agreed to purchase Fractional Club membership at the Time of Sale were it not for the breach of Regulation 14(3) of the Timeshare Regulations by the Supplier (as deemed agent for the Lender), and the impact of that breach meaning that, in my view, the relationship between the Lender and the Consumer was unfair under section 140A of the CCA, I think it would be fair and reasonable to put him back in the position he would have been in had he not purchased the Fractional Club membership (i.e., not entered into the Purchase Agreement), and therefore not entered into the Credit Agreement, provided Mr and Mrs R agree to assign to the Lender their Fractional Points or hold them on trust for the Lender if that can be achieved. Here’s what I think needs to be done to compensate Mr R with that being the case – whether or not a court would award such compensation: (1) The Lender should refund Mr R’s repayments to it under the Credit Agreement, including any sums paid to settle the debt, and cancel any outstanding balance if there is one. (2) In addition to (1), the Lender should also refund the annual management charges Mr R paid as a result of Fractional Club membership. (3) The Lender can deduct: i. The value of any promotional giveaways that Mr R used or took advantage of; and ii. The market value of the holidays* Mr R took using his Fractional Points. (I’ll refer to the output of steps 1 to 3 as the ‘Net Repayments’ hereafter) (4) Simple interest** at 8% per annum should be added to each of the Net Repayments from the date each one was made until the date the Lender settles this complaint. (5) The Lender should remove any adverse information recorded on Mr R’s credit file in connection with the Credit Agreement reported within six years of this decision. (6) If Mr and Mrs R’s Fractional Club membership is still in place at the time of this decision, as long as they agree to hold the benefit of their interest in the Allocated Property for the Lender (or assign it to the Lender if that can be achieved), the Lender must indemnify them against all ongoing liabilities as a result of their Fractional Club membership. *I recognise that it can be difficult to reasonably and reliably determine the market value of holidays when they were taken a long time ago and might not have been available on the open market. So, if it isn’t practical or possible to determine the market value of the holidays Mr R took using his Fractional Points, deducting the relevant annual management charges (that correspond to the year(s) in which one or more holidays were taken) payable under the Purchase Agreement seems to me to be a practical and proportionate alternative in order to reasonably reflect his usage. **HM Revenue & Customs may require the Lender to take off tax from this interest. If that’s the case, the Lender must give Mr R a certificate showing how much tax it’s taken off if he asks for one.

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My final decision For the reasons given, my final decision is that I uphold that complaint. I require that Mitsubishi HC Capital UK PLC, trading as Novuna Consumer Finance, put things right as explained above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr R to accept or reject my decision before 6 November 2025. Nimish Patel Ombudsman

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