Legal Response

As U.S. and Netherlands Antilles legal counsel for Pelican Resort Club (hereinafter: “Pelican”), we would like to comment on the following item, which appeared in Jeff Berger's St. Maarten/St. Martin Weekly News-in-Brief on Monday, January 5, 2004:

“ 7. Pelican & Sunterra Owners Should Read This

If you own timesharing at the Pelican Resort, you may be liable to share in the costs if Pelican loses some of its current lawsuits, of which there are several.

Pelican timeshare owners should keep an eye on this newsletter for future news and also write Judy Young at judy@navnet.net Judy does a free weekly mailing of Pelican-related news.

Pelican and Royal Resorts officials don't want to comment publicly on the lawsuits because any comments they make could theoretically be used by the plaintiffs in the suits. They do hope to avoid any owner liability, they said.”

Jeff Berger's statement that Pelican timeshare owners may be liable to share in the costs if Pelican loses some of its current lawsuits is unnecessarily alarming. The legal structure of ownership and management at Pelican was designed to effectively minimize such risks through using layers of legal protection.

Pelican timeshare owners are members of a Netherlands Antilles Association called Tenants' Association Pelican Resort Club (hereinafter: the “Association”). The Association is at the top of the Pelican structure. The Association owns 2 separate Netherlands Antilles corporations, one called Pelican Resort Club, The Owner Company N.V. (hereinafter: the “Pelican Owner Company”), which owns the resort, and the other called Pelican Resort Club, The Management Company N.V., which manages the resort. In the lawsuits Jeff mentions, only the Pelican Owner Company is involved, with the exception of one particular lawsuit in which the Association is also involved. In all lawsuits, Pelican is represented by first-rate Netherlands Antilles legal counsel.

In a worse case scenario where either Pelican Corporation is found to have liability in a lawsuit, this liability stops in principle at the Corporation and does not flow up to the Association. This is due to the fact that Netherlands Antilles corporations (as is the case for corporations formed under state law in the U.S.) are designed to provide limited liability to its shareholders. Thus, if the Pelican Corporations are found liable in a lawsuit, this in principle will not result in a liability for the Association.

There are certain circumstances under the theory of "piercing the corporate veil" in which shareholders may be found liable for the corporation's liability. Shareholder of the Pelican Corporations is the Association. However, both the Pelican Corporations and the Association are operated carefully following all corporate and financial formalities to protect against the Association being found liable under a veil piercing theory.

Further, it is important to note that under Netherlands Antilles law it is explicitly stipulated that individual members of an association are not personally liable for acts committed by such association, but that such liability should be recovered from assets of the association. In the event where the Association is found to have liability in a lawsuit, this liability is therefore limited to the level of the Association. Again, the risk of individual timeshare owners as members of the Association being found liable for acts committed by the Association is non-existent.

As a matter of full disclosure, it should be pointed out that in the event that the Association or either of the Pelican Corporations is to be found liable in any of the lawsuits, the Board of Directors of the Association, comprised of fellow timeshare owners charged with looking out for the best interest of all timeshare owners, may decide that it is in the best interests of Pelican to pay for such liability. One way to fund this liability would be for an assessment to be levied on the timeshare owners, the ultimate beneficial owners of the resort. However, such an assessment is not automatic, and can only occur through a vote of the Board of Directors. Before any assessment is levied, which individual Board
members will also have to pay, they are duty-bound to do a diligent review of the situation.

A prudent timeshare owner will recognize that one cannot eliminate all risks associated with ownership of an asset. However, they should also be assured that all reasonable steps are being taken to control and minimize any exposure to liability.

Lastly, as a point of clarification, it should be noted that at the December 2003 Annual General Meeting of Owners at Pelican, the lawsuits were discussed and explained by Netherlands Antilles legal counsel, Frank Roozen and August Winter. It was simply the specifics, the discussion of which could be potentially prejudicial to Pelican, that were not covered. Thank you for the opportunity to respond. Best wishes to all for 2004!

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