Mr Justice Kitchin's ruling in the case of Office of
Fair Trading v Ashbourne Management Services Ltd and others
[2011] EWHC 1237, which found that certain gym membership contracts
contained unfair terms within the meaning of the Unfair Terms in
Consumer Contracts Regulations 1999, has opened the door on
assessments of the fairness of minimum membership periods. This
decision has implications not only for companies who recruit and
provide a service or use of club facilities to members, but all
businesses that impose minimum contract terms and early termination
charges on consumers. These businesses should take the opportunity
in light of this decision to review their standard terms and
business practices for fairness and compliance with consumer
protection legislation, paying particular attention to minimum
contract terms, automatic renewal terms, early termination charges,
notice provisions and credit collection methods.
Operators of club membership schemes should be aware of the recent
High Court ruling in the case of Office of Fair Trading v
Ashbourne Management Services Ltd and others [2011] EWHC 1237,
which considered the fairness of certain standard terms in gym
membership contracts, as this decision has implications for all
businesses that impose minimum contract terms and early termination
charges on consumers.
In this action the OFT brought proceedings against Ashbourne
Management Services Ltd and its directors (together, Ashbourne)
alleging that the standard form agreements which Ashbourne executed
were regulated by the Consumer Credit Act 1974 (CCA) and improperly
executed, that they contained unfair terms within the meaning of
the Unfair Terms in Consumer Contracts Regulations 1999 SI
1999/2083 (UTCCRs) and that Ashbourne's practices
infringed the Consumer Protection from Unfair Trading Regulations
2008 SI 2008/1277 (CPRs).
The CCA provides protection for consumers and regulates bodies
trading in consumer credit and related industries. The UTCCRs apply
to unfair terms in contracts concluded between a consumer and a
seller of goods or a supplier of services and the CPRs prohibit
businesses from treating consumers unfairly, impose a general duty
on businesses dealing with consumers not to trade unfairly, engage
in aggressive trade practices, and prohibit misleading consumers by
action or omission.
The OFT brought proceedings as a result of a number of terms in
the Ashbourne contract which it considered unfair commercial
practice. The standard agreement which Ashbourne provided would
commonly tie members into minimum membership periods of between one
and three years. In the event that a member 'defaulted' in
making payments, Ashbourne would demand immediate payment of all
future monthly installments. Where an immediate payment was not
forthcoming, Ashbourne would refer the matter to a debt credit
reference agency and consequently the member would suffer from an
adverse credit rating.
At the hearing Mr Justice Kitchin considered 13 of Ashbourne's
membership agreements, 3 of which had been created since the OFT
began court proceedings in March 2010. Mr Justice Kitchin found
first that the agreements in question were not covered by the CCA
as they did not amount to consumer credit agreements. Despite this
however, he ruled that 10 of the agreements purporting to impose
any minimum membership term and all of the agreements where the
minimum term was more than 12 months created "a
significant imbalance in the parties' rights ...which is
contrary to good faith". Kitchin J agreed with the OFT
that the minimum term was designed to take advantage of the naivety
and inexperience of the average consumer and was weighted in favour
of the gym or health club causing a significant imbalance in the
parties' rights and obligations. Gym members would not
anticipate all the events which might render the use of the gym
impractical and the agreements did not address the tendency of
users to overestimate the amount that they would want to use the
gym when signing up. Such terms were therefore unfair contrary to
the UTCCRs and were unenforceable.
In addition, Kitchin J accepted that Ashbourne had incorporated
other unfair terms into their agreements which members should not
be bound by. This included a clause requiring members who
terminated early to pay all subscription fees payable over the
entirety of the minimum membership period with no discount for
accelerated payment, and a clause imposing the same condition but
allowing no more than a 5% discount for accelerated receipt.
The High Court also declared that as Ashbourne's contracts were
not credit agreements, the practice of describing members who
wished to terminate their agreements before the end of the minimum
period as defaulters, and registering or threatening to register
that information with credit reference agencies, was inaccurate
because the payments were nothing more than an amount which
Ashbourne considered the gym club was entitled to in damages.
Reporting or threatening to report the fact that an individual owed
a debt which was, in reality, nothing more than unliquidated
damages was an unfair commercial practice and harmed the collective
interests of consumers contrary to the CPRs. The OFT was therefore
entitled to declaratory and injunctive relief to give effect to the
judgment of Kitchin J.
It is of note that Mr Justice Kitchin's ruling has opened the door on assessments of the fairness of minimum membership periods. The ruling has implications not only for companies who recruit and provide a service or use of club facilities to members, but all businesses that impose minimum contract terms and early termination charges on consumers.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 04/07/2011.
