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.