The High Court of England and Wales has held that Ashbourne Management Services Ltd’s standard form contracts breached the Unfair Terms in Consumer Contracts Regulations 1999, the Consumer Protection from Unfair Trading Regulations 2008, and the Enterprise Act 2002.

In Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1237 (27 May 2011), the High Court of England and Wales has held that Ashbourne Management Services Ltd’s standard form contracts breached the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), and the Enterprise Act 2002.

BACKGROUND

Ashbourne provides services to gyms, including recruitment, standard form contracts, and payment collections. Typically, their contracts had a minimum term and provided that if the customer defaulted or sought early termination, all sums for the minimum term became due. Where consumers fell behind on payments or wished to cancel their contracts early, Ashbourne would by-pass the courts and send letters from a non-existent “litigation department”, threatening to inform and/or informing credit reference agencies, often exaggerating the significance of this.

Numerous consumer complaints were made about Ashburne’s aggressive behaviour. The Office of Fair Trading (OFT) took action. Amongst other things, the OFT argued that certain contract terms were unfair under the UTCCR. Examples of unfair terms included: a minimum membership period, prompt payment of monthly subscriptions, the member must pay the whole remaining subscription balance up front if he or she wished to terminate the membership early, a clause that purported to exclude the consumer’s right to terminate for the gym’s breach.

MAJOR CONCLUSIONS

The Court considered 13 versions of the standard form agreements. The major conclusions related to minimum term of contract, prompt payment and termination for consumer’s breach, consumer’s liability on termination for club’s repudiatory breach, and unfair practices under the UTCCR.

Minimum Term of Contract

Most of Ashbourne’s standard form contracts had minimum terms of 12, 24, or 36 months. Holding that Ashbourne knew the average consumer overestimated their prospective gym attendance, that unforeseen circumstances might make its continued use impractical or unaffordable, and that in spite of low monthly subscriptions a consumer who was likely to stop using the gym after three months would be better off joining on a pay-per-month basis, Kitchin J held that Ashbourne did not draw this to the consumer’s attention. He said that Ashbourne’s business model took advantage of customers’ naivety and inexperience.

Prompt Payment and Termination for Consumer’s Breach

Kitchin J considered numerous provisions in different contract versions concerning the consequences of customers failing to pay promptly. Where prompt payment was found not to be a condition and failure to pay on time was thus not repudiation, the gym was unable to demand the outstanding subscription balance up front. Where there was no condition of prompt payment but nevertheless a term allowing the gym to claim the balance due for the minimum membership period without any discount in the event of a repudiatory breach, such clauses would be enforceable if they did not exceed a genuine attempt to estimate in advance the loss that the gym club would likely suffer from a breach.

Here, Kitchin J held them to be unfair because they did not allow for accelerated payment and required the member to pay the full balance of monthly subscriptions, irrespective of when the breach took place. Where there were clauses allowing a gym to terminate in the event of a non-repudiatory breach, the gym could claim sums due and damages for losses suffered up to the date of termination but not beyond. A clause that provided for the payment of a larger sum would be void. Clauses entitling the gym to claim all balance subscriptions over the period where there was non-repudiatory breach were void and unfair. Kitchin J found more moderate terms in later agreements acceptable.

Consumer’s Liability on Termination for Club’s Repudiatory Breach

Kitchin J rejected the OFT’s submission that versions of the contract containing the words “you cannot cancel your membership until the minimum membership period has come to an end”, purported to exclude the member’s termination rights following the gym’s repudiation. He did not think the average consumer would believe that to be so.

Unfair Commercial Practices Under the CPRs

Finding certain of the provisions of the agreements unfair under the UTCCRs, Kitchin J held that this constituted unfair commercial practice under the CPRs and a community infringement of the Enterprise Act. Ashbourne had not acted in accordance with the standard commensurate with honest market practice and had caused consumers to take transactional decisions they would not otherwise have taken, namely to enter into and make payments under such agreements. Threatening to report members to credit reference agencies if they did not pay the full sum demanded was also held an unfair commercial practice that harmed the collective interests of consumers.