how to avoid unfair contract terms in consumer contracts: a new case

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The case of Office of Fair Trading v Ashbourne Management Services Ltd and others [2011] found that certain gym membership contracts contained unfair terms within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999. This judgment opens the door on assessments of the fairness of minimum membership periods. This judgment has implications for all businesses that impose minimum contract terms and early termination charges on consumers. Now it is the opportunity for businesses to review their standard terms and business practices for fairness and compliance with consumer protection legislation.

In this action the OFT brought proceedings against Ashbourne Management Services Ltd and its directors (together, Ashbourne) alleging that (i) the standard form agreements which Ashbourne executed were regulated by the Consumer Credit Act 1974 (CCA) which provides protection for consumers and regulates bodies trading in consumer credit and related industries and were improperly executed, (ii) they contained unfair terms within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999 and (iii) Ashbourne’s practices infringed the Consumer Protection from Unfair Trading Regulations 2008 which prohibits businesses from treating consumers unfairly, imposes a general duty on businesses dealing with consumers not to trade unfairly, engages in aggressive trade practices, and prohibits misleading consumers by action or omission.

The standard agreement which Ashbourne imposed a 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.

Although the judge found that the agreements were not covered by the CCA as they did not amount to consumer credit agreements, he ruled that 10 of the 13 agreements examined 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”. The judge 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 Unfair Terms in Consumer Contracts Regulations and were unenforceable.

In addition, the judge found that Ashbourne had incorporated other unfair terms into their agreements which members should not be bound by, including 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.

In addition, the judge found that the practice of Ashbourne threatening to register nonpayment of membership fees 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 and 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 Consumer Protection Regulations.

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. For a fixed price quote of review of your terms and conditions please email me.

All articles are for general purposes and guidance only and do not constitute legal or professional advice. Copyright 2011 Anassutzi & Co Limited. All rights reserved. Information may be shared or reproduced only if accompanied by the author’s name and bio.

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