September 01, 2011
The High Court recently ruled that minimum contract length terms and other key terms in thousands of gym membership contracts were unfair and unenforceable. This case highlights the importance of reviewing standard form agreements for fairness and compliance with consumer protection legislation.
Background
Ashbourne Management Services Limited (“Ashbourne”) provides standard form membership agreements and collects membership payments for over 700 gym clubs. The agreements contained minimum membership periods of between one and three years.
Members who stopped using the gym after a few months or who could no longer afford membership were routinely told that they could not terminate the agreements. If members simply stopped paying, Ashbourne demanded immediate payment of the full sum - often several hundred pounds - for the whole of the minimum period, with no or minimal discount for accelerated payment. If members continued to refuse to pay, Ashbourne threatened to register a default report with credit reference agencies: nearly 17, 000 such defaults were registered.
The Office of Fair Trading (“OFT”) brought an action against Ashbourne for unfair trading practices.
The Ruling
The judge ruled that:
- Ashbourne's business model exploited consumers, who were trapped into committing to minimum membership periods without being informed of the associated risks or of more cost-effective options such as pay per month membership.
- All two- and three year minimum membership periods were unfair: they might have been acceptable if they could have been terminated on notice after 12 months on payment of the difference between the contractual membership fee and the equivalent pay per month fee for the period prior to termination.
- One year agreements which allowed members to terminate in certain circumstances eg illness, injury, loss of livelihood, change of address were fair.
- The following practices were unfair:
- trying to enforce or including unfair terms in contracts, where doing so could lead consumers to pay money they would not otherwise have paid
- not making clear that the consumer was contracting with the gym, rather than Ashbourne
- refusing to allow members to cancel the agreement by notifying the gym
- demanding payment for the full minimum period where the consumer was only slightly late in paying an instalment or had a genuine dispute about the quality of the gym.
- reporting or threatening to report consumers to credit reference agencies where:
- the term requiring payment was unfair
- the sum demanded was not actually owed or was simply a claim for damages
- members had genuine reasons for disputing their liability to pay
- The OFT was entitled to an injunction preventing Ashbourne from using or relying on the unfair contracts and from using unfair terms in the future.
For further information on this or other areas of company and commercial law, please contact Catherine O’Riordan, Solicitor at Spratt Endicott Solicitors on 01295 204000 or email her at co’riordan@se-law.co.uk
