OFT v Ashbourne Management Services Limited [2011] EWHC1237
Ashbourne acts for over 700 gyms in the UK with tasks including recruiting new members, collecting membership fees and administering membership. Its standard contracts provide for a minimum membership period of between one and three years. Some of the contracts provided that if the member terminated before the end of the minimum period, he had to pay the full balance for the period, without discount. There were also provisions that if a gym member committed even a minor breach, Ashbourne could terminate and claim the balance of fees due for the minimum period. Where members were behind in subscriptions, Ashbourne reported them to credit reference agencies, even where payment was late because the member disputed the payment.
The OFT brought proceedings on the grounds that the terms were unfair under the Unfair Terms and Consumer Contracts Regulations 1999 (UTR) and that some of Ashbourne's practices contravened the Consumer Protection from Unfair Trading Regulations 2008 (CPR).
The High Court (Kitchen J) upheld the OFT's complaints. He found as follows:
Unfairness under UTR:
- The court was entitled to make an assessment of the minimum term on the grounds of fairness. Contrary to the OFT's assertion, it was part of the "main subject matter" of the contract because it defined the period during which the member was entitled to use the gym's facilities. This would normally preclude the assessment of the term (Regulation 6(2)(a) of the UTR), but the Judge found that Regulation 6(2)(a) applied only to the definition of the main subject matter and did not preclude assessment of the fairness on other grounds, i.e. here, the assessment did not relate to the meaning or description of the length of the term, the facilities or the monthly subscription, nor to the adequacy of the price as against the facilities provided. Instead, it related to the obligation upon members to pay monthly subscriptions when they had overestimated the use they would make of their membership.
- Average gym consumers overestimated how often they would use a gym. The OFT presented evidence that the average gym user would be better off joining a gym on a pay-per-month basis. On the other hand, for gyms, minimum membership periods are highly advantageous, as they are hardly ever limited by the number of new members they could take on. Ashbourne's business policy was designed and calculated to take advantage of the naivety and experience of the average consumer using gym clubs. Two and three year minimum periods created significant imbalances in the parties' rights and obligations and were unfair. Minimum periods of one year were unfair where the member could not terminate in circumstances such as illness or injury, but otherwise did not create a significant imbalance. The Judge suggested that the minimum period of two or three years might be acceptable if the agreement permitted a member to terminate after 12 months on, say, 30 days notice, provided that the member paid the difference between the contractual subscription rate and the higher pay-per-month rate.
- The requirement on early termination to pay all fees to the end of the minimum period without discount was unfair and amounted to a penalty. The provisions which permitted Ashbourne to terminate for minor breaches were also unfair because they allowed Ashbourne to claim future membership fees. The requirement for notice to be given to Ashbourne, rather than individual gyms, was unfair as the average consumer was likely to give notice to the gym and, if they did not, the cancellation was ineffective.
Unfair treatment under the CPR:
- The use by Ashbourne of the unfair terms was not to a standard commensurate with honest market practice and caused consumers to take transactional decisions they would not otherwise have taken. The practices were therefore unfair business practices contrary to the CPR.
- Furthermore, the reporting of sums which were due under an unfair term to credit investment agencies was also an unfair commercial practice.
Clubs and other organisations which sign up members for periods should take note of the findings in this decision and adjust their terms accordingly.
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