Legal Updates - Unfair Terms – Gym Membership Contracts

Commercial Law – Unfair Terms – Gym Membership Contracts – Unfair Terms in Consumer Contracts Regulations 1999

In the recent case of Office of Fair Trading v. Ashbourne Management Services Ltd and others [2011] EWHC 1237, Kitchin J ruled that certain gym membership contracts contain unfair terms within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999.

Background

The OFT brought proceedings against Ashbourne Management Services Ltd and its directors alleging:

• The standard form agreements which Ashbourne executed were regulated by the Consumer Credit Act 1974 (CCA) and improperly executed;
• They contained unfair terms within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR);
• Ashbourne’s practices infringed the Consumer Protection from Unfair Trading Regulations 2008 (CPR).

CCA

The CCA provides protection for consumers and regulates bodies trading in consumer credit.

UTCCR

Apply to unfair terms in contracts concluded between a consumer and a seller of goods or a supplier of services.

CPR

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.

Alleged Unfair Terms

The OFT brought proceedings as a result of a number of terms in the Ashbourne contract which it considered to be unfair commercial practices:

• The standard agreement would tie members into minimum membership periods of between one and three years;
• If a member defaulted in making payments, Ashbourne would demand immediate payment of all future monthly installments.
• If a payment was not immediately made, the matter would be referred to a credit reference agency and consequently the member would suffer from an adverse credit rating.

Decision

• Kitchin J reviewed 13 of Ashbourne’s agreements and found that:
  • The agreements were not covered by the CCA as they did not amount to consumer credit agreements;
  • 10 of the agreements which purported to impose minimum membership terms 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”;
  • Such terms were unfair contrary to the UTCCRs and were unenforceable;
  • Other clauses were also deemed unfair, including, those requiring members who terminated early to pay all subscription fees payable over the entirety of the minimum membership period.
• It was also found that, given the 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 was entitled to in damages.
• The act of reporting or threatening to report the fact that an individual owed a debt was considered as nothing more than unliquidated damages and an unfair commercial practice which harmed the collective interests of consumers contrary to the CPRs.

Result

The OFT was therefore entitled to declaratory and injunctive relief to give effect to the judgment of Kitchin J.

Implications of the Decision

The decision raises questions around the fairness of minimum membership periods and may affect any business that imposes minimum contract terms and early termination charges on consumers.

What should you do?

We recommend that businesses imposing terms similar to those discussed above review their standard terms and business practices for fairness and compliance with consumer protection legislation.

In particular, you should pay attention to minimum contract terms, automatic renewal terms, early termination charges, notice provisions and credit collection methods.

How can we help?

RT Coopers provides tailored commercial advice to a number of businesses, including online businesses, in this regard. We also offer specific services to businesses, such as:-

• Due diligence (business operations);
• Contract review;
• Contract drafting;
• Website terms and conditions and privacy policy;
• Regulatory advice.

If you require  advice  contact us at [email protected]

Visit http://www.rtcoopers.com  or http://www.rtcoopers.com/practice_corporatecommercial.php

© RT COOPERS, 2011. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.