Greg
Standing
In
The Office of Fair Trading vs Ashbourne Management Services
Ltd, the court looked at standard form contracts relating to
minimum membership periods, cancellation and debt collection. All
contravened Unfair Terms in Consumer Contracts Regulations 1999
(UTCCR) and Consumer Protection from Unfair Trading Regulations
2008 (CPR). With implications for all businesses with minimum
contract terms and early termination charges, it may interest
readers who are gym members.
Go deeper with GlobalData
The case related to standard
form agreements used by Ashbourne, a company that offers member
recruitment and subscription collection services to 700 UK gyms.
Its agreements contained minimum memberships of 12, 24 and 36
months, plus early termination provisions, requiring members to pay
all subscription fees for the entire minimum period, without
discount (or with only a small discount).
Ashbourne also registered, or
threatened to register, members as defaulters with credit reference
agencies for the full fees, even if only a minor payment default
had taken place, or if payments were disputed.
The court heard that gym
members tend to overestimate gym use, often stopping altogether
after two or three months. Ashbourne knew this and its business
model was designed to take advantage of naivety and inexperience,
trapping members into long contracts without warning of the
associated risks.
Finding that this created a
significant imbalance in the parties’ rights, the court held it was
contrary to good faith in two- and three-year membership contracts
and unfair under UTCCR. One-year agreements would also be unfair if
no option to terminate was provided in circumstances such as
illness or loss of livelihood.
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By GlobalDataThe court held that the
requirement to pay immediately all membership fees, if the
agreement was terminated, was unfair as it made no allowance for
the fact that the gym benefited from accelerated payment. It
amounted to a penalty.
The gym’s ability to
terminate for even minor breaches of the agreement and claim all
fees for the entire minimum period was also unfair and a penalty.
At common law, where a contract provides for termination for
non-repudiatory breach, the terminating party is only entitled to
claim sums due, and damages for losses, suffered up to the date of
termination, not beyond.
Ashbourne’s practice of
reporting, or threatening to report, non-payment to credit
reference agencies was also found to constitute unfair commercial
practices under the CPR. This was because the sums allegedly
outstanding were either claimed under an unfair term, or were
claims for unliquidated damages rather than a debt, or were
disputed.
Comment
Any business, including motor
finance companies, which uses standard form contracts when
contracting with consumers should review standard terms and
business practices to ensure they comply with consumer protection
legislation. Credit collection methods should also be reviewed to
ensure they are not what might be deemed aggressive and do not
constitute unfair trading practices.
The author is a partner
in Wragge & Co’s finance, insolvency, recoveries and sales
team
