The Office of Fair Trading v Ashbourne Management Services Ltd & Ors

Gym membership agreements providing for payment by monthly subscriptions do not provide credit merely because membership is for a fixed term. The question depends on proper construction: credit exists where an obligation to pay for the whole period arises at the outset and payment is deferred, but not where payments fall due as the contract is performed.

Under the Unfair Terms in Consumer Contracts Regulations 1999, minimum-term provisions may be core terms, yet their consequences may still be assessed for fairness. Terms locking typical consumers into 12-, 24- or 36-month liabilities may cause a significant imbalance contrary to good faith, particularly where consumers commonly overestimate gym use and the supplier exploits that vulnerability. Demands for sums not contractually due, inaccurate credit-reference reporting and misleading collection practices may also constitute unfair commercial practices.

The Office of Fair Trading sought declarations and injunctions against Ashbourne Management Services Ltd and its directors concerning 13 standard-form gym membership agreements. The claim alleged contraventions of the Consumer Credit Act 1974, the Unfair Terms in Consumer Contracts Regulations 1999 and the Consumer Protection from Unfair Trading Regulations 2008.

The central issues were whether the agreements were regulated consumer credit agreements; whether their minimum-term, termination, payment, notice and supplier-identification provisions were unfair; and whether recommending the agreements, demanding disputed sums and reporting alleged debts to credit-reference agencies constituted unfair commercial practices and infringements under the Enterprise Act 2002.

1. Consumer credit. The agreements were not credit agreements. The decisive distinction was between an obligation incurred at the outset and discharged by instalments, which involves credit, and payments falling due in stages as the contract is performed, which does not. The agreements required monthly payments for continuing access to facilities. The defendants’ later demands for the balance of the term did not determine the proper construction of the agreements.

2. Minimum terms. The minimum-term provisions were core terms within regulation 6(2)(a), because they defined the period of access and the corresponding monthly subscription. Nevertheless, regulation 6(2) did not exclude assessment of the provisions’ consequences for fairness. Agreements 1–10 were unfair where they imposed minimum terms of 12, 24 or 36 months. Agreements 11–13 were unfair where the minimum term exceeded 12 months. The provisions caused a significant imbalance contrary to good faith, having regard to consumers’ tendency to overestimate gym use, unforeseen changes in circumstances, the limited burden of additional members on the clubs, and the defendants’ failure to explain the risks and overall liability.

3. Payment and termination. Prompt payment was not generally a condition. Clauses requiring payment of the balance of the minimum term after non-repudiatory breach were penalties and unfair. Agreement 13 was different: after three months’ non-payment, a final warning and a further reasonable period, failure to pay could amount to repudiation. Its provision for the balance of subscriptions, subject to credit for accelerated receipt, was plain, intelligible, fair and not a penalty.

4. Other terms. Requirements that cancellation notices be sent to Ashbourne rather than the gym were unfair. Earlier agreements did not clearly identify the contracting parties or the supplier responsible for the facilities; Agreement 13 substantially clarified that relationship. The agreements did not exclude the consumer’s common-law right to terminate for the gym’s repudiatory breach.

5. Commercial practices. Since 26 May 2008, recommending unfair agreements, demanding payments which consumers were not bound to make, threatening or making inaccurate credit-reference reports, and pursuing disputed or unliquidated sums amounted to unfair commercial practices harming consumers’ collective interests.

6. The OFT was entitled to declarations and injunctions. The precise form of order was to be settled by agreement or after further argument.