The High Court has upheld a challenge by the Office of Fair Trading (OFT) to various terms found in some gym membership contracts – most notably lengthy minimum membership periods – ruling that such terms are unfair and therefore unenforceable.
In March last year, the OFT commenced proceedings against Ashbourne Management Services Ltd. (AMS), a company which draws up membership agreements and collects payments for over 700 smaller gym clubs. The gym contracts had minimum membership terms of between one and three years. In practice, however, many members stopped using the gym after a few months; others found that their circumstances changed so that it was no longer affordable or practical to continue with membership. However, AMS stated that the contracts could not be cancelled before the end of the minimum membership period, and demanded immediate payment of the full sum due in the event of a cancellation. In cases where the consumer defaulted on the payments, AMS threatened to damage their credit rating by referring the debt to a credit reference agency and the court heard that AMS had referred 17,000 cases to credit reference agencies by July 2009.
The High Court ruled that the contracts were unfair in several key respects. Mr Justice Kitchin ruled that AMS’s business model ‘is designed and calculated to take advantage of the naivety and inexperience of the average consumer using gym clubs at the lower end of the market’. The contracts were also unfair because AMS failed to make it clear that the customer was contracting with the gym, rather than with AMS, and refused to allow the customer to cancel by contacting the gym directly.
The Court also ruled that it was unfair to require the customer to pay the full sum due under the agreement where the customer was slightly late in paying an instalment, or where there was a genuine dispute about the quality of the service provided by the gym. Cases should not have been referred to credit reference agencies where the term requiring payment was unfair, where the sum demanded was merely a sum in damages or where there was a genuine dispute regarding the amount owed.
John Clayton-Wright, Managing Director of AMS, has indicated that the company will appeal against the ruling.
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