Pictured above: Simon Waterfield 

In the case of the Office of Fair Trading (OFT) v Ashbourne Management Services Limited, the High Court has ruled that terms requiring consumers sign-up to memberships of gyms and health clubs for a minimum of up to 3 years were unfair and unenforceable. The court also ruled that a number of Ashbourne's techniques for collecting arrears were unlawful. 

As the ruling could now open the floodgates for small claims against Ashbourne, as well as consumers demanding fairer terms in gym or other membership contracts, it serves as a warning to companies who recruit and provide a service or use of club facilities to members to ensure that their consumer contracts are fair and lawful says a Derby commercial disputes lawyer and director at Nelsons, Simon Waterfield.

Ashbourne draws up membership agreements and collects payments for around 700 gyms in the UK.  Under the terms of their agreements, consumers are tied in for periods from one to three years and are unable to cancel early without being presented with a bill for the full amount due for the minimum period, which could be as much as many hundreds of pounds. If the consumer does not then pay, Ashbourne reports them to a credit reference agency for defaulting on their agreement.

"The High Court agreed with the OFT that terms for minimum membership periods within Ashbourne's agreements were unfair within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999, since 'they were designed and calculated to take advantage of the naivety and inexperience of the average consumer in overestimating the use he would make of gym facilities'," says Simon. He continues: "The terms of the agreements setting minimum membership periods were so weighted as to cause a significant imbalance in the parties' rights and obligations in a manner and to an extent which was contrary to good faith."

In his ruling, the judge also said that Ashbourne's contracts were not credit agreements and that 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 an unfair commercial practice contrary to the Consumer Protection from Unfair Trading Regulations 2008.

"As gym and similar membership contracts do not fall under the Consumer Credit Act 1974, which requires that a debt is deferred and credit provided rather than monthly payments being made in return for the provision of facilities which the member is entitled to use, consumers should be allowed to cancel their membership on reasonable terms," explains Simon. "In addition, failure to pay the amount the trader claims is due to cancel a membership early under such agreements, which is, in reality, nothing more than unliquidated damages, cannot be registered as a default on a consumer's credit file.

"Ashbourne had registered just under 17,000 defaults with credit reference agencies as of July 2009, when the OFT first embarked on the court case. As a result of this ruling, the company could now be inundated with requests from consumers to have the default notice registered against them removed."

In light of the ruling, Simon recommends that all membership traders from across a variety of sectors, including leisure, retail and motoring, for example, should review and seek legal advice to ensure their commercial agreements for members comply with all regulatory requirements. If they are contacted by consumers who wish to re-claim payments made for early termination of their membership contracts and/or may be seeking damages, they should consult a lawyer.