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Press releases 2011 -

High Court rules that terms in thousands of gym contracts are unfair, following OFT action

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60/11    27 May 2011

The OFT today welcomed a ruling from the High Court that minimum contract length terms and a number of other key terms in thousands of gym membership contracts, recommended and enforced by Ashbourne Management Services Limited ('Ashbourne'), are unfair and hence unenforceable.

The court also ruled that a number of Ashbourne's techniques for collecting arrears were unlawful.

Ashbourne draws up membership agreements, and then collects members' payments, for over 700 gym clubs.  In many cases consumers found that they stopped using the gym after a few months, or their circumstances changed so that continued membership was no longer affordable or practical. However the contracts had minimum membership periods of between one and three years and Ashbourne routinely stated consumers could not terminate their membership. If consumers stopped paying Ashbourne demanded immediate payment of the full sum - often many hundreds of pounds - for the whole minimum period.

If the consumer still refused to pay Ashbourne put pressure on them by threatening to damage their credit rating by referring the debt to a credit reference agency. As of July 2009, Ashbourne had registered nearly 17,000 defaults with credit reference agencies.

Today, following a four day hearing in March 2011, Mr Justice Kitchin agreed with these concerns of the OFT and ruled that Ashbourne'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,' whom he considered that AMS 'exploited.' He said that the minimum period is 'a trap into which the average consumer is likely to fall.'

The judge considered 13 of Ashbourne's contracts, and ruled that the minimum terms in 10 of them were completely unfair. He considered that the last three, which Ashbourne had created since the OFT began the court proceedings in March 2010, were fairer to consumers, but were still unfair if they tie the consumer in for more than 12 months.

The judge decided that it is unlawful to try to enforce or even to include unfair terms in contracts, where doing so could lead the consumer to pay money they would not otherwise have done.

Ashbourne had a number of other practices that the judge also ruled to be unfair. These included not making clear that the consumer was contracting with the gym, rather than Ashbourne; refusing to allow the consumer to cancel the agreement by notifying the gym; demanding payment for the full minimum period where the consumer was just a short time late in paying an instalment; and demanding payment even when the consumer had a genuine dispute about the quality of the gym.

Importantly the judge also ruled that Ashbourne should not report or threaten to report consumers to credit reference agencies, where:

  • The term requiring payment is unfair
  • The sum demanded is not actually owed or is simply a claim for damages
  • The consumer has a genuine reason for disputing their liability to pay.

As a result of this ruling, the High Court has said that it will make an enforcement order against Ashbourne and its directors, granting injunctions preventing them from using or relying on their current standard contracts and from using unfair terms in the future. This will provide further clarification that Ashbourne cannot enforce the unfair terms in its contracts against those consumers who are disputing them, or indeed against other gym members who have signed up to them. 

Jason Freeman, Director in the OFT Goods and Consumer Group, said:

'We have received many complaints about Ashbourne's contracts, and many consumers have felt pressured into paying sums of money that they believed they did not owe. We are pleased that the Court has confirmed that these practices are unlawful, and this should bring peace of mind to many people who have fallen into the trap of signing up to these lengthy gym contracts.

'Unfair terms that unreasonably bind consumers into long contracts they cannot leave, and heavy-handed collection techniques, have no place in businesses' dealings with consumers. This ruling should help traders to understand where the boundaries lie, and sends a warning that if they cross the line, the OFT and local trading standards services can take action.'

The OFT is unable to provide advice or resolve individual complaints for consumers. Any consumer who feels that they have an unfair minimum term and wishes to end their contract should contact their gym. General consumer information is available from www.direct.gov.uk/consumer or by calling Consumer Direct on 08454 04 05 06. For further assistance consumers should consider obtaining independent legal advice.
 
NOTES

  1. Further information and a Q&A can be found on the Investigation into Ashbourne Management Services case page
  2. The OFT issued proceedings against Ashbourne Management Services Limited and its directors John Clayton-Wright and Dawne Clayton-Wright on 2 March 2010.
  3. The hearing was held before Mr Justice Kitchin in the High Court in Birmingham from 8-11 March 2011.
  4. Ashbourne has controlled approximately 300,000 contracts with consumers.
  5. Prior to the court hearing, Ashbourne had produced 13 different versions of its standard contract, although the OFT believes that only the first 10 of these are in use with consumers.
  6. The OFT also asked the judge whether any of Ashbourne's contracts involved the provision of credit, meaning that they would have to be regulated. However the judge decided that they did not, because he considered that the consumer only has to pay for gym membership each month, rather than being obliged to pay for the whole minimum membership period from the outset of the contract.
  7. Ashbourne is likely also to be ordered to stop treating consumers in a misleading or aggressive way. The terms of this order will be decided at a later hearing.
  8. Ashbourne Management Services Ltd has a registered office at 29 Warwick Road, Coventry, West Midlands, CV1 2ES



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