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

Factual and Procedural Background

The claimant, referred to as the OFT, initiated proceedings against the defendants alleging breaches of the Consumer Credit Act 1974 (CCA), the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR), and the Consumer Protection from Unfair Trading Regulations 2008 (CPR). The first defendant, "Ashbourne," operates a business recruiting members for gym and health clubs, providing standard form agreements, and collecting payments under those agreements. The second and third defendants are directors of Ashbourne, jointly managing its business activities that are the subject of the OFT's complaint.

The OFT's concerns arose in 2000 following consumer complaints and subsequent dialogue led to multiple revisions of Ashbourne's standard agreements, with thirteen versions reviewed. Despite assurances to use only the final version, earlier versions remained in use, necessitating consideration of all versions.

The OFT summarized the defendants' practices as recommending agreements that (i) do not meet the form and content requirements of the CCA, (ii) contain unfair terms under the UTCCR, and (iii) involve unfair commercial practices contrary to the CPR.

Evidence included witness statements from an OFT projects director explaining the national scale of Ashbourne's operations, consumer complaints, and promotional materials illustrating Ashbourne's business model, including the use of default registration with credit reference agencies as a sanction against members in arrears.

The agreements impose minimum membership periods (12, 24, or 36 months) with payment obligations structured primarily as monthly subscriptions. The OFT challenged whether these agreements constitute regulated consumer credit agreements under the CCA and whether the terms imposed are unfair and/or constitute unfair commercial practices.

Legal Issues Presented

1. Whether Ashbourne's standard form agreements constitute regulated consumer credit agreements under section 8 of the Consumer Credit Act 1974.
2. Whether the agreements comply with the form and content requirements of the Consumer Credit Act 1974.
3. Whether various terms in the agreements are unfair under the Unfair Terms in Consumer Contracts Regulations 1999.
4. Whether the defendants' use and recommendation of these agreements and their enforcement practices amount to unfair commercial practices contrary to the Consumer Protection from Unfair Trading Regulations 2008.
5. Whether the defendants' conduct constitutes domestic or Community infringements under the Enterprise Act 2002.

Arguments of the Parties

Claimant's Arguments (OFT)

• The agreements are regulated consumer credit agreements which are not properly executed and thus only enforceable by court order.
• The defendants' use of these agreements and their enforcement practices constitute domestic infringements under the Enterprise Act 2002.
• The agreements contain unfair terms under the UTCCR, including minimum membership periods, payment obligations, termination clauses, notice requirements, and failure to clearly identify the supplier's responsibilities.
• The defendants have engaged in unfair commercial practices under the CPR by recommending and enforcing unfair terms, misleading consumers, omitting material information, and using aggressive tactics such as credit default registration threats.
• The defendants' conduct harms the collective interests of consumers and warrants declarations and injunctions.

Defendants' Arguments

• The agreements are not consumer credit agreements within the meaning of the CCA, though if they are, they accept they are improperly executed.
• The defendants dispute that their enforcement practices amount to unlawful conduct but accept demands for early payment without court order.
• The minimum membership periods and payment terms are fair and clear, justified by lower monthly fees and choice offered to consumers.
• The defendants argue that certain terms fall within the main subject matter of the contract and are therefore exempt from fairness assessment under regulation 6(2) of the UTCCR.
• The defendants contend that the OFT's allegations about unfair commercial practices and credit reference agency reporting are unfounded or mitigated by their business practices and amendments to agreements.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed analysis of whether Ashbourne's standard form agreements constitute regulated consumer credit agreements. Applying the principles from Dimond v Lovell, it concluded that the agreements do not constitute credit agreements because the payment obligations arise monthly in return for ongoing access to gym facilities rather than being deferred debts incurred at the outset.

The court then examined the alleged unfair terms under the UTCCR. It found that the minimum membership period clauses are core terms defining the contract's subject matter and thus fall within the scope of regulation 6(2). However, this does not preclude assessing fairness regarding the consequences of early termination.

The court held the minimum membership period terms in Agreements 1-10 to be unfair due to significant imbalance caused by locking consumers into lengthy commitments without adequate protections, especially given consumers' tendency to overestimate gym use and unforeseen circumstances affecting affordability. Later agreements (11-13) provided more extensive rights to suspend or terminate, reducing but not eliminating unfairness, particularly for 24 or 36 month terms.

Regarding prompt payment and termination clauses, the court found that making prompt payment a condition was not established and that clauses requiring payment of the full balance on early termination in many agreements were unfair and constituted penalties. Only the termination provisions in Agreements 12 and 13, which included a reasonable discount for accelerated payment and a proper repudiatory breach mechanism, were fair and enforceable.

On consumer rights to terminate for the club's repudiatory breach, the court rejected the OFT's contention that the agreements excluded such rights, holding that the average consumer would understand they retain the right to terminate in such circumstances.

The court found notice provisions requiring cancellation to be given to Ashbourne rather than the gym club unfair, as this was contrary to consumer expectations and could prejudice cancellation effectiveness.

The court also considered the clarity of the agreements in identifying the contracting parties and supplier responsibilities. It found early agreements unclear in this respect, compounded by inconsistent naming practices, but later agreements, particularly Agreement 13, clarified the relationship adequately.

Finally, the court addressed unfair commercial practices under the CPR. It found that the defendants' recommendation and use of unfair terms, misleading presentation, omission of material information, and aggressive enforcement tactics including credit reference agency reporting of disputed debts, constituted unfair commercial practices harming consumer interests.

Holding and Implications

The court made the following holdings and implications:

The agreements used by Ashbourne are not regulated consumer credit agreements within the meaning of the Consumer Credit Act 1974.

Various terms in Ashbourne's standard form agreements, particularly those imposing minimum membership periods and certain termination payment obligations, are unfair under the Unfair Terms in Consumer Contracts Regulations 1999.

The defendants have engaged in unfair commercial practices contrary to the Consumer Protection from Unfair Trading Regulations 2008 by recommending and enforcing these unfair terms and using misleading and aggressive tactics.

The defendants' conduct constitutes domestic and Community infringements under the Enterprise Act 2002.

As a consequence, the OFT is entitled to declarations and injunctions restraining the use of unfair terms and practices. The court indicated it would hear further submissions on the precise form of orders to be made. No new precedent was established, but the decision clarifies the application of consumer protection and credit law principles in the context of gym membership agreements.