The Supreme Court has dismissed an appeal by a number of hospitality companies against a...
Unfair contract terms in membership contracts
In the recent case of Office of Fair Trading v Ashbourne Management Services Ltd & Ors, Mr Justice Kitchin ruled that certain membership contracts contained unfair terms within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999.
On the facts the Judge found the following terms to be unfair:
minimum membership periods exceeding 12 months;
immediate payment of all future monthly instalments upon early termination without a discount or with a discount of between 1-5% for accelerated receipt;
notice to terminate the contract was to be given to a service company collecting the payments and not the gyms directly
The Judge found that such terms created a significant imbalance in the parties’ respective rights and were contrary to good faith. In particular, he said the term dealing with early termination charges amounted to a penalty clause and were therefore unenforceable.
Implications
The decision in this case is important not only for businesses that provide a service or use of club facilities but also those who impose a minimum period of membership and/or early termination charges on consumers. If a term is found to be unfair, businesses could find themselves in a situation where they are unable to enforce some of their standard terms of business.
Are your terms fair?
In light of this decision, all businesses dealing with consumers should consider reviewing their standard terms, particularly if they contain provisions concerning minimum contract periods, automatic renewal, early termination charges and a provision requiring notice to be served on a third party.