The District Court has imposed a $1.12 million penalty on CityFitness for breaches of the Fair Trading Act 1986 ("FTA"). This is the third highest penalty imposed under the FTA. With maximum penalties likely to increase (if amendment legislation currently being considered by Parliament passes into law), this case is a timely reminder of the importance of getting communications about pricing increases right.
The decision also provides insight on whether it is possible to cure early or initial "headline" misrepresentations with subsequent correct information and the implications of choosing not to remediate customers who are affected by FTA breaches, as CityFitness has opted not to remediate any customers (which the decision refers to as "members"). The upshot, as has been the case previously, is that misleading representations cannot be subsequently corrected or cured during the consumer buy journey.
What happened in this case?
CityFitness is New Zealand’s largest gym business, with more than 60 gyms, approximately 225,000 members, an estimated 40% share of the national gym membership market, and annual revenue exceeding $106 million in 2024 and $120 million in 2025. It offered Basic, Black and Premium memberships, with "headline" weekly prices of $6.99, $13.99 and $16.99 respectively.
In 2023, CityFitness reviewed its gym membership pricing structure and decided to introduce 3% fee on gym membership payments. CityFitness did not update its marketing materials to disclose the existence of this fee – instead it continued to emphasise the "headline" weekly prices in advertisements. Customer invoices broke down the pricing changes by the headline advertised price plus the 3% transaction (or payment authority) fee. However, despite being described as a transaction (or payment authority) fee, it was actually designed to pass on increased business costs (and was not directly related to the actual costs of processing payment transactions).
As part of the Commission's investigation, at an interview, a senior executive disclosed that:
- the 3% fee was introduced following a review of how best to implement a membership price increase in light of increased operating costs and inflation;
- CityFitness was not only seeking to recoup the cost of credit card transactions (which made up to 27% of its member payments) but also to reflect the increases to its overall costs of doing business. CityFitness' view was the 3% fee was a fair and reasonable way to account for its increased costs of doing business, while keeping the membership price as low as possible (and it saw an increase from $6.99 to $7.99 as unnecessary); and
- increasing the headline price by 3% had been considered, but CityFitness felt this did not make sense from a marketing perspective (eg increasing $6.99 to $7.21). CityFitness wanted to retain the ability to market a simple headline price ($6.99) while collecting 3% more ($7.21) through a separate fee.
CityFitness continued to charge the transaction fee and advertise the headline prices without disclosing the transaction fee despite the investigation. While it introduced new advertising which did make this disclosure, the headline price was still prominently displayed (while the transaction fee was not) and old advertising remained in circulation. CityFitness continued to charge the 3% fee until 3 May 2025, when it increased all membership rates by $1 and introduced a 2.2% credit card surcharge on certain payments.
How did the Court reach a penalty of $1.12 million?
The Commission submitted that that the appropriate starting point was between $1.75 million and $2 million, reduced by the agreed 35% discount for guilty plea, co-operation and previous good character, and then increased by 20% for financial capacity to ensure the fine achieved accountability, denunciation and deterrence. It characterised CityFitness' conduct as highly careless, becoming reckless after CityFitness failed to respond immediately to the Commission’s concerns, and the transaction fee representations as deliberate, deceitful and intentional.
CityFitness submitted that the Commission’s proposed starting point and end penalty were an overreach, contending that the appropriate starting point was $600,000 to $700,000, and it should be entitled to a 35% discount,, with no financial-capacity uplift or, at most, a substantially lower uplift than that sought by the Commission.
The Court considered the scale of CityFitness' offending, the need for deterrence, concerns that FTA fines have historically been set too low, and CityFitness’ failure to correct the misleading advertising promptly after the Commission raised concerns. The Court also considered whether members were aware of the fee by the time they chose to pay, and CityFitness' decision not to refund the $1,592,714 revenue it received from the transaction fee.
The Court held that the discounted nominal fine of $975,000 was not appropriate in all the circumstances and would not deliver the necessary “sting” given CityFitness’ financial capacity. It therefore applied an uplift of slightly under 15%, producing an end fine that would otherwise have been $1,121,250, rounded down to $1,120,000.
Key takeouts:
- The trend of FTA penalties increasing continues - the courts are clear there needs to be a "Sting".
- Businesses cannot rely on a later checkout or sign-up disclosure if the earlier headline price is unobtainable, inadequately qualified, or framed in a way that misdescribes the true nature of an unavoidable charge. Members may have known about the fee by the point of sign-up, but held that this did not eliminate harm because members had first been attracted by the headline price and only later learned that the headline price was not the full price. Members paid a different membership fee from what had been advertised, which amounted to harm even if the additional amount was relatively small per customer.
- Not remediating members was an aggravating factor. Judge Clark concluded this was "a company looking at its commercial position rather than its obligations under the FTA" and expressly stated that this was a reason why the penalty starting point was set at $1.5 million. In addition to being factored into the penalty, the practical risk for CityFitness in not remediating is that its members can now seek refunds, including via a class action.
A full copy of the judgment can be found here.