A Sussex-based holiday firm faces legal action from trade watchdogs over "rip-off" cancellation charges.

The Office of Fair Trading yesterday said it could take First Choice and its three main competitors to court.

The watchdog said holidaymakers were charged up to 90 per cent of the cost of their trip if they cancelled up to a fortnight before departure, even though the trips were often sold on.

The company - which has head offices in Crawley and a ski centre in Brighton - and its rivals Airtours, JMC, and Thomson, were also criticised for refusing to provide financial details to justify their charges.

If the deadlock in negotiations continues the OFT could seek a High Court injunction.

OFT spokesman Graham Myles said: "The reality is the possible threat of court action if necessary. We have been trying to negotiate terms with them over cancellation charges and we have hit deadlock on that. At the moment we are seeking legal advice about whether we should take action."

The OFT has been talking to the firms for about 14 months but Mr Myles said: "They have not been particularly co-operative."

The firms said their current charges were based on the cost to the firms of passengers cancelling holidays.

First Choice spokeswoman Emma Waddell said: "In order to offer its customers the best value for money, First Choice commits itself to accommodation and flights months in advance.

"The nearer the departure date, the less likely it is that we will be able to re-sell the holiday and as a result the cancellation charges increase."