Summary

For the third time within a month, the Australian Competition and Consumer Commission (ACCC) took action against a national franchisor for failing to comply with the Franchising Code of Conduct. By this string of cases, the ACCC has sent a clear signal of its intent to follow through on its recent warning that the enforcement of industry codes which serve to protect small businesses is a top enforcement priority.

This eBulletin outlines the most recent proceedings and considers how the ACCC may act moving forward.

Background

In May this year, the ACCC announced that it had sought leave from the Federal Court to commence proceedings against a national carwash franchisor, Geowash Pty Ltd (subject to a deed of company arrangement) (Geowash). (ACCC takes action against Geowash car wash franchisor, 31 May 2017).

The ACCC alleges that Geowash made misleading representations on its website to prospective franchisees regarding the revenue and profits that a franchisee could expect in running a Geowash franchisee. The ACCC further alleges that:

  • Geowash made a false representation on its website that it had a commercial relationship/affiliation with companies such as Nissan, Kia, Renault, Audi, Emirates, Shell, Hertz, Holden, IKEA, and Thrifty; and
  • Geowash directed a substantial portion of franchisee funds for purposes that were not allowed under the franchise agreements and which were not disclosed to franchisees, including commission payments to the franchisor's director, Sanam Ali, and its National Franchising Manager, Charles Cameron.

The ACCC was recently granted the court's leave to commence these proceedings and will seek orders preventing Geowash from continuing to engage in the above conduct, pecuniary penalties, consumer redress orders (to compensate those franchisees that suffered losses as a result of the above conduct), and corrective notice orders. The ACCC will also push for orders disqualifying Ms Ali and Mr Cameron from managing corporations for five years.

The matter is listed for an interim hearing on 1 August 2017 on whether a freezing order should be granted over Mr Ali's and Mr Cameron's assets.

Lessons

In our recent eBulletin published in mid-May, we highlighted that the ACCC had signalled a clear warning to franchisors that upholding the protections afforded to small businesses under industry codes is an enforcement priority. Since that time, the watchdog has swiftly followed through on its promise in bringing an action against Ultra Tune and is now seeking leave to commence against Geowash. Both of these actions are directed towards upholding the protections afforded to small businesses under the Franchising Code of Conduct.

It is clear that the ACCC is not only intent on pursuing franchisors for failing to uphold such protections. Directors and senior managers who are complicit in such conduct are also in the ACCC's firing line. The question that remains is whether the ACCC will target more franchisors or whether it will let the dust settle and focus on achieving successful outcomes against Geowash and Ultra Tune.