Franchisor fined $2.6 million for breach of Franchising Code of Conduct and Australian Consumer Law

by | Jan 22, 2019 | Automotive Law, Business Law

On Friday 18 January 2019, the Federal Court of Australia imposed a $2,604,000 penalty against Ultra Tune Australia Pty Ltd (“Ultra Tune”) for breaching both the Franchising Code of Conduct (“Franchising Code”) and the Australian Consumer Law.

The Court found on Friday that in its capacity as franchisor, Ultra Tune had breached

  • the Australian Consumer law by making false or misleading representations; and
  • the Franchising Code by failing to act in good faith,

in its dealings with a prospective franchisee.

The false or misleading representations made to the prospective franchisee regarded the price of the franchise, the ongoing rent of the premises and the age of the franchise. It was also informed that a $33,000 deposit was refundable when it was not.

Notably, in its failure to prepare marketing fund statements within the required timeframes, failing to provide these statements and audit reports to franchisees and failing to include sufficient detail in the statements, Ultra Tune was also found to have breached the Franchising Code.

According to the Australian Competition and Consumer Commission (“ACCC”) these are the first proceedings they have brought against a franchisor alleging breach of the obligation to act in “good faith” in business dealings with franchisees.

“Franchisors often have the stronger bargaining position in their dealings with franchisees, which is why compliance with the Franchising Code and the Australian Consumer Law is so important,” said ACCC Deputy Chair Mick Keogh, as cited the ACCC’s press release. “This outcome should be a strong reminder for franchisors to meet their disclosure obligations or face serious consequences.”

Clinch Long Woodbridge advises both franchisors and franchisees in the automotive, pharmacy, property and commercial sectors.

For further information on compliance with the Franchising Code of Conduct and/or compliance under the Australian Consumer Law, please contact Eric Louca elouca@clw.com.au and/or Genevieve Hehir ghehir@clw.com.au

Important Disclaimer: The content of this publication is general in nature and for reference purposes only. It is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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