Just months after the automotive business was fined a landmark $2.6m for breaches of the Franchising Code of Conduct, Ultra Tune has won an appeal to have its penalties cut by $500,000.
The Federal Court on Friday dismissed the chain’s request to review the breaches in full, conceding instead that the $2.6m penalty figure may have been excessive.
Back in January, the court found that Ultra Tune had made false or misleading representations to a prospective franchisee regarding the price of the franchise, the ongoing rent of the premises and the age of the franchise.
Additionally, the chain had informed franchisees that a $33,000 deposit was refundable, when in fact it was not.
The landmark case was the first time the Australian Competition and Consumer Commission (ACCC) had brought legal action against a franchisor over requirements to act in good faith under the Code.
“Ultra Tune…is a substantial national company, now with at least 200 franchisees. It ought to be among the most professional of franchisors, yet plainly it is far from that and appears to have little or no aspiration to be of that calibre,” Justice Bromwich said at the time.
However, on Friday, Chief Justices James Allsop, alongside Justices Wendy Abraham and Jayne Jagot disagreed with some judgements, finding that contraventions of the Code should have been treated as separate breaches.
“While we agree with much of what the primary judge said about the imposition of penalties, the fact that we take a different view about the number of contraventions necessitates appellate review of the penalties imposed,” the judicial team said.
Ultra Tune contraventions revisited
Ultra Tune’s major gripe with the January decision related the requirements put forward under the Code.
Justice Bromwich had initially indicated that documents purportedly sent to the prospective franchisee by the franchisor has demonstrated a meaningful intent to cover up the breaches during its dealings with the ACCC.
Friday’s Federal Court hearing suggested a far less sinister intent.
“The contraventions are objectively serious for all of the other reasons the primary judge gave but its conduct did not involve a wilful failure on Ultra Tune’s part to do what was required of it,” the court heard.
“Ultra Tune did what it believed was required, albeit belatedly in 2014-2015. As a result, it cannot be said that the contraventions are in or towards the worst category of case.”
“We consider the penalty of $200,000 imposed by the primary judge reflects his view that the contraventions were in or towards the worst category of case, a characterisation which we do not accept in all of the circumstances.”
The landmark decision has seen the Ultra Tune penalty greatly reduced, however the issue still poses a strong warning to all franchisors.
Over the last 12 months, the ACCC has instilled a renewed focus on franchisor compliance and regulation under the Code. Franchisors are being encouraged to proactively audit their current operations in search of potential breaches.
Ultra Tune is reportedly now considering whether to take legal action against its advisors.
