The ACCC has instituted contempt of court proceedings against Ultra Tune, a car servicing franchisor with over 270 centres across Australia. This is the first time the watchdog had taken a franchisor to court over good faith obligations under the Franchising Code.
The proceedings relate to 2019 findings that Ultra Tune had breached Australian Consumer Law (ACL) and the Franchising Code by failing to let franchisees know how their compulsory marketing funds were being spent. The Federal Court imposed total financial penalties of $2.604 million against Ultra Tune (reduced to $2.014 million on appeal) for its contravention.
The ACCC now alleges that Ultra Tune disregarded its obligations under the Franchising Code, which are designed to provide transparency to franchisees.
“In particular, we allege that Ultra Tune repeatedly failed to prepare important documents for franchisees within the required timeframe, which meant they were denied the opportunity to see, in a timely manner, how their contributions to the marketing fund were being used by Ultra Tune,” said ACCC Commissioner Liza Carver. “The alleged failure by Ultra Tune to update its disclosure document is also concerning, as this document is used to give prospective franchisees key information about the franchise system, and existing franchisees current information about the running of the franchise.”
Required compliance program
In 2019, the Court also ordered Ultra Tune to implement a compliance program to ensure there were no further breaches of the Franchising Code or the ACL. This required an Ultra Tune compliance officer to provide quarterly reports on the continuing effectiveness of its compliance program to the company.
The ACCC alleges that for the three quarters between April and December 2021, Ultra Tune failed to ensure its compliance officer provided those reports.
“Given Ultra Tune’s previous breaches of the Franchising Code and the consumer law, ongoing monitoring of compliance is important,” Carver said. “The ACCC will pursue contempt of court action when it considers Court orders, including those obtained for the protection of franchisees, have been breached.”
