A landmark decision by the Federal Court has seen automotive and mechanic franchise Ultra Tune Australia issued with a $2.6m penalty.
Following a lengthy investigation by the Australian Competition and Consumer Commission (ACCC), Justice Bromwich on Friday found that Ultra Tune had breached both the Franchising Code of Conduct (the code) and the Australian Consumer Law (ACL) in its dealings with franchisees.
The case marks the first time the ACCC has brought proceedings against a franchisor alleging breach of the code’s requirements to act in “good faith” with regards to franchisee dealings and follows an increase of the maximum penalty for breaches to the ACL.
The court heard that Ultra Tune made false or misleading representations to a prospective franchisee regarding the price of the franchise, the ongoing rent of the premises, the age of the franchise, as well as informing the franchisee that a $33,000 deposit was refundable, when in fact it was not.
Additionally, Ultra Tune’s failure to prepare marketing fund statements within the required timeframes was in direct violation of the code, as was the company’s inability to provide the statements and audit reports to franchisees, and failing to include sufficient detail.
The judgement also noted that documents purportedly sent to the prospective franchisee demonstrated a meaningful intent to cover up the breaches during its dealings with the ACCC.
“The cover up that Ultra Tune attempted reflects a significantly heightened need for deterrence, in relation to conduct that was already a most serious and fundamental breach of the Franchising Code in taking the deposit in the first place, reflecting as it does Ultra Tune’s attitude in relation to its contravening conduct,” Justice Bromwich said.
“There must be no tolerance for manufacturing evidence to deceive a regulator, and even less when the deception is maintained in this Court.”
Mick Keogh, ACCC deputy chair said the watchdog was satisfied with the outcome and would continue to take enforcement action against franchisors that breach the code.
“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,” Keogh said.
“This outcome should be a strong reminder for franchisors to meet their disclosure obligations or face serious consequences.”
