In Australia, franchises are required to comply with a strict compliance framework governed by the Franchising Code of Conduct (“the Code”). Failure to do so can lead to severe penalties for businesses of any size, as recently experienced by Ultra Tune Australia and Domino’s Pizza.
The Australian Competition and Consumer Commission (“ACCC”) has recently commenced proceedings against Ultra Tune, a major franchisor specialising in motor vehicle repair. The ACCC has taken action in the Federal Court for a number of alleged breaches of the Code and an alleged breach of the Australian Consumer Law.
The ACCC alleges that Ultra Tune breached the Australian Consumer Law by making false or misleading representations. Additionally, the ACCC alleges that Ultra Tune failed to act in good faith with a prospective franchisee due to its failure to: –
- provide disclosure documents to the prospective franchisee before accepting a non-refundable payment;
- provide audited marketing fund statements to its franchisees; and
- update its disclosure document, or provide copies of it, as required by the Code.
The Code requires franchisors to be transparent in their dealings with prospective franchisees to ensure that they are afforded proper protection when making significant financial decisions. If Ultra Tune failed to provide the prospective franchisee with up to date financial information, then Ultra Tune failed to be transparent, thereby preventing the prospective franchisee from making an informed business decision before buy-in.
The ACCC is seeking considerable relief from the Federal Court, including: –
- compelling a refund of the prospective franchisee’s payment;
- pecuniary penalties and
- compliance and adverse publicity orders.
The ACCC’s action against Ultra Tune follows the ACCC issuing two infringement notices to Domino’s Pizza earlier this month. It is alleged that Domino’s Pizza failed to provide its franchisees with a 2015-16 marketing fund financial statement and auditor’s report within the time limit stipulated by the Code. The importance of providing timely and accurate information about marketing fund activities is designed to address the substantial expenses that franchisees may incur as a result of franchise marketing activities.
Domino’s Pizza has paid $18,000 in penalties and is the first company to pay penalties for non-compliance with the Code.
The ACCC’s pursuit of these businesses demonstrates that it is serious about compliance with the Code and with the Australian Consumer Law.
Businesses of all stripes must be vigilant about currency and compliance when operating within a heavily regulated industry and can greatly benefit from periodic compliance reviews. It is also important for both prospective franchisees and potential franchisors to secure experienced legal representation when dealing with a franchise.
Contact Irish Bentley Lawyers
The team at Irish Bentley Lawyers is experienced in franchising and commercial and property matters. We are also able to advise our clients on the intellectual property implications that may arise when considering a business purchase, including franchises. We are happy to assist with compliance reviews, in addition to advising and preparing legal documents for our clients so that a successful strategy in harmony with the Code can be adopted.
Please note that the above does not constitute legal advice and Irish Bentley Lawyers make no representations or warranties as to the accuracy of any of the information contained herein. If you are looking to become involved in a franchised business, then please do not hesitate to contact the team at Irish Bentley Lawyers – there is no substitute for proper legal advice based on your individual and unique circumstances.
Please call our office on (07) 3229 4060 for more information.