Court declares licence agreements to be franchise agreements

Companies have been reminded of their obligations under the Franchise Code of Conduct after Australian Competition and Consumer Commission action in the Federal Court, Melbourne.

The Court has declared that "licence agreements" marketed by ContactPlus Group Pty Ltd (in liquidation) and its sole director Mr Arthur Spencer were in fact franchise agreements.

The declarations and orders were not opposed by ContactPlus and were consented to by Mr Spencer and CPG Recruitment.

ContactPlus was a Melbourne based business that promoted, marketed and sold licences nationally to use its intellectual property for the purpose of operating employment and recruitment services. The ACCC's proceedings concerned a number of agreements entered into by ContactPlus with individuals.

The court declared:

• the agreements were franchise agreements covered by the Franchising Code of Conduct and that the company had thereby contravened section 51AD of the Trade Practices Act 1974 by failing to comply with the code in terms of requirements for disclosure documentation, termination procedures and dispute resolution procedures
• ContactPlus had misrepresented the liability for a lump sum licence fee payment to franchisees and the provision of exclusive territories in breach of sections 52 and 53 of the Act
• the $60,000 lump sum licence fees disputed in the proceedings were not enforceable, and
• Mr Spencer was knowingly concerned in the conduct.

The court also:

• imposed injunctions on both ContactPlus and Mr Spencer in relation to their future conduct for a period of three years
• ordered Mr Spencer to provide each person with whom ContactPlus has entered into agreements, similar in terms to those the subject of proceedings, with a copy of the orders made by the court and a disclosure document compliant with the requirements of the code, and
• ordered Mr Spencer to provide a copy of the orders to any prospective franchisee with whom he deals in the next three years at least 14 days before that prospective franchisee enters into a franchise agreement or pays money to Mr Spencer or a person or corporation associated with him.

The court is yet to make a determination on costs and will hear submissions on a date to be fixed.

The ACCC joined CPG Recruitment Pty Ltd, the third respondent, as a party to the proceedings after it failed to provide an undertaking that it would not attempt to recover the lump sum licence fees, the subject of the proceedings, pending conclusion of those proceedings. The lump sum licence fees in question had been transferred to it. The court has declared that the lump sum licence fees are not owed to CPG Recruitment.

"This case reinforces that compliance with the Franchising Code of Conduct is not optional but mandatory", ACCC Chairman, Mr Graeme Samuel, said today.

"Compliance with the code should produce a clear appreciation for both parties as to the nature of the contractual relationship between the parties and also afford a mechanism to resolve differences from an objective position.

"Had the code been followed disputes with franchisees might well have been avoided and litigation by the ACCC unnecessary.

"Franchising is a significant sector of the economy and often involves significant investment by individuals both in the purchase and establishment of a franchise opportunity. The code provides for informed decision making prior to the purchase of a franchise and should ensure rights and obligations, expenses and income considerations are well understood and communicated.

"Accordingly the ACCC is committed to promoting adherence to and compliance with the Code by defining both its scope and reach".