ACCC obtains orders against franchisor

The Australian Competition and Consumer Commission has obtained orders in the Federal Court, Brisbane against franchisor, Maintenance Franchise Services Pty Ltd (MFS) and its managing director, Mr Gregory Bath.

In a separate private settlement brokered by the ACCC, 11 of the affected former franchisees will also receive agreed amounts of compensation from the insurer for MFS and related company Archem Australia Pty Ltd.

MFS was the franchisor for domestic fertiliser spray services spraying fertiliser manufactured by Archem. The ACCC brought proceedings against MFS, Archem and Mr Bath as a result of representations made in connection with the sale of the franchises in Queensland.

Proceedings were discontinued against Archem after it was put into liquidation.

The Federal Court declared, with the consent of the parties, that MFS contravened section 52 of the Trade Practices Act 1974 by representing without reasonable grounds that:

• Archem franchisees would or could earn high incomes from repeat business and did not have to engage in selling activities in order to successfully operate an Archem franchise
• a franchisee would never run out of customers because they could purchase as many customers as they wished from Archem or from MFS, and
• Archem had successfully conducted a business of the type offered to franchisees and the products to be supplied to franchisees performed satisfactorily in all the areas where the Archem franchises were offered for sale.

The Federal Court also declared that Mr Bath was involved in the conduct by Archem and MFS.

Injunctions were granted restraining MFS from engaging in similar conduct in the future and requiring it, before offering any franchises for sale to:

• have operated the franchised business profitably for at least six months prior, or otherwise warn potential purchasers that the franchisor has limited or no experience in operating the franchise business
• ensure that a certificate issued by an independent and qualified accountant is given to prospective franchisees certifying that there is reasonable basis for any representations made, and
• obtain legal advice as to whether any advertisements published for the franchise may mislead or deceive consumers.
  

Mr Bath was also restrained from being involved in similar conduct by a corporation in the future. He was ordered to attend compliance training about the consumer protection requirements of the Trade Practices Act and pay the ACCC's costs.

"The action sends another clear message to the franchise industry that franchisors have an obligation to deal honestly with their franchisees, particularly when making representations designed to lure potential purchasers", ACCC Chairman, Mr Graeme Samuel, said today.

"The ACCC continues to make it a priority to enhance the business community's understanding of this legislation and the rights and obligations of all parties involved".