Franchising Code complaints, investigations and outcomes
The ACCC received over 500 complaints last year from consumers and businesses about franchising. We investigate all claims that fall under our jurisdiction and will take strong action where necessary. However, many complaints we receive fall outside our jurisdiction or are of a private contractual nature, or there is insufficient evidence to substantiate a breach of the code or the Trade Practices Act 1974.
When we receive a complaint about the Franchising Code of Conduct, we will usually recommend mediation as the first and best option. However, if a party has failed to comply with the code or is using its superior bargaining power to disadvantage another party, we may decide to take action.
The ACCC’s investigation process for franchising matters
If the complaint involves a potential breach of the code and/or the Act, a three-stage investigation process will commence.
A preliminary assessment of the complaint is made, which may include an initial interview with the complainant to verify general information (e.g. contact details and the name of the trader). If the complaint is assessed as substantive, it is progressed to the next stage. However, in some instances the matter may be best addressed through dispute resolution.
We will generally recommend mediation as a first step in franchising disputes where this process might reasonably facilitate an outcome acceptable to both parties.
The matter is escalated to an ACCC enforcement officer and further information and substantiation of the allegations are sought from both parties. This may be by conducting interviews, obtaining and examining documents about the alleged conduct and careful application of the law to the known facts.
Additional evidence is collected and the matter is reviewed and analysed by senior enforcement staff. If the allegations can be substantiated by reliable evidence, the matter will generally be referred to the ACCC’s Enforcement Committee for consideration.
The committee is responsible for deciding on the most appropriate course of action, having regard to the impact that the action may have on the ongoing business relationship, the national market, relief available to affected persons and the value of precedent. The committee may elect to pursue the matter through litigation or resolve it by an administrative settlement.
The ACCC is currently pursuing four companies for breaches of the Franchising Code and/or the Trade Practices Act through litigation in the Federal Court of Australia.
In December 2009, the ACCC instituted legal proceedings against Mailpost Australia Limited (Australian master franchisor), its director Mr Peter Kritas, and Mailpost Postie Network Sydney Pty Ltd (MPNS) (sub-franchisor for NSW) for alleged contraventions of the Trade Practices Act.
The ACCC alleges that Mailpost Australia and MPNS failed to comply with the Franchising Code in a number of respects, including not providing prospective franchisees with a disclosure document.
The ACCC also alleges that Mailpost Australia made a number of false, misleading or deceptive representations to franchisees, prospective franchisees and sub-franchisors, including that:
the Mailpost business was not a franchise and therefore franchisees did not have rights under the Franchising Code,
the business was 'recession proof' and that Mailpost had a number of corporate customers 'on the way'.
It is alleged that Mr Kritas was knowingly concerned in the conduct of Mailpost Australia and MPNS.
The ACCC seeks orders including declarations that Mailpost Australia and MPNS engaged in conduct that contravened the Act and that Mr Kritas was knowingly concerned in that conduct; injunctions; an order that Mailpost implement a trade practice compliance program; and costs.
The ACCC commenced proceedings on 12 October 2009 against Refund Home Loans Pty Ltd and its managing director and founder, Wayne Rodney Ormond, alleging they made false and misleading representations about having a special relationship with the ACCC.
It is alleged that Mr Ormond made statements over a number of years to current and former franchisees to the effect that the ACCC:
advised Refund Home Loans and Mr Ormond about their conduct towards franchisees
approved action taken by Refund Home Loans in respect of franchisees and former franchisees with whom it was in dispute.
The ACCC is seeking declarations that the alleged statements breached the Trade Practices Act, injunctive relief, publication orders, the institution of a compliance program by Refund Home Loans, personal Trade Practices Act training for Mr Ormond and costs.
In March 2008 the ACCC began proceedings against Allphones Retail Pty Limited alleging contraventions of the Trade Practices Act. Proceedings were also taken against Allphones' director and chief executive officer (Mr Matthew Donnellan), director and chief operating officer (Mr Tony Baker) and former national franchising manager (Mr Ian Harkin) for allegedly being knowingly concerned in or party to the contravening conduct. Allphones and the other respondents are defending those proceedings, which are set down for hearing in 2010.
The ACCC began further proceedings in October 2008 against Allphones that resulted in Allphones giving interim undertakings to the court and the court ordering injunctions restraining Allphones from engaging in conduct in negotiations with its existing franchisees that the ACCC alleges contravened the Act. The court has not yet set a date for these proceedings to be heard on a final basis.
Both the above proceedings include allegations that Allphones:
engaged in conduct that was in all the circumstances unconscionable, including:
implementing policies targeting classes of franchisees including franchisees who sought to enforce their contractual rights against Allphones
forcing franchisees to acquiesce to Allphones' will by threatening or engaging in a pattern of harsh conduct
failing to disclose or pay certain income to franchisees and attempting to conceal this practice
failing to act in good faith towards its franchisees
engaged in misleading or deceptive conduct towards potential and current franchisees, including that Allphones misrepresented how it shares profits with franchisees, bargains with third parties on behalf of its franchisees and operates its franchise system
failed to comply with the Franchising Code.
The ACCC is seeking the following court orders in respect of the above proceedings:
declarations that Allphones engaged in unconscionable conduct and misleading or deceptive conduct
injunctions restraining similar conduct in the future
the implementation of a trade practices training or compliance programs by Allphones
costs.
In August 2009 the ACCC instituted proceedings against Allphones for contempt of court, alleging that Allphones had breached the interim orders made in October 2008.
The ACCC has also instituted class action proceedings against Allphones and Messrs Donellan, Baker and Harkin seeking damages on behalf of 74 eligible current and former Allphones franchisees. Under the class action, the ACCC alleges that Allphones engaged in conduct, related to underpayment of bonuses and rebates and commission payments required to be paid to franchisees in accordance with their franchise agreement, that was in all the circumstances unconscionable.
Past and present Allphones franchisees with queries about these proceedings may contact the ACCC Infocentre on 1300 302 502.
The ACCC has begun proceedings in the Federal Court, Brisbane against Seal-A-Fridge Pty Ltd, alleging that Seal-A-Fridge failed to comply with the Franchising Code and engaged in unconscionable conduct towards its franchisees. The ACCC also instituted proceedings against the director of Seal-A-Fridge, Mr Nigel Rooney, alleging that he was knowingly concerned in the contraventions.
The ACCC alleges that Seal-A-Fridge engaged in conduct that was, in all the circumstances, unconscionable, including:
effectively withholding consent to the transfer of particular franchises by the imposition of terms in replacement franchise agreements that were significantly more onerous than in the franchise agreements in use
unilaterally increasing the fees associated with the national Seal-A-Fridge telephone number contrary to franchise agreements, with franchisees being disconnected or under the threat of disconnection from the national telephone number if they did not pay the increases.
The ACCC also alleges that Seal-A-Fridge contravened the Franchising Code, including by:
failing to provide adequate disclosure to particular franchisees before entering into franchise agreements with them
failing to provide current disclosure documents to particular franchisees after receiving written requests.
The ACCC is seeking the following court orders:
declarations that Seal-A-Fridge contravened the Trade Practices Act and that Mr Rooney was knowingly concerned in the contraventions
injunctions restraining Seal-A-Fridge and Mr Rooney from engaging in similar conduct in the future
that Seal-A-Fridge implement a complaint-handling system
that Mr Rooney attend relevant trade practices training
that Seal-A-Fridge write to each of its franchisees notifying them of the orders made by the court
costs.
This matter has been set down for trial in October 2009.
Past and present Seal-A-Fridge franchisees who have inquiries about these proceedings may contact the ACCC Infocentre on 1300 302 502.
Where the investigation of a matter has indicated serious breaches of the code and/or the Trade Practices Act and the matter is able to be substantiated with sufficient evidence, the ACCC can and does take decisive action.
Some matters pursued by the ACCC are listed below.
Conduct: alleged misleading representations, breaches of Franchising Code
Outcome: court orders
Date: December 2009
The Federal Court has made orders, by consent, declaring that Personalised Chocolates 4U (PC4U) breached ss. 52, 53(c), 53(g) and 58 of the Act by making false and misleading representations, and s. 51AD of the Act by failing to comply with its obligations under the Franchising Code. The court also declared that PC4U's sole director, Mr Troy Patching, was knowingly concerned in all of these breaches of the Act and the code.
Conduct by PC4U declared by the Federal Court to be in contravention of the Act included:
making false representations to PC4U franchisees that they would be provided with functioning software necessary for the operation of the franchise
making false representations to PC4U franchisees that they would be provided with a training manual for the operation of the franchise, at the time they became a franchisee
making false representations that a refund of franchisee fees was available to franchisees when certain conditions were met
falsely representing that a business system being offered for sale by PC4U, which meets the definition of a franchise in the Franchising Code, was not a franchise.
As part of the orders, the court issued injunctions restraining PC4U and Mr Patching from engaging in similar conduct in the future. PC4U has also been ordered to:
Matter/company: Australian Loans Management Pty Ltd
Conduct: alleged misleading representations, breaches of Franchising Code
Outcome: court enforceable undertaking
Date: September 2009
Australian Loans Management Pty Ltd (ALM) has admitted that its licence agreement is actually a franchise agreement, and that it did not comply with the Franchising Code when entering into existing franchise agreements and when dealing with prospective franchisees. It also admitted it misled franchisees by stating that the licence agreement was not a franchise agreement, which potentially misled franchisees into believing that they were not entitled to the rights and remedies afforded by the Franchising Code.
The ACCC has accepted court enforceable undertakings from ALM and Active Money (Aust) Pty Ltd (AM) that they will:
implement measures to ensure future compliance with the Franchising Code
provide existing franchisees with a copy of the Franchising Code, a disclosure document and a proposed franchise agreement that complies with the Franchising Code
provide existing franchisees with the opportunity to cancel their existing licence agreement and obtain a full refund of all monies paid to ALM.
NB: although AM did not engage in the admitted contravening conduct, it also offered an undertaking to the ACCC because ALM advised that going forward it intends for AM to be the franchisor.
Netdeen Pty Ltd (franchisor of the G. J. Gardner Homes franchise in Australia and overseas) had been the subject of an investigation by the ACCC, following complaints that Netdeen made representations to prospective franchisees between 2004 and 2006 regarding the significance of its buying power and specific capabilities of its building management software where these representations had not been substantiated.
Netdeen and its directors have acknowledged that the representations made by them may have been likely to mislead or deceive potential franchisees in contravention of s. 52 of the Trade Practices Act.
Netdeen and its directors have fully cooperated with the ACCC and have taken steps to resolve the ACCC's concern by offering a court enforceable undertaking that requires them to take corrective steps, including:
consumer redress for two of its former franchisees
the inspection and amendment of all its corporate materials containing the subject representations
Spray Pave Australia Pty Ltd has acknowledged that it is likely to have breached the Trade Practices Act by:
advertising on various franchising websites and representing that it is a franchise when it is not a franchise
representing on its own websites that it is an international business with offices operating in Africa, America, Canada and India, when it does not have offices in these countries
making statements on a franchising website that no qualifications are necessary to operate a Spray Pave business when a builder's licence is required in South Australia, New South Wales and Queensland to conduct spray-paving work.
Spray Pave has provided court enforceable undertakings to the ACCC that:
it will not, for three years, make any of the representations above unless the representation can be substantiated
it will place corrective notices on the various websites
it will implement a trade practices compliance program.
Conduct: potential breaches of the Franchising Code, misleading representations
Outcome: court enforceable undertaking
Date: December 2008
The ACCC identified conduct by Awesome Water that revealed potential non-compliance with the Trade Practices Act, including breaches of the Franchising Code and misleading representations about income and working hours.
In response to the ACCC’s inquiries, Awesome Water offered, and the ACCC accepted, a court enforceable undertaking, that Awesome Water will:
continue to provide current and prospective franchisees with disclosure documents that comply with the Franchising Code
not enter into a franchise agreement with a prospective franchisee unless it has received a signed statement that the prospective franchisee has received appropriate independent advice or has been advised to seek such advice but has chosen not to
ensure that its employees, agents and officers are aware that all verbal representations or information provided in addition to the disclosure documents to prospective franchisees are true and accurate
ensure that all representations concerning prospective franchisees’ incomes are based upon actual performances of other full-time franchisees over a 12-month period
The ACCC alleged that the franchisor of the system made misleading representations to franchisees and potential franchisees regarding the profitability of the system, its operational and trading record, and specific details of its business operation (such as its menu and the costs involved in operating the business).
Following a thorough ACCC investigation, the promoters offered court enforceable undertakings to the ACCC. During the negotiation process, the promoters of the system indicated that its financial state was such that it would not be able to meet further claims for loss or damage from franchisees. The franchisor and the ACCC negotiated a refund, via an independent third party, based on the franchisees' levels of involvement in the system, that at least comprised a refund of the franchise fee.
Concerns were raised by a number of existing franchisees regarding the disclosure document provided by You Can Bake-It Franchising. The ACCC was concerned that sections of the provided disclosure document were ambiguous and potentially misleading.
The company cooperated with the ACCC, providing undertakings that it would remedy the issues so they did not recur.
JV Mobile promoted and advertised its business network as a franchise and sought (and/or received) payments to operate as a franchised retail business.
Despite operating and marketing itself as a franchise, JV Mobile failed to provide its retailers (franchisees) with all of the safeguards available under the Franchising Code, including the upfront provision of a disclosure document.
The company provided court enforceable undertakings to prevent the conduct from recurring.
Conduct: breaches of the Franchising Code, unconscionable conduct
Outcome: court enforceable undertakings
Date: November 2006
Scotty’s Premium Pet Foods issued some of its franchisees with notices claiming they had breached their franchise agreements. These notices required that franchisees remedy the alleged breaches within 14 days or the franchise would be terminated.
The ACCC considered that this time frame was unreasonable and that the notices did not sufficiently describe the alleged breaches or the remedy required.
Scotty’s also attempted to directly supply products to a business customer of one of their franchisees within their ‘exclusive’ territory.
The company provided court enforceable undertakings to prevent the conduct from recurring.
Matter/company: Photo Safe Australia P/L, Data Vault Services P/L and i.e. Networks P/L
Conduct: misleading and deceptive conduct
Outcome: declarations by consent
Date: April 2006
The managing director and sales manager of Photo Safe and Data Vault misled and deceived 37 small business investors who paid over $3 million in total to be a part of Photo Safe, Data Vault or i.e. Networks.
Despite representations that the businesses would be successful, few or no businesses were launched and no retail arrangements were reached.
The Federal Court ordered the managing director and sales manager to undergo trade practices compliance training and to pay costs.
Matter/company: Archem Australia P/L and Maintenance Franchise Systems P/L
Conduct: misleading and/or deceptive conduct
Outcome: Federal Court declarations by consent, private settlement brokered by ACCC for 11 franchisees to receive compensation
Date: March 2006
Maintenance Franchise Systems was the franchisor for the domestic fertiliser spray services that used Archem fertiliser. The ACCC alleged that the company made representations, including that:
franchisees could earn high incomes without engaging in selling activities
Archem had successfully run a similar business
the products performed satisfactorily.
The Federal Court declared these representations breached the Trade Practices Act, by consent. In a separate deal brokered by the ACCC, 11 franchisees received compensation.
Conduct: breaches of the Franchising Code, misleading and/or deceptive conduct
Outcome:Federal Court declarations and orders
Date: February 2006
ContactPlus sold licences to use its software and marketing database to run recruitment/employment businesses.
The ACCC believed this licensing system was actually a franchise business and, as such, ContactPlus breached the code by not providing the franchisees with the mandatory documentation and rights prescribed under the code.
It was also alleged that ContactPlus and its director made false, misleading and/or deceptive claims, including their right to payment of a lump-sum licensee fee.
The court declared that the ContactPlus was a franchise system and found its claims were misleading. The court also imposed injunctions.
Matter/company: Office Support Services International P/L
Conduct: breaches of the Franchising Code, misleading or deceptive conduct
Outcome: orders by consent
Date: May 2005
The ACCC alleged that OSSI Pty Ltd provided incomplete and insufficient disclosure documents to franchisees, failed to provide disclosure documents to some prospective franchisees and made false or misleading representations about business operations and profitability.
The court agreed and found that the company breached the Act.
The company agreed to consent orders, including declarations that it had breached the code. On top of the declarations and costs, injunctions were granted and the director was ordered to attend trade practices compliance training at his own expense.
Conduct: breaches of the Franchising Code and misleading and deceptive conduct
Outcome: court enforceable undertakings, Federal Court injunctions
Date: February 2005
Following ACCC action, Mr Bon Levi, who promoted a range of systems under the Little Joe and Joey's brands, was found to have engaged in misleading and deceptive conduct as well as breaches of the code by declaration in the Federal Court.
It was found that Mr Levi and his business partner had made numerous misleading statements regarding future profitability and planned advertising campaigns, as well as failing to abide by the Franchising Code.
Lawson’s Trading sold licence and supply agreements to be a part of its business.
The ACCC alleged that the arrangement was actually a franchise system and that Lawson’s Trading had breached the code in several ways, including by failing to provide disclosure documents and a dispute resolution process.
Lawson’s provided a court enforceable undertaking to stop engaging in similar conduct, to create and distribute an appropriate disclosure document, to refund money to affected franchisees and to implement a rigorous trade practices compliance program.
Conduct: breaches of the Franchising Code and general misleading representations
Outcome: declarations by consent
Date: January 2004
Synergy in Business Pty Ltd promoted and sold small business training and development programs under licence agreements, and specifically tried to avoid the code by including a clause in its contract claiming that the system was actually a licence agreement.
Synergy then failed to provide franchisees with disclosure information and did not provide a cooling-off period.
The court found the system to be a franchise and thereby subject to the code. It also found Synergy’s directors had misled and deceived franchisees by making unreasonable representations as to future profit.
