ACCC does not consider Bakers Delight engaged in unconscionable conduct towards franchisees

The Australian Competition and Consumer Commission announced today that it had concluded its investigations into allegations that Bakers Delight engaged in misleading and deceptive and unconscionable conduct towards franchisees in operating its franchise system.
 
Having conducted an in-depth investigation, including analysing a large amount of documentary evidence and conducting a number of detailed interviews with various witnesses the ACCC has decided not to take any further action. This position has been informed by a number of conclusions:

• the evidence assessed – in the ACCC's view – did not demonstrate that Bakers Delight had engaged in unconscionable conduct or breached the Franchising Code
• although there is no suggestion that the allegations made by the franchisees were made with any improper intent, in many cases, it was difficult to substantiate claims and in some cases information given was directly contradicted by documents and other evidence
• there were a few circumstances where franchisees alleged that Bakers Delight representatives had made misleading verbal representations which investigations have neither substantiated nor dismissed. However in each of these cases, the ACCC considers steps taken by Bakers Delight to remedy the alleged wrongdoing were reasonable or other factors led to the losses suffered by the franchisees
• there was no evidence produced to or obtained by the ACCC that – in its view – evidenced widespread or systematic problem of compliance within the Bakers Delight franchise system.

The ACCC does not ordinarily comment on individual complaints that it may or may not be investigating and tends to not to refer to outcomes that are not in the public arena.

However, given the substantial publicity surrounding the investigation, the ACCC considers it appropriate to provide some high level general comments on the Bakers Delight investigation. 

"It should not be assumed that where there is smoke there is always fire," ACCC Chairman, Mr Graeme Samuel, said today. "The ACCC is experienced in testing matters raised with it and often its investigations lead it to the conclusion that those matters cannot be substantiated or should not be pursued further.

"This said, given the bargaining disadvantage franchisees and other small businesses often find themselves in, where the ACCC forms the view that there is evidence supporting a claim that a franchisor has behaved unconscionably or in a systematic misleading manner it will take action."

Notwithstanding the ACCC's decision to take no further action in this matter, the ACCC is in continuing discussions with Bakers Delight with a view to ensuring its trade practices law compliance procedures and complaint handling processes are best placed to deal with issues that might arise in the future.

The ACCC notes that Bakers Delight cooperated with the ACCC throughout its investigation and met with a number of franchisees during the ACCC's investigation to try and reach a negotiated resolution to their complaints.

The ACCC appreciates the assistance and cooperation of franchisees and Bakers Delight in the provision of information and a willingness to meet throughout the investigation.

Background

In April 2007 the ACCC commenced investigations in relation into alleged breaches of the unconscionable conduct provisions of the Trade Practices Act 1974 after receiving a number of complaints, predominantly from former Bakers Delight franchisees.

Those franchisees alleged that in the entering and performance of franchise agreements Bakers Delight engaged in unconscionable conduct, misleading and deceptive conduct and/or conduct that contravened the Franchising Code of Conduct. The allegations were wide ranging and from a number of different franchisees. While the ACCC had received a number of complaints, this should be considered in the context of a large franchise operation with hundreds of franchisees.

For the most part, the allegations generally related to separate issues and as such each case was investigated and assessed on its merits. However, the ACCC's conclusions in relation to two general allegations relating to Bakers Delight are set out below.

Allegation of 'churning'

During the course of the investigation a number of the complainants alleged that Bakers Delight engaged in the practice commonly described as 'churning'. That is, selling a franchise site repeatedly in circumstances where the franchisor is aware that it will fail.

The ACCC considered this churning allegation and concluded that there was no evidence of churning within the Bakers Delight system nor, and most importantly, in relation to those complaints that were subject to a detailed investigation.

To the contrary, the evidence supports the view that Bakers Delight is generally reluctant to initiate termination and does not have a record of repeatedly selling franchise sites.

Allegation of collusion with banks

Some franchisees alleged that Bakers Delight colluded with banks, including that they shared information about the franchisee which led to losses being suffered. This allegation was made against more than one bank.

The ACCC investigation revealed that terms and conditions of the Bakers Delight franchise agreement and banking loan agreements allowed for the sharing of information in certain circumstances. In some circumstances franchisees had signed an additional confidentiality waiver. The ACCC did not find any evidence that there was inappropriate sharing of information or any wrongdoing on behalf of any of the banks or Bakers Delight in this regard.

Recent ACCC small business and franchising enforcement action

Examples of recent ACCC enforcement action in the small business sector include:

• On 18 March 2008 the Federal Court held that Mama's Pizza & Ribs misled its small business customers about the contracts by which they obtained the ovens and the terms under which their finance contracts could be cancelled [Small Business Sting: Federal Court Declares That Original Mama's Pizza & Ribs, Principals Misled Small Business Owners – News release 077/08]*
• On 26 March 2008 the ACCC commenced proceedings against Allphones and others alleging unconscionable conduct, misleading and deceptive conduct and breaches of the Franchising Code of Conduct in the operation of the Allphones franchise [ACCC Begins Proceedings Against Allphones Retail NR 084/08]
• On 27 March 2008 the Federal Court held by consent that Duco Magic (Australia) Pty Ltd and its director, Mr Warwick Lindsay, misled prospective purchasers as to the profitability and demand for Duco Magic business opportunities and services [ACCC Obtains Court Orders Against Duco Magic for Misleading and Deceptive Conduct NR 090/08], and
• On 2 April 2008 the Federal Court held by consent that Imagine Essential Services Limited and Mr Richard Evans misled small businesses as to the profitability of its licensing arrangements [Federal Court Declares that Imagine Essential Services Limited, Richard Evans Misled Small Businesses NR 059/08]

*News releases are available at the ACCC website.