ACCC institutes proceedings against Seal-A-Fridge Pty Ltd

The Australian Competition and Consumer Commission has commenced proceedings in the Federal Court in Brisbane against Seal-A-Fridge Pty Ltd and its director, Mr Nigel Rooney.

The ACCC alleges that Seal-A-Fridge engaged in unconscionable conduct towards its franchisees in contravention of section 51AC of the Trade Practices Act 1974. The ACCC also alleges that Seal-A-Fridge failed to comply with the Franchising Code of Conduct, which amounts to a contravention of section 51AD of the Act. The ACCC alleges that Mr Rooney was knowingly concerned in the contraventions.

Seal-A-Fridge is the franchisor of a mobile refrigeration seal replacement business which is run by franchisees located around Australia.

The ACCC alleges that Seal-A-Fridge engaged in conduct which was, in all the circumstances, unconscionable within the meaning of section 51AC of the Act including:

• unreasonably withholding consent to the transfer of franchises
• unilaterally increasing the fees associated with the national Seal-A-Fridge telephone number contrary to franchise agreements, and
• disconnecting franchisees from the national Seal-A-Fridge telephone number to procure agreement to the increased fees.

Further, the ACCC alleges that Seal-A-Fridge contravened the Franchising Code of Conduct and therefore section 51AD of the Act by failing to provide adequate disclosure to franchisees prior to them entering into franchise agreements. It is alleged that Seal-A-Fridge later failed to provide current disclosure documents to franchisees after receiving written requests.

It is also alleged that Seal-A-Fridge contravened the Franchising Code of Conduct and therefore s51AD of the Act by unreasonably withholding consent to the transfer of a franchise.

The ACCC is seeking the following court orders:

• declarations that the conduct of Seal-A-Fridge contravened sections 51AC and 51AD of the 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, and
• costs.

A directions hearing will be held in the Federal Court before Justice Logan on 25 July 2008.

Past and present Seal-A-Fridge franchisees who have inquiries about these proceedings may contact the ACCC on 1300 302 502.

Background

Franchising Code of Conduct

The Franchising Code of Conduct, first introduced in 1998, is a prescribed industry code under the Trade Practices Act 1974.

The code aims to regulate the conduct of participants in franchising towards each other and aims to ensure that franchisees are sufficiently informed about the franchise before entering into it. The code also provides a mechanism for franchisees and franchisors to try to resolve disputes by using a cost effective dispute resolution procedure.

Failure to comply with the code amounts to a contravention of section 51AD of the Trade Practices Act.

Section 51AC of the Trade Practices Act

Section 51AC applies to conduct in certain business contexts occurring since 1 July 1998 which is, 'in all the circumstances, unconscionable'. Section 51AC sets out several factors the court can consider in deciding whether conduct was unconscionable. They include, but are not limited to:

• the relative bargaining strength of the parties
• whether the stronger party imposed conditions that were not necessary to protect their legitimate business interest
• the use of undue influence, pressure or unfair tactics
• whether the weaker party could obtain supply on better terms elsewhere
• whether the stronger party made adequate disclosure to the weaker party
• the willingness of the stronger party to negotiate
• the extent to which each party acted in good faith
• the requirements of any relevant industry code.

As stated above, these factors are not exhaustive and the court will consider the conduct as a whole, including other factors that have not been listed above, when determining whether particular conduct is unconscionable.