ACCC pursues trustee to enforce Federal Court ruling

The Australian Competition and Consumer Commission welcomes the decision of the New South Wales Court of Appeal in the matter of Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd (In Liq.).

In a unanimous decision, the Court of Appeal rejected Gatsios Holdings' appeal against a decision in the Supreme Court.

The court's decision allows a trustee to use trust assets to pay damages awarded against them for breaches of the Trade Practices Act 1974.

As a result of this decision it appears likely that the franchisees of Top Snack Food, on whose behalf the ACCC took a representative action, will now be compensated for damages suffered.

In August 1999, the Federal Court awarded franchisees of Top Snack Foods Pty Ltd damages totalling $407,000 for breaches of s52 and s59 of the Act. Section 52 prohibits a corporation from engaging in misleading or deceptive conduct and section 59 prohibits a corporation from making false or misleading representations about certain business activities.

To enforce the judgment, and gain access to funds to distribute to the franchisees, the ACCC placed Top Snack Foods and Nick Kritharas Holdings into liquidation and the principals of those companies into bankruptcy.

The only assets found during the liquidation process were two properties located in Sydney and contained in the KN Trust, the former trustee of which was Nick Kritharas Holdings. The trust and its assets had been transferred to a new trustee, Gatsios Holdings.

In seeking to recover the damages suffered by the franchisees, the ACCC, on behalf of Nick Kritharas Holdings brought an action in the Supreme Court of New South Wales. The Supreme Court found that the trust deed of the KN Trust indemnified the former trustee (Nick Kritharas Holdings) except in the case of fraud. As the Federal Court had made a specific finding that there was no case of fraud, the right of indemnity of Nick Kritharas Holdings extended to the damages awarded in the Federal Court. The new trustee, Gatsios Holdings appealed to the NSW Court of Appeal on the grounds that the Supreme Court erred in its construction of the trust deed.

"It is important that companies recognise that the ACCC will take any action available to it legally to enforce judgments handed down in its favour and in favour of parties on whose behalf it takes representative actions", ACCC Chairman, Professor Allan Fels, said today.

"The ACCC places priority on enabling small businesses to understand the benefits provided by the Trade Practices Act and to respond effectively if they are the target of misrepresentation, misuse of market power, or unconscionable conduct by larger companies", Professor Fels said.

The ACCC’s focus on small business issues is particularly evident in the franchising industry, where the ACCC actively administers and enforces the Franchising Code of Conduct through its powers under the Act.