Mailpost founder and NSW master franchisor fail franchising code

The Federal Court today declared that Mailpost founder Peter Kritas and NSW master franchisor, Mailpost Postie Network Pty Ltd (MPNS), engaged in conduct that contravened the Trade Practices Act 1974.

In December 2009, the ACCC initiated legal proceedings against national franchisor Mailpost Australia Limited (MPA), MPNS and Mr Kritas, alleging breaches of the Franchising Code of Conduct and misleading and deceptive conduct towards Mailpost franchisees. Proceedings were discontinued against MPA after it was put into liquidation in February 2010.

Mailpost is a print and distribution business for unaddressed promotional mail that was set up by Mr Kritas and operated through MPA at a national level and MPNS in New South Wales.

Following the ACCC's action, the Federal Court today declared by consent that:

• MPNS breached section 51AD of the Act by failing to provide and obtain all necessary franchising documentation to/from prospective Mailpost franchisees, as required under the Franchising Code
• Mr Kritas was knowingly concerned in the conduct of MPNS as well as similar conduct of MPA
• Mr Kritas was knowingly concerned in MPA's misleading and deceptive conduct, including representations made to Mailpost franchisees and/or prospective franchisees:
• that the Mailpost business included  "iMailPost" and "Thunderprint" as revenue streams for franchisees, when in fact such revenue streams did not exist at that time and were never subsequently introduced
• that the Mailpost business was not a franchise and that Mailpost franchisees  did not have any rights under the Franchising Code
• that the Mailpost business was "recession proof" and was "probably the fastest growing franchise type operation in the whole world", and
• as to the income that prospective Mailpost franchisees would earn.

In addition, the court has ordered injunctions restraining Mr Kritas and MPNS from engaging in future breaches of the Act, and has also ordered that Mr Kritas and MPNS provide copies of the court's orders and reasons for judgment to all Mailpost franchisees and undertake trade practices compliance training. Mr Kritas was also ordered to pay a contribution to the ACCC's costs of the proceedings.

ACCC chairman Graeme Samuel said this outcome is a reminder to all franchise operators of the importance of compliance with the requirements of the Franchising Code.

"The ACCC will not hesitate to take court action against franchisors and associated individuals that use misleading statements when attempting to recruit new franchisees to a franchise operation."

The Franchising Code of Conduct, which was 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 Act.