We received over 400 complaints last year from consumers and businesses about franchising. The ACCC investigates all claims that fall under its jurisdiction and will take strong action where necessary. However, many of the complaints we receive fall outside our jurisdiction, are of a private contractual nature or there is insufficient evidence to substantiate a breach of the code or the Act.
When we receive a complaint about the code, 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.
2. Initial investigation
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 through conducting interviews, obtaining and examining documents pertaining to the alleged conduct and careful application of the law to the known facts.
3. In-depth investigation
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.
Matters the ACCC is currently pursuing
The ACCC is currently pursuing two companies for breaches of the Franchising Code of Conduct through litigation in the Federal Court of Australia.
The ACCC has commenced proceedings in the Federal Court in Sydney against Allphones Retail Pty Limited.
The ACCC alleges that, in operating this franchise system, Allphones failed to comply with the Franchising Code of Conduct and engaged in misleading or deceptive conduct and unconscionable conduct towards its franchisees.
Proceedings have also been 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.
The ACCC alleges that Allphones engaged in conduct that was in all the circumstances unconscionable, including:
implementing policies targeting classes of franchisees
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
The ACCC also alleges that Allphones engaged in misleading or deceptive conduct towards potential and current franchisees. This includes allegations that Allphones misrepresented how it shares profits with franchisees, bargains with third parties on behalf of its franchisees and operates its franchise system.
The ACCC is seeking the following court orders:
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.
Past and present Allphones franchisees who have inquiries about these proceedings may contact the ACCC Infocentre on 1300 302 502.
The ACCC has commenced proceedings in the Federal Court in Brisbane against Seal-A-Fridge Pty Ltd.
The ACCC alleges that Seal-A-Fridge failed to comply with the Franchising Code of Conduct and engaged in unconscionable conduct towards its franchisees. The ACCC also instituted proceedings against a director of Seal-A-Fridge, Mr. Nigel Rooney, alleging that Mr. Rooney was knowingly concerned in the contraventions.
The ACCC alleges that Seal-A-Fridge engaged in conduct which was, in all the circumstances, unconscionable, 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
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 including:
failing to provide adequate disclosure to franchisees prior to them entering into franchise agreements
failing to provide current disclosure documents to franchisees after receiving written requests
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 breached the Franchising Code of Conduct and engaged in conduct that was in all the circumstances unconscionable and that Mr Rooney was knowingly concerned in the contraventions
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
injunctions restraining Seal-A-Fridge and Mr Rooney from engaging in similar conduct in the future
costs.
Past and present Seal-A-Fridge franchisees who have inquiries about these proceedings may contact the ACCC Infocentre on 1300 302 502.
Matters the ACCC has pursued
Where the investigation of a matter has indicated serious breaches of the code and/or the Act and the matter is able to be substantiated with sufficient evidence, the ACCC can and does take decisive action.
Recent matters pursued by the ACCC (within the last three years) are listed below.
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' level 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 in the future.
Matter/Company: JV Mobile
Conduct:breaches of the Franchising Code
Outcome: court enforceable undertakings
Date: April 2007
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 of Conduct, 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 they remedy the alleged breaches within 14 days or the franchise would be terminated.
The ACCC considered that this timeframe 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, 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, very 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, that Archem had successfully run a similar business and that the products performed satisfactorily.
The Federal Court declared these representations breached the Act, by consent. In a separate deal brokered by the ACCC, 11 franchisees received compensation.
Matter/Company: ContactPlus Group Ltd
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 license 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 the businesses operations and profitability.
The court agreed, and found that the company breached the Act.
The company agreed to consent orders, including declarations that they 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.
Matter/Company: 'Little Joe' and 'Joey's'
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 of Conduct.
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 misled and deceived franchisees by making unreasonable representations as to future profit.
