The director of a Brisbane based franchisor, The Furniture Wizard Pty Ltd , has been ordered to refund $169,201 after an Australian Competition and Consumer Commission action concluded before Justice Mansfield in the Federal Court, Adelaide.
The ACCC began the proceedings against Stephen Frederick Grant last October seeking declarations, injunctions and orders, which included refunds and costs. Interim injunctions were issued in December preventing further representations from being made.
The ACCC action followed allegations by franchisees in Queensland, South Australia and Victoria that they had been lured into paying up to $48,500 to purchase business franchises as a result of advertising and promotional representations which were either untrue or made with reckless indifference.
Among these was one claiming that: 'We grow your business with you, ensuring target earnings of $2,000 per week are achieved'. The court found that there was no foundation for that claim and it was not based upon the actual earnings of any franchisee.
A Furniture Wizard Information Pack made claims as to the existence and identity of genuine and established clientele in that the company had 'existing national contracts' and had '…developed alliances with several organisations that we not only consult to but who actually use and recommend the services of the Furniture Wizard'. It went on to list those organisations, including national retail chains and government departments. It also claimed that: 'All the (franchise) areas have had intensive market research carried out in them'. The court found that these claims were untrue and in fact there were no existing national contracts.
Further, the Information Pack included a detailed company history that claimed that the business was established in 1988 and that '…the response from our clients was impressive'. It claimed that 'demand was so high for the business that no matter where someone operated they would have the benefit of having work provided to them from the company's existing national contracts'. The Furniture Wizard enterprise had actually commenced in 1996 and the court found that those claims, as well as significant sections of that company history, were untrue or a massive overstatement.
The ACCC alleged that these and other claims had no basis and were misleading in breach of sections 52 and 59 of the Trade Practices Act 1974. It also alleged most of the franchisees businesses had failed. They lost not only their money but also months of fruitless work in trying to build businesses that had no prospect of success.
The court made a declaration that Mr Grant's conduct had breached the Act and, as Mr Grant has been engaged in other franchising operations, it granted injunctions to prevent him from engaging in like activities for the next three years. It further ordered refunds to four franchisees totalling $169,201 plus interest and the ACCC's costs.
The ACCC had also received similar complaints from 27 other franchisees and today's findings will facilitate compensation claims they may wish to take.
"The Trade Practices Act prohibits companies from making false or misleading representations", ACCC Chairman, Professor Allan Fels, said today. "This finding should serve as a warning to other businesses that unless they have a reasonable basis for making representations about future matters, their statements can be deemed to be misleading under the Act.
"This outcome yet again highlights the ACCC's strong focus on small business issues, particularly following the introduction of the Franchising Code of Conduct".
Further information regarding franchising and the Franchising Code of Conduct is set out in the ACCC publication, The Franchisee's Guide, which is available free of charge from all ACCC offices or alternatively from the ACCC website, http://www.accc.gov.au.