The ACCC has successfully prosecuted former hand car wash and detailing franchisor Geowash in the Federal Court for acting unconscionably, making false or misleading representations, and failing to act in good faith in breach of the Franchising Code of Conduct in relation to the sale and marketing of its franchises.
The ACCC began investigating Geowash in late 2015, and subsequently launched court proceedings. In a decision handed down on 8 February, the Court found that Geowash made false or misleading representations on its website by:
- suggesting that prospective franchisees could make monthly average revenue of $70,216 and gross average profit of $30,439, when it had no reasonable basis for this claim; and
- representing that it had a commercial relationship or affiliation with major corporate entities including Nissan, Kia, Renault, Audi, Emirates, Shell, Hertz, Holden, Ikea and Thrifty, when it did not.
The Court also found that Geowash acted unconscionably towards franchisees through its charging practices for the establishment and fit-out of Geowash franchise sites. The amount Geowash charged its franchisees did not reflect the likely costs of establishing those sites but instead the amount franchisees were willing to pay.
Geowash was also found to have created the false impression that the amounts charged to franchisees would go directly towards the fit-out out of their car wash site when in fact large amounts went to commission payments for Geowash’s director and its Franchising Manager and on other Geowash expenses..
The Court found that the likely consequence of Geowash’s conduct was that the substantial amounts of money paid by franchisees were not available to establish Geowash car wash sites and as a result these sites could not be delivered or would be of an inferior standard.
The Court held that the conduct by Geowash that occurred after 1 January 2015 also involved a failure to act in good faith as required under the Franchising Code.
Geowash’s director, Sanam Ali, was found to be knowingly involved in all of Geowash’s conduct. Charles Cameron, Geowash’s Franchising Manager, was found to be knowingly involved in Geowash’s unconscionable conduct and failures to act in good faith.
“The Court’s decision sends a strong warning to franchisors about the serious consequences of failing to comply with their obligations under the Franchising Code and Australian Consumer Law,” ACCC Deputy Chair Mick Keogh said.
“This is the second recent court action we’ve taken against a franchisor for a breach of the Franchising Code’s good faith obligations. The ACCC is committed to pursuing franchisors who disregard their obligations under the code and the consumer law.”
A hearing to determine penalties and other orders sought by the ACCC will be on a date to be fixed by the Court.
Background
From February 2013 to October 2016, Geowash entered into 31 Franchise Agreements with franchisees across Australia. Most of these were located in Western Australia. Franchisees were also located in Queensland, New South Wales and Victoria.
Geowash went into voluntary administration in October 2016.
In January 2019, the Federal Court handed down a penalty of $2.6M against Australia’s second largest motor repair organisation, Ultra Tune Australia after ACCC action.