The Australian Competition and Consumer Commission obtained orders by consent yesterday in the Federal Court at Melbourne against Imagine Essential Services Limited and its founder and former Chief Executive Officer, Mr Richard Evans*, for breaches of the Trade Practices Act 1974.
The ACCC alleged Imagine made misleading representations in connection with the sale of licences to operate a system involving agreements which Imagine claimed to have negotiated with essential service suppliers (such as telephony, electricity).
Under Imagine's system, licensees would approach businesses with a view to having them take the purported benefit of Imagine's agreements to obtain the claimed savings (earning commissions when businesses signed up). Small business people invested anywhere between $60,000 and $250,000 to purchase a licence from Imagine.
The ACCC also alleged Mr Evans, who gave presentations at a number of workshops and seminars conducted by Imagine to promote the sales of licences, was involved in Imagine's contravening conduct.
The ACCC's proceeding concerned four key groups of representations by Imagine which were alleged to be false, misleading or deceptive and in some cases were representations which Imagine had no reasonable grounds to make, namely:
- the profitability of the Imagine licensing system. For example, at one of the two hour seminars conducted by Mr Evans on behalf of Imagine it was represented that Imagine had a clear plan to create a passive income of over $100,000 in 24-30 months.
- the number of customers that Imagine would give licensees through agreements that Imagine claimed to have with accountants
- the number and variety of agreements that Imagine claimed to have with essential service providers and the level of savings that Imagine licensees could provide to customers as a result of those agreements, and
- membership to certain professional associations.
Justice Gordon of the Federal Court declared Imagine had engaged in the above conduct in breach of the Act and that Mr Evans had aided and abetted and was directly knowingly concerned and a party to the company's offending conduct.
Justice Gordon also made a number of orders including:
- an injunction restraining Imagine and Mr Evans from making the same or similar representations in circumstances where they are not true or there are no reasonable grounds for making the representations
- an order requiring Imagine to establish a trade practices law compliance program and for Mr Evans to attend a compliance seminar
- an order requiring Imagine to publish on its website certain information about the proceeding and to notify certain licensees about the proceeding, and
- an order that Imagine and Mr Evans pay $50,000 towards the ACCC's legal costs.
The court also accepted an undertaking from Imagine to implement and fund an alternative dispute resolution process. Imagine undertook to invite all licensees who have complaints in relation to the conduct which was the subject of the ACCC action to take part in this process which will be conducted by a legally qualified and accredited mediator.
ACCC Chairman, Mr Graeme Samuel observed that Imagine's parent company, Imagine Un Limited had made an announcement to the Australian Securities Exchange purportedly about the outcome of the ACCC's proceeding.
Mr Samuel expressed concern that Imagine Un Limited had prominently claimed that a key outcome of the proceeding was that no compensation was payable.
"This statement by Imagine Un Limited is mischievous and arguably misleading. The ACCC's proceeding against Imagine did not concern payment by it of compensation as this is not a remedy available under the provisions of the Act under which the ACCC took action.
"However, it is inconceivable that payment of compensation will not be part of claims brought by licensees to the alternative dispute resolution process consented to by Imagine in undertakings to the court."
Mr Samuel suggested that persons wishing to be properly informed about the outcome of the proceeding should visit the Federal Court website at www.fedcourt.gov.au and read for themselves Justice Gordon's judgment and the declarations and orders made by Her Honour against Imagine and Mr Evans.
"The judgment sounds a clear warning to companies promoting the sale of businesses or franchises with the claim of quick returns of handsome profits," Mr Samuel, said. "Companies must ensure they do their sums carefully and get them right."
"Many persons who buy licences and franchises wish to be small business operators and will in a lot of cases borrow money to pay for their investment. Companies who have no reasonable basis for making claims about the profitability of their license or franchise would do well to think long and hard before making spurious claims as these companies are at great risk of legal action by the ACCC which, in the future, may well take the form of a criminal prosecution."
*This is not the Richard Evans who is the Executive Director of the Australian Retailers Association and the former Chief Executive Officer of the Franchise Council of Australia Limited.