The Federal Court has imposed a $2,604,000 penalty against Ultra Tune Australia Pty Ltd (Ultra Tune) for breaching both the Franchising Code of Conduct and the Australian Consumer Law (ACL).

Justice Bromwich found that Ultra Tune had failed to act in good faith in breach of the Franchising Code, and had made false or misleading representations in breach of the ACL, in its dealings with a prospective franchisee.

Ultra Tune made false or misleading representations to the prospective franchisee about the price of the franchise, the ongoing rent of the premises, and the age of the franchise . The prospective franchisee was also told that a $33,000 deposit was refundable when it was not.

Ultra Tune also breached the Franchising Code by failing to prepare marketing fund statements within the required timeframes, failing to provide these statements and audit reports to franchisees, and failing to include sufficient detail in the statements.

The judgment noted Ultra Tune’s attempts to mislead the Court in its defence of the ACCC’s action, by relying on documents purportedly sent to the prospective franchisee.

“The cover up that Ultra Tune attempted reflects a significantly heightened need for deterrence, in relation to conduct that was already a most serious and fundamental breach of the Franchising Code in taking the deposit in the first place, reflecting as it does Ultra Tune’s attitude in relation to its contravening conduct,” Justice Bromwich said.

“There must be no tolerance for manufacturing evidence to deceive a regulator, and even less when the deception is maintained in this Court.”

These are the first proceedings that the ACCC has brought against a franchisor alleging a breach of the Franchising Code obligation to act in “good faith” in business dealings with franchisees.

The Court ordered Ultra Tune pay the prospective franchisee his $33,000 deposit back with interest.

“Franchisors often have the stronger bargaining position in their dealings with franchisees, which is why compliance with the Franchising Code and the Australian Consumer Law is so important,” said ACCC Deputy Chair Mick Keogh.

“This outcome should be a strong reminder for franchisors to meet their disclosure obligations or face serious consequences.”

Mr Keogh said the ACCC would continue to take enforcement action when serious breaches of the code were identified.

Justice Bromwich also awarded the ACCC indemnity costs.

Notes to editors

Ultra Tune is the second largest independent motor repair organisation in Australia and has franchises in all mainland states and territories.

See more information about the good faith obligations under the code.

The maximum penalty for a breach of the Franchising Code is currently $63,000.

The maximum penalty for a breach of the ACL was recently increased to the greater of $10 million, or three times the value of the benefit obtained, or 10 per cent of annual turnover in the preceding 12 months if the value of the benefit cannot be determined. The increased maximum penalty did not apply to the Ultra Tune case, which preceded the change.