The director Sanam Ali and the franchising manager Charles Cameron, have been hosed out of business by the ACCC, following an investigation. They have been formally disqualified from managing corporations and ordered to pay $4.2 million in penalties.The ACCC take breaches of the Franchising Code of Conduct seriously and as is clear in the case of Geowash, they will not hesitate to issue fines for breaches of the Franchising Code. Here it was a breach of the Franchisor's obligation to act in good faith with its franchisees prohibiting Franchisors from making false or misleading representations about a franchised business.
Geowash was not only found to have made false and misleading representations concerning prospective profit returns but had also engaged in unfair charging practises which were specified as "establishment and fit-out costs" however deceptively were monies used for personal commissions and other expenses.It was evident in the ACCC v Ultra Tune Australia Case concerning car-repair franchised businesses the Courts are aware of the powerful position of franchise owners compared to vulnerable franchisees and the ACCC are very active in regulating the Franchise industry, by imposing harsh penalties when there has been an abuse of power by a Franchisor.
The court considered the importance of protecting franchisees and preventing franchisors from using "available opportunities to the detriment of a franchisee in the absence of any objective legitimate interests." The ramifications of abusing this power can go beyond financial penalties and can even lead to disqualification from managing corporations in Australia as seen with Ms Ali and Mr Cameron in the above-mentioned Geowash case.The Geowash case sends a strong message to franchisors in Australia that the Code cannot be ignored and dirty conduct will be cleaned up by the ACCC. Franchisors must ensure they are always complying with the Franchising Code of Conduct in particular the obligation to act 'in good faith' which is clearly interpreted quite broadly by the ACCC. Acting in good faith is not defined, however the Geowash case indicates that it includes maintaining trust and transparency with franchisees by providing true statements of accurate financials and charging fair costs.
Franchisees if you think your franchisor may be in breach of its obligation to act in Good faith please do not hesitate to contact us and we will assist you with your claim.
Franchisors if you are unsure if the way in which you operate your Franchise System is compliant with the Code or if you require assistance with the recruitment of Franchisees to ensure you are complying with the Code, in particular your obligation to act in good faith, please do not hesitate to contact the office.
At IP Partnership we ensure your Franchise documentation is Code compliant and in terms of franchise recruitment and franchise sales we will act for you from the time you receive a deposit to the moment the Franchise Agreement is executed and returned to both parties. If you are unsure how to recruit franchisees legally in Australia, please call our office and enquire about our fixed fee franchise recruitment services.
It is important to remember that the ACCC is free. In other words, a disgruntled Franchisee does not necessarily need to pull together resources to bring an action against a Franchisor and can simply file an online complaint against a Franchisor if they believe there has been a breach of the Code. This is why it is so important for Franchisors to engage solicitors that understand the Code back to front to ensure the Franchise System is compliant in all respects.Moral of the story. Dirty conduct will not be tolerated by the ACCC in Australia. $4.2 million in penalties is an amount that would seriously hurt (or potentially devastate) any business.