Australian auto services franchise, Ultra Tune, has been fined $2.6 million for breaching both the Franchising Code of Conduct and the Australian Consumer Law.
The Federal Court found that Ultra Tune had made misleading representations to a prospective franchisee about the price of the franchise, ongoing rent of the premises and the age of the franchise.
Ultra Tune also told the prospective franchisee that a $33,000 deposit was refundable, when it was not and failed to prepare marketing fund statements within the required timeframes.
It was also noted that Ultra Tune attempted 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.”
Ultra Tune was also ordered to repay the $33,000 deposit with interest.
ACCC deputy chair Mick Keogh said, “This outcome should be a strong reminder for franchisors to meet their disclosure obligations or face serious consequences.”
In a statement from Ultra Tune, the company said, “In light of adverse findings made by the Court about evidence on behalf of the company, Executive Chairman Sean Buckley has decided to engage an independent outside lawyer (who has had no previous association with the company) to investigate and review all aspects of the case, including evidence given on behalf of the company and the carriage of the case by the company’s former lawyers. The independent lawyer will report findings directly to Mr Buckley.”
“In the interim, the Company has received preliminary legal advice from counsel engaged to consider the merits of an appeal, that there are a number of potential appeal points and is awaiting counsel’s final advice before deciding whether to appeal.
“The case touched on a number of issues including, inter alia, the level of detail provided in Ultra Tune’s marketing fund accounts where the ACCC decided to run a test case. At all times Ultra Tune had engaged and relied on its external advisors to ensure compliance with the Code’s marketing fund accounting requirements.
“The Franchising Code of Conduct did not prescribe the level of detail which the ACCC submitted to the Court should be provided in marketing fund accounts. Nor had the ACCC published any guidelines consistent with the ACCC’s submissions to the Court. The company believes it is regrettable that the ACCC decided to regulate by running a test case, rather than publishing appropriately detailed regulatory guidelines for franchisors and their advisors to follow.”
These are the first proceedings instigated by the ACCC against a franchisor alleging a breach of the Franchising Code.
Mr Keogh said the ACCC would continue to action when serious breaches of the Code were identified.