26/05/2010

In late April, the ACCC obtained orders from the Federal Court against Allphones for conduct by the franchisor that was in contravention of the Trade Practices Act.

It has been reported that Allphones and two of its executives contravened the Trade Practices Act in its dealings with its franchisees by:

1.        engaging in misleading and deceptive conduct;

2.        contravening the Franchising Code of Conduct (the “Code”); and

3.        engaging in unconscionable conduct.

Franchise relationships are principally governed by the Trade Practices Act; in particular s.51AD which states that a corporation must not contravene an “applicable industry code”.  This includes the Code which was established in 1998.  The Code regulates the franchise relationship and imposes rights and obligations on both the franchisor and franchisee.  Part of the obligations on the franchisor is that they provide a “disclosure document” which must include statements about the supply of goods or services to a franchisee.  The disclosure document must include a raft of details about the business including details of:

·         whether the franchisor, or an associate of the franchisor, will receive a rebate or other financial benefit from the supply of goods or services to franchisees, including the name of the business providing the rebate or financial benefit; and

·         whether any rebate or financial benefit is shared, directly or indirectly, with franchisees.

The ACCC took action against Allphones and two of its executives on behalf of franchisees alleging that Allphones and its two executives engaged in conduct that included:

1.   refusing to provide stock and holding commissions when it had no right to do so;

2.   negotiating deals with suppliers but not sharing the benefits with its franchisees; and

3.   threatening to issue breach notices to franchisees.

With the consent of the parties, the Federal Court ordered:

• the franchisees be paid $3million in damages;
• the executives had been knowingly concerned in the unconscionable conduct;
• injunctions to prevent further breaches of the law; and
• the defendants pay the ACCC’s legal costs.

For further enquiries, please contact David Nicoll of TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.