In February 2019, the Federal Court found car detailing and cleaning franchisor Geowash Pty Ltd in breach of numerous obligations under the Australian Consumer Law. Geowash was ordered to pay $4.2 million in penalties, including individual penalties of $1.045 million against Geowash’s director, and $656,000 against Geowash’s franchising manager. The ACCC began investigating Geowash in 2015 and subsequently launched legal proceedings when it was deemed Geowash was making false and misleading representations and acting unconscionably towards its franchisees.
In contravention of the Franchising Code of Conduct, both the director and franchising manager were ordered to pay a further $1 million as partial redress to franchisees and were subsequently disqualified from managing corporations in Australia for a period of five and four years respectively. They jointly appealed this decision in 2021.
Ali v Australian Competition and Consumer Commission [2021] FCAFC 109:
The appellants appealed the Federal Court’s decision that Geowash was “knowingly concerned” in contravention of section 18 of the Australian Consumer Law. Upon deliberation, the full Court dismissed the appeal with costs on the basis that the appellants acted with “systemic dishonest conduct”.
Advice to Directors and Senior Managers of Franchisors:
It is essential that franchisors are complying with all necessary obligations under the Franchising Code of Conduct and the Australian Consumer Law. Severe sanctions exist for franchisors who infringe upon any obligations under either legislation. Directors should be especially wary of the Federal Court’s finding of individual liability for senior officers of the Franchisor.
In 2019, Ultra Tune Australia was penalised $2 million for similar breaches of the Franchising Code of Conduct and Australian Consumer Law when dealing with a prospective franchisee. Senior officers of franchisors should take these cases as a warning to ensure compliance by the franchisor with all relevant provisions and legislation. As ACCC Deputy Chair Mick Keogh noted in 2020: “These significant penalties should send a clear and strong message to franchisors and franchise executives about the importance of complying with their obligations…”.
Hitch Advisory highly recommends franchisors engage the professional services of high-quality law firms to perform reviews of current conduct to ensure compliance with governing legislation. Hitch Advisory’s franchising experts are well placed to assist.