ACCC investigations prosecutions against franchisors on the rise

It seems the ACCC is in the process of yet another “crackdown” against Franchisors whose behaviour breaches the Franchising Code of Conduct (“Code”) and the Trade Practices Act 1974 (“TPA”).

The latest proceedings, which were instigated by the ACCC in December 2009 against Mailpost Australia Limited (“the Head Franchisor”), its NSW Master Franchisee, Mailpost Postie Network Sydney Pty Ltd (“MPNS”), and the founder of the Mailpost franchise, Mr Peter Kritas, resulted in the Federal Court making declarations by consent and ordering injunctions on 20 April 2010.

The Federal Court declarations included:

• that MPNS had contravened the Code by failing to provide and obtain all the prescribed documents to and from its prospective franchisees, and in doing so, had breached section 51AD of the TPA
• that Mr Kritas was knowingly concerned in MPNS’s illegal conduct and similar conduct by the Head Franchisor
• that the Head Franchisor had engaged in misleading and deceptive conduct (which is a violation of section 52 of the TPA) and that Mr Kritas was knowingly concerned in such conduct, which included the making of certain false representations to franchisees and prospective franchisees

The Federal Court also issued the following orders:

• injunctions restraining Mr Kritas and MPNS from engaging in future breaches of the TPA
• orders that Mr Kritas and MPNS must provide copies of the orders and the Court’s reasons for judgement to all Mailpost franchisees
• orders that Mr Kritas and MPNS must undertake TPA compliance training and
• orders that Mr Kritas must make a contribution towards the ACCC’s costs of the proceedings

The Head Franchisor, together with its Victorian and West Australian Master Franchisees, are all currently under external administration.

The proceedings against the Mailpost Franchisor come hot on the heels of several other recent cases initiated by the ACCC against Franchisors, including those against Refund Home Loans Pty Ltd and Personalised Chocolates 4U Pty Ltd, which resulted in similar Federal Court orders and injunctions being handed down on 12 March 2010 and 2 December 2009 respectively.

This is a timely warning to Franchisors to beware of making what might be considered to be false or misleading statements in attempting to recruit franchisees, and a reminder of the importance of complying with the provisions of the Code and the TPA.

For further information please contact one of our Franchising lawyers.

Author: Esther Gutnick