Fining Franchisors – A Future Trend?

By Margaret Miller • In Commercial Law, LitigationComments Off on Fining Franchisors – A Future Trend?

Consumer watchdog the ACCC has begun cracking down on franchisor misbehaviour, bolstered by the powers awarded to it under the revised Franchising Code of Conduct.

The start of 2015 heralded the amended Code coming into effect, thanks to a slew of franchisor disputes and governmental inquiries. The Code now contains new obligations for both franchisors and franchisees and strong enforcement provisions. It’s hoped that these changes will protect small businesses and encourage franchisors and franchisees to act in good faith with each other.

The Code also handed out new powers – giving the ACCC the option of seeking fines for breaches of the penalty provisions of up to $54,000.00 per offence and for infringement notices of up to $9,000.00 for breaches of the Code. These fines are also displayed on a public register.

One of these changes was an increase in franchisors’ required disclosure, including information about past business experience and corporate history.

Morild Pty Ltd, the company behind the Perth-based Pastacup franchise, apparently did not take their new obligations seriously. The ACCC have since announced their intention to institute proceedings against both Morild and the company’s former director, Mr Stuart Bernstein.

The ACCC alleges that both parties have breached the Code, with 10 breaches in all. They claim that the franchisor failed to disclose Mr Bernstein’s history to potential franchisees – specifically that he was a director of two previous iterations of the franchisor that became insolvent. The ACCC also claims that Mr Bernstein was “knowingly concerned in Morild’s conduct.”

ACCC deputy chair Dr Michael Schaper said, “… franchisees require full information,” namely “…who are the people behind it.”

This is the first action brought under the new Code and the first action where the ACCC has sought financial penalties. They are taking harsh measures to make an example and are pursuing declarations, injunctions, penalties, findings of fact and costs.

Morild’s misfortune is a reminder about the new penalties possible under the updated Code.

If you have concerns about your continuing compliance with the new Code or want further information, please contact Rob Ffrench, Partner in our Commercial Law & Business Transactions department.

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