Following the judgment, the ACCC — which prosecuted the case — issued a statement in which it accused Ultra Tune of breaching the Franchising Code, making various false or misleading representations to a prospective franchisee.
The action related to representations made by the company to the prospective franchisee about the cost of buying the franchise as well as of ongoing rental costs and the actual age of the franchise.
The competition regulator also said that Ultra Tune:
- told the potential buyer of the business that a $33,000 deposit was refundable, when it was not
- did not provide marketing fund statements within required time frames
- did not provide these statements, or relevant audit reports, to franchisees
- when it did provide the statements, they contained insufficient detail
But it was the alleged attempt to mislead the court that stood out most prominently, with the ACCC stating that the company’s defence relied on documents it had “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,” it quoted Justice Robert Bromwich as saying in his judgment.
“There must be no tolerance for manufacturing evidence to deceive a regulator, and even less when the deception is maintained in this court.”
In addition to the hefty fine, Ultra Tune was also ordered to repay the $33,000 deposit — with interest — to the would-be franchisee, and awarded indemnity costs to the ACCC.
Ultra Tune has been contacted for comment.
The company has around 270 branded outlets Australia-wide. It is not immediately clear how many of those are franchised.
It marks the first time that legal proceedings have been instigated by the ACCC over alleged breaches of the code by a franchisor.
The watchdog’s deputy chair, Mick Keogh, said that it serves as a “strong reminder” for franchise networks to meet their disclosure obligations.
“Franchisors often have the stronger bargaining position in their dealings with franchisees, which is why compliance with the Franchising Code and the Australian Consumer Law is so important,” he said.
My Business also reached out to the Franchise Council of Australia for comment.