The competition watchdog had accused Geowash, a network of hand car wash and detailing outlets, of a number of breaches of the Franchising Code of Conduct.
The Federal Court ultimately agreed with the ACCC’s case, ruling that Geowash had:
- Misrepresented the potential revenues and profits prospective franchisees could make, spruiking average monthly revenues of $70,216 and gross average profits of $30,439 despite having no reasonable basis for the claims.
- Falsely claimed to have commercial affiliation with a range of high-profile companies including Audi, Emirates, Hertz, Holden, Ikea, Shell and Thrifty.
- Acted unconscionably by charging franchisees for the fit-out and establishment of franchises that did not reflect the true costs.
- Misrepresented these establishment costs as legitimate business start-up expenses, when much of the funds were paid as commission to Geowash’s director, Sanam Ali, and its franchising manager, Charles Cameron, as well as covering other company costs.
A number of franchisees came forward as part of the legal action, providing affidavits to the court.
According to the ACCC, the latter had the effect of diminishing the amount of money actually directed towards establishment costs, leaving a shortfall or delivering an inferior outcome.
It noted that Ms Ali was found to have been fully aware of the conduct, and that Mr Cameron had been party to some of the conduct.
“The court’s decision sends a strong warning to franchisors about the serious consequences of failing to comply with their obligations under the Franchising Code and Australian Consumer Law,” ACCC’s deputy chair, Mick Keogh, said in a statement following the judgment.
“This is the second recent court action we’ve taken against a franchisor for a breach of the Franchising Code’s good faith obligations. The ACCC is committed to pursuing franchisors who disregard their obligations under the code and the consumer law.”
A separate hearing will be held at an as yet undetermined date to decide on penalties.
History shows the Federal Court has not been lenient in issuing penalties, as evidenced by the $2.6 million fine handed down to another auto-related franchise, Ultra Tune, for misleading conduct towards a franchisee.
Comment has been sought from Geowash on the court ruling.
The company’s website states that it had expanded to 25 sites across four Australian states by 2014–15, but it currently lists only 10 sites, concentrated in WA.
The court ruling comes as the competition regulator steps up its compliance checks on the franchise industry, with a new round of spot checks planned for the food services industry.