Federal Court Declares Unconscionable Conduct by Cleaning Franchisor
Victorian franchisor South East Melbourne Cleaning Pty Ltd (in liquidation), formerly Coverall Cleaning Concepts South East Melbourne Pty Ltd, has been found to have:
1. breached the Australian Consumer Law by engaging in unconscionable conduct, misleading and deceptive conduct and making false and misleading representations; and
2. contravened the Franchising Code of Conduct.
An ACCC investigation assisted the Federal Court to determine that the franchisor:
1. provided two new franchisees with its Coverall Australasia Franchise Plan which told them that they could expect a certain volume of work to enable them to earn specified monthly amounts, without any reasonable basis to make such representations;
2. breached its franchise agreements by failing to pay the franchisees for cleaning services, whilst still demanding payment of the initial franchise fee.
If a franchisor makes a representation about a future matter, the onus is on the franchisor to establish that they had a reasonable basis for making that representation.
The franchisor was found to have taken advantage of the franchisees' significantly weaker bargaining power and the franchise agreements were therefore void from the date of order. The former director of the franchisor was found to be knowingly involved in the franchisor's contraventions and was:
1. ordered to pay a penalty of $30,000, compensate the franchisees $23,000 for monies owing and franchise fees paid, and a contribution towards the ACCC's costs;
2. disqualified from managing a corporation for two years.
The Court will determine a pecuniary penalty for the franchisor at a later date.