CN10 - Federal Court of Australia orders penalties for false or misleading representations
16 June 2021
The Federal Court of Australia's decision is the latest in a line of actions brought by the ACCC against franchisors in respect of dealings with current or prospective franchisees.
Key takeaways
- Megasave Couriers Australia Pty Ltd ("Megasave") admitted that its representations that potential franchisees would receive minimum weekly payments and a guaranteed annual income were false or misleading.
- The Court ordered Megasave to pay AUD 1.9 million in pecuniary penalties, and its sole director to pay AUD 120,000 in penalties.
The Court declared, by consent, that Megasave made false or misleading representations to prospective franchisees, in breach of the Australian Consumer Law. Megasave's sole director, Gary Bourne, admitted that he was knowingly concerned in the conduct.
Between September 2019 and July 2020, Megasave represented to potential franchisees that if they purchased a Megasave courier franchise, they would receive:
- guaranteed minimum weekly payments (typically AUD 2,000 per week); and
- a guaranteed annual income (usually AUD 91,000).
The representations were made via advertisements, website statements and other documents.
Franchisees made large upfront payments to purchase a Megasave franchise on the understanding that the business was low-risk and profitable when this was not the case. Megasave admitted there was no reasonable basis for making these representations as Megasave lacked sufficient revenue to make the payments.
On 1 March 2021, the Court ordered Megasave to pay AUD 1.9 million in penalties and Gary Bourne to pay AUD 120,000 in penalties and made partial redress orders to be paid jointly and severally by Megasave and Gary Bourne in the amount of AUD 500,000.
The Court ordered Mr Bourne to be disqualified from managing corporations for a period of five years and made orders for a series of injunctions, each for a period of five years, that Megasave and Mr Bourne each be restrained from:
- entering into a franchise agreement unless the potential franchisee is given a copy of the Court's orders;
- making representations that are false or misleading as to the earnings, profitability or risk of operating the franchise; and
- representing to potential purchasers of Megasave franchises that franchisees will receive guaranteed payments over a specified period of time or a guaranteed annual income for operating the franchise.
Ensuring that small businesses, including franchisees, receive the protections of the competition and fair trading laws remains a priority area for the ACCC. The decision represents the latest ACCC enforcement outcome against a franchisor for unfair conduct in its dealings with franchisees. The decision serves as a reminder to franchisors to ensure that they are aware of their obligations under the Australian Consumer Law and the Franchising Code, and to always deal with their franchisees in a manner consistent with these obligations.
With thanks to Jessica White of Ashurst for her contribution.
