Breakdown in Regulatory Compliance Leads to Hefty Fine for Auto Repair Company

The recent case of Australian Competition and Consumer Commission v Ultra Tune Australia Pty Ltd [2019] FCA 12 provides a reminder that breaches of franchising laws can have severe consequences. National auto repair organisation Ultra Tune received a $2.6 million penalty for breaches of the ACL and the Franchising Code. The Federal Court found that Ultra Tune had breached its minimum disclosure obligations, failed to act in good faith and made misleading representations to a prospective franchisee.

Background

Ultra Tune is the second largest motor repair organisation in Australia, with around 200 franchises operating across the country.

Mr Nakash Ahmed was interested in purchasing an Ultra Tune franchise. However, his dealings with Ultra Tune raised several concerns and Mr Ahmed decided not to proceed with the deal. When Ultra Tune refused to refund the $33,000 deposit, Mr Ahmed lodged a complaint with the Australian Competition and Consumer Commission (the ACCC).

The ACCC conducted an investigation and then commenced court proceedings against Ultra Tune. They submitted to the Federal Court that Ultra Tune had:

• Failed to honestly disclose information about the franchise, including how long it had been operating;
• Pressured Mr Ahmed to make the $33,000 payment before providing required disclosure documents;
• Represented to Mr Ahmed that the $33,000 was unconditionally refundable but then treated it as non-refundable;
• Failed to provide disclosure documents as required by the Franchising Code.

Court Decision

Justice Bromwich accepted the ACCC’s submissions that Ultra Tune had breached the Franchising Code and the proscription on misleading or deceptive conduct in the ACL. It also came to light that Ultra Tune had fabricated documents to the ACCC in an attempt to conceal their ‘reprehensible conduct towards Mr Ahmed.’ Unsurprisingly, this drew scathing criticism from Justice Bromwich and was a significant consideration in setting the penalty amount.

In civil penalty cases such as this, the presence or absence of contrition or remorse can affect the level of penalty to be imposed. The Court held that Ultra Tune’s conduct in this case, including the document fabrication and downplaying the seriousness of the contraventions, demonstrated a lack of contrition. In Justice Bromwich’s view, Ultra Tune showed ‘the wrong kind of sorry – that is, sorry that it has been caught – rather than sorry that it engaged in the conduct, both admitted and denied, in the first place.’

Key takeaways

• For franchisors – the provision of the ACL and the disclosure requirements in the Franchising Code require strict compliance. As this case shows, non-compliance with franchising laws will be aggressively pursued by the ACCC.
• For franchisees – make sure you know your rights before purchasing a franchise. Seeking legal advice prior to and during negotiations is the best way to ensure your interests are protected

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