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Penalties for Breaching 'Good Faith'

Ultra Tune is one the first companies to be fined for breaching Australian Consumer Law (ACL).

Last week, the Australian Competition and Consumer Commission (ACCC) announced the company would be paying out $2.6 million for breaching the franchising code and the ACL—an amount for which they should feel grateful, as if they had been fined under the new penalty regime, the fine would have been much higher.

GRC Professional reached out to Bronwyn Gallacher from CCL Consultants, who has been monitoring the competition and consumer law space.

“The case sends an important message to the franchising industry that the ACCC will take action against franchisors who do not act in good faith, and who mislead prospective franchisees,” she explained.

However, while the fine for the ACL breach fell under the previous ACL penalty regime, the ACCC indicated that this is the first proceedings that has been brought under the ‘good faith’ provision in the Franchising Code.

According to the findings, Ultra Tune failed to ‘act in good faith’ by misrepresenting the costs associated with the franchise and for attempting to mislead the court with doctored evidence.

“As the first case brought under the good faith provision, it should serve as an important warning to all franchisees to act in good faith, given the consequences of a breach can involve significant financial penalties, as well as significant reputational damage to the particular franchise group,” said Gallacher.

However, even with the first ‘good faith’ proceedings under the Franchise Code, some are still asking if it will it be enough to act as a deterrent to companies.

“The penalty regime under the Franchising Code is not a sufficient deterrent, in my view,” said Gallacher, “given that the maximum penalty for a breach of the Code is $63,000. However, the significant increase to the penalty regime under the broader ACL should serve as a strong deterrent, given it is those provisions that here were important in pushing the penalties over $2 million. This case, along with the new penalty regime, serves as a strong reminder to the franchising sector that they need to ensure they have adequate compliance measures in place.”

In an official statement last week, ACCC Deputy Chair, Mick Keogh, said the outcome of this case should serve as a reminder that franchisors should meet their obligations under the law and the Code.

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