Australia: Ultra Tune: Another nail in the coffin of franchise marketing funds?

Last Updated: 21 February 2019
Article by Corinne Attard

The news headlines are shouting the ground breaking penalty of $2.6 million imposed on the auto repair franchisor Ultra Tune Australia by the Federal Court last month.i  Of that amount $1.1 million was imposed for breaches of disclosure obligations under the Franchising Code of Conduct including about $900,000 specifically arising from breaches of the obligations relating to accounting and disclosing of marketing funds. 

The rest of the record penalty (i.e. $1.5 million) related to the franchisor's treatment of a prospective franchisee who brought the original complaint to the ACCC. While not strictly relevant to the allegations regarding disclosure and marketing funds it seems that these other allegations of bad behaviour against Ultra Tune led the Court to consider that Ultra Tune's behaviour was not simple inadvertence and resulted in a heavy handed approach generally.  However when we examine the breaches regarding the marketing fund financials on their own, franchisors may be surprised at the penalties imposed.

Reputable franchisors know how to treat prospective franchisees and not to make misrepresentations or unlawfully refuse to refund deposits. The real importance of this decision for other franchisors is in the way it very strictly interprets the obligations under the Franchising Code of Conduct relating to the preparation and distribution of marketing fund financial statements. Once understood this will overturn the way in which most franchisors are preparing and presenting their financials and hasten the demise of marketing funds in general.  Every accountant, lawyer and franchisor needs to review this case as a matter of priority to ensure that they comply strictly with the Code. 

Since the new compliance requirements were introduced with the 'new' Franchising Code of Conduct on 1 January 2015 many systems have already abandoned asking for separate marketing fund contributions from franchisees (also partly due to social media and digital marketing overtaking television, catalogues and other more expensive forms of advertising). This trend can only now accelerate since the risk of relatively minor breaches leading to devastating penalties makes separate marketing funds even less attractive.

So what did Ultra Tune do to deserve a penalty of this size?

The Ultra Tune Marketing Funds and Financial Statements

Firstly Ultra Tune Australia had five marketing funds – one for each marketing region, so the penalties were unfortunately multiplied five times for each breach relating to the preparation and presentation of the accounts. 

The two years under examination were the 2014-15 and 2015-16 financial years, i.e. since the introduction of the 'new' Franchising Code which included financial penalties.

Clause 15 of the Franchising Code requires a franchisor to prepare, have audited, and distribute certain annual financial statements within set timeframes if a franchisee is required to pay money into a marketing fund. 

Contrary to cl 15(1)(a) of the Franchising Code, Ultra Tune failed to prepare marketing fund statements within four months after the end of the 2014-15 financial year (that document having been completed on 24 December 2015 instead of by 31 October 2015, essentially two months late). Presumably for the following 2015-16 financial year the financials were prepared within four months as required.

It was not in dispute that for both financial years in question:

  1. Ultra Tune prepared financial statements for each region's fund;
  2. had the statements audited; and
  3. provided the statements and auditor's reports to the franchisees (although admittedly over 6 months late in 2014-15).

What was chiefly in dispute, however, was the adequacy of those statements in terms of meeting the standard required by the Franchising Code.  In respect of both financial years, the ACCC alleged that the financial statements that were prepared by Ultra Tune did not have "sufficient detail" as specifically required by cl 15(1)(b) of the Franchising Code: 

  1. If a franchise agreement provides that a franchisee must pay money to a marketing or other cooperative fund, the franchisor must:

(b)     ensure that the statement includes sufficient detail of the fund's receipts and expenses so as to give meaningful information about:

(i)      sources of income; and

(ii)      items of expenditure, particularly with respect to advertising and marketing expenditure;...

The Court also looked at clause 31 of the Code to provide the contextual basis for understanding and informing what information needs to be included both to be useful and to achieve the regulatory purpose.  Of particular relevance is cl 31(3), which provides:

Despite any terms of a franchise agreement, marketing fees or advertising fees may only be used to:

(a)        meet expenses that:

(i)         have been disclosed to franchisees under paragraph 15.1(f) of the disclosure document; or

(ii)        are legitimate marketing or advertising expenses; or

(iii)       have been agreed to by a majority of franchisees; or

(b)        pay the reasonable costs of administering and auditing a marketing fund.

Ultra Tune prepared its marketing fund financial statements for both the 2014-15 and 2015-16 financial years in a uniform fashion in the form of profit and loss statements and balance sheets.  The expenses included items "Gift Vouchers", "Printing & Stationary" (sic), "Seminars and Meetings", "Administration Fees", "Fleet Administration" and "Customer Support".  But the most significant expense line was described as "Promotion & Advertising – Television" and this single item was over 70% of the funds' expenditure.

The ACCC submitted and the Court agreed that the notion of "meaningful information" in clause 15 means that the financial statement must have some explanatory force to allow meaningful insights to be gained by the franchisee. 

"What is required to be provided is sufficiently detailed meaningful information, which is necessarily information that is useful and practical, not merely minimal accounting information".ii 

"...the franchisee should be in a position to know what the income and expenses of the fund are for the purpose of making some meaningful assessment of whether that use is appropriate."iii

Ultra Tune submitted that while the term "annual financial statement" is not defined in the Franchising Code, it is well known to accountants, auditors and businesses generally, as comprising a profit and loss statement and balance sheet.  If additional information was required as contended by the ACCC, no profit and loss statement or balance sheet would comply with the requirement, and it would "turn into something that no longer was an annual financial statement as ... understood by accountants, auditors and businesses."  iv

And that was the effect of this case. The generic form of marketing fund statement produced by Ultra Tune (which does not appear that different to the form of statements produced by most Australian franchisors) and signed off by their auditors was held by the Court not to have sufficient explanatory detail to enable franchisees to assess if the expenditure was legitimate.

The Court also rejected an argument that this information was obtainable from additional material such as newsletters provided by the franchisor to the franchisees.

As well as penalties for not meeting the relevant timeframes for preparation and distribution of statements, Ultra Tune received a $350,000 penalty for failing to ensure that the financial statements for the five marketing funds included 'sufficient detail' for each of the two financial years.

So franchisors have been notified (and their lawyers and accountants also) that:

  1. The marketing fund accounts must be prepared within four months of the end of the financial year;
  2. The marketing fund accounts must be distributed within 30 days of preparation to all franchisees, and
  3. the P & L must include substantial notes or description to explain each expense item to justify it within the terms of the Code.

To do otherwise will run the risk of penalties such as now facing Ultra Tune. 

The other option is of course to wind up the marketing fund and cover these costs from the general royalties or other revenue from franchisees. A course of action which has been adopted by many but which has led to less transparency rather than more as was intended by the legislature.


i [i] ACCC v Ultra Tune Australia Pty Ltd [2019] FCA 12 (Judgment of Bromwich J dated 18 January 2019)

ii Bromwich J at [87]

iii Bromwich J at [88]

iv Bromwich J at [93]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions