n 2019, the Federal Court found that Ultra Tune was in breach of the Franchising Code of Conduct (the Code) and the Australian Consumer Law (ACL). In 2022, the Australian Competiton and Consumer Commission (ACCC) is making additional allegations against the company. The ACCC alleges that Ultra Tune did not comply with its mandatory compliance program and, therefore, is in contempt of court.

If the court agrees with these allegations, Ultra Tune may receive the punishment the court deems necessary. This article will outline Ultra Tune's previous misconduct and explain what franchisors can learn from this case.

Ultra Tune's Previous Misconduct

Previously, Ultra Tune fell short of its obligation to provide marketing fund statements and disclosure documents per the Code's timeframe. Furthermore, the ACCC held that Ultra Tune's treatment of a prospective franchisee fell under misleading and deceptive conduct.

As punishment, Ultra Tune received a fine of $2.604 million. Additionally, the court held that Ultra Tune must abide by a compliance program and injunctions against them for contravening specific provisions of the Code and ACL.

Contempt of Court

For an act to be in ' contempt of court', it must interfere with or undermine the:

  • authority;
  • performance; or
  • the dignity of the courts or those who participate in hearings.

In this case, the ACCC alleges that Ultra Tune is in contempt of court through its failure to comply with the ACCC compliance program. As a result, the court put a compliance program in place to ensure that Ultra Tune (as a previous offender) would remain in compliance with the Code and ACL.

For instance, the compliance program requires Ultra Tune to issue quarterly reports to the ACCC. However, the ACCC alleges that Ultra Tune did not fulfil these requirements between April and December 2021.

Further, the ACCC alleges that while the court orders were in effect between 2019 and 2021, Ultra Tune did not update its disclosure document within the mandatory timeframe. Additionally, the ACCC alleges Ultra Tune did not prepare two marketing fund statements within the Code's timeframe.

In its reports, the ACCC emphasises the importance of complying with these disclosure requirements. Indeed, franchisors must fulfil these requirements to provide franchisees with complete transparency. Ultimately, franchisees have the right to see and understand how Ultra Tune uses their contributions to the marketing fund.

Failure to update the disclosure document means prospective franchisees may not receive essential information about the franchise system.

Reminder for Franchisors

Let the allegations against Ultra Tune remind franchisors to ensure that they adhere to the Code's timeframes. You must follow these timeframes, including those regarding pre-contract disclosure. Moreover, failure to do so will place you in breach of the Code.

Furthermore, you must ensure that you follow court-mandated orders. Failure to adhere to these orders can place your company in contempt of court. In this case, the court could place additional orders against you.

Key Takeaways

The ACCC actively monitors the conduct of businesses and will bring contempt proceedings against those who breach the Code or ACL. As a franchisor, you must take your obligations under the Code and the ACL very seriously. Failure to adhere to these requirements may result in severe penalties, including:

  • hefty fines;
  • continual monitoring by the ACCC;
  • injunctions against your company; and
  • prosecution.