The Australian Competition and Consumer Commission has commenced proceedings in the Federal Court in Sydney against communications retailer Allphones Retail Pty Limited, which has allegedly breached the Franchising Code of Conduct.
The Australian Competition and Consumer Commission has commenced proceedings in the Federal Court in Sydney against communications retailer Allphones Retail Pty Limited, which has allegedly breached the Franchising Code of Conduct.
The ACCC alleges that Allphones 'engaged in misleading and deceptive conduct and unconscionable conduct towards its franchisees' in contravention of a number of sections in Trade Practices Act 1974.
The action comes just two weeks after Perth-based chairman of Allphones, Tony Mitchell was appointed to a new federal government committee that will assess proposals to build a national broadband network.
Mr Mitchell was chief executive of Allphones from 1999 to 2003 and since then has been chairman of the company, which operates 165 stores across Australia.
Originally founded in South Australia in 1989, with a single store in Mile End, Allphones entered NSW in 2001.
Allphones operates its franchise system in all Australian states and territories and is one of the largest franchise retailers in the country.
WA Business news tried unsuccessfully to reach Allphones for comment today.
The ACCC's annoucement is pasted below:
The Australian Competition and Consumer Commission has commenced proceedings in the Federal Court in Sydney against Allphones Retail Pty Limited.
The ACCC alleges that, in operating this franchise system, Allphones failed to comply with Franchising Code of Conduct and engaged in misleading and deceptive conduct and unconscionable conduct towards its franchisees in contravention of sections 51AC, 51AD, 52 and 59 of the Trade Practices Act 1974.
Proceedings have also been taken against Allphones' director and Chief Executive Officer, Mr Matthew Donnellan; director and Chief Operating Officer, Mr Tony Baker; and former National Franchising Manager, Mr Ian Harkin, for allegedly being knowingly concerned in or party to the contravening conduct.
Allphones Retail operates a franchise system where it controls the distribution of all products and income to franchisees and negotiates agreements with third parties on franchisee's behalf. The ACCC alleges that Allphones engaged in conduct towards its franchisees in the operation of its franchise system including:
- implementing policies targeting classes of franchisees;
- forcing franchisees to acquiesce to Allphones' will by threatening or engaging in a pattern of harsh conduct and;
- failing to disclose or pay certain income to franchisees;
which in all the circumstances was unconscionable within the meaning of s51AC of the Act.
The ACCC also alleges that Allphones engaged in false or misleading and deceptive conduct towards potential and current franchisees.
This includes allegations that Allphones misrepresented how it shares profits with franchisees, bargains with third parties on behalf of its franchisees and operates its franchise system.
Further, the ACCC alleges that Allphones contravened s51AD of the Act by failing to comply with clauses 6, 7, 11, 15 and 29 of the Franchising Code of Conduct.
The ACCC is seeking the following court orders:
- declarations that the conduct contravened sections 51AC, 51AD, 52 and 59 of the Act
- injunctions restraining similar conduct in the future
- the implementation of a trade practices training or compliance programs by Allphones, and
- costs.
A directions hearing will be held in the Federal Court before Justice Rares on 11 April 2008.
Past and present Allphones franchisees who have inquiries about these proceedings may contact the ACCC on 1300 302 502.
Background: Franchising Code of Conduct
The Franchising Code of Conduct, first introduced in 1998, is a proscribed industry code under the Trade Practices Act 1974.
The code aims to regulate the conduct of participants in franchising towards each other and aims to ensure that franchisees are sufficiently informed about the franchise before entering into it.
The code also provides a mechanism for franchisees and franchisors to try to resolve disputes by using a cost effective dispute resolution procedure.
Failure to comply with the code amounts to a contravention of section 51AD of the Trade Practices Act.
Section 51AC of the Trade Practices Act.
Section 51AC applies to conduct in certain business contexts occurring since 1 July 1998 which is, 'in all the circumstances, unconscionable'.
Section 51AC sets out several factors the court can consider in deciding whether conduct was unconscionable.
They include, but are not limited to:
- the relative bargaining strength of the parties
- whether the stronger party imposed conditions that were not necessary to protect their legitimate business interest
- the use of undue influence, pressure or unfair tactics
- whether the weaker party could obtain supply on better terms elsewhere
- whether the stronger party made adequate disclosure to the weaker party
- the willingness of the stronger party to negotiate
- the extent to which each party acted in good faith
- the requirements of any relevant industry code.
As stated above, these factors are not exhaustive and the court will consider the conduct as a whole, including other factors that have not been listed above, when determining whether particular conduct is unconscionable
