IP SPOTLIGHT 20 APRIL 2020

THE FRANCHISOR’S OBLIGATION TO ACT IN GOOD FAITH

Franchisors look out. For the second time in less than 12 months, a franchisor has received a multimillion-dollar penalty for breaches of the Franchising Code. Compliance with the Code is paramount, as GEOWASH P/L recently learnt when it was slugged with a total of $4.2 million in penalties against an insolvent carwash, a car detailing company, and two of its officers Sanam Ali and Charles Cameron.

In the recent case of the Australian Competition and Consumer Commission (ACCC) v Geowash Pty Ltd (No 4) 16 , the Federal Court imposed a total of $4.2 million in penalties on the insolvent carwash and detailing company Geowash, and its two officers Sanam Ali and Charles Cameron for breaches of:

– – the Franchising Code of Conduct (Franchising Code); – – the Competition and Consumer Act 2010 (CCA); and – – the Australian Consumer Law (ACL).

The penalties included individual penalties of $1.045 million and $656,000 imposed on Ms Ali and Mr Cameron respectively. In addition, Ms Ali and Mr Cameron were ordered to pay $500,000 each as partial redress to franchisees and disqualified from managing a corporation for 5 and 4 years respectively. These orders followed on from the earlier decision in the ACCC v Geowash Pty Ltd (No 3) 17 (Earlier Decision) in which the Federal Court decided that Geowash, Ms Ali and Mr Cameron (Respondents) were in breach of the Franchising Code, the ACL and the CCA. The latest Geowash case specifically dealt with the assessment of penalties to be imposed on the Respondents. The Geowash case is particularly noteworthy as it is the second case after the case of the ACCC v Ultra Tune Australia Pty Ltd 18 in which the ACCC brought legal action against a breach of the obligation to act in good faith under the Franchising Code within the same year. Ultra-Tune was ordered to pay a penalty of over $2.6 million. GOOD FA I TH OBL IGAT ION UNDER THE FRANCH I S I NG CODE Under the Franchising Code, each party to a franchise agreement must act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to the agreement or the Franchising Code. The good faith obligation cannot be contracted out of by the parties and a breach of the obligation is subject to a maximum civil penalty of $63,000 for each breach. In assessing whether a party to a franchise agreement has breached the good faith obligation, the court may, among other matters, consider whether the party:

– – acted honestly and not arbitrarily; and – – co-operated to achieve the purpose of the agreement.

THE EARL I ER DECI S ION Broadly speaking, the relevant conduct of the Respondents included: – – unfair dealings with franchisees who entered into franchise agreements including:

16 [2020] FCA 23. 17 [2019] FCA 72. 18 [2019] FCA 12.

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