Allphones’ battle with the ACCC continues

30 March 2009 Topics: Franchising

Allphones, the telecommunications franchisor, has been involved in ongoing litigation with the Australian Competition and Consumer Commission which alleges that Allphones engaged in unconscionable and misleading and deceptive conduct in breach of Sections 51AC and 52 of the  Trade Practice Act 1974 (Cth).

Facts

Allphones offered franchisees to migrate from existing franchise agreements to new agreements, when it was not compulsory for franchisees to do so.  Allphones requested the franchisees to execute deeds of release which had the effect of releasing Allphones from all past breaches of the old franchise agreement. In return for the franchisees executing the above documents, Allphones stated that it would preferentially assign all surplus stock to franchisees on the ‘new franchise agreements’. The ACCC alleges that this conduct of notifying franchisees that stores on new agreements would receive preference for stock was unconscionable and/or misleading and deceptive in breach of the Trade Practice Act 1974 (Cth).

Allphones said that the global financial crisis and creditor non-compliance were reasons for their new stock allocation policy. The ACCC contended that the real reason for such a policy was to force or bully franchisees into signing the new agreements or the releases.  The ACCC claimed that the timing of the release of the stock allocation policy was evidence of this. This information was released one day before negotiations were set to begin between franchisees and Allphones concerning the aforementioned documents.

Interlocutory Injunction Granted

The ACCC applied to the Federal Court of Australia for an urgent interlocutory injunction to restrain Allphones from representing that it will give preferential treatment to those franchisees that enter into new franchise agreements and/or a deed of release.

On 19 January 2009, the Federal Court granted an interlocutory injunction restraining Allphones from representing that it would give preferential treatment to those franchisees who enter into new franchise agreements or deeds of release on the grounds that the threats made by Allphones to ration or withhold stock  probably constituted unconscionable conduct in breach of s51AC of the Trade Practices Act 1974 (Cth). An interlocutory injunction is awarded in urgent circumstances to restrain conduct whilst a matter is awaiting trial.

The trial commenced on 25 February 2009 and the parties are awaiting the decision of the Federal Court.

Implications for the franchising industry

Franchisors should be careful when dealing with franchisees to ensure that their conduct does not amount to “bullying” and that any information provided by franchisors to franchisees is correct, complete and not likely to mislead franchisees.

Failure to do so may result in the ACCC claiming the conduct was unconscionable or misleading and deceptive, and bringing enforcement proceedings against the franchisor, and the Court imposing penalties or making orders varying the terms of the franchise agreement.

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