Federal Court orders penalties for breaches of disclosure obligations under Franchising Code Of Conduct

The recent Federal Court decision which ordered a Franchisor to pay penalties of $100,000.00 for breaching their obligations under the Franchising Code of Conduct provides a timely reminder for Franchisors to ensure that their Disclosure Documents are both up to date and accurate.

This recent decision is the first time court ordered penalties have been imposed upon a Franchisor under the new Franchising Code of Conduct.  The ACCC issued proceedings against Morild Pty Ltd being the Franchisor of the Pastacup system (“Franchisor”) for failing to provide a Disclosure Document which complied with the Franchising Code.

The Federal Court held the Disclosure Document was deficient because it did not disclose one of the Director’s previous directorships of two previous franchisors of the Pastacup System which each became insolvent.  The Federal Court held that the Franchisor was required to disclose this information to prospective Franchisees and found that the co-founder and director was knowingly concerned in the breaches.  The court ordered that the Franchisor pay penalties of $100,000.00 and that the director personally pay penalties of $50,000.00.

ACCC Deputy Chair, Dr Michael Schaper has made it clear that “full and accurate disclosure by the Franchisor is essential to enable prospective Franchisees to make informed business decisions”.

Pursuant to the Franchising Code of Conduct, Franchisors must also ensure their Disclosure Document is updated within four months of the end of each financial year.

This decision is a timely reminder for Franchisors to review their Disclosure Documents to ensure they contain both accurate and up to date information and are in compliance with the Franchising Code of Conduct.

If you require advice or further information in relation to any of the matters discussed in this article, please contact our Corporate & Commercial team on 03 5273 5273.