Car repair business Ultra Tune has again found itself facing legal action from Australia’s competition and consumer watchdog in relation to its dealings with franchisees.
The Australian Competition and Consumer Commission (ACCC) revealed on Tuesday that it has initiated contempt of court proceedings against Ultra Tune over alleged breaches of court orders imposed against the company three years ago.
In January 2019, the Federal Court ruled that Ultra Tune breached both the Franchising Code of Conduct for failing to act in good faith with franchisees, and Australian Consumer Law (ACL) by making false or misleading representations.
The case was the first time the watchdog had taken a franchisor to court over the good faith obligations under the Franchising Code.
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In addition to imposing a $2.6 million fine on the company, which was later reduced to $2.014 million on appeal, the court ordered Ultra Tune to provide disclosure documents and marketing fund statements to franchisees, as per the requirements of the Franchising Code.
In the current proceedings, the ACCC alleges that between 2019 and 2021, during which time the court orders were in place, Ultra Tune did not update its disclosure documents on time or prepare two marketing fund statements within the required timeframe under the Franchising Code.
Specifically, the ACCC alleges Ultra Tune did not update marketing fund statements and audit reports for the 2019 and 2020 financial years within the required timeframe, and the company’s update to its disclosure statement in 2020 was also late.
Ultra Tune has more than 270 car servicing outlets across the country and the purpose of the marketing fund documents is to “provide transparency on how the marketing funds which Ultra Tune required franchisees to pay were spent”.
ACCC commissioner Liza Carver said in a statement that the ACCC believes Ultra Tune “disregarded” its obligations to franchisees under the Franchising Code, as it “repeatedly failed to prepare important documents for franchisees within the required timeframe”.
The effect of this, said Carver, was for franchisees to be “denied the opportunity to see, in a timely manner, how their contributions to the marketing fund were being used by Ultra Tune”.
At the same time, the ACCC is concerned about the company allegedly not updating its disclosure document, as this is used by both existing and prospective franchisees to obtain key information about the business.
Part of the ACCC’s case also relates to a compliance program, which the Federal Court ordered Ultra Tune to implement following the 2019 ruling to ensure there were no further breaches of the Franchising Code or ACL. Under the program, a compliance officer was required to provide quarterly reports on the effectiveness of the program to the company.
The ACCC alleges that these reports were not provided for three quarters between April and December 2021.
Carver said ongoing monitoring of compliance is important in this case, given the company’s previous breaches.
“The ACCC will pursue contempt of court action when it considers court orders, including those obtained for the protection of franchisees, have been breached,” she added.
SmartCompany has contacted Ultra Tune for comment.