Close to 12 months after successfully prosecuting former hand car wash franchise Geowash, the Australian Competition and Consumer Commission (ACCC) has secured a monster $4.2m in penalties.
On Friday, the federal court ordered penalties against Geowash Pty Ltd, including $1.045m in penalties for director Sanam Ali and $656,000 for franchising manager Charles Cameron.
The landmark result comes after years of speculation and investigation into the scandal-ridden former franchise.
Geowash breaches
In February 2019, the court found that Geowash Pty Ltd had made false or misleading representations and failed to act in good faith in relation to the sale and marketing of its franchises.
Additionally, Geowash was also found to have acted unconscionably towards franchisees through its charging practices for the establishment and fit-out of its franchise sites.
In a disturbing abuse of power, Geowash created the false impression that amounts charged to franchisees would go directly to the establishment of their car wash site. Instead, large amounts were used to make commission payments to Ali and Cameron, alongside other company expenses.
Mick Keogh, ACCC deputy chair said the hefty penalty demonstrated the watchdog’s commitment to governance, and would hopefully act as a major deterrent for other franchisors engaging in abusive behaviour.
“Franchisors are often in a position of power compared to their franchisees, and Geowash’s actions, including those of its executives, were very serious breaches of its obligations under the Code and the Australian Consumer Law,” Keogh said.
“These significant penalties should send a clear and strong message to franchisors and franchise executives about the importance of complying with their obligations under the Franchising Code of Conduct and Australian Consumer Law.”
Geowash penalties
In addition to the enormous penalties, the court also ordered Ali and Cameron to pay $1m as partial redress to franchisees for the losses suffered as a result of their conduct.
Both Ali and Cameron has been immediately disqualified from managing corporations in Australia, with Ali disqualified for five years and Cameron for four years.
The latest Geowash decision marks a significant step in the evolution of sector governance, marking the second penalty awarded for a matter enforcing the good faith obligation of the Franchising Code of Conduct.
Back in January 2019, auto-franchise Ultra Tune faced a similar fate, copping a $2.6m penalty, which was later downgraded for breaches to the code and the Australian Consumer Law.