Car wash franchisor slammed for ‘unconscionable behaviour’

By Nick Hall | 11 Feb 2019 View comments

The ACCC has claimed an all-important second scalp in its good-faith prosecutions this week, securing action against former hand car wash franchise Geowash.

The prosecution comes just one month after the ACCC secured a record $2.6m in penalties relating to breaches of good faith by automotive franchisor Ultra Tune, reaffirming the watchdog’s firm stance on compliance within the sector.

The latest Federal Court ruling found that Geowash had failed to act in good faith, breaching the Franchising Code of Conduct (the Code) in relation to the sale and marketing of its franchises.

The ongoing investigation was launched in late 2015 after concerns were raised relating to claims made on the franchisor’s website.

Specifically, the claims suggested that prospective franchisees could generate a monthly average revenue of $70,216, with a gross average profit of $30,439 despite having no reasonable basis or evidence to support.

Furthermore, the Geowash franchisor claimed to have commercial relationships or affiliations with major corporate entities including Nissan, Kia, Renault, Audi, Emirates, Shell, Hertz, Holden, Ikea and Thrifty, when in fact it did not.

Franchisees within the Geowash network were found to have been taken advantage of financially, with the investigation revealing that the company charged franchisees fit-out and establishment fees that did not reflect the likely costs, but instead the amount franchisees were willing to pay.

Large portions of these costs then went to commission payments for Geowash’s director and franchising manager, under the false impression that it would go directly towards the fit-out of their site.

The Court found that the likely consequence of the Geowash’s conduct was that substantial amounts of money paid by franchisees were not readily available when it came time to establish a franchise site, resulting in inferior or undelivered outlets.

Mick Keogh, ACCC deputy chair said the Geowash decision, along with the aforementioned Ultra Tune ruling demonstrated that franchisors that did not act in good faith would face strict prosecution.

“The Court’s decision sends a strong warning to franchisors about the serious consequences of failing to comply with their obligations under the Franchising Code and Australian Consumer Law,” Keogh said. 

“This is the second recent court action we’ve taken against a franchisor for a breach of the Franchising Code’s good faith obligations. The ACCC is committed to pursuing franchisors who disregard their obligations under the Code and the consumer law.”

A hearing to determine penalties and other orders sought by the ACCC will be scheduled for later this year.