The Full Federal Court has today dismissed an appeal by the former director and franchising manager of former carwash franchise Geowash Pty Ltd against a Federal Court decision that they were knowingly concerned in breaches of the Australian Consumer Law (ACL) and Franchising Code of Conduct (Franchising Code) by Geowash.
In 2019, the Federal Court found that Geowash had acted unconscionably towards franchisees through its charging practices for the establishment and fit-out of its franchise sites, in breach of the ACL.
The Court also found that Geowash failed to act in good faith in relation to the sale and marketing of its franchises, contravening the Franchising Code.
The Court found Geowash had represented to franchisees that the amounts charged were required to meet the actual costs to fit-out and set-up a franchise site, when in fact large amounts were used to make commission payments to Geowash’s director Sanam Ali and franchising manager Charles Cameron, as well as other expenses.
Last year, the Federal Court ordered $4.2 million in total penalties against Geowash, Ms Ali and Mr Cameron. The Court also made orders banning Ms Ali and Mr Cameron from managing a corporation for periods of 5 and 4 years respectively, and ordered them to each pay $500,000 as partial redress to franchisees for the losses the franchisees had suffered.
Ms Ali and Mr Cameron appealed from the Court’s findings that they were knowingly concerned in Geowash’s unconscionable conduct and breaches of the Franchising Code. They also appealed from the orders made by the Court for the payment of penalties, redress and banning them from managing corporations.
Today the Full Federal Court rejected their arguments and dismissed the appeal entirely.
The Full Court unanimously found the primary judge’s ‘characterisation of the system or pattern of conduct as unconscionable was founded upon deliberate deceptiveness and dishonesty’ and that Geowash’s ‘so called “business model’ was a largely consistent approach to extract money from a group of people by falsely representing to them that moneys would be used in a particular way, when it was not intended to do so.’
This decision upholds the initial findings that Ms Ali and Mr Cameron were knowingly involved in the company’s unconscionable conduct and failures to act in good faith. The Full Court’s decision also upholds the penalty and other relief orders.
“We welcome the Full Court’s decision today confirming the original finding that Geowash’s actions breached the ACL and Franchising Code,” ACCC Deputy Chair Mick Keogh said.
“It is completely unacceptable that funds paid by franchisees, that were supposed to pay for their franchise sites to be established, were instead used for other purposes, particularly as commission payments made to Geowash’s director and franchise manager.”
“Franchisors are often in a position of power compared to their franchisees and the ACCC will continue to take enforcement action against those franchisors who exploit this power by engaging in conduct that is in breach of the Franchising Code and the ACL,” Mr Keogh said.
Geowash is a former hand car wash and detailing franchisor. From February 2013 to October 2016, Geowash entered into 31 Franchise Agreements with franchisees across Australia. Most of these were in Western Australia, but some franchisees were also located in Queensland, New South Wales and Victoria.
Geowash went into voluntary administration in October 2016 and subsequently went into liquidation on 11 April 2019.
In May 2017, the ACCC instituted proceedings against Geowash. In February 2019, the Federal Court found that Geowash had acted unconscionably, made false or misleading representations and acted contrary to the obligation of good faith in the Franchising Code.
In January 2020 the Court imposed penalties totalling $4.2 million and ordered the individual respondents to pay consumer redress to affected Franchisees.
In February 2020, Ms Ali and Mr Cameron filed an appeal. This appeal was dismissed today by the Full Federal Court.