Mailpost is a print and distribution business for unaddressed promotional mail. In December 2009, the ACCC instituted proceedings in the Federal Court in Sydney against Mailpost Australia Limited (Mailpost), its director Mr Peter Kritas and its NSW sub franchisor Mailpost Postie Network Sydney Pty Ltd (MPNS) for alleged breaches of the Trade Practices Act 1974 (Cth) (the Act).
The ACCC argued that Mailpost and MPNS breached the Franchising Code of Conduct (the Code) and section 51AD of the Act by failing to provide prospective franchisees with a disclosure document. In addition, the ACCC alleged that Mailpost and MPNS made a number of false, misleading and deceptive representations to franchisees and prospective franchisees including that:
- the Mailpost business was not a franchise
- the Franchisees did not have rights under the Code
- additional franchise revenue streams would be provided to the franchisees
- the business was "probably the fastest growing franchise type operating in the whole world"
- the business was "recession proof"
- Mailpost has a number of corporate customers "on the way".
The ACCC sought orders including declarations that Mailpost engaged in conduct that contravenes the Act with the knowledge of Mr Kritas, injunctions, costs and the implementation of a trade practices compliance program by Mailpost and MPNS.
Earlier this month, the Federal Court declared that Mailpost founder Peter Kritas and Mailpost were both in breach of the Code and granted each of the orders sought by the ACCC (above).
Warning to franchisors
This result serves as a clear warning to all franchisors, highlighting the perils of failing to comply with the Franchising Code. ACCC Chairman Graeme Samuels stressed that "the ACCC will not hesitate to take court action against franchisors and associated individuals that use misleading statements when attempting to recruit new franchisees to a franchise operation."
Franchisors are well advised to ensure that they comply with the Code and if in doubt, are encouraged to seek independent legal advice. Middletons provides full service franchise specific legal advice to many franchised business in Australia and around the world.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.