ACCC sues Allphones Retail franchise for unconscionable conduct

The competition watchdog has issued legal proceedings alleging unconscionable conduct against 170-store franchised telcommunications retailer Allphones.

The ACCC alleges that Allphones Retail:

• Implemented policies targeting classes of franchisees.
• Forced franchisees to acquiesce to Allphones’ will by threatening or engaging in a pattern of harsh conduct.
• Failed to disclose or pay certain income to franchisees,

which was unconscionable under within the meaning of s51AC of the Trade Practices Act.

This is one of only a handful of cases the Australian Competition and Consumer Commission has pursued against a franchise on the grounds of unconscionable conduct under the Trade Practices Act since the mandatory Franchise Code was introduced in 1998.

Franchisee activists will be hoping it signals a tougher attitude by the ACCC to rogue behaviour by franchisors.

The ACCC has been widely criticised for not taking enough action against franchisors on behalf of franchisees. In July 2006 it had prosecuted only 17 franchisors since the Franchising Code was introduced in 1998.

John Martin, ACCC commissioner, acknowledges there have not been many cases against franchisees based on claims of unconscionable conduct. “We have always said unconscionable conduct is tricky. We are certainly shaking the issue these days.”

Martin says in the past 12 to 24 months the ACCC has been ensuring that franchising matters where there may have been unconscionable conduct have been thoroughly investigated.

But he denies this case signals a new crackdown. “We will only take litigation where we know it is fully justified. We are being as diligent as we are able on matters. The fact that we are taking action reflects we are very serious on franchising matters.”

Proceedings have also been issued against Allphones’ director and chief executive officer Matthew Donnellan, director and chief operating officer Tony Baker, and former national franchising manager Ian Harkin, for being knowingly concerned in or party to the contravening conduct.

Allphones’ non executive director, Tony Mitchell, who has been appointed by Communications Minister Steven Conroy to the seven-member panel of experts advising the Government on its national broadband network, has not been named in the proceedings.

The ACCC also alleges that Allphones engaged in false or misleading and deceptive conduct toward potential and current franchisees. This includes allegations that Allphones misrepresented how it shares profits with franchisees, bargains with third parties on behalf of its franchisees and operates its franchise system.

SmartCompany contacted Allphones for comment and was told that the company will be releasing a statement to the media later today. Tony Baker declined to make any comment in the meantime.

The ACCC is seeking injunctions, implementing of trade practices training and costs.

Franchisee activists point out that there is no claim for damages for the franchisees. Franchisees wanting compensation will have to take their own civil action, which they may or may not be able to afford to do.

A directions hearing will be held in the Federal Court in Sydney before Justice Rares on 11 April 2008.