Court finds national franchisor Seal-A-Fridge guilty of unconscionable conduct over “profit gouge”

The Federal Court has found franchisor Seal-A-Fridge and its director Nigel Rooney engaged in unconscionable conduct when it demanded a 50% increase in fees franchisees had to pay to access the chain’s national phone number.

The Australian Competition and Consumer Commission, which initiated the legal action against Seal-A-Fridge, has hailed the court victory as one of the rare prosecutions of an unconscionable conduct matter.

The court found that between 2001 and 2004, Seal-A-Fridge engaged in unconscionable conduct towards certain franchisees by demanding a 50% increase in the ongoing weekly fees to access the chain’s national customer inquiry phone line, through which much of the franchisees work came.

In 2001, Seal-A-Fridge started disconnecting franchisees that did not pay the full amount of the fee increase and in 2004 demanded that the franchisees agree to vary their franchise agreements to provide for the fee increase.

But Federal Court judge Justice John Logan found that franchisor had had no contractual basis for the fee increases and found Seal-A-Fridge had abused its power with the franchisees.

“What was revealed overall, so the ACCC submitted, was “misstatement, non-disclosure of information, threats and intimidation and abuse of Seal-A- Fridge’s position of strength in relation to being able to cut off the phone number”. I agree,” Logan said in his judgement.

“For the purpose of augmenting its profit, Seal-A- Fridge gouged further fee income from its franchisees thus reducing the profit margin of each franchisee.”

Seal-A-Fridge was ordered to make a “substantial” contribution to the ACCC’s costs, write to all franchisees informing them of the Court judgement and implement a complaints handling process.

ACCC chair Graeme Samuel praised the result.

“This case sends a strong message to franchisors that they cannot abuse the position of strength that they have in relation to their franchisees in order to make unfair and unreasonable personal gains at the expense of franchisees.”

“Only a small number of unconscionable conduct cases have been decided by the courts. This case provides a further example of what amounts to unconscionable conduct in the particular circumstances found by the court.

The Court also found Seal-A-Fridge breached the Franchising Code of Conduct in that it failed to provide adequate disclosure to a franchisee prior to them entering into a franchise agreement and failed on three occasions to provide current disclosure documents to franchisees after receiving written