A $2 million penalty for misleading a potential franchisee and trying to cover it up has failed to convince Ultra Tune to fix its act and stay compliant, a judge says.
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On Friday, the automotive servicing firm said it would appeal being hit with a further $1.5 million in penalties after pleading guilty to four counts of contempt of court.
In a lawsuit brought by the Australian Competition and Consumer Commission, the Federal Court found in January 2019 that Ultra Tune misled a prospective franchisee about the price of the franchise, its age and the ongoing rent.
Ultra Tune was ordered to pay a $2.6 million penalty after Justice Robert Bromwich found the firm had attempted to mislead the court about what had transpired.
"The cover up that Ultra Tune attempted reflects a significantly heightened need for deterrence, in relation to conduct that was already a most serious and fundamental breach of the franchising code in taking the deposit in the first place, reflecting as it does Ultra Tune's attitude in relation to its contravening conduct," the judge said.
This penalty was reduced to just over $2 million after an appeal to the Full Court.
Under the compliance program ordered by the court, Ultra Tune was required to ensure there were no further breaches of the Franchising Code of Conduct or Australian consumer laws.
On Friday, Justice Bromwich found the prior penalty did not deter Ultra Tune from further compliance breaches and that court orders it get its act together were "similarly ineffective".
"A condign sanction is required, even allowing for the fact that Ultra Tune now, finally, seems to be taking its obligations seriously," the judge said.
"There must be real deterrence, both specific and general.
"This court cannot be seen to be ineffectual in relation to seeking compliance with its orders, especially in relation to a major franchisor continuing to fail to meet its obligations."
The $1.5 million in additional penalties for contempt would ensure the company did not "let things slip" in the future and was a warning to franchisors to take their legal obligations seriously, Justice Bromwich wrote.
Tisher Liner FC Law partner Michael Fetter said his client Ultra Tune was disappointed with the decision and would appeal.
"With respect, our client consider that the penalty imposed by His Honour is excessive in the circumstances of COVID and illness of critical personnel and external consultants," he said.
Ultra Tune accepted it had compliance issues in the past and had taken measures to address these issues, Mr Fetter said.
"Since 2022, our client has been fully compliant with the Franchising Code of Conduct and we will continue to abide by the Code in the future."
After the decision, ACCC commissioner Liza Carver said it was vital for franchisors to ensure their franchisees received all relevant information in the correct timeframe.
"These fines for contempt demonstrate the importance of compliance with court orders," she said.
Australian Associated Press
