ACCC Takes Car Wash Franchisor Geowash to Court over Misleading Conduct

The Australian Competition and Consumer Commission (ACCC) has applied to the Federal Court for leave to commence proceedings against Geowash Pty Ltd (subject to Deed of Company Arrangement) (Geowash), a national car wash franchisor that has been marketing and selling hand car wash franchises since 2013.

The Allegations

It is alleged that Geowash made false or misleading representations and engaged in unconscionable conduct in breach of the Australian Consumer Law (ACL) [Sch 2 to the Competition and Consumer Act 2010 (Cth)], and also failed to comply with the good faith obligation which is contained in the Franchising Code of Conduct (the Code) [contained in Sch 1 to the Competition and Consumer (Industry Codes-Franchising) Regulation 2014].

If leave is granted, these proceedings will be the second court action recently taken by the ACCC alleging a breach of the good faith obligation by a franchisor. Division 3 of the Code sets out the obligations by each party of a franchise agreement to act in good faith.

The ACCC also alleges that Geowash’s director, Sanam Ali, and National Franchising Manager, Charles Cameron, engaged in and were knowingly concerned in the conduct.

In particular, the ACCC will allege that from at least November 2015 to May 2016, Geowash made false or misleading representations on its website that:

• prospective franchisees could make revenues of $70,216 and estimated profits of $30,439 in an average 28-day period, when Geowash did not have reasonable grounds for making those representations; and
• Geowash had a commercial relationship or affiliation with each of Nissan, Kia, Renault, Audi, Emirates, Shell, Hertz, Holden, Ikea, and Thrifty, when it did not.

The ACCC will also allege that Geowash directed a substantial portion of franchisee funds for purposes not permitted under the franchise agreement and not disclosed to franchisees, including payment of commissions to Ms Ali and Mr Cameron.

Comment from the ACCC

ACCC Deputy Chair, Michael Schaper revaled in a recent ACCC Media Release that the court action is one of a number of recent cases relating to alleged breaches of the revised Code (which was introduced in 2015), and it shows the new model has the power to penalise those doing the wrong thing.

Mr Schaper said that the ACCC is keeping a close eye on promises that franchise operators make to their franchisees. While on the whole the sector is above board, too many operators make misleading statements: 

However, prosecuting unscrupulous operators is made difficult because many franchisees are reluctant to come forward with information:

However, the Deputy Chair says it is unusual to see allegations of franchise company directors using funds in a way other than what is permitted by franchise agreements.

In a statement on the Geowash court action, Mr Schaper said the ACCC is “particularly concerned” about the allegations of improper payment of commissions from franchisee funds.

The Proposed Penalties

If granted leave to commence proceedings against Geowash, the ACCC will seek declarations, injunctions, an order for the payment of pecuniary penalties, orders for non-party consumer redress, corrective notice orders, and costs.

The ACCC will also seek orders disqualifying Ms Ali and Mr Cameron from managing corporations for a period of five years.

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ACCC takes car wash franchisor Geowash to court with claims it breached “good faith obligation” – smartcompany.com.au

ACCC takes action against Geowash car wash franchisor – ACCC Release MR 81/17