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CONTROVERSIAL national car service chain Ultra Tune, which frequently takes on the advertising regulator with TV commercials featuring risque characters in distress, has now fallen foul of the competition regulator and the federal court and copped a $2.6 million penalty for its trouble.

The federal court has found that Ultra Tune Australia breached both the Franchising Code of Conduct and the Australian Consumer Law (ACL) and imposed a penalty of $2,604,000.

Ultra Tune is the second largest independent motor repair organisation in Australia and currently has nearly 200 franchises in all mainland states and territories.

The court said that Ultra Tune had failed to act in good faith in its breach of the Franchising Code, and had made false or misleading representations in breach of the ACL as part of its dealings with a prospective franchisee.

But, not only did the court find that Ultra Tune attempted to deceive the franchisee, the court also found that the company “manufactured evidence” to the ACCC and then “maintained the deception” in court.

Justice Bromwich found that Ultra Tune made false or misleading representations to the prospective franchisee about the price of the franchise, the ongoing rent of the premises and the age of the franchise.

The prospective franchisee was also told that a $33,000 deposit was refundable when it was not.

The court said that Ultra Tune also breached the Franchising Code by failing to prepare marketing fund statements within the required timeframes, failing to provide these statements and audit reports to franchisees and failing to include sufficient detail in the statements.

The judgment said that Ultra Tune had attempted to mislead the court in its defense of the ACCC’s action by relying on documents purportedly sent to the prospective franchisee.

“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,” Justice Bromwich said.

“There must be no tolerance for manufacturing evidence to deceive a regulator, and even less when the deception is maintained in this court.”

The action is the first that the ACCC has brought against a franchisor alleging a breach of the Franchising Code obligation to act in “good faith” in business dealings with franchisees.

The court ordered Ultra Tune pay the prospective franchisee its $33,000 deposit back with interest. Justice Bromwich also awarded the ACCC indemnity costs.

The deputy chairman of the ACCC, Mick Keogh, said: “Franchisors often have the stronger bargaining position in their dealings with franchisees, which is why compliance with the Franchising Code and the Australian Consumer Law is so important.

“This outcome should be a strong reminder for franchisors to meet their disclosure obligations or face serious consequences.”

Mr Keogh said the ACCC would continue to take enforcement action when serious breaches of the Code were identified.

Ultra Tune received penalties of $1.5 million for its conduct towards the prospective franchisee and another $1.1 million for other breaches of its Franchising Code obligations.

The maximum penalty for each breach of the Franchising Code is currently $63,000, but the judge in some cases applied the penalty by the numbers of franchises (183) Ultra Tune had at the time.

Ultra Tune can perhaps consider itself fortunate. The maximum penalty for a breach of the ACL was recently increased to the greater of $10 million, or three times the value of the benefit obtained, or 10 per cent of annual turnover in the preceding 12 months if the value of the benefit cannot be determined.

The increased maximum penalty did not apply to the Ultra Tune case, which preceded the change.

By John Mellor

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