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Last week, the Federal Court of Australia ordered a Harvey Norman franchisee to pay $52,000 in penalties for breaches of the Australian Consumer Law. The decision is a reminder that retailers must understand their obligations to consumers for defective products. It also shows how the bad practices of some franchisees can harm the reputation of a franchise network.

What Happened?

Bunavit Pty Ltd operated a Harvey Norman franchise on the Gold Coast. In 2013, the Australian Competition and Consumer Commission (ACCC) commenced proceedings against Bunavit and nine other Harvey Norman franchisees for contraventions of the Australian Consumer Law.

Under the Australian Consumer Law, retailers automatically give guarantees about the products they supply to consumers, including a guarantee that the products are of acceptable quality. Retailers cannot exclude these consumer guarantees, which are in addition to any express warranties given by the product’s manufacturer.

The ACCC alleged that staff members of Bunavit made misleading representations to consumers about their rights. The consumers in question had purchased computers from Bunavit’s store and subsequently experienced serious problems with the products. The misleading representations included telling the consumers that there was nothing Bunavit could do to help and that the consumer would need to go through the manufacturer.

What Did the Court Decide?

When the matter came to court, Bunavit accepted that its employees’ representations contravened the Australian Consumer Law, because they were misleading about the consumers’ rights and Bunavit’s obligations with respect to consumer guarantees. The Federal Court was therefore required to determine what relief should be granted against Bunavit.

In deciding to award penalties of $52,000, the Federal Court compared Bunavit’s contraventions to similar cases and pointed out that, in this case:

  • There was a greater number of misleading statements;
  • The conduct extended over a longer period (for about one year);
  • More staff members were involved; and
  • Bunavit’s operation was substantially larger (in terms of turnover and profit).

On the other side of the ledger was the fact that none of Bunavit’s senior staff was involved in the misleading conduct.

In a press release about the decision, the ACCC reminded businesses that they are expected to take effective measures to make sure staff understand their obligations under the Australian Consumer Law.

What Are the Implications for Franchise Networks?

Following this latest decision, the ACCC has now successfully sought a total of $286,000 in fines against Harvey Norman franchisees.

Of course, these penalties have been against individual franchisees, not the franchisor. However, there are at least two reasons why franchisors should be concerned about consumer law compliance across their franchise network.

First, consumer law breaches damage the reputation of a franchise brand. Although the ACCC’s action was against Bunavit and other franchisee entities, the media’s attention has been drawn to the well-known name of Harvey Norman. Unfortunately, many members of the public may not understand that the misleading conduct involved separately-run franchised businesses, rather than the whole chain of Harvey Norman stores.

Secondly, consumer law breaches are bad for franchisees’ businesses – principally because they risk customer loyalty, but also because defending ACCC proceedings takes time and resources. Worse still, the franchisee may face large penalties at the end of the process. Bunavit ceased trading in early 2015. It is not clear whether this was related the ACCC proceedings or not. But one thing is certain: franchisees going out of business is is not good for franchisors.

Key Takeaways 

Franchisors should consider how they can promote good consumer law practices across their franchise network. This could be done through their operations manual, as well as ongoing compliance training for franchisees.

Questions about how your franchise can improve compliance with Australian Consumer Law? Get in touch.

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