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Am I acting unconscionably?

Posted by Elizabeth Gore-Jones on 20 February 2015

There are no hard set rules defining when conduct is unconscionable.

More often than not, we look to case law to help to determine if certain conduct is unconscionable.

Behaviour held to be unconscionable

In a recent case* brought by the ACCC against a franchisor, its director and one of its employees the Court held that, amongst other things, the following behaviour of the franchisor was unconscionable:

1. failing to pay the franchisee for work it had completed when the customers had paid the franchisor for the work and in circumstances where the franchisee had to travel long distances and incur costs to provide the services;

2. charging the franchisee a sales and marketing fee when he had not received payment for work he had completed 3 months before and the franchise agreement stated he did not have to pay the fee unless he earned a certain amount (he had not earned this amount);

3. the franchisor held stronger bargaining power than the franchisee - the franchisor was an experienced franchisor and the franchisee was young, had no business experience and had a limited ability to understand legal documents;

4.the franchisor knew the franchisee had to continue servicing customers (despite not being paid) because the franchisee owed alot of money to the franchisor;

5. telling the franchisee it would demand the payment of all of the loan if it terminated the franchise agreement;

6. the franchisor knew the franchisee had not obtained legal advice;

7. failing to comply with the terms of the Franchising Code of Conduct in that it provided earnings information to the franchisee yet it had not disclosed the information required by the Code about thta information and had entered into the franchise agreement without first obtaining the signed statement that the franchisee had been advised to get professional advice;

8. telling the franchisee it would release the franchisee from the franchise agreement if it paid a large specified sum of money and it would release the franchisee from the obligation to pay the franchisor from the monies it owed the franchisor in circumstances where the franchisor had failed to provide the franchisee the benefit of the franchise agreement by failing to pay him or provide him with the promised work;

9. engaging debt collectors to collect the monies owed by the franchisee where the franchisor had not provided the franchisee with the benefit of the agreement; and

10. threatening to deduct monies from those owing if the frnachisee refused to do work.

Outcome

The franchise agreements were held to be void from the date of the declaration.

Warning to directors - the director was held to have aided and abetted the actions of the franchisor and was:

1. disqualified from managing a company for 2 years;

2. ordered to pay a penalty of $30,000;

3. was ordered to pay compensation to the franchisees representing the initial franchise fee paid and the monies the franchisor failed to remit to the franchisees; and

4. was ordered to contribute towards the legal costs of the ACCC.

Warning to employees - although the ACCC dropped its action against the employee, an employee can be held to be liable for aiding and abetting.

Take away

Franchisors - consider if your behaviour and actions, both taken as a whole and separately, are unconscionable.  Be aware of what your respresentatives and agents are doing and saying.  Set protocols to help to avoid unconscionable behaviour.

Directors - you can be personally liable.  Take your obligations seriously, you may not be able to hide behind the company.

Employees - you can be personally liable.  Take your obligations seriously.

Franchisees - Seek advice if you believe you are being treated unconscionably.  You may have a course of action available to you.

Disclaimer - this article is not to be considered or relied upon as legal advice.  Each set of circumstances is different and you should seek legal advice specific to your circumstances.

* ACCC v South East Melbourne Cleaning Pty Ltd (in liq) (formerly known as Coverall Cleaning Concepts South East Melbourne Pty Ltd) [2015] FCA 25.

Author: Elizabeth Gore-Jones
About: Elizabeth specialises in franchising law. She lectures at Bond University PLA in franchising, she sits on the Queensland Law Society Franchising Committee, she is a past member of the Women in Franchising committee and a past member of the Franchise Council of Australia.
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Tags: Business Franchisee Franchisor

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