Over the last couple of years, the Franchising Code of Conduct has increased the disclosure obligations on franchisors. However, franchisors have always had to make sure that, in simple terms, they deliver what they promise to franchisees.

Under the Australian Consumer Law, franchisors can be liable where they engage in misleading or deceptive conduct – which can include promising an amount of start-up costs without a reasonable basis.

The Federal Court recently found that this is what took place within the ‘UFC Gym’ system in Australia.

The Australian Competition and Consumer Commission has ordered Booktopia Pty Ltd (‘Booktopia’) to pay $6 million dollars in penalties for breaches of the Australian Consumer Law.

Specifically, Booktopia was found to have made false and misleading representations regarding consumer rights and guarantees in the Terms of Business provided on their website, and by their customer relations and service staff working within their service centres.

The Australian Consumer Law has now changed, meaning that businesses with standard contracts will soon be at risk of incurring penalties in excess of $50 million for each unfair contract term within their standard form agreements. 

The definition of small business contracts in section 23(4) will be amended to apply to a business that has either:

1. fewer than 100 employees; or
2. an annual turnover of less than $10 million (calculated on the business’ last income year).

Casual employees are not counted unless employed on a regular and systemic basis, and part-time employees are counted as a fraction of a full-time employee.

The change to this definition potentially expands the scope of businesses that would be captured under this section, as it would no longer be confined to businesses with fewer than 20 employees.

The Federal Court has recently delivered several decisions which must give corporations engaged in retail and financial services some pause for thought - especially in relation to their preparation of standard contract terms and conditions.

This article discusses two recent matters:

• Australian Competition and Consumer Commission v Fuji Film & Business Innovation Australia Pty Ltd (2022) FCA928; and
• Australian Competition and Consumer Commission v Retail Food Group Ltd (2022) FCA 961

The first decision analyses the far-reaching powers within the Australian Consumer Law to prohibit and strike down unfair contracts.  The second decision relates to the banning of unconscionable conduct in respect of franchise operations.

The recent Federal Court of Australia decision in Australia Securities and Investments Commission v Westpac Banking Corporation (Omnibus) [2022] SCA 515, in which Westpac was penalised an amount in excess of $113M, was informative in respect of the way that the Court will proceed in assessing the conduct of financial service providers.

This article is not intended to traverse all the matters considered in that case, but will instead discuss the way the Federal Court approaches issues of unconscionability in the provision of financial services and products, in light of the principles in section 12CC of the Australian Securities and Investments Commissions Act 2001.