A lengthy ACCC investigation and resulting court proceedings determined Geowash had made false or misleading representations on its website about the revenue and gross profit prospective franchisees could expect to receive, and that Geowash had commercial relationships with numerous major corporate entities (which in fact it didn’t).
Geowash was found to have acted unconscionably towards a number of its prospective franchisees about the methods of charging for establishment and fitout costs of franchised sites. Some franchisees were told that the initial fees payable to Geowash were reflective of the actual setup costs for a site, but in actual fact, a large portion was paid to Geowash’s director and franchising manager as commissions. The surplus was then expended to setup costs, and many franchisees billed extra when budgets were exceeded. These costs were often initially marketed as a fixed or capped cost. After signing their franchise agreements, franchisees later learned the actual costs they were expected to pay often far exceeded the initial figure stated by Geowash. Many franchisees were then left with inferior car wash sites, and some never even received their car wash.
The decision is a timely reminder that franchisors must be extremely careful about the statements, promises and representations made to prospective franchisees in the negotiations before entering a franchise agreement. If something said about a future matter is relied upon by a franchisee, then turns out to be untrue or misleading, and causes the franchisee financial detriment, a franchisor can land in hot water.
Whilst the ACCC unsuccessfully tried to hold Geowash’s director and franchising manager personally liable, the decision nonetheless shows that had the circumstances been different, there is a real risk that individuals involved in such conduct may be held personally liable.
Franchisors should take careful note of the key takeaways from the Geowash decision:
Luke is an Associate with Stone Group Lawyers and is a regular contributor to online and print media for Inside Franchise Business. Luke is also a member of the Queensland Law Society Franchise Law Committee.