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Seal-A-Fridge franchisor’s behavior ‘unconscionable’

Franchisor Seal-A-Fridge Pty Ltd has been found to have engaged in unconscionable conduct towards its franchisees the Federal Court, Brisbane has found.

Seal-A-FridgeSeal-A-Fridge is the franchisor of a mobile refrigeration seal replacement business run by franchisees around Australia. The court declared that in 2001 and 2004 Seal-A-Fridge engaged in unconscionable conduct towards certain franchisees by demanding, and ultimately obtaining, payment of increases of up to 50 percent in the ongoing weekly fees for access to the national telephone number.

In 2001 Seal-A-Fridge disconnected these franchisees from the phone number for failing to pay the full amount of the fee increase. In 2004 Seal-A-Fridge required the franchisees to agree to vary their franchise agreements to provide for the fee increase. The national phone number is used by franchisees to receive customer inquiries and work and is essential to their business.

The court found that Seal-A-Fridge had no contractual basis for the fee increases. In his judgment, Justice Logan found that the overall conduct revealed:

“misstatement, non-disclosure of information, threats and intimidation and the abuse of Seal-A-Fridge’s position of strength in relation to being able to cut off the phone number.”

Justice Logan also found that the conduct amounted to a “unilateral profit gouge”. It was each of these elements in the overall factual matrix which established unconscionable conduct on the part of Seal-A-Fridge.

The court also declared that Seal-A-Fridge failed to provide adequate disclosure to a franchisee prior to them entering into a franchise agreement and on three occasions failed to provide current disclosure documents to franchisees after receiving written requests.

“This case sends a strong message to franchisors that they cannot abuse the position of strength that they have in relation to their franchisees in order to make unfair and unreasonable personal gains at the expense of franchisees,” ACCC chairman Graeme Samuel said today.

Separately, new amendments to the Franchising Code come into effect tomorrow (1st July), for more information, see the ACCC Franchising Code of Conduct site: www.accc.gov.au/franchising