FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v Personalised Chocolates 4 U Pty Ltd [2010] FCA 709 Citation: Australian Competition and Consumer Commission v Personalised Chocolates 4 U Pty Ltd [2010] FCA 709 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v PERSONALISED CHOCOLATES 4 U PTY LTD and TROY NATHAN PATCHING File number(s): NSD 709 of 2009 Judges: PERRAM J Date of judgment: 9 July 2010 Legislation: Trade Practices Act 1974 (Cth) s 52 Date of orders: 30 November 2009 Date of hearing: 30 November 2009 Date of last submissions: 30 November 2009 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 2 Counsel for the Applicant: R Bromwich SC Solicitor for the Applicant: Australian Government Solicitor Solicitor for the Respondents: John Joyce Solicitors IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 709 of 2009 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: PERSONALISED CHOCOLATES 4 U PTY LTD First Respondent TROY NATHAN PATCHING Second Respondent JUDGE: PERRAM J DATE OF ORDER: 30 NOVEMBER 2009 WHERE MADE: SYDNEY THE COURT: 1. declares that: (a) the First Respondent engaged in the conduct listed below, in trade or commerce, that was misleading or deceptive or likely to mislead or deceive in contravention of section 52 of the Trade Practices Act 1974 (Cth) (Act); and (b) the Second Respondent: (i) aided, abetted, counselled or procured the contraventions by the First Respondent of section 52 of the Act; or (ii) directly or indirectly was, knowingly concerned in, or party to, the contraventions by the First Respondent of section 52 of the Act. Conduct that was misleading or deceptive or likely to mislead or deceive (a) Making false representations to the effect that franchisees would be provided with software that would enable franchisees to operate the franchise. (b) Making false representations to the effect that franchisees would be provided with a training manual that would enable franchisees to operate the franchise. (c) Making false representations to the effect that a refund of franchise fees after 12 months was genuinely available, by reason of conditions that were not capable of being met by franchisees. (d) Publishing statements which in context falsely represented that persons giving testimonials had been franchisees of the First Respondent, when they had never been such franchisees. (e) Falsely representing that the business system being offered for sale by PC4U, which meets the definition of a 'franchise' under the Franchising Code, is something other than a franchise. 2. declares that: (a) the First Respondent represented that its franchises had sponsorship or approval which they did not have in the form of testimonials which in context represented that they were from satisfied franchisees of the First Respondent when in fact the persons named were not and had never been franchisees of the First Respondent, in contravention of section 53(c) of the Act; and (b) the Second Respondent: (i) aided, abetted, counselled or procured the contravention by the First Respondent of section 53(c) of the Act; or (ii) was directly or indirectly, knowingly concerned in, or party to, the contravention by the First Respondent of section 53(c) of the Act. 3. declares that: (a) the First Respondent made false or misleading representations concerning the existence or effect of a condition, warranty, guarantee, right or remedy by means of statements to the effect that a refund of franchise fees after 12 months was available upon satisfaction of conditions, when in fact those conditions were not capable of being met by franchisees, in contravention of section 53(g) of the Act; and (b) the Second Respondent: (i) aided, abetted, counselled or procured the contravention by the First Respondent of section 53(g) of the Act; or (ii) was directly or indirectly, knowingly concerned in, or party to, the contravention by the First Respondent of section 53(g) of the Act. 4. declares that: (a) the First Respondent: (i) accepted payment for franchises when, at the time of acceptance there were reasonable grounds of which the First Respondent was aware, or ought reasonably to have been aware, for believing that it would not be able to supply, either within a reasonable time or at all, software that would enable franchisees to operate the franchise in contravention of section 58 of the Act; and (ii) accepted payment for franchises when, at the time of acceptance there were reasonable grounds of which the First Respondent was aware, or ought reasonably to have been aware, for believing that it would not be able to supply, within the time specified by the First Respondent, a training manual that would enable franchisees to operate the franchise in contravention of section 58 of the Act; and (b) the Second Respondent: (i) aided, abetted, counselled or procured the contraventions by the First Respondent of section 58 of the Act; or (ii) was directly or indirectly, knowingly concerned in, or party to, the contraventions by the First Respondent of section 58 of the Act. 5. declares that: (a) the First Respondent breached the provisions of the Franchising Code listed below and in so doing contravened section 51AD of the Act; and (b) the Second Respondent: (i) aided, abetted, counselled or procured the contraventions by the First Respondent of section 51AD of the Act; or (ii) was directly or indirectly, knowingly concerned in, or party to, the contraventions by the First Respondent of section 51AD of the Act. Breaches of the Franchising Code (a) Before entering into franchise agreements, PC4U failed to create a disclosure document as required by clause 6 of the Franchising Code. (b) PC4U failed to give a current disclosure document to prospective franchisees, as required by clause 6B of the Franchising Code. (c) On and from 21 September 2007 PC4U failed to give prospective franchisees a copy of the Franchising Code, in contravention of clause 10 of the Franchising Code. (d) On and from 1 March 2008 PC4U failed to give prospective franchisees a copy of the franchise agreement in the form in which it was to be executed at least 14 days before the franchise agreement was entered into, in contravention of clause 10 of the Franchising Code. BY CONSENT, THE COURT ORDERS THAT: 6. The First Respondent be restrained from: (a) making representations to the effect that franchisees will be provided with software that would enable franchisees to operate the franchise, unless and until such software exists; (b) making representations to the effect that a refund of franchise fees will be available upon satisfaction of conditions, unless those conditions are capable of being met by franchisees; (c) publishing, or causing to be published, statements said to be from persons containing any kind of positive testimonial as to, or endorsement or approval of, the business unless the persons providing any such testimonial, endorsement or approval have operated that particular business; (d) accepting payment for franchises, unless at the time of accepting payment the goods and services which form part of the franchise are reasonably capable of being supplied; and (e) representing in any way that a business system being offered for sale which meets the definition of a 'franchise' under the Franchising Code, is something other than a franchise. 7. The Second Respondent be restrained from: (a) aiding, abetting, counselling, or procuring, or being in any way, directly or indirectly, knowingly concerned in, or party to, any of the representations or conduct of the kind listed at paragraphs 6.1-6.5 above by any corporation; or (b) in his own name or on behalf of anyone else, by the use of postal, telegraphic or telephonic services, including the internet, making any of the representations or conduct of the kind listed at paragraphs 6.1-6.5 above. 8. The First Respondent and the Second Respondent in the operation of any franchise are required to: (a) before entering into any franchise agreement, and within four months after the end of each financial year, create a disclosure document, as required by clause 6 of the Franchising Code; (b) give a current disclosure document to prospective franchisees, as required by clause 6B of the Franchising Code; (c) give prospective franchisees a copy of the Franchising Code, as required by clause 10 of the Franchising Code; (d) give prospective franchisees a copy of the franchise agreement in the form in which it is to be executed at least 14 days before the franchise agreement is entered into, as required by clause 10 of the Franchising Code 9. Within two weeks of the date of this Order, the First Respondent and the Second Respondent at their own expense, send a notice in the terms set out in Annexure A to this Order by email and by prepaid post to the last known email address and postal address of each person who purchased a franchise from the First Respondent. 10. Within two weeks of the date of this Order, the First Respondent and the Second Respondent at their own expense, publish a notice in the terms and form of Annexure B to this Order, and keep the notice conspicuously and continuously in place for two months, on the homepage of the website http://www.pc4u.net.au, and on the homepage of any other website owned or controlled by the First Respondent or the Second Respondent where that other website features a business similar to or the same as the business which is featured on http://www.pc4u.net.au. 11. An order that, within three months of the date of this Order, the Second Respondent file and serve on the ACCC an affidavit verifying that the First Respondent and the Second Respondent has carried out its or his obligations under paragraphs 9 and 10 above, and detailing how such obligations were performed, specifically: (a) a list of persons to whom it sent a notice in the terms set out in Annexure A to this Order; and (b) the date and websites on which it published a notice in the terms and form of Annexure B to this Order. 12. The First Respondent is required to: (a) within 3 months of the date of this Order, establish and implement a Trade Practices Compliance Program in accordance with the requirements set out in Annexure C to this Order for the employees or other persons involved in the First Respondent's business, being a program designed to minimise the First Respondent's risk of future breaches of sections 51AD, 52, 53(c), 53(g) and 58 of the Act and to ensure awareness of its responsibilities and obligations in relation to the requirements of sections 51AD, 52, 53(c), 53(g) and 58 of the Act; and (b) maintain and continue to implement the Trade Practices Compliance Program for a period of 5 years from the date of this Order; and (c) provide, at its own expense, a copy of any documents required by the ACCC in accordance with Annexure C to this Order. 13. The Second Respondent is required: (a) within one month of the date of this Order, and thereafter at least once a year for a period of five years, attend practical trade practices training focusing on sections 51AD, 52, 53(c), 53(g) and 58 of the Act, such training to be administered by a suitably qualified compliance professional or legal practitioner with expertise in trade practices law; and (b) provide a written statement or certificate from the trade practices professional who conducts the training referred to in order 13.1 above to the ACCC within 14 days of completion of the training verifying that such training has occurred. 14. A copy of the final order of the court and the reasons for judgment, with the seal of the Court applied, be placed on the Court file for the purposes of section 83 of the Act. 15. The First Respondent and/or the Second Respondent pay a contribution towards the ACCC's costs of and incidental to the proceeding in the amount of $7,500 to be paid in 9 monthly instalments as follows: (a) $833.34 on or before 30 January 2010; and (b) $833.33 on or before the end of each of February, March, April, May, June, July, August and September 2010. ANNEXURE A LETTER TO FRANCHISEES [Customer Name] [Address] [Address] [date] Dear [name], DISCLOSURE NOTICE – Federal Court Ordered Notice The Federal Court of Australia has recently made orders against Personalised Chocolates 4U Pty Ltd (PC4U) and me, Troy Patching, as director of PC4U in relation to legal proceedings instituted by the Australian Competition and Consumer Commission (ACCC). The Court declared that PC4U has breached sections 51AD, 52, 53(c), 53(g) and 58 of the Trade Practices Act 1974 (the Act). The Court also declared that I was knowingly concerned in all of those breaches of the Act. Some of the conduct declared to be in contravention of the Act included: · Making false representations to PC4U franchisees that they would be provided with functioning software necessary for the operation of the franchise; · Making false representations to PC4U franchisees that they would be provided a training manual for the operation of the franchise, at the time they became a franchisee; · Making false representations that a refund of franchise fees was available to franchisees when certain conditions were met, when it was impossible to meet some of those conditions and/or the time in which PC4U franchisees were able to seek a refund was not capable of being ascertained by the PC4U franchisees; · Publishing statements on the PC4U website: www.pc4u.net.au which represented that the persons giving testimonials had been franchisees of PC4U, when they had never been PC4U franchisees; and · Falsely representing that the business system being offered for sale by PC4U, which meets the definition of a franchise in the Franchising Code, is not a franchise. Further, as part of the orders, the Court has issued injunctions restraining PC4U and me from engaging in similar conduct in the future and orders that PC4U: · publish a corrective notice on its website (www.pc4u.net.au); · send a letter to former and current PC4U franchisees; and · pay the ACCC's court costs. Should you require any further information, please contact the ACCC's Infocentre on 1300 302 502 or visit the ACCC's website on www.accc.gov.au. Yours sincerely, Troy Patching Director Personalised Chocolates 4U Pty Limited ANNEXURE B CORRECTIVE NOTICE FOR PC4U WEBSITE OR OTHER WEBSITE Federal Court Ordered Notice The Federal Court of Australia has recently made orders against Personalised Chocolates 4U Pty Ltd (PC4U) and me, Troy Patching, as director of PC4U in relation to legal proceedings instituted by the Australian Competition and Consumer Commission (ACCC). The Court declared that PC4U has breached sections 51AD, 52, 53(c), 53(g) and 58 of the Trade Practices Act 1974 (the Act). The Court also declared that I was knowingly concerned in all of those breaches of the Act. Some of the conduct declared to be in contravention of the Act included: · Making false representations to PC4U franchisees that they would be provided with functioning software necessary for the operation of the franchise; · Making false representations to PC4U franchisees that they would be provided a training manual for the operation of the franchise, at the time they became a franchisee; · Making false representations that a refund of franchise fees was available to franchisees when certain conditions were met, when it was impossible to meet some of those conditions and/or the time in which PC4U franchisees were able to seek a refund was not capable of being ascertained by the PC4U franchisees; · Publishing statements on the PC4U website: www.pc4u.net.au which represented that the persons giving testimonials had been franchisees of PC4U, when they had never been PC4U franchisees; and · Falsely representing that the business system being offered for sale by PC4U, which meets the definition of a franchise in the Franchising Code, is not a franchise. Further, as part of the orders, the Court has issued injunctions restraining PC4U and I from engaging in similar conduct in the future and orders that PC4U: · publish a corrective notice on its website (www.pc4u.net.au); · send a letter to former and current PC4U franchisees; and · pay the ACCC's court costs. Should you require any further information, please contact the ACCC's Infocentre on 1300 302 502 or visit the ACCC's website on www.accc.gov.au. Yours sincerely, Troy Patching Director Personalised Chocolates 4U Pty Limited ANNEXURE C TRADE PRACTICES COMPLIANCE PROGRAM 1. Training of director 1.1. Within one month of the Order of the Court, and thereafter at least once a year for a period of five years, PC4U will ensure that Mr Troy Patching attends practical trade practices training focusing on sections 51AD, 52, 53(c), 53(g) and 58 of the Trade Practices Act 1974 (the Relevant Provisions). 1.2. PC4U will ensure that the training referred to in paragraph 1.1 above is administered by a suitably qualified, compliance professional or legal practitioner with expertise in trade practices law. 1.3. PC4U will provide a written statement or certificate from the trade practices professional who conducts the training referred to in paragraph 1.1 above to the ACCC within 14 days of completion of the training verifying that such training has occurred. 2. Training of employees 2.1. PC4U will cause all employees of PC4U whose duties could result in them being concerned with conduct that may contravene the Relevant Provisions to attend regular (at least once a year) practical training administered by a suitably qualified compliance professional or legal practitioner with expertise in trade practices law, that focuses on the Relevant Provisions. 2.2. PC4U will ensure that all new employees of PC4U whose duties could result in them being concerned with conduct that may contravene the Relevant Provisions attend the training referred to in paragraph 2.1 above within one month of commencing employment with PC4U. 3. Complaints handling 3.1. PC4U will: 3.1.1. develop procedures for recording, storing and responding to trade practices complaints within two months of the Order of the Court; and 3.1.2. provide the ACCC with an outline of the complaint handling system developed within two months of the Order of the Court. 4. If requested by the ACCC, PC4U will provide, at its own expense, copies of any other documents or information in respect of matters which are the subject of the Compliance Program within 14 days of the request being received. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 709 of 2009 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: PERSONALISED CHOCOLATES 4 U PTY LTD First Respondent TROY NATHAN PATCHING Second Respondent JUDGE: PERRAM J DATE: 9 JULY 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 30 November 2009, I made orders declaring that the first respondent, Personalised Chocolates 4 U Pty Ltd, had engaged in misleading and deceptive conduct contrary to the proscriptions of s 52 of the Trade Practices Act 1974 (Cth) ("the Act"). That conduct related to the making of statements to franchisees about, broadly speaking, the availability of certain software. I also declared that certain other breaches of the Act had occurred along with breaches of the franchising code of conduct. So far as the second respondent is concerned, Mr Troy Nathan Patching, I declared in substance that he had been complicit in the behaviour of Personalised Chocolates 4 U Pty Ltd. The making of these declarations was not approved by the respondents. I then made orders by consent restraining any further conduct of that kind and I ordered the publication of a certain species of corrective advertising, together with a régime for the payment of some of the Commission's costs. 2 At the time I took those steps the Commission placed before a number of affidavits which satisfied me that each of Personalised Chocolates 4 U Pty Ltd and Mr Patching had engaged in precisely the kind of misleading and deceptive conduct alleged by the Commission. It was in those circumstances that I made the declarations sought together with the consent orders. I certify that the preceding two (2) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 9 July 2010