Litigation and Dispute Resolution

Two years later: review of unfair contract protections for small businesses

10 December, 2018

The Federal Court decision of Australian Competition and Consumer Commission (ACCC) v Ultra Tune Australia Pty Ltd [2019] FCA 12 sent shockwaves through the franchise sector after imposing a $2.604 million penalty against national franchisor Ultra Tune for serious breaches of the Franchising Code of Conduct and the Australian Consumer Law.


In early 2015, a prospective franchisee of Ultra Tune, Mr Ahmed, agreed to purchase an Ultra Tune franchise in Parramatta. Between May 2015 and August 2015, Mr Ahmed had several meetings with Ultra Tune’s NSW State Manager, Mr Tatsis, during which Mr Tatsis made a number of representations to Mr Ahmed about the franchise, including representations about franchise fees, rent for the premises, provision of equipment by the franchisor and the refundability of any deposit paid by the prospective franchisee.

In September 2015, Mr Ahmed paid a $33,000 deposit to Ultra Tune. He understood that the deposit was refundable if the deal did not complete. While attending a training course in Melbourne for new franchisees a few weeks later, Mr Ahmed received a number of documents concerning the Parramatta franchise, which appeared to be inconsistent with what Mr Tatsis had previously represented to him.

As he grew concerned with Ultra Tune’s representations about the Parramatta franchise, Mr Ahmed decided to exit the agreement and therefore demanded a refund of his deposit (less $3,000 for the cost of the training course). Ultra Tune refused to refund him and in late November 2015, Mr Ahmed lodged a complaint with the Australian Competition and Consumer (ACCC).

The ACCC subsequently launched an extensive investigation examining Ultra Tune’s conduct towards Mr Ahmed, as well as its conduct generally, under the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) (Franchising Code), the Trade Practices (Industry Code – Franchising) Regulations 1998 (Cth) (Old Franchising Code) and the Australian Consumer Law.

In 2017, the ACCC commenced proceedings against Ultra Tune in the Federal Court, seeking:

  1. pecuniary penalties with respect to Ultra Tune’s alleged breaches of the Franchising Code, the Old Franchising Code, and the Australian Consumer Law;
  2. an order for refund of fees paid by Mr Ahmed; and
  3. a number of orders for non-pecuniary relief.

Franchise-wide disclosure contraventions

In the course of its investigations, the ACCC discovered that Ultra Tune had failed to comply with its disclosure obligations under the Franchising Code towards 185 franchisees in the 2014-2015 financial year. Ultra Tune admitted to a number of breaches of the Franchising Code, including failures to:

  • maintain and update each of its four disclosure documents within four months of the 2014-15 financial year (clause 8(6));
  • prepare five different financial statements concerning its five different marketing funds within four months of the 2014-15 financial year (clause 15(1)(a));
  • provide franchisees with the financial statements concerning its different marketing funds within four months of the 2014-15 financial year (clause 15(1)(d)); and
  • provide a disclosure statement when requested by a franchisee (clause 16(1)).

In relation to the financial statements for the marketing funds, Ultra Tune denied it breached clause 15(1) of the Franchising Code by failing to provide “sufficient detail” in order to give “meaningful information” in the financial statements concerning its marketing funds. The meaning of “sufficient detail” posed some uncertainty as the term had not yet been tested by the courts.

Ultra Tune contended that it complied with the requirement to provide “sufficient detail” through its profit and loss statements for each of its five regions, as clause 15(1)(b) requires franchisors to only undertake “an accounting, not a bookkeeping, exercise”.

The Court disagreed with Ultra Tune’s submission. Instead, the Court found that the requirement for a financial statement to provide “meaningful information” means that the detail “must have some explanatory force and permit meaningful insights to be gained by the franchisee” to adequately disclose its primary sources of income and expenses and to achieve the policy objectives of the provision of accountability and transparency.

Unlawful conduct with a prospective franchisee

The Court found that Ultra Tune’s conduct towards Mr Ahmed breached the Franchising Code and the Australian Consumer Law by:

  • failing to uphold its duty of good faith (clause 6(1));
  • failing to provide disclosure documents to Mr Ahmed when requested (clause 9(1));
  • making misleading or deceptive representations to Mr Ahmed (section 18 of the ACL); and
  • making false or misleading representations to Mr Ahmed (sections 29(1)(b), (1)(i) or (1)(m) of the ACL).

Ultra Tune’s attempts to cover-up evidence

The extent of Ultra Tune’s serious misconduct was discovered when it became apparent during the proceedings that it had fabricated documents provided to Mr Ahmed to cover up its representations concerning the refundability of the deposit. The serious misconduct prompted the Court to call for a “significantly heightened need for deterrence” when issuing its penalties in what was a clear attempt to deceive the ACCC and ultimately, the Court. The Court classed Ultra Tune’s failure to act in good faith when it had refused to refund the deposit as the “most serious and fundamental breach of the Franchising Code”.

Calculating the penalty

As there was breach in respect of separate disclosure statements concerning each of the four States and separate marketing statements for each of the five regions, the pecuniary penalty for Ultra Tune’s general breaches of the Franchising Code in relation to the disclosure contraventions totalled $1.1 million. This amount equated to an amount up to the maximum pecuniary penalty of $54,000 (which is indexed bi-annually from the 2014-15 financial year) multiplied by the number of contraventions. The Court made totality adjustments when calculating the penalty for some of the contraventions to avoid the penalties from being disproportionate and excessive.

On top of that, the Court ordered a total penalty of $1.504 million for Ultra Tune’s contraventions concerning Mr Ahmed. Unsurprisingly, the bulk of the penalty, that is, the sum of $1 million was imposed for the franchisor’s false or misleading representation about the refundability of the deposit.

A lesson for Australian franchisors

  1. Franchisors must ensure that they comply with the Franchising Code.
  2. Franchisors that attempt to cover up any misconduct on their part will face significant fines.
  3. Franchisors must consider the level of information that they are required to provide in their disclosure statements in order to pass the “sufficient detail” test. In doing so, they should be mindful of the policy objectives of accountability and transparency.
  4. As was the case with Mr Ahmed, a single complaint by a prospective or actual franchisee to the ACCC can lead to a franchise-wide investigation by the ACCC.
  5. Just a few months ago, the Chairman of the ACCC, Rod Sims warned the franchise sector about the number of serious allegations the ACCC have received concerning misconduct in the sector. As such, the ACCC has expressed an increased appetite for investigating misconduct in the franchising sector. Unless franchisors clean up their act, expect to see more successful prosecutions by the ACCC.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
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Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty.  The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes
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The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

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