The Australian Competition and Consumer Commission has handed cheques totalling $352,000 to five franchisees on whose behalf it began representative action seven years ago.
The money concluded a long-running matter which began in 1996 when the franchisees first approached the ACCC about Top Snack Foods Pty Limited.
The ACCC took a representative action on behalf of the five franchisees in the Federal Court in 1997. In June 1999, after a two-week hearing, Justice Tamberlin found that Top Snack Foods Pty Ltd had engaged in misleading and deceptive conduct in breach of sections 52 and 59 of the Trade Practices Act 1974.
He also found that Mr George Manera, a director and manager, of Top Snack Foods, and Mr Nick Kritharas, General Manager, were knowingly concerned in breaches of the Act.
Justice Tamberlin said at the time that it was an important consideration that these proceedings were initiated by the ACCC not simply for the benefit of private interests but in vindication of the public interest.
The action began before the introduction of the Franchising Code of Conduct in 1998.
The ACCC, to enforce the judgment, and gain access to funds to distribute to the franchisees, placed the companies Top Snack Foods Pty Limited and Nick Kritharas Holdings Pty Limited into liquidation and the principals of those companies, Mr Kritharas and Mr Manera into bankruptcy.
The only assets found during the liquidation process were two Sydney properties and contained in the KN Trust, the former trustee of which was Nick Kritharas Holdings Pty Limited. The trust and its assets had been transferred to a new trustee, Gatsios Holdings Pty Limited.
In seeking to recover the damages awarded to the franchisees, the ACCC on behalf of Nick Kritharas Holdings Pty Limited (In Liq) brought an action in the Supreme Court of New South Wales. The Supreme Court found that the trust deed of the KN Trust indemnified the (former) trustee except in the case of fraud and that as the Federal Court had made a specific finding that there was no case of fraud, the right of indemnity of Nick Kritharas Holdings Pty Limited (In Liq) extended to the damages awarded in the Federal Court. The new trustee, Gatsios Pty Limited appealed to the NSW Court of Appeal on the grounds that the Supreme Court erred in its construction of the trust deed.
In a unanimous decision the Court of Appeal rejected the appeal by Gatsios Pty Limited and found that "a right to indemnification extends to reimbursement of a trustee for damages awarded against him for torts committed by him in the course of carrying on a business". The court continued that: "It follows that damages under the trade practices legislation, for this purpose, are equated with damages for common law torts".
Gatsios Pty Limited then applied to the High Court for Special Leave to appeal the decision of the Court of Appeal. In November 2002 the High Court refused the application.
The liquidator of Nick Kritharas Holdings Pty Limited (In Liq) auctioned the properties in the trust and is now able to make a distribution of 86.566 cents in the dollar to the five franchisees and other creditors.
"It is important that companies recognise that the ACCC will take all steps legally available to it to enforce judgments handed down in its favour and in favour of parties on whose behalf it takes representative actions", ACCC Chairman, Mr Graeme Samuel said today.
"The ACCC places priority on enabling small businesses to understand the benefits provided by the Trade Practices Act 1974 and to respond effectively if they are the target of misrepresentation, misuse of market power, or unconscionable conduct by larger companies.
"The ACCC's focus on small business issues is particularly evident in the franchising industry, where the ACCC now actively administers and enforces the Franchising Code of Conduct through its powers under the Act.
"Many small businesses are based on franchises. Those considering entering franchises must be confident that they have received correct information to allow them to make their decision".