Federal Court of Australia

Australian Competition and Consumer Commission v Megasave Couriers Australia Pty Ltd [2021] FCA 543

ORDERS

THE COURT ORDERS THAT:

Redress orders

1.    Pursuant to s 239 of the Australian Consumer Law (ACL), the first and second respondents jointly and severally pay to the trust account of the Australian Government Solicitor (AGS), by 30 June 2021, the total amount of $500,000 (Funds) by way of non-party consumer redress.

2.    The Funds are to be applied by AGS in accordance with the following (Redress Scheme):

2.1.    the Funds received are to be distributed equally between the Franchisees listed in paragraph 5 of the Confidential Supplementary Statement of Agreed Facts (the Nominated Franchisees), excluding those Nominated Franchisees who do not elect to accept the payment pursuant to paragraph 2.2 below;

2.2.    subject to the Funds having been received into its trust account exceeding a minimum amount of $1000 by 30 June 2021, the AGS is to contact each of the Nominated Franchisees in writing by 21 July 2021:

(a)    advising them of these orders, the amount of Funds received pursuant to order 1, and the minimum amount of the Funds to be paid to them by way of partial redress;

(b)    inviting their written acceptance of the partial redress amount by 4 August 2021; and

(c)    seeking their payment account details.

2.3.    by 20 August 2021, the AGS is to distribute to each of the Nominated Franchisees who has provided an acceptance pursuant to paragraph 2.2 an equal amount of the Funds;

2.4.    by 3 September 2021, the AGS is to notify the respondents in writing of the distributions of the Funds that have been made.

3.    Order 1 is an order for partial redress for loss and damage suffered in relation to the contravening conduct only to the extent provided for by these orders, and any person accepting payment shall be at liberty to exercise such other rights that they may have, including any claim to loss or damage that exceeds any amount received from the Funds by way of partial redress.

4.    The parties have liberty to apply to the Court to vary the requirements of the Redress Scheme if they become impracticable to comply with.

Penalty

5.    The first respondent pay to the Commonwealth of Australia a pecuniary penalty in the amount of $1,900,000 in respect of its contraventions of the ACL declared by the Court at paragraphs 1 and 2 of the Court’s orders of 1 March 2021.

6.    The second respondent pay to the Commonwealth of Australia a pecuniary penalty in the amount of $120,000 in respect of his involvement in contraventions of the ACL declared by the Court at paragraph 3 of the Court’s orders of 1 March 2021.

7.    The penalties in orders 5 and 6 are due and payable:

7.1    if the payment in order 1 above is paid within the time required by that order, by 30 June 2022, so as to ensure preference for the redress in Order 1 in accordance with s 227 of the ACL; or

7.2    otherwise, by the date which is 120 days after the date of these orders.

Costs

8.    An order pursuant to FCR 40.02 that the respondents pay the applicant’s costs of and incidental to the proceeding in the lump sum amount of $200,000, within 120 days of the date of these orders.

Non-disclosure order

9.    Pursuant to s 37AF(1) of the Federal Court of Australia Act 1976 (Cth), in order to prevent prejudice to the proper administration of justice, the personal and company names contained in the Supplementary Statement of Agreed Facts dated 31 March 2021, and affidavits filed on 18 December 2020, 21 December 2020, 22 December 2020, 26 March 2021, and 31 March 2021 (as listed in confidential Annexure A to these orders), and submissions dated 16 April 2021 be kept confidential and:

9.1    are not to be accessed by any person other than by the Court and the parties to this proceeding;

9.2    their contents are prohibited from being disclosed (save as between the parties) by publication or otherwise.

Undertaking obligations

10.    The following orders of O’Callaghan J in this proceeding be vacated:

10.1    Orders dated 25 June 2020 as they relate to undertakings 1, 2, 3 and 4;

10.2    Orders dated 16 July 2020 as they related to undertakings A and B; and

10.3    Orders 2 and 3 of the Orders dated 14 August 2020.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

CONFIDENTIAL ANNEXURE A

1.    Affidavit of [REDACTED] filed on 18 December 2020;

2.    Affidavit of [REDACTED] filed on 18 December 2020;

3.    Affidavit of [REDACTED] filed on 18 December 2020;

4.    Affidavit of [REDACTED] filed on 18 December 2020;

5.    Affidavit of [REDACTED] filed on 18 December 2020;

6.    Affidavit of [REDACTED] filed on 18 December 2020;

7.    Affidavit of [REDACTED] filed on 18 December 2020;

8.    Affidavit of [REDACTED] filed on 18 December 2020;

9.    Affidavit of [REDACTED] filed on 18 December 2020;

10.    Affidavit of [REDACTED] filed on 21 December 2020;

11.    Affidavit of [REDACTED] filed on 22 December 2020;

12.    Affidavit of [REDACTED] filed on 26 March 2021;

13.    Affidavit of [REDACTED] filed on 26 March 2021;

14.    Affidavit of [REDACTED] filed on 26 March 2021;

15.    Affidavit of [REDACTED] filed on 26 March 2021;

16.    Affidavit of [REDACTED] filed on 26 March 2021;

17.    Affidavit of [REDACTED] filed on 26 March 2021;

18.    Affidavit of [REDACTED] filed on 26 March 2021;

19.    Affidavit of [REDACTED] filed on 26 March 2021;

20.    Affidavit of [REDACTED] filed on 26 March 2021; and

21.    Affidavit of [REDACTED] filed on 31 March 2021.

REASONS FOR JUDGMENT

O’CALLAGHAN J:

Introduction

1    This proceeding concerns the conduct of the first respondent (Megasave) and its sole director and shareholder (Mr Bourne) while Megasave was operating as the franchisor of a parcel delivery business.

2    On 1 March 2021, with the consent of the parties, the court declared that Megasave had contravened ss 18, 29(1)(g) and 37(2) of the Australian Consumer Law (being Sch 2 to the Competition and Consumer Act 2010 (Cth)) (ACL), and that Mr Bourne was involved in those contraventions within the meaning given in s 2 of the ACL.

3    The court restrained Megasave and Mr Bourne for five years from, in broad terms: entering into a franchise agreement without first providing the potential franchisee a copy of the court’s orders; making certain false or misleading statements concerning franchises; or representing to potential Megasave franchisees that they will receive guaranteed payments, or annual income, for operating a franchise. Mr Bourne was also disqualified from managing corporations for five years.

4    These reasons concern the next phase of the proceeding, in which the applicant (the ACCC) sought further relief against Megasave and Mr Bourne in the form of pecuniary penalties (under s 224 of the ACL) and orders for non-party consumer redress (under s 239 of the ACL).

5    The ACCC’s application for that relief was heard on 29 April 2021. Mr Bourne appeared for himself at the hearing and, with the court’s leave, also for Megasave. He said that he did not oppose the making of the orders sought by the ACCC. In those circumstances, the orders sought by the ACCC were made at the hearing. I now provide my reasons.

Background

6    The following summary is taken substantially from the parties’ statements of agreed facts dated 5 February and 31 March 2021.

7    Megasave was incorporated on 20 October 2018 and, until recently, operated a parcel courier delivery service. From April 2019, it carried on a business of marketing and selling franchises, and was represented in all states except South Australia.

8    Each Megasave franchise was for a defined territory in which the franchisee would deliver parcels. The typical cost of a franchise was $27,500, though some franchisees purchased more than one.

9    Megasave marketed the franchises in three relevant ways:

(1)    on its website;

(2)    in advertisements posted on the Seek Business website (www.seekbusiness.com.au); and

(3)    in a document referred to as the “franchisee earnings document”, which Megasave provided to potential franchisees when they enquired about purchasing a Megasave franchise.

10    Mr Bourne was responsible for the operation and management of Megasave’s business, including marketing and selling the franchises. In particular, he was responsible for approving and posting all of Megasave’s advertisements on the Seek Business website. He was also responsible for approving all versions of the franchisee earnings document and personally emailed it to some potential franchisees. Further, Mr Bourne had control and oversight over all payments made to franchisees and was responsible for making decisions in relation to such payments.

11    Using the three marketing channels identified above, Megasave made two relevant representations to potential franchisees:

(1)    From at least June 2019 to July 2020, Megasave represented to potential franchisees that they would receive guaranteed minimum weekly payments (in most cases $2,000 per week) for an initial period of operating the franchise (usually the first six months) (the minimum weekly payments representation). It made this representation on the Megasave website, on the Seek Business website, and in the franchisee earnings document.

(2)    Between at least June 2019 and April 2020, Megasave represented to potential franchisees that they would be guaranteed a specified annual income (in most cases $91,000) (the annual guaranteed income representation). It made this representation on the Seek Business website and in the franchisee earnings document.

12    Between at least September 2019 and July 2020, Megasave lacked a reasonable basis for making the minimum weekly payments representation. That is because, during that period:

(1)    Megasave was not paying existing franchisees the promised weekly payments;

(2)    Megasave did not have sufficient revenue to pay existing franchisees in accordance with the minimum weekly payments representations; and

(3)    Megasave did not have a reasonable basis to expect to receive a substantial increase in either its customers or the volume of parcels for delivery which would provide it with sufficient revenue to pay franchisees in accordance with the minimum weekly payments representation.

13    Between at least September 2019 and April 2020, Megasave lacked a reasonable basis for making the annual guaranteed income representation. That is because, during that period:

(1)    the weekly payments being made to existing franchisees were not sufficient for them to earn the guaranteed annual income;

(2)    Megasave did not have sufficient revenue to pay existing or potential franchisees in accordance with the annual guaranteed income; and

(3)    Megasave did not have a reasonable basis to expect to receive a substantial increase in either its customers or the volume of parcels for delivery which would provide it with sufficient revenue to pay franchisees in accordance with the annual guaranteed income representation.

14    Mr Bourne knew that Megasave was making the two relevant representations and caused it to do so. (He made the representations personally to most franchisees, in conversations and text messages with them, and by providing the franchisee earnings document to them.) Further, Mr Bourne had knowledge of the circumstances listed below paragraphs [12] and [13] above, because:

(1)    he determined the weekly payments that would be made to franchisees;

(2)    he had control of, and access to, all of Megasave’s bank accounts and knew the balances in those accounts; and

(3)    he was responsible for Megasave’s customer base, including engaging new customers, and was aware that Megasave did not have sufficient customers in place to provide it with the funds to pay franchisees the guaranteed amounts.

15    Franchisees who purchased a franchise in the period between September 2019 and July 2020 did not receive payments in accordance with the minimum weekly payments representation, and they did not receive payments sufficient for them to earn the annual guaranteed income. They all paid in the order of $27,500 per franchise (noting again that some franchisees purchased more than one), and have not been fully refunded. They also expended time and effort and incurred expenses in delivering parcels for Megasave in anticipation of receiving the guaranteed payments. Many have suffered emotional distress and uncertainty. Many left their franchise within a relatively short period of time after delivering parcels for Megasave without receiving payment, or after receiving less than was promised by the minimum weekly payments representation.

16    Between 16 December 2019 and 6 January 2020, Megasave suspended most or all payments to franchisees and notified them of this by video sent to them on the first day of the suspension.

17    During the period between September 2019 and July 2020, Megasave received $1,419,000 by way of franchise fees from 52 franchisees. Megasave and Mr Bourne have paid refunds to seven of them, totalling approximately $51,500 to $54,000.

18    Megasave’s revenue from franchise fees stands in contrast to its revenue from other trading activity. During the period between April 2019 and July 2020, Megasave received revenue from 49 customers of its delivery services totalling $735,259.38.

Financial records

19    At the hearing on further relief, in addition to relying on the statements of agreed facts, the ACCC tendered the following financial records: Megasave’s profit and loss statements for the years ending June 2019 and June 2020; a Megasave sales report for the period April 2019 to July 2020; a statement for Megasave’s bank account for the period 25 December 2020 to 3 January 2021; and a statement for a bank account in the name of Ozwide Couriers Pty Ltd (a related entity) for the period from 25 December 2020 to 3 January 2021. The financial records show that Megasave’s business has been dormant since December 2020. Neither Megasave nor Mr Bourne adduced any evidence concerning their financial position.

The franchisees’ evidence

20    The ACCC also relied on the affidavit evidence of nine franchisees to whom the relevant representations were made. The franchisees’ unchallenged evidence describes the relevant conduct in more vivid detail than the necessarily sparse statements of agreed facts. An example or two will suffice. I will refer to the franchisees by their initials.

Franchisee NW

21    Prior to purchasing a Megasave franchise, NW was a driver for an airport transfer shuttle company in Queensland. Before that she worked in Sydney in welfare, as a security guard, and at a newspaper selling advertising. She had ongoing health issues as a result of spinal surgery. She wanted to purchase a franchise with money from the sale of her house in Queensland, with a view to hiring drivers if she needed to due to her back injury.

22    In around September 2019, NW saw an advertisement for Megasave on the Seek Business website. The advertisement said words to the effect that Megasave franchisees were guaranteed a weekly income of $2,000 and an annual income of $91,000. NW’s affidavit annexed a copy of a Seek Business advertisement that she said was very similar to the one she saw in September 2019. It is relevantly in the following terms:

Summary

Prices start from $25,000 - $2,000 per week minimum - (Minimum yearly income $91,000 gst inc) - Nothing over 5 kg - No Franchise Fees - Only 1 cycle per day - Freight delivered to you

…

About the Opportunity

Megasave Couriers are looking for new Franchisees for the Area

THIS IS A FRANCHISE BUSINESS

Prices start from $25,000

You will get a guaranteed $2,000 per week minimum

(Conditions Apply, Minimum yearly income $91,000 gst inc)

No package is over 5kg

No Franchise Fees

Only 1 cycle per day

No Sorting

Freight is delivered to you

Plus loads more advantages to join the Megasave National Revolution

23    NW deposed that she was considering other courier franchise businesses at the time. One of them advertised “guaranteed income”, but did not specify the amount of income that was guaranteed. It was Megasave’s promise of guaranteed income of a particular amount that made its offering stand out.

24    On 20 September 2019, NW had a telephone conversation with Mr Bourne, relevantly to the following effect:

NW: I’m not going to make a decision straight away and I want more information. Are there any conditions on the $2,000 guarantee?

Mr Bourne: No, the reason for the guarantee is so that the business can build and so that I can build up the clients. I’m getting Nike on board, and I have eBay and FDM on track. The guarantee is to get you through that time until it’s all in place.

NW: What happens if there’s no parcels for a couple of days?

Mr Bourne: You’re guaranteed the money regardless of how many packages you deliver.

NW: When would I begin receiving the payments after starting my franchise?

Mr Bourne: We hold the first 3 weeks of pay, and you start getting paid weekly after that.

NW: What happens after the first 26 weeks?

Mr Bourne: You’re on a guarantee of $91,000 a year after that. There’ll probably be so much work you’ll have to put on a driver.

25    The same day, 20 September 2019, Mr Bourne sent NW an email attaching various documents, including a version of the franchisee earnings document that relevantly stated:

Each franchisee will be paid $2000 (inc of GST) per week for the first 26 weeks, two weeks in arrears and paid weekly (Public holidays are not included and will be deducted at the day rate at the time of the holiday).

The $2,000 is calculated on $3.00 (inc of GST) per parcel until that threshold of $2,000 is reached This equates to 130 approx deliveries per day on a 5 day working week Any deliveries over this will be paid at a rate of $2.50 (inc of GST) per parcel If a location has more than one delivery for that day, the total times the $3.00 will be paid (2 deliveries to the address on the same day will be $6.00 under the $2,000 threshold, or $5 over it).

After the 26 week period, the payment will decrease to natural earnings (inc of GST), this is designed to keep the high standard of deliveries, and maintaining the average daily turnover of deliveries. Any deliveries over this will be paid at a rate of $2.75 (inc of GST) per parcel.

An Amount of $91,000pa is the minimum guaranteed payment.

Payments will be made to the Franchisee 3 weeks in arrears (holding 3 weeks as security), with the first payment being in the 5th week after the commencement of the Franchise. The first payment will be 1 week, and then paid weekly until the end the Franchise (please refer to the disclosure and franchise agreement).

(Emphasis added.)

26    On 2 October 2019, NW and her son met with Mr Bourne at a McDonald’s restaurant in Liverpool. During that conversation, NW asked Mr Bourne whether “regardless of the number of packages, the income is guaranteed”, to which Mr Bourne responded, “absolutely”, or words to that effect. NW and her son said they were concerned about the five-week delay before they would start receiving their $2,000 weekly payments. They said that they would prefer to receive nothing for the first two weeks, then receive $1,000 per week for eight weeks, then move to $2,000 per week for the remainder of their first six months. Mr Bourne agreed to this proposal.

27    Later that day, after the meeting, NW called Mr Bourne to say that she wanted to purchase two franchises, one for herself and one for her son. Mr Bourne said that if she purchased two she would only be charged $24,750 per franchise (instead of $27,500).

28    On 4 October 2019, Mr Bourne emailed NW a new version of the franchisee earnings document in which the following words had been inserted in bold type: “You can also choose to be paid $1,000 a week for 8 weeks instead of the above as this will help with cash flow”. NW understood this to reflect their discussion at the meeting.

29    At Mr Bourne’s suggestion, NW then spoke with two existing Megasave franchisees about their experiences. They both told her that they were receiving the guaranteed income as advertised. She purchased a franchise by transferring $24,750 to Megasave on 12 October 2019.

30    NW began operating her franchise two days later, on 14 October. Beginning on her second week (not the third as she had expected), she began to receive weekly payments of $1,000.

31    For some weeks, NW received very few parcels for delivery. In late October, she told Mr Bourne that she was not receiving many packages and asked him whether she could expand her delivery area. Their telephone conversation was to the following effect:

NW: There are not a lot of packages.

Mr Bourne: That is what the guarantee is for, to cover this period while the business starts to pick up. Campbelltown and Camden are going to explode and you’ll have to put on more drivers.

NW: That’s fine, I have drivers lined up already. Can I expand my area to incorporate Minto, Eschol Park and Eagle Vale because I’m already delivering parcels to those areas?

Mr Bourne: You’ll be too busy in your own area. Those areas will be their own busy areas. I can’t just give them to you. I could sell those. You should consider buying it. Why would you want to expand your area anyway, when you can buy it and get a second set of the guarantee [sic]? I could expand your one area, and you’d still only be getting $2,000 a week, whereas if you buy the other area, that’s $4,000 you’ll be getting a week, and 2 sets of $91,000 per year.

32    In a later telephone conversation, NW and Mr Bourne agreed that NW would purchase a second franchise on the same terms as her first “including the purchase price being $22,500 plus GST and to receive $1,000 per week for the first 8 weeks”.

33    On about 8 November 2019, NW transferred Megasave a further $24,750 to purchase the second franchise. She began to receive $1,000 weekly payments in respect of this franchise on 29 November 2019. But the number of parcels she had to deliver did not increase noticeably.

34    I pause here to note that NW’s evidence discloses that her son, who did not himself give evidence, also purchased two Megasave franchises. In total NW and her son spent $99,000 on four Megasave franchises.

35    On 9 December 2019, NW received a document titled “Operations Manual” from Elizabeth Martin, Megasave’s general manager. NW had never seen this document before. It introduced a new requirement that she deliver parcels within 24 hours of receiving them.

36    On 19 December 2019, NW received $2,000 in respect of her first franchise, and on 23 December a further $1,000 in respect of her second franchise.

37    On 23 December 2019, NW received from Ms Martin an updated “Operations Manual”, which introduced a new hurdle to receiving the guaranteed payments. Franchisees would now be required to “submit 5 qualified leads per week in their assigned Territory” in order to “receive ongoing Income Assist”. NW was upset that this requirement had not been mentioned before she purchased her franchises, and concerned that her two franchises would necessitate generating twice as many leads as other franchisees.

38    On 30 December 2019, Ms Martin telephoned NW and told her that Megasave would be closed until 6 January 2020. Around this time, NW watched a video provided to her via WhatsApp, in which Mr Bourne said that franchisees who delivered fewer than 300 parcels per week would not receive the guaranteed payments unless they produced 10 “credible leads” each week.

39    On 31 December 2019, NW received an email from Ms Martin stating that payments to franchisees would be frozen until 17 January 2020. She stopped operating her franchises temporarily.

40    NW started operating again on 6 January 2020. For the next four weeks, she dutifully collected 10 sales leads per week for each of her territories and provided their details to Megasave. She did this by distributing flyers to local businesses. When she pointed out that areas of her franchise territories were purely residential and unlikely to produce leads, Mr Bourne told her that she should travel to businesses outside her territories, which she did.

41    In around January 2020, NW watched videos uploaded to WhatsApp in which Mr Bourne told franchisees that if they did not generate sales leads they would only receive $1,000 per week, not $2,000.

42    On 20 January 2020, NW received a further payment of $2,000 in respect of her first franchise and $1,000 in respect of her second. This was the last time that she received her guaranteed weekly payments for both franchises.

43    On 24 January 2020, NW sent a text message to Mr Bourne because she had received two payments of only $1,000 that week, not one payment of $2,000 (in respect of the first franchise) and one payment of $1,000 (in respect of the second). The following exchange ensued:

NW: Can you please call me

Mr Bourne: Friday night [NW] … If you have an issue speak to me Tuesday …

NW: I do have [an] issue and would have called before 5 if I knew was only getting half the amount for my second area but as pay only just went in at 7 I thought you would take my call now. And as you don’t reply to [my son’s] calls I thought I could ask on his behalf why he only got one payment. I would appreciate a call so this can be addressed now.

Mr Bourne: Sure, [your son] owes me $3,000 anything more you would like to know?

NW: Yes I’d like to know why I wasn’t paid the full amount and why [my son] owes you 3000.

Mr Bourne: [NW], this is the last message you will get from me tonight, [your son] is none of your business, and I need to go through the leads … you were paid the rate promised and the leads I am looking at, so stop with the dramatics.

NW: Wow

Mr Bourne: Every week I go through this bullshit with the pair of you … have you ever stopped to realise that payments are becoming a nightmare with the expanding company … integrations fr[e]ight increase, label problems … [M]egasave has growing pains … and I am doing my best, and I expected more from you quite honestly … I have never not paid you … and don’t ever say that I haven’t, if some part of it is late, I apologise … but start looking at the big picture rather than looking at your bank account. On a bright note, [Steve] from savvy supporter contacted me, and he moves 1000 a week, great freight, and that will get you where you need to go … you[’re] welcome

(Ellipses in original.)

44    By the end of January 2020, NW had been providing 20 leads per week for four weeks. At this point, she had telephone conversations with Ms Martin and Mr Bourne as follows:

In around late January or early February, I called Elizabeth and we had a conversation to the following effect

Me: I’m not generating the sales leads anymore because I’m not being paid properly.

Elizabeth: I’ll talk to Gary and get back to you.

I called Gary shortly after and said words to the effect

Why should I keep generating the sales leads if I am not getting paid for it? You said in the video that we would only get paid $1,000 if we weren’t generating the leads, I’m generating the leads and still only getting paid $1,000. I’m stopping doing the leads.

Gary said words to the effect

The leads won’t matter anymore anyway. We have contracts coming up. You’ll be so busy you won’t have time to do the leads.

45    In early March 2020, NW received a further version of the Operations Manual which stated that “if you are delivering under 300 ppw you will need to produce TEN (10) qualified and credible leads …”, and that franchisees “failing to comply with any aspect of the Franchise Agreement or Operations Manual will revert to Natural Earnings”.

46    By March, NW was not receiving $2,000 per week for each of her franchises and became frustrated. On 24 March 2020 she had a telephone conversation with Mr Bourne to the following effect:

Mr Bourne: Do you want me to be honest with you?

NW: That’d be nice.

Mr Bourne: If the company had paid everybody their money we would’ve gone belly up.

47    NW stopped delivering parcels for Megasave on 27 March 2020. All told, she received a total of $35,265.40 for operating her two franchises – the first for approximately 23 weeks and the second for approximately 19 weeks.

48    There was then, throughout the remainder of March, April and May 2020, a dispute between NW, her son and Megasave. NW demanded that she and her son be paid the money they were owed. Megasave offered her terms falling short of that. At one point, after what appears to have been a physical altercation between NW’s son and Megasave’s CEO Kevin Lacey, Mr Bourne told NW that she and her son were no longer welcome at Megasave’s premises. Later, he offered to bring her back on-board under a new agreement. But NW insisted on receiving her outstanding guaranteed payments.

49    In the end, NW accepted a settlement from Megasave in May 2020 falling short of what she had paid for one franchise. She concluded her affidavit evidence as follows:

My experience with Megasave has been a nightmare, and an absolute disappointment. I bought the Megasave franchises so I could get ahead financially, set my family up, and find myself suitable work that I could do with my back injury. By late 2020, I planned that I would be able to purchase a house in NSW. Instead, I am still renting, and I am now back to where I started, but also enormously worse-off financially. I lost $50,000 by purchasing the Megasave franchises, and I have received less than a quarter of that back in settlement payments, which took a lot of time and effort on my part, and caused a lot of stress. Buying two Megasave franchises has crippled me financially.

I also suffered huge emotional stress from the ordeal, and feel guilty because I introduced my son … to the Megasave business, which led to him purchasing two franchises. He has also been left crippled financially, and he has a young family to provide for.

I am still having a very hard time finding employment because of my pre-existing back issues, so it has been very hard for me to get back on my feet, and to recover financially. I am still struggling.

Franchisee MS

50    In March 2020, MS was searching for business opportunities online. He was working as an Uber driver, but wanted to have “some sort of guaranteed income”, as he was approaching retirement. He became aware of Megasave when he saw an advertisement on Seek Business in around March 2020, which said words to the effect that he would receive a guaranteed income of $2,000 per week. He made an enquiry.

51    On 4 March 2020, Mr Bourne responded to MS’s enquiry in an email that attached, among other things, a version of the franchisee earnings document. The document said:

Each franchisee will be paid $2000 (inc of GST) per week for the first 26 weeks, two weeks in arrears and paid weekly (Public and recognised Transport holidays are not included and will be deducted at the full day rate at the time of the holiday).

Or the natural earnings exceed the $2,000 threshold for 6 consecutive weeks, this will ensure the Franchisee has enough Natural Earnings.

The $2,000 is calculated on $3.00 (inc of GST) per parcel until that threshold of $2,000 is reached

…

After the 26 week period, the payment will decrease to natural earnings (inc of GST), this is designed to keep the high standard of deliveries and maintaining the average daily turnover of deliveries. Any deliveries over this will be paid at a rate of $2.75 (inc of GST) per parcel.

If needed, after the 6 month period has ended, an income will top you up to the amount of $91,000pa as the minimum, this will be available until you reach the $2,000 threshold.

Payments will be made to the Franchisee 3 weeks in arrears (holding 3 weeks as security), with the first payment being in the 5th week after the commencement of the Franchise. The first payment will be 1 week, and then paid weekly until the end the Franchise (please refer to the disclosure and franchise agreement).

You can also choose to be paid $1,000 a week for 8 weeks instead of the above as this will help with cash flow.

Income guarantee is subject to the and [sic] inline with the ‘Manual’

(Emphasis added.)

52    The email also attached a disclosure document, a franchise agreement, the ACCC’s Franchisee Manual dated December 2014, the ACCC’s Franchisee Start-up Checklist, a brochure for a one-tonne van and other documents for signature by the franchisee.

53    Between 4 and 6 March 2020, MS spoke to Mr Bourne on the telephone and exchanged emails with him. Mr Bourne told him that he, MS, needed to sign and return the disclosure document as soon as possible. Mr Bourne also said that the business was “going off” and that the number of deliveries was about to “boom”, or words to that effect.

54    On around 6 March 2020, MS met with Mr Bourne at a McDonald’s restaurant in Springwood. Mr Bourne suggested that Megasave was “really busy”, that its business in the Sunshine Coast was “on fire”, and that Ipswich, the area in which MS was interested in working, would be “really busy” as well. Mr Bourne said that after MS had received the $2,000 weekly payments for 26 weeks his income would be based on the number of parcels he delivered. As for the annual guaranteed income representation, the two men had the following exchange:

MS: Not to be rude, but how long does the guarantee for the $91,000 per year carry on for?

Mr Bourne: Well you are being rude.

Mr Bourne then laughed.

Mr Bourne: But it will be there until you don’t need it anymore. I guarantee that Megasave will top up your earnings to $91,000 per year.

55    On 11 March 2020, MS transferred $27,500 to Megasave for the purchase of a franchise. He deposed that he would not have done so if not for the promises of guaranteed income (weekly and annual) that were made to him in the Seek Business advertisement, in his conversations with Mr Bourne, and in the documents that he had received from him.

56    MS made his first delivery for Megasave on about 31 March 2020. Initially he received very few parcels for his delivery area each day, or none at all. But the number of deliveries being assigned to him increased with time, and he also assisted the Brisbane franchisee with deliveries.

57    On 23 April 2020, MS telephoned Mr Bourne to ask him why he had not yet received any guaranteed payments. Mr Bourne did not answer. MS called again the next day and was told by Ms Martin that she would speak to Mr Bourne.

58    On 27 April 2020, MS received his first payment of money from Megasave – a payment of $1,000 with the transaction description “allowance”. A week later, on 5 May, he received a second payment – $400 described as “natural earnings”.

59    On 5 and 6 May 2020, MS tried again to reach Mr Bourne several times by telephone and email, to no avail.

60    On 12 May 2020, MS received a $451 payment from Megasave described as “natural earnings”. He did not receive any explanation as to why he had not received a payment of $2,000.

61    On 13 May 2020, MS stopped delivering Megasave’s parcels. He sent Mr Bourne another email, which stated that he was behind in his payments and demanded that this be rectified or that he receive a refund of his franchise fee. Mr Bourne replied, asserting, among other things, that MS was in breach of the franchise agreement.

62    On 14 May 2020, MS received a “warning letter” from Megasave. It referred to his email of the day before and stated that he was in default under his franchise agreement. The next day he received a payment of $0.80 described as “Megasave couriers”.

63    On 29 May 2020, MS received another letter from Megasave, in which Megasave asserted a right to charge him for failing to deliver parcels within his territory and stated that $3,600 in such charges had so far accrued. Around a week later, MS received his final payment from Megasave – a payment of $183 described as “natural earnings”.

64    On 11 June 2020, MS received a letter from Megasave stating that he owed the company $6,800 in costs for servicing his territory. The next week, MS emailed Mr Bourne to give notice of a dispute under the Franchising Code of Conduct. Various heated communications followed, until on 18 June 2020 MS received a letter from Megasave stating that the franchise agreement had been terminated.

65    For the six weeks that he made deliveries, MS received only $2,034.80 from Megasave. He had paid $27,500 for his franchise and $44,499.99 for a delivery van. The franchise fee he had paid from his savings; the van he purchased with $37,000 in debt, most of which remains outstanding. In the result, MS gave the following evidence about his “overall experience” with Megasave and Mr Bourne:

Initially my interactions with Gary [Mr Bourne] were positive. He seemed friendly and easy going. During our conversations in early March 2020, Gary told me I could call him at any time. However, around the time I should have started receiving the guaranteed payments, I was not able to reach Gary by phone and he did not return my text messages, emails and voicemails.

Financially and professionally Megasave has ruined me. I saw investing in a Megasave franchise as my last chance to make some money before I retire. It is difficult to find new work at my age, and the COVID-19 shut downs have made this worse.

Pecuniary penalties

Section 224 of the ACL

66    The court has relevantly declared that Megasave has contravened ss 29(1)(g) and 37(2) of the ACL, and that Mr Bourne was involved (within the meaning of s 2 of the ACL) in each of those contraventions. Sections 29 and 37 are found in Pt 3-1 of the ACL.

67    Section 224(1) of the ACL provides that if the court is satisfied that a person has contravened a provision of Pt 3-1 (among other provisions) then it “may order the person to pay to the Commonwealth … such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the court determines to be appropriate”.

68    Section 224(2) provides:

In determining the appropriate pecuniary penalty, the court must have regard to all relevant matters including:

(a)    the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and

(b)    the circumstances in which the act or omission took place; and

(c)    whether the person has previously been found by a court in proceedings under Chapter 4 or this Part to have engaged in any similar conduct.

69    Sub-section (2)(c) of s 224 is not relevant here, as there was no evidence that Mr Bourne or Megasave had previously engaged in similar conduct or been found to have contravened the ACL.

70    Section 224(3) relevantly provides that the maximum penalty in respect of a contravention of s 29 or s 37 is $500,000 for an individual. For a body corporate, s 224(3A) provides that it is the greater of:

(a)    $10,000,000;

(b)    if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission – 3 times the value of that benefit; and

(c)    if the court cannot determine the value of that benefit – 10% of the annual turnover of the body corporate during the 12-month period ending at the end of the month in which the act or omission occurred or started to occur.

71    In the case of Megasave, the maximum penalty is the amount in s 224(3A)(a) – $10,000,000.

72    Section 224(4) has the effect that a proceeding may be instituted against a person in relation to contraventions of both ss 29 and 37 of the ACL, but the person will not liable to more than one pecuniary penalty under s 224 in respect of the same conduct. For that reason, the ACCC did not seek separate penalties for conduct that breached both ss 29 and 37.

Deterrence

73    The primary purpose of imposing civil penalties is deterrence; they are “primarily if not wholly protective in promoting the public interest in compliance”. See Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at 506 [55] (French CJ, Kiefel, Bell, Nettle and Gordon JJ). The court must select a penalty that deters the offender and others from engaging in prohibited conduct of a similar kind, and is not regarded merely as an acceptable cost of doing business. Equally, the penalty must not be oppressive – it must not exceed what is reasonably necessary to deter contraventions of the kind before the court. See, eg, Pattinson v Australian Building and Construction Commissioner [2020] FCAFC 177; 384 ALR 75 at 105-106 [100]-[103] (Allsop CJ, White and Wigney JJ).

74    Addressing general deterrence, the ACCC submitted that there is a need in this case for strong penalties to deter franchisors from selling franchises on the basis of financial assurances made without reasonable grounds. Such conduct carries an obvious risk of harm to the public, as demonstrated by its effects on the Megasave franchisees in this case.

75    As for specific deterrence, the ACCC accepted that it was of reduced relevance to Megasave. That is because Megasave no longer appears to be actively operating a courier franchise business. But it was submitted that, in the absence of any evidence that Megasave will be deregistered, specific deterrence still has some relevance.

76    In the case of Mr Bourne, the ACCC submitted that specific deterrence was a more prominent consideration. That is because of Mr Bourne’s control over Megasave, the fact that he made the representations personally to franchisees knowing there was no reasonable basis to do so, and because, as Megasave’s sole director and shareholder, he was the beneficiary of the contraventions. The ACCC did, however, acknowledge that Mr Bourne has already been disqualified from managing corporations for five years.

Multiple contraventions

77    The ACCC’s position in this case, which Megasave and Mr Bourne did not oppose, was that so many contraventions have occurred that it would not be helpful to seek to make a finding as to their precise number, or to calculate a maximum aggregate penalty. Compare, eg, Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; 327 ALR 540 at 545-6 [17]-[18], 558 [82] (Allsop CJ); Australian Competition and Consumer Commission v Oscar Wylee Pty Ltd [2020] FCA 1340 at [60] (Katzmann J). Instead, the ACCC submitted that the contraventions should be analysed as four courses of conduct engaged in by Megasave and Mr Bourne.

78    The course of conduct principle recognises that “where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality”. Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 194 IR 461 at 473 [39] (Middleton and Gordon JJ). As the ACCC acknowledged, however, application of the principle is not compulsory. In Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd (No 2) [2016] FCA 698 at [24]-[25], Beach J observed:

… even if the contraventions are properly characterised as arising from a single course of conduct, I am not obliged to apply the principle if the resulting penalty fails to reflect the seriousness of the contraventions. The principle does not restrict my discretion as to the amount of penalty to be imposed for the course of conduct. Further, the maximum penalty for the course of conduct is not restricted to the prescribed statutory maximum penalty for any single contravening act or omission …

Further, the ‘course of conduct’ principle does not have paramountcy in the process of assessing an appropriate penalty. It cannot of itself operate as a de facto limit on the penalty to be imposed for contraventions of the ACL. Further, its application and utility must be tailored to the circumstances. In some cases, the contravening conduct may involve many acts of contravention that affect a very large number of consumers and a large monetary value of commerce, but the conduct might be characterised as involving a single course of conduct. Contrastingly, in other cases, there may be a small number of contraventions, affecting few consumers and having small commercial significance, but the conduct might be characterised as involving several separate courses of conduct. It might be anomalous to apply the concept to the former scenario, yet be precluded from applying it to the latter scenario. The ‘course of conduct’ principle cannot unduly fetter the proper application of s 224.

79    The ACCC identified and relied upon four courses of conduct in this case:

(1)    the making of the minimum weekly payments representation on the Megasave and Seek Business websites;

(2)    the making of the annual guaranteed income representation on the Megasave and Seek Business websites;

(3)    the making of the minimum weekly payments representation in the course of “direct franchisee engagement” (including provision of the franchisee earnings document and pre-contractual written and oral communications with potential franchisees); and

(4)    the making of the annual guaranteed income representation in the course of direct franchisee engagement.

80    The ACCC submitted that this was an appropriate approach to analysing the contraventions for the following reasons:

Grouping the contraventions in this way reflects the overlapping nature of the contraventions, which involve repetition of the same conduct, while also reflecting the different conduct engaged in by Megasave and Bourne at different periods of time.

This grouping also reflects the different categories of consumers that were affected by the conduct, namely, those who simply viewed the website advertisements and those who proceeded further by engaging with Megasave and Bourne, and so received the Earnings Document or were party to one-on-one communications.

To group the contraventions in this way does not downplay the wrongdoing. It does not convert the separate contraventions into only four contraventions, nor does it limit the available maximum penalty (as explained below). It remains critical to ensure that the penalties ultimately imposed are of appropriate deterrent value having regard to the actual, substantive wrongdoing (citing Australian Competition and Consumer Commission v Reckitt Benckiser Australia Pty Ltd [2016] FCAFC 181; 340 ALR 25 at 59-61 [139]-[145] (Jagot, Yates and Bromwich JJ) (Reckitt Benckiser); Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2017) 258 FCR 312 at 448-9 [425]-[428] (Middleton, Beach and Moshinsky JJ)).

This means that each course of conduct needs to attract penalties which reflect that:

1.    there was a contravention each time the representations on the Seek Business and Megasave websites were viewed by a potential franchisee (citing Reckitt Benckiser at 61 [145]; Australian Competition and Consumer Commission v Oscar Wylee Pty Ltd [2020] FCA 1340 at [60] (Katzmann J));

2.    the representations were published on those websites for at least an eleven month period in relation to the minimum weekly payment representation and at least an eight month [period] in relation to the annual guaranteed income representation;

3.    the representations were likely to be viewed by a substantial and unquantifiable number of consumers; and

4.    the increasing seriousness of the contraventions as time progressed; with every month that passed, it was increasingly evident that Megasave was not able to pay existing franchises the guaranteed weekly payments or annual income and was not generating sufficient revenue to make those payments to existing or potential franchisees in the future, but Megasave and Bourne continued to engage in the conduct.

81    I accept those submissions. The pecuniary penalties imposed upon Megasave and Mr Bourne reflect the four courses of conduct identified by the ACCC.

Maximum penalties

82    In Markarian v The Queen (2005) 228 CLR 357 at 372 [31], Gleeson CJ, Gummow, Hayne and Callinan JJ held as follows:

… careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick.

83    Here, the maximum penalty applicable to each of contravention is $10,000,000 in the case of Megasave and $500,000 in the case of Mr Bourne (see [70] above). These limits apply to each individual contravention, not to entire courses of conduct (see [78] above).

84    While the statutory maximums do provide one reference point, in a case where the precise number of contraventions is unknown, and the theoretical maximum penalty is vast, other factors are likely to be of more assistance. Compare Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; 327 ALR 540 at 558-9 [82]-[84], 562-3 [103] (Allsop CJ); Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at 63 [157] (Jagot, Yates and Bromwich JJ).

Nature, extent and duration of conduct

85    The contravening conduct was serious in nature and carried out over an extended period. The annual guaranteed income representation was made during a period of 14 months; the minimum weekly payments representation during a period of eight months. The two representations were disseminated widely, repeated often, including by Mr Bourne personally, and formed a central part of Megasave’s marketing strategy. They were relied upon by franchisees in making what were, for them, very significant purchases.

Loss and damage suffered as a result of the acts or omissions

86    Between September 2019 and July 2020, 52 franchisees paid Megasave $1,419,000 in franchise fees. Most of the franchise fees have not been refunded at all, though seven franchisees have been refunded approximately $51,500 to $54,000 in aggregate. Megasave and Mr Bourne adduced no evidence as to what became of the remainder.

87    Then there are the less easily quantifiable forms of loss and damage suffered by the franchisees: some took on additional debt to purchase their franchises; many expended time and money delivering parcels in anticipation of receiving the guaranteed payments; many suffered emotional distress and uncertainty when their guaranteed payments never arrived; and Mr Bourne was frequently unresponsive, dismissive and rude in response to their complaints.

Deliberateness of the contraventions

88    Mr Bourne has admitted that he knew Megasave “did not have sufficient customers in place to provide Megasave with the funds to pay franchisees the guaranteed amounts”. In that circumstance, the contraventions can only have been deliberate, particularly given that it was Mr Bourne who:

(1)    determined the weekly payments that would be made to franchisees;

(2)    controlled Megasave’s bank accounts;

(3)    was responsible for Megasave’s customer base, including engaging new customers; and

(4)    made the contravening representations personally, or caused Megasave to make them.

Financial position of the contraveners

89    As at 16 April 2021, Mr Bourne had $1,286.45 in his bank account, and Megasave had no funds at all. Otherwise, on the incomplete financial information available, it appears that the only assets to either respondent’s name are a house and a car owned by Mr Bourne, which are located in the Philippines and valued at $25,000 each.

90    However, as the ACCC submitted, the respondents’ limited financial means do not weigh heavily in mitigation, given the powerful case for general deterrence and the fact that Mr Bourne has personally benefitted from Megasave’s conduct.

Cooperation

91    Megasave and Mr Bourne cooperated with the ACCC by agreeing the two statements of facts and avoiding a contested trial (albeit the statements were not agreed until three weeks before the trial was to commence). This, in turn, led to the parties agreeing on the declarations and orders the court made on 1 March this year. In the circumstances, as the ACCC submitted, a discount in the order of 20% is appropriate to recognise the respondents’ cooperation.

Determination of penalties

92    For the foregoing reasons, and having regard to the non-party consumer redress orders discussed below and the totality principle, it is appropriate to impose the following penalties on Megasave, as proposed by the ACCC:

(1)    for the minimum weekly payments representations made via websites between September 2019 and July 2020, taking particular account of the multiple representations, duration, potential reach, and seriously misleading nature, with an overall discount in the order of 20% to reflect cooperation: $650,000;

(2)    for the minimum weekly payments representations made via direct franchisee engagement between September 2019 and July 2020, including provision of the franchisee earnings document and communications with franchisees, taking particular account of the repeated reinforcement of misleading representations, and period over which the conduct occurred, with an overall discount in the order of 20% to reflect cooperation: $900,000;

(3)    for the annual guaranteed income representations made via websites between September 2019 and April 2020, taking particular account of the multiple representations, duration, potential reach, and seriously misleading nature, with an overall discount in the order of 20% to reflect cooperation: $125,000; and

(4)    for the annual guaranteed income representations made via direct franchisee engagement between September 2019 and April 2020, including provision of the franchisee earnings document and communications with franchisees, taking particular account of the repeated reinforcement of misleading representations, and period over which the conduct occurred, with an overall discount in the order of 20% to reflect cooperation: $225,000.

93    Further, as the ACCC submitted, it is appropriate to impose the following penalties on Mr Bourne:

(1)    for the minimum weekly payments representations made via the Seek Business website between September 2019 and July 2020, taking particular account of the multiple representations, duration, potential reach, and seriously misleading nature, with an overall discount in the order of 20% to reflect cooperation: $40,000;

(2)    for the minimum weekly payments representations made via direct franchisee engagement between September 2019 and July 2020, including provision of the franchisee earnings document and communications with franchisees, taking particular account of the repeated reinforcement of misleading representations, and period over which the conduct occurred, with an overall discount in the order of 20% to reflect cooperation: $55,000;

(3)    for the annual guaranteed income representations made via the Seek Business website between September 2019 and April 2020, taking particular account of the multiple representations, duration, potential reach, and seriously misleading nature, with an overall discount in the order of 20% to reflect cooperation: $10,000; and

(4)    for the annual guaranteed income representations made via direct franchisee engagement between September 2019 and April 2020, including provision of the franchisee earnings document and communications with franchisees, taking particular account of the repeated reinforcement of misleading representations, and period over which the conduct occurred, with an overall discount in the order of 20% to reflect cooperation: $15,000.

Non-party consumer redress

94    The ACCC also sought orders under s 239 of the ACL requiring Megasave and Mr Bourne jointly and severally to pay to the trust account of the Australian Government Solicitor $500,000 by way of non-party consumer redress. That amount (or whatever amount is received, provided it be greater than $1,000) is then to be distributed equally between the 52 franchisees who purchased Megasave franchises in the period when the contraventions occurred. The 52 franchisees together paid Megasave $1,419,000 in franchise fees, so the proposed orders state that they offer only “partial redress for loss and damage suffered in relation to the contravening conduct”, and that “any person accepting payment shall be at liberty to exercise such other rights they may have”. Further, the orders allow franchisees who do not wish to receive a payment to opt-out of the scheme altogether.

95    Section 239 of the ACL is found in Subdiv B of Div 2, Pt 5-2. That subdivision is entitled “Orders for non-party consumers”, and relevantly provides as follows:

239    Orders to redress etc. loss or damage suffered by non-party consumers

(1)    If:

(a)    a person:

(i)    engaged in conduct (the contravening conduct) in contravention of a provision of Chapter 2, Part 3-1, Division 2, 3 or 4 of Part 3-2 or Chapter 4 …

(ii)    …

(b)    the contravening conduct … caused, or is likely to cause, a class of persons to suffer loss or damage; and

(c)    the class includes persons who are non-party consumers in relation to the contravening conduct or declared term;

a court may, on the application of the regulator, make such order or orders (other than an award of damages) as the court thinks appropriate against a person referred to in subsection (2) of this section.

…

(2)    An order under subsection (1) may be made against:

(a)    if subsection (1)(a)(i) applies – the person who engaged in the contravening conduct, or a person involved in that conduct …

(b)    …

(3)    The order must be an order that the court considers will:

(a)    redress, in whole or in part, the loss or damage suffered by the non-party consumers in relation to the contravening conduct or declared term; or

(b)    prevent or reduce the loss or damage suffered, or likely to be suffered, by the non-party consumers in relation to the contravening conduct or declared term.

(4)    …

240    Determining whether to make a redress order etc. for non-party consumers

(1)    In determining whether to make an order under section 239(1) against a person referred to in section 239(2)(a), the court may have regard to the conduct of the person, and of the non-party consumers in relation to the contravening conduct, since the contravention occurred.

(2)    …

(3)    In determining whether to make an order under section 239(1), the court need not make a finding about either of the following matters:

(a)    which persons are non-party consumers in relation to the contravening conduct …;

(b)    the nature of the loss or damage suffered, or likely to be suffered, by such persons.

241    When a non-party consumer is bound by a redress order etc.

(1)    A non-party consumer is bound by an order made under section 239(1) against a person if:

(a)    the loss or damage suffered, or likely to be suffered, by the non-party consumer in relation to the contravening conduct … to which the order relates has been redressed, prevented or reduced in accordance with the order; and

(b)    the non-party consumer has accepted the redress, prevention or reduction.

96    Colvin J made orders of the type sought in this case, whereby redress funds are paid to an intermediary for distribution, in Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 4) [2020] FCA 23; 376 ALR 701 (Geowash). There, his Honour made a detailed survey of the origins of the redress provisions and the principles relevant to their application (at 733-40 [164]-[193]), and held:

(1)    “It is enough that the Court is satisfied that there has been loss or damage caused to a class of persons that includes non-party consumers … There is no requirement that the Court be satisfied that there is a precise correspondence between the redress that might be received by a particular member of the class and the actual loss suffered by that member” (at 739 [185]).

(2)    “Rather, the Court must be satisfied as to the appropriateness of the order given the nature of the conduct and the loss or damage for a class. In many instances … the nature of the conduct itself will make it difficult to determine the precise loss or damage suffered by each member of the class” (at 739 [186]).

(3)    “[I]t will be necessary to consider whether the nature and extent of the loss has been established with sufficient certainty to make the orders appropriate in all the circumstances. Further, the manner in which the orders will operate in respect of individual members of the class must be considered to be correspondent in a general way with the loss suffered by those individuals” (at 739 [187]).

(4)    “[A] partial redress scheme will only prevent a claim to the extent that the scheme effects that redress” (at 740 [190]).

97    The ACCC made the following submissions in support of its proposed redress orders:

In this case, the ACCC proposes that Megasave and Bourne be jointly and severally liable to pay $500,000 in non-party consumer redress by way of partial refund. As set out in the Supplementary SOAF [statement of agreed facts], 52 franchisees suffered loss and damage in the form of franchise fees paid totalling $1,419,000. Of those 52 franchisees, Megasave and Bourne have only partially refunded seven franchisees, an amount between $51,500 and $54,000 in total. Accordingly, between $1,365,000 and $1,367,500 has not been returned to those franchisees by way of refund of their franchise fee.

The ACCC proposes that Megasave and Bourne pay money to an intermediary (here, a trust account maintained by the Australian Government Solicitor) and that equal payments to the relevant franchisees be made from that account.

The following features of the proposed order should be noted:

1.    the purpose of the order is to provide a form of redress to the franchisees, albeit a ‘limited form of redress’ (citing Australian Competition and Consumer Commission v Clinica Internationale Pty Ltd (No 2) [2016] FCA 62 at [255] (Mortimer J) (Clinica));

2.    the loss or damage is ‘clearly identifiable’ with ‘sufficient certainty’ (citing Clinica at [255]; Geowash at [187]);

3.    the order is sought ‘in circumstances of contravening conduct’ (citing Clinica at [255]);

4.    the order is designed to ‘undo damage’ to franchisees (citing Clinica at [293]). The representations were a key factor that led franchisees to purchase the Megasave franchise. Franchisees left their Megasave franchise within a relatively short period of time after delivering parcels for Megasave and not receiving payments in accordance with the representations. Accordingly, the damage caused by the contraventions may be redressed by refunds, which operate restoratively;

5.    the likelihood that the orders will not be complied with is not a reason for declining to make them. Therefore, the fact that Megasave or Bourne may not have the financial resources to comply with an appropriate redress order in full is not a reason why that order should not be made (citing Geowash at [179]); and

6.    each franchisee may choose to decline the redress and instead pursue alternative legal remedies against Megasave and Bourne (citing ACL s 241; Geowash at [189]-[191]).

In these circumstances, it is submitted that the proposed redress orders are ‘appropriate, in the sense of being suitable or fitting the purpose of effecting redress’ (citing Geowash at [193]). The orders have been fashioned so as to ‘suit the circumstances’ of this case (citing Clinica at [293]).

The redress orders sought represent only a portion of the franchise fee payments made by franchisees. In these circumstances, any payment received by franchisees will be only partial redress, for the purposes of s 241(3) of the ACL, and the franchisee’s entitlement to further suit against Megasave or Bourne is diminished only by the amount they actually receive. This was reflected by Colvin J in Geowash at [189]-[192], who concluded: ‘a partial redress scheme will only prevent a claim to the extent that the scheme effects that redress’.

98    I am satisfied that the respondents’ contravening conduct caused a class of non-party consumers, namely Megasave franchisees, to suffer loss or damage, and that such loss or damage is sufficiently certain. As recorded in the parties’ statements of agreed facts, the loss or damage includes the franchise fees paid in the expectation of receiving the guaranteed payments (none of which have been fully refunded). It also includes the time and effort expended and expense incurred by the franchisees in anticipation of receiving the guaranteed payments, as well as the emotional distress suffered when the payments were not received.

99    I am also satisfied that the proposed scheme is appropriate, and that it will operate in a way that is correspondent in a general way with the loss suffered by the franchisees. The proposed scheme, involving a single intermediary and equal distributions to all franchisees, is a practical solution in circumstances that do not justify lengthy or expensive enquiries into each franchisee’s exact loss. The scheme is unlikely to achieve a precise correspondence between the redress received by each franchisee and loss actually suffered. But, as Colvin J said in Geowash (see [96(1)] above), and consistently with s 240(3) of the ACL, it does not need to.

100    It is also appropriate that Megasave and Mr Bourne be jointly and severally liable to pay the redress in circumstances where Mr Bourne was so directly involved in the contraventions, including making the representations personally, and benefitted from the contraventions as Megasave’s sole director and shareholder during the relevant period.

Costs

101    The ACCC also sought a lump sum costs order in the amount of $200,000.

102    Ms Close, a solicitor employed by the Australian Government Solicitor, deposed that the ACCC’s actual legal costs incurred fairly and reasonably in the conduct of this litigation to 16 April 2021 were approximately $475,000.

103    In the absence of any opposition from the respondents, I made the costs order sought by the ACCC.

Associate:    

Dated:    21 May 2021