FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Ultra Tune Australia Pty Ltd (No 3) [2024] FCA 156

ORDERS

THE COURT DECLARES THAT:

1.    The respondent, Ultra Tune Australia Pty Ltd (ACN 065 214 708), is guilty of contempt of this Court for breaching order 2 of the orders made by the Honourable Justice Bromwich on 4 March 2019 (Orders) by engaging in the conduct referred to in charge 1 of the amended statement of charge filed on 29 August 2022 (Statement of Charge) namely failing to update its disclosure document within 4 months after the end of the 2019-2020 financial year, thereby contravening cl 8(6) of the Franchising Code of Conduct found in Schedule 1 to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014.

2.    The respondent, Ultra Tune Australia Pty Ltd (ACN 065 214 708), is guilty of contempt of this Court for breaching order 2 of the Orders by engaging in the conduct referred to in charge 2 of the Statement of Charge, namely failing to prepare an annual financial statement detailing all of the respondent’s marketing fund receipts and expenses for the 2018-2019 financial year within 4 months after the end of that financial year, thereby contravening cl 15(1) of the Franchising Code.

3.    The respondent, Ultra Tune Australia Pty Ltd (ACN 065 214 708), is guilty of contempt of this Court for breaching order 2 of the Orders by engaging in the Conduct referred to in charge 3 of the Statement of Charge, namely failing to prepare an annual financial statement detailing all of the respondent’s marketing fund receipts and expenses for the 2019-2020 financial year within 4 months after the end of that financial year, thereby contravening cl 15(1) of the Franchising Code.

4.    The respondent, Ultra Tune Australia Pty Ltd (ACN 065 214 708), is guilty of contempt of this Court for breaching order 6 of the Orders by engaging in the conduct referred to in charge 4 of the Statement of Charge, namely failing to ensure its compliance officer reported to its board and/or senior management on a quarterly basis on the continuing effectiveness of its compliance program between April 2021 and December 2021 as required by paragraph 15 of Annexure B to the Orders.

THE COURT ORDERS THAT:

5.    The respondent, Ultra Tune Australia Pty Ltd (ACN 065 214 708), be convicted on all four charges of contempt in the amended statement of charge filed on 29 August 2022.

6.    The respondent pay a fine in the sum of $1,500,000, comprising:

(a)    $240,000 for charge 1;

(b)    $300,000 for charge 2;

(c)    $600,000 for charge 3; and

(d)    $360,000 for charge 4,

to be paid into the Consolidated Revenue Fund within 60 days.

7.    The respondent, Ultra Tune Australia Pty Ltd (ACN 065 214 708), pay the applicant’s costs of and incidental to the interlocutory application dated 28 June 2022 on an indemnity basis, as agreed or assessed.

8.    Pursuant to r 1.34 of the Federal Court Rules 2011 (Cth), to the extent it is required, compliance with r 41.06 in relation to the orders of Justice Bromwich made on 4 March 2019 be dispensed with.

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

REASONS FOR JUDGMENT

BROMWICH J:

Introduction

1    The respondent, Ultra Tune Australia Pty Ltd, has pleaded guilty to four charges of contempt of court, arising from a failure to comply with certain compliance orders made on 4 March 2019. Those orders were designed to, but failed to, prevent further contraventions of a kind that had been established after a partially contested trial on liability and made the subject of substantial pecuniary penalties: Australian Competition and Consumer Commission v Ultra Tune Australia Pty Ltd [2019] FCA 12 (primary judgment or PJ). The contraventions arose from failure to comply with obligations imposed by the code of conduct legislated for franchise arrangements in Schedule 1 to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) (Franchising Code).

2    An appeal to the Full Court against some of the disclosure breaches succeeded in relation to a number of contraventions created by cl 15(1) of the Franchising Code and in relation to the quantum of the penalty imposed for the content aspect of those disclosure contraventions: Ultra Tune Australia Pty Ltd v Australian Competition and Consumer Commission [2019] FCAFC 164. Those contraventions were found by the Full Court to be the product of “egregious inadvertence” rather than being a stubborn approach to compliance in relation to the information provided. That characterisation as to state of mind did not apply to the timing aspect of the disclosure contraventions, since repeated, resulting in them being made the subject of this contempt proceeding.

Background

3    The opening paragraphs of the primary judgment provide a summary history and context for these reasons, the defined terms of which are adopted:

[1]    The respondent, Ultra Tune Australia Pty Ltd is a franchisor for motor vehicle engine repair and maintenance services provided by a national network of approximately 200 franchises operating in New South Wales (divided into metropolitan and country), Queensland, Victoria and Western Australia.

[2]    This case is about Ultra Tune’s failure to comply with minimum franchisor obligations, including a number of more serious breaches, and the fabrication of business records in a failed attempt to conceal its wrongdoing. Ultra Tune’s stance at trial and in closing submissions has required detailed and comprehensive reasons to be given to explain why most of its evidence and submissions cannot be accepted.

[3]    The applicant, the Australian Competition and Consumer Commission (ACCC), is Australia’s national franchise regulator. The ACCC is therefore concerned to ensure that all manner of franchisors and franchisees comply with their legal obligations. That is especially so in relation to compliance by franchisors with laws designed to protect the interests of franchisees. The ACCC is concerned to ensure that any case it brings in relation to non-compliance with those laws contributes to future compliance by both the respondent to such a proceeding, and by others engaged in franchise activities.

[4]    Ultra Tune’s compliance with its minimum legal obligations as a franchisor are central to the proper conduct of its business. In this proceeding, the ACCC alleges that Ultra Tune has contravened mandatory industry codes that regulate the conduct of a franchisor towards its franchisees and prospective franchisees. The applicable codes are:

(1)    for conduct by Ultra Tune in the period from 1 July 2011 to 31 December 2014, the “old” Franchising Code of Conduct in the Schedule to the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) (Pre-2015 Code); and

(2)    for conduct by Ultra Tune in the period from 1 January 2015 onwards, the “new” Franchising Code of Conduct found in Schedule 1 to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) (Franchising Code).

[5]    Each code had force for its respective period by virtue of Part IVB of the Competition and Consumer Act 2010 (Cth) (CCA). Broadly speaking, the codes prescribe minimum standards in franchise agreements and require franchisors to disclose certain information to franchisees and prospective franchisees. Both franchisors and franchisees also have a statutory duty to act in good faith, with civil penalty sanctions for failing to do so.

[6]    The codes may be seen to facilitate the better working of market forces within the various industries that use franchises as a business model. They encourage the practical advancement of the economist’s ideal of better – if not perfect – information by which to make rational decisions.

[7]    The ACCC seeks pecuniary penalties in respect of breaches of the Franchising Code and breaches of s 29(1) of the Australian Consumer Law (ACL). The ACL is contained in Schedule 2 to the CCA. Civil penalties are not provided for under the Pre-2015 Code.

[8]    The ACCC also seeks declarations, injunctions, publication orders and compliance orders, as well as certain specific relief by way of a refund for the prospective franchisee who brought the complaint to the ACCC, which led to the investigation and this proceeding.

4    The case at trial giving rise to the primary judgment concerned breaches of the Franchising Code, by way of failure to comply with a range of disclosure obligations both as to timing and as to content, and the illegal treatment of a prospective franchisee, each of which was found to have taken place. The non-disclosure contraventions were largely admitted, except insofar as Ultra Tune disputed the number of contraventions that had taken place as a question of statutory construction of cl 15(1) of the Franchising Code, the allegations of insufficiency of detail provided in certain of the disclosures that took place, and the state of mind accompanying the conduct.

5    The orders made at the time of the publication of the primary judgment on 18 January 2019 were as follows, with the penalty in order 1 being later reduced on appeal, as detailed below at [9], were as follows:

1.    The respondent pay to the applicant a pecuniary penalty of $2,604,000 [reduced on appeal to $2,014,000] within 60 days of this judgment.

2.    The respondent pay to the applicant $33,000 plus interest within 14 days for the redress of Mr Nakash Ahmed.

3.    The applicant pay the sum referred to in order 2 to Mr Nakash Ahmed within 14 days of receipt of the sum from the respondent.

4.    The respondent pay the applicant’s costs on an indemnity basis.

5.    The parties furnish agreed or competing draft orders and declarations to reflect these reasons within 28 days.

6    After the parties furnished agreed draft orders in accordance with order 5 above, declarations and compliance orders were made on 4 March 2019. The declarations component of the 4 March 2019 orders was as follows (emphasis added):

[1]    The Respondent (Ultra Tune Australia [Pty Ltd]), in its dealings with a prospective franchisee, Mr Nakash Ahmed:

(a)    failed to act in good faith in contravention of clause 6(1) of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Franchising Code) and section 51ACB of the Competition and Consumer Act 2010 (Cth) (CCA);

(b)    did not provide Mr Ahmed a copy of the Franchising Code, the disclosure document or a proposed franchise agreement in the form in which it was to be executed at least 14 days prior to receiving a non-refundable payment from Mr Ahmed in connection with the proposed franchise agreement in contravention of clause 9(1) of the Franchising Code;

(c)    in connection with the supply or the possible supply of services:

(i)    made a false or misleading representation that services were of a particular quality in contravention of section 29(1)(b) of the Australian Consumer Law (ACL) which is schedule 2 to the CCA, by representing that the Parramatta franchise had been open “about 6 months”;

(ii)    made false or misleading representations with respect to the price of services in contravention of section 29(1)(i) of the ACL, by representing that the rent for the Parramatta franchise was $45,000 plus GST per annum and that the full purchase price of the Parramatta franchise was $163,000;

(iii)    made a false or misleading representation concerning the existence or effect of a condition in contravention of section 29(1)(m) of the ACL by representing that the deposit paid by Mr Ahmed in respect of the Parramatta franchise was refundable (without condition);

(d)    by reason of the conduct described at (c)(i), (c)(ii) and (c)(iii), engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, in contravention of section 18 of the ACL.

[2]    Ultra Tune Australia failed to:

(a)    prepare the financial year (FY) 2014-15 marketing fund statement (MFS) for each of the five geographical regions in which Ultra Tune Australia operates, namely NSW Metro, NSW Regional (including ACT), QLD, VIC and WA (UTA Regions) within four months of 30 June 2015;

(b)    ensure that each relevant MFS for FY 2014-15 and FY 2015-16 included sufficient detail of the fund’s receipts and expenses so as to give meaningful information about income and expenditure, including with respect to advertising and marketing;

(c)    have the MFS for FY 2014-15 for each UTA Region audited by a registered company auditor within four months of 30 June 2015;

(d)    provide to Ultra Tune Australia franchisees copies of the MFS and auditor’s report for FY 2014-15 within 30 days of preparing the MFS and receiving the auditor’s report;

and thereby contravened clause 15(1) of the Franchising Code and section 51ACB of the CCA.

[3]    Ultra Tune Australia failed to:

(a)    prepare the relevant MFS for FY 2011-12 and FY 2012-13 for each UTA Region within four months after the end of each FY respectively;

(b)    have the MFS for FY 2011-12 and FY 2012-13 for each UTA Region audited by a registered company auditor within four months after the end of FY respectively; and

(c)    provide to Ultra Tune Australia franchisees copies of the relevant MFS and auditor’s report for FY 2011-12, FY 2012-13 and FY 2013-14 within 30 days of preparing the relevant MFS and receiving the relevant auditor’s reports;

and thereby contravened clause 17(1) of the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Pre-2015 Code) and section 51AD of the Trade Practices Act 1974 (Cth) (TPA).

[4]    Ultra Tune Australia failed to update its disclosure document for FY 2015-16 within four months after 30 June 2015 and thereby contravened clause 8(6) of the Franchising Code and section 51ACB of the CCA.

[5]    Ultra Tune Australia failed to update its disclosure document for FY 2014-15 within four months after 30 June 2014 and thereby contravened clause 6(1) of the Pre-2015 Code and contravened section 51AD of the TPA.

[6]    Ultra Tune Australia failed to provide a franchisee with a disclosure document within 14 days of receiving a written request and thereby contravened clause 16(1) of the Franchising Code and section 51ACB of the CCA.

7    The contempt charges detailed below reflect further contraventions of the kind referred to in the declarations marked in bold above, namely declarations 2(a) and 4, which were the subject of compliance orders made immediately after the declarations, designed to prevent repetition. The compliance orders component of the 4 March 2019 orders were as follows (emphasis added to identify the orders that are the subject of this contempt proceeding):

[1]    Ultra Tune Australia, for a period of three years from the date of this order, whether by itself, its servants or agents, be Restrained from receiving a non-refundable payment from a prospective franchisee in connection with a proposed franchise agreement, without at least 14 days in advance providing the prospective franchisee:

(a)    a copy of the Franchising Code;

(b)    a copy of the disclosure document; and

(c)    a copy of the franchise agreement in the form in which it is to be executed.

[2]    Ultra Tune Australia, for a period of three years from the date of this order, whether by itself, its servants or agents, be restrained from contravening clauses 8(6), 15(1) and 16(1) of the Franchising Code.

[3]    Ultra Tune Australia, for a period of three years from the date of this order, whether by itself, its servants or agents, be restrained from engaging in conduct that is misleading or deceptive, or likely to mislead or deceive, or making false or misleading representations in any dealings with current or prospective franchisees when making representations regarding any new or existing Ultra Tune franchises regarding:

(a)    the age of the franchise;

(b)    the rent payable for the franchise;

(c)    the price payable for the franchise; and

(d)    the refundability of any payment made in connection with the franchise.

[4]    [Detailed orders for the publication of a corrective notice by newspaper advertisements, the Ultra Tune website and to franchisees]

[5]    Ultra Tune Australia, file and serve on the ACCC an affidavit verifying its compliance with orders 10(a), 10(b) and 10(c) above within 30 days of the date of this order.

[6]    Ultra Tune Australia establish, administer and comply with a program at its own expense, which has the purpose of ensuring compliance by Ultra Tune Australia’s employees and agents with the Franchising Code, the CCA and the ACL, and particularly clauses 6(1), 8(6), 9(1) and 15(1) of the Franchising Code and sections 18 and 29(1) of the ACL, in the form of Annexure B to this Order.

8    The key successful ground of appeal in the Full Court involved, as described in the appeal judgment catchwords, a “narrow question of construction”. The Full Court found that a breach of all or any of the multiple requirements in cl 15(1) of the Franchising Code when there is a marketing or other cooperative fund (that is, preparing annual financial statements detailing receipts and expenses, ensuring sufficient detail of the sources of income and items of expenditure, having the statement audited, and providing a copy to franchisees) constitutes a single contravention, rather than a separate contravention for each requirement as had been erroneously found in the primary judgment.

9    The overall seriousness of the contraventions was also affected by Ultra Tune’s state of mind in relation to the contraventions arising from an unsuccessful appeal ground concerning the content aspect of the disclosures that were made. The Full Court found that while there was no error in finding these contraventions had been proven, rejecting an appeal ground to that effect, the insufficiency of detail was found by the Full Court to be due to egregious inadvertence by Ultra Tune, rather than a stubborn approach to compliance in this regard as had been found in the primary judgment. This and the characterisation of the cl 15(1) requirements as a single contravention affected the assessment of overall seriousness. That resulted in the overall penalty ordered to be paid of $2,604,000 being reduced by the Full Court by $590,000 to $2,014,000.

10    The Full Court decision only affected the compliance orders that had been made on 4 March 2019, following the primary judgment, in a very limited way as to the wording of a part of a corrective notice ordered to be published. Neither the corrective notice, nor its terms, are in issue in this contempt proceeding.

The contempt charges

11    The four contempt charges to which Ultra Tune has pleaded guilty relate to breaches of orders 2 and 6 made on 4 March 2019, expressed in a summary way and without repeating the particulars:

Charge 1:    breaching order 2 by contravening cl 8(6) of the Franchising Code in not updating the disclosure document following the financial year ending 30 June 2020 until 10 November 2020, being 10 days after it was required to be updated.

Charge 2:    breaching order 2 by contravening cl 15(1) of the Franchising Code in not preparing an annual financial statement detailing all of the marketing fund’s expenses for the financial year ending 30 June 2019 until 17 December 2019, being 7 weeks after it was required to be prepared.

Charge 3:    breaching order 2 by contravening cl 15(1) of the Franchising Code in not preparing a marketing fund statement for the financial year ending 30 June 2020 until 28 June 2021, being approximately 8 months after it was required to be prepared.

Charge 4:    breaching order 6 by failing to comply with the compliance program in Annexure B to the orders by not ensuring that Ultra Tune’s compliance officer reported to the Board and/or senior management on the continuing effectiveness of that program in respect of the June, September and December quarters of 2021.

12    Ultra Tune contends that it is not liable for any punishment for contempt because the compliance orders did not have an endorsement of the kind required by r 41.06 of the Federal Court Rules 2011 (Cth). For the reasons given in detail below, I reject that contention.

13    A key issue from the trial leading to the primary judgment that is relevant to this contempt proceeding concerned the obligations imposed upon Ultra Tune to provide to each franchisee an updated disclosure document and a copy of financial statements, each year within four months of the end of the financial year on 30 June. Repetition of this conduct is reflected in contempt charges 1 to 3.

14    The aspect of the financial statements in issue, being the subject of contempt charges 2 and 3, concerned a marketing fund statement for each of the regions in which Ultra Tune had franchisees. The marketing fund statement is required to disclose information about the receipt and expenditure of funds contributed by franchisees for that purpose.

15    Each of the disclosure obligations that were contravened in the past and sanctioned by the primary judgment and by the Full Court, and which have been contravened again in breach of the compliance orders, were described in the primary judgment (which was extensively quoted in the Full Court judgment) as follows:

(a)    In relation to the disclosure document obligation under the Franchising Code, to which charge 1 relates:

(i)    at [37]:

The codes impose an obligation on a franchisor to maintain a disclosure document. The stated purpose of a disclosure document is the same under both codes: see cl 6A of the Pre-2015 Code and cl 8(2) of the Franchising Code. That purpose is to give a prospective franchisee (or a current franchisee who is considering renewal, variation or extension of an agreement) information that is material to the running of the business and information to help a franchisee or prospective franchisee make a reasonably informed decision about the franchise.

(ii)    at [42]:

The franchise design implemented by Ultra Tune operated on a State-based franchise model with four separate disclosure documents. As outlined above at [15], Ultra Tune increased its number of franchisees in the relevant years overall, but not in all years in respect of all States. No increase in franchise numbers for a given State, or only an increase of one franchise for a given State, in a given year would trigger the first limb of the cl 8(7) exception to the cl 8(6) obligation to update a disclosure document for the following year: see [40] above. However, there was no evidence of any absence of intention on the part of Ultra Tune to enter into another franchise agreement for any of the years in question either across all of the States, or in respect of any individual State, so as to trigger the second limb of the cl 8(7) exception. The cl 8(7) is therefore not relevant to the current proceeding.

(iii)    at [76]:

Ultra Tune admits that, contrary to cl 8(6) of the Franchising Code, it did not update its [four] disclosure documents for the 2015-16 financial year within four months after the end of the 2014-15 financial year, being 31 October 2015. Those documents were not completed until 26 February 2016, so were almost four months late, taking almost twice as long as required.

(b)    In relation to the financial statements obligation under the Franchising Code, and in particular the aspect addressing the required marketing fund statement to which charges 2 and 3 relate:

(i)    at [55]:

The codes contain obligations on the part of franchisors to provide copies of certain financial statements to franchisees if they have been required to pay money to a marketing or other cooperative fund. Ultra Tune required all of its franchisees to pay money to a marketing fund, with separate funds for each State-based franchise region, except NSW which has a separate fund for metropolitan NSW and regional NSW, making a total of five marketing funds. The following provisions required financial statements to be prepared within four months of the end of each financial year and for the statements to be audited, unless (not applicable on the evidence in this case) 75% of franchisees contributing to the fund voted not to require auditing within three months after the end of the financial year. The financial statements were then to be provided, along with the auditor’s report (if applicable), to each franchisee within 30 days of preparation. There is no evidence of any such agreement by the Ultra Tune franchisees.

(ii)    at [74]:

Ultra Tune admits that, contrary to cl 15(1)(a) of the Franchising Code, it failed to prepare marketing fund statements within four months after the end of the last financial year for the 2014-15 financial year (that document having been completed on 24 December 2015 instead of by 31 October 2015).

(iii)    at [324]:

The conduct in relation to the disclosure contraventions was deliberate in the sense that the failure to comply was a consequence of deliberate actions or omissions, rather than inadvertence. Those contraventions took place over a substantial period of time. They involved conduct on the part of the most senior levels of management, including Mr Chong who was company secretary and in-house counsel. There was no suggestion of responsibility on the part of lower level staff, but rather that priority was evidently not given at the highest levels in the company to even informing itself as to what was required to comply with its obligations, let alone to ensuring compliance took place. The evidence was limited as to corporate culture, but it was not established, as a matter of mitigation, that Ultra Tune has a corporate culture conducive to compliance with the Franchising Code or the ACL. There was passing reference to compliance training, but limited evidence as to content, delivery, or response to this case. The corrective response, to the extent it was shown at all, was, at best, leisurely. There was no evidence of active obstruction in relation to the non-disclosure contraventions, but little to suggest an active approach to remedying the defects as a matter of urgency or priority.

16    The characterisation of the conduct as to the inadequate content of the marketing fund statements for the 2014-2015 and 2015-2016 financial years being due to stubbornness rather than inadvertence was displaced by the Full Court. The obligation was that the statements contain sufficient detail of the marketing funds receipts and expenses so as to give meaningful information about sources of income and items of expenditure, particularly with respect to advertising and marketing, as required by cl 15(1)(b) of the Franchising Code. The reason why those contraventions were found by the Full Court not to be stubborn was that the relevant person at Ultra Tune did not know about the obligation in cl 15(1)(b), such that the contraventions as to content were found by the Full Court to be egregious but nonetheless inadvertent. That ignorance was not a defence, but it was a mitigation, which ordinarily cannot be advanced a second time, but that ignorance is not relevant to the contempt charges.

17    For the first three contempt charges, the conduct concerns only timing in relation to disclosure obligations. The content aspect of the marketing funds statement is not part of the contempt allegation in charges 2 and 3. On the topic of timing in relation to both the disclosure documents, and the marketing fund statements aspect of the financial statements, the Full Court relevantly observed:

(a)    as part of [66] that:

Ultra Tune’s reference to delay by external service providers does not provide an adequate explanation for these delays. In any event, it is Ultra Tune’s obligation as franchisor to ensure that it complies with the requirements. As a major franchisor operating in four states, Ultra Tune should have taken its obligations more seriously.

(b)    at [67] that:

We otherwise agree with the primary judge that the contraventions were objectively serious by reason of the length of the delay in the ultimate provision of the required documents to franchisees the effect of which was largely to undermine the statutory purposes of transparency and accountability of Ultra Tune’s expenditure, the fact that the overall [four-month] delay in 2014-2015 is not explained by the conduct of the external service providers, Ultra Tune’s history of non-compliance with the applicable provisions in circumstances where it is ultimately Ultra Tune’s responsibility alone to ensure compliance, and the large number of franchisees adversely affected by Ultra Tune’s contraventions.

18    Charge 1 in the amended statement of charge related to a failure to comply with cl 8(6), not directly in contravention of that provision, but rather in disregard of a compliance order not to breach that provision. Instead of being provided within four months of the end of the financial year, the updated disclosure document for 2019 was provided 10 days late. An important issue on penalty for this contempt is weighing up the seriousness of not complying with a court order and the seriousness of not complying with a regulatory requirement, against the lesser period of lateness. Further, as noted below, since at least the primary decision delivered on 18 January 2019, Ultra Tune has been made aware of its obligations under the Franchising Code, as reinforced by the Full Court decision delivered on 20 September 2019. The fourth contempt charge concerns the failure of Ultra Tune’s compliance officer to report to the board and/or senior management of Ultra Tune on a quarterly basis as to the continuing effectiveness of the compliance program ordered to be implemented. This can readily be seen as an important mechanism to ensure that the rest of the compliance program was effective. That obligation was not observed for the last three quarters of 2021.

The principles in relation to contempt of court

19    The ACCC in its submissions regarding the applicable legal principles which apply to contempt for breaching a court order refers to Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd) [2016] FCA 1437 at [37], in which Moshinsky J stated that contempt through disobedience of a court order “has traditionally been described as ‘civil contempt’” and, referring to Construction, Forestry, Mining and Energy Union v Grocon Constructors (Victoria) Pty Ltd [2014] VSCA 261; 47 VR 527, states that a finding of contempt of this kind can be made where the breach was technical, wilful or contumacious. The ACCC in its submissions also cites Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 112-113:

lying behind punishment for contempt which involves wilful disobedience to a court order, is the very substantial purpose of disciplining the defendant and vindicating the authority of the court. … It follows that a deliberate commission or omission which is in breach of an injunctive order or undertaking will constitute such wilful disobedience unless it be casual, accidental or unintentional.

20    The ACCC in its submissions additionally refers to Grocon at 140 (citations omitted):

The public interest requires that any disobedience more than casual, accidental or unintentional must at least be regarded as wilful … Thus, a deliberate act or omission which is in breach of an injunctive order or an undertaking, will ordinarily constitute wilful disobedience unless the alleged contemnor is able to show, by way of exculpation, that the default was casual, accidental or unintentional …

21    The Full Court in Kazal v Thunder Studios Inc (California) [2017] FCAFC 111; 256 FCR 90 said in relation to criminal and civil contempt of court:

[21]    The distinction still maintained between civil and criminal contempt is “in significant respects illusory”: Witham v Holloway (1995) 183 CLR 525 (Witham) at 534. ... Nothing turns on the distinction save as to the issue taken on appeal as to the finding that the appellant’s breaches were contumacious. The distinction was summarised by Brennan, Deane, Toohey and Gaudron JJ in Witham at 530:

In general terms, the distinction between civil and criminal contempt is that a civil contempt involves disobedience to a court order or breach of an undertaking in civil proceedings, whereas a criminal contempt is committed either when there is a contempt in the face of the court or there is an interference with the course of justice. However, disobedience or breach of an undertaking amounts to a criminal contempt if it involves deliberate defiance or, as it is sometimes said, if it is contumacious. As well, in the case of some orders, described in Australasian Meat Industry Employees’ Union v Mudginberri Station Pty Ltd as involving “arbitrary classification”, disobedience constitutes criminal contempt. They are orders forbidding interference with a ward of court, orders for the delivery up of a child and non-molestation orders. And it has been held that breach of a court order by a solicitor or by a liquidator is also a criminal contempt.

(Footnotes omitted.)

[22]    It was further observed in Witham at 531-532 (quoting Windeyer J in Australian Consolidated Press Ltd v Morgan (1965) 112 CLR 483 (Morgan) at 498) as to the historic basis for the distinction:

(1) Civil contempt was remedial or coercive, used primarily to compel obedience in support of a private interest of the party in whose favour the order was made, rather than punish for disobedience, in which case the contempt could be purged by apology and reparation. As was pointed out at 532.3, quoting longstanding United States authority, the remedial or coercive approach can be explained by the notion that those in “breach of an order or undertaking ‘carry the keys of their prison in their own pockets’.”

(2) Criminal contempt was in the public interest to vindicate judicial authority or maintain the integrity of the judicial process.

[23]    This distinction between civil and criminal contempt was not regarded as being satisfactory in Witham, having regard to such considerations as disobedience not being able to be remedied in all cases, and there being in any event a public interest in court orders being obeyed. There was no easy or bright line between remedial or coercive objectives and punitive objectives. It may be in the public interest for contempt proceedings to continue, even if the opposing parties do not seek it. Nothing was achieved by describing some proceedings as punitive and others remedial or coercive, given that punishment is still punishment whatever the motive for imposing it: see Witham at 533-534. Although not forming part of the reasoning in Witham, it may be seen that for both kinds of contempt, deterrence, both specific and general, is a unifying principle informing the appropriate sanction to be imposed.

[24]    A real distinction remains between contempt proceedings being “essentially criminal in nature”, and ordinary criminal proceedings. That is so in many practical respects, especially as to procedure: Witham at 534, quoted with approval by the plurality in Construction, Forestry, Mining and Energy Union v Boral Resources (Vic) Pty Ltd (2015) 256 CLR 375 (Boral) at [43]; see also the discussion in Boral at [44]-[47] as to certain of those enduring important distinctions. That distinction led to the CFMEU as the defendant in Boral being compelled to participate in discovery processes of the Supreme Court of Victoria.

[25]    The distinction between civil contempt proceedings, criminal contempt proceedings and criminal proceedings was further explained by Nettle J in Boral at [65]:

A proceeding for punishment for contempt constituted by disobedience of an injunction granted in a civil proceeding is not part of the criminal justice system in the sense essayed in Caltex, X7 or Do Young Lee v The Queen. Although “all proceedings for contempt ‘must [now] realistically be seen as criminal in nature’”, not all contempts are criminal. Failure to obey an injunction is not a criminal offence unless the failure to comply is defiant or contumacious. A proceeding for contempt is not a proceeding for criminal contempt if the proceeding appears clearly to be remedial or coercive in nature as opposed to punitive. A criminal contempt is a common law offence, albeit not part of the ordinary common law. But even a proceeding for criminal contempt is not a criminal proceeding.

(Citations omitted.)

22    The four charges before the Court are therefore for civil contempt, not criminal contempt, noting that the ACCC does not contend that any of them were defiant or contumacious in nature. In keeping with all contempt charges, the present charges are nonetheless criminal in nature.

23    The characterisation of Ultra Tune’s conduct is a central factual dispute to be adjudicated upon, based upon a detailed consideration of the chronology of key events, as set out below. Ultra Tune accepts that the conduct was deliberate and that it was wilful, but disputes the characterisation that the ACCC advances of a cavalier attitude to compliance. Ultra Tune concedes little more than the fact of non-compliance. It is akin to an argument of mitigation by ineptitude, accepting that the conduct and state of mind of its employees and agents was its conduct and state of mind, including as to the attitude taken towards compliance, but somehow leaving the moral culpability with them. I am unable to accept that this approach is permissible.

24    A related dispute is the need for specific deterrence. There is no dispute that there is a need for general deterrence, but the extent of that need, and the suitability of Ultra Tune being a vehicle for advancing that objective are not agreed. Ultra Tune contends that the need for specific deterrence is minimal, in particular by reason of now having an apparently competent and effective compliance officer, and that the nature of the non-compliance did not give rise to a substantial need for general deterrence.

25    In Kazal, the Full Court also made further observations pertinent to this contempt proceeding as follows:

[97]    The plurality in Boral observed at [41], endorsing the statement of principle by Hayne J in Re Colina; Ex parte Torney (1999) 200 CLR 386 at [12], that the “cardinal feature of the power to punish for contempt” was as an exercise of judicial power to “protect the due administration of justice”. Viewed in that way, contempt proceedings are essentially protective in nature as to the judicial function and the role of the courts, even if they also serve to vindicate private interests and rights. Contempt proceedings are therefore to be viewed as essential in facilitating courts being able to function properly. That includes being, and being seen to be, effectual in adjudicating upon and resolving disputes, and in particular making orders that will ordinarily be obeyed. This means that individual contempt cases have an importance transcending the instant case by supporting and enhancing the integrity of judicial proceedings, both in respect of orders made, and more generally. That view of contempt proceedings can be seen to permeate longstanding sentencing authority in this area.

[101]    In Matthews at [129], Tobias JA (with whom Basten and Campbell JJA agreed on this point) quoted with evident approval nine considerations the sentencing judge in that case had considered relevant to the question of determining an appropriate punishment for contempt of court as follows:

(1) the seriousness of the contempt proved;

(2) the contemnor’s culpability;

(3) the reason or motive for the contempt;

(4) whether the contemnor has received, or sought to receive, a benefit or gain from the contempt;

(5) whether there has been any expression of genuine contrition by the contemnor;

(6) the character and antecedents of the contemnor;

(7) the contemnor’s personal circumstances;

(8) the need for deterrence of the contemnor and others of like mind from similar disobedience; and

(9) the need for denunciation of contemptuous conduct.

[103]    The burden of the additional authority in this Court is to add weight to the factors listed in Matthews, rather than requiring any change by way of addition, subtraction or variation. The focus remains on the core themes of the objective seriousness of the conduct and, in particular, its effect on the administration of justice, subjective factors such as the contemnor’s culpability, antecedents and attitude, including in particular any apology or other palpable sign of contrition, the capacity to pay a fine, and imprisonment being a last resort. Deterrence remains a dominant theme, both specific and general. Even denunciation and punishment can be seen as bolstering deterrence. That is especially so when the conduct entails contemplation and the opportunity to reflect and desist.

[104]    … it is essential to the due administration of justice that contempt of court, and in particular serious contempt of court, remains relatively rare. Vigilance is required to help ensure contempt remains a rare problem. Whenever there is a real need for deterrence, be it specific or general, that will always be a vitally important consideration in determining the appropriate penalty…

[105]    State of mind can serve to mitigate or aggravate conduct by a contemnor. In the case of aggravation, this is reflected in the conclusion reached as to whether or not the nature of the contempt, combined with the proven state of mind, may be regarded as contumacious. Evidence of an innocent or inadvertent state of mind may serve to mitigate. It follows that state of mind will almost always be a relevant consideration when it comes to penalty, somewhat analogous to the situation with civil penalty contraventions: cf Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25 (Reckitt) at [123]-[124].

The absence of a warning endorsement or penal notice in accordance with rule 41.06

26    Ultra Tune contends that the lack of inclusion of an endorsement to the orders of 4 March 2019 (March Orders) means that this Court cannot impose a penalty on Ultra Tune for its contempts. On 18 January 2019, I delivered the primary judgment, holding that Ultra Tune had failed to comply with the Franchising Code and the Australian Consumer Law contained in Sch 2 of the Competition and Consumer Act 2010 (Cth) (ACL). I also made orders requiring the parties to furnish agreed or competing draft orders and declarations within 28 days. On 15 February 2019, I extended the time for compliance with that order to 20 February 2019.

27    On 20 February 2019 Webb Henderson, acting for the ACCC, provided draft orders and declarations to my associate by email. That document contained proposed declarations that Ultra Tune failed to comply with the Franchising Code and the ACL. In the same email, Webb Henderson also stated that Ultra Tune had been provided with those draft orders and declarations on 18 February 2019, as well as a substantially similar earlier draft, for which Ultra Tune had provided suggested amendments on 6 February 2019. Mr Tony Truong, internal lawyer for Ultra Tune, emailed the Court and Webb Henderson confirming Ultra Tune’s consent to those draft orders and declarations on 22 February 2019. I made those orders by consent on 28 February 2019. Typographical errors in those orders, arising from typographical errors in the draft orders, were pointed out to my chambers by Webb Henderson on 1 March 2019. On 4 March 2019 I amended the orders made on 28 February 2019 to correct those typographical errors, making the March Orders that were later breached by Ultra Tune and are hence relevant to this contempt proceeding.

28    There is an important distinction to be drawn between enforcement of orders of the Court which compel things to be done, or not be done, designed to secure compliance at or about the time that the orders are made; and subsequent action taken to bring proceedings for contempt of court, including to punish for such non-compliance and to deter the person bound by the orders, and others in a like position, from failing to comply in the future. That distinction is acknowledged by the Court’s general practice note for enforcement and contempt, Enforcement, endorsement and contempt practice note (GFN-ENF), especially at [2.2] and [7.1].

29    Chapter 5, Pt 41, Div 41.1 of the Federal Court Rules deals with general matters to do with enforcement, relevantly including compliance, but may also be relevant to contempt at a later stage. Chapter 6 (Disciplinary), Pt 42 (Contempt) deals separately with contempt of court, including a regime for bringing charges, having them heard and the imposition of punishment.

30    Rules 41.06, 41.07 and 41.08 within Div 41.1 provide as follows:

41.06    Endorsement on order

If an order requires a person to do, or not to do, an act or thing, whether within a certain time or not, and the consequences of failing to comply with the order may be committal, sequestration or punishment for contempt, the order must carry an endorsement that the person to be served with the order will be liable to imprisonment, sequestration of property or punishment for contempt if:

(a)    for an order that requires the person to do an act or thing—the person neglects or refuses to do the act or thing within the time specified in the order; or

(b)    for an order that requires the person not to do an act or thing—the person disobeys the order.

41.07    Service of order

(1)    An order mentioned in rule 41.06 must be served personally on the person who is bound to do, or not to do, the act or thing:

(a)    within the time mentioned in the order; or

(b)    if no time is mentioned—within a time that would allow the person to comply with the order.

(2)    However, if the person:

(a)    was present when the judgment was pronounced or the order was made; or

(b)    was notified of the terms of the order orally, by telephone or electronically; the person is taken to have been served with the order at the time the person heard or was notified of the order.

41.08    Application where person fails to comply with order

(1)    If a person fails to comply with an order that the person is bound to comply with a party may apply to the Court for the following orders:

(a)    the committal of the person;

(b)    the sequestration of the person’s property.

(2)    If the person in default is a corporation or an organisation, a party may apply to the Court for an order:

(a)    for the committal of an officer of the corporation or organisation; or

(b)    for the sequestration of the property of the corporation or organisation.

(3)    However, no application may be made for an order under paragraph (2)(a) unless the officer:

(a)    has been served with the order in accordance with rule 41.07(1), and the order carries the endorsement in rule 41.06; or

(b)    was present when the order was made or was notified of the order in accordance with rule 41.07(2).

(4)    This rule applies if the Court has made:

(a)    an injunction; or

(b)    an order in the nature of an injunction; or

(c)    an order in the nature of mandamus or prohibition.

Note:    Contempt is dealt with in Part 42.

31    It is convenient to refer to the endorsement described in r 41.06 as the warning endorsement, noting that it is also commonly referred to as a penal notice. It is also important to note that the term “committal” in rr 41.06 and 41.08 is a reference to imprisonment as is made clear enough by the use of the word “imprisonment” in the chapeau to r 41.06. The remedies of committal (imprisonment) and sequestration may be seen as principally directed to securing compliance prior to any finding of contempt of court being sought, let alone proven, under Ch 5, Pt 41. This is to be contrasted with punishment for a contempt that has been proven to have taken place following the process in Ch 6, Pt 42. This process may also result in imprisonment of a natural person and sequestration following conviction.

32    As noted above, the compliance orders that were made on 4 March 2019 did not include a warning endorsement in accordance with r 41.06. Ultra Tune contends that this means it cannot be punished for contempt, and that the Court should not exercise the power in r 1.34 to dispense with compliance with r 41.06 to allow any punishment to be imposed. That is, Ultra Tune contends that the only remedy that is and should be available for its admitted deliberate (but not contumacious or defiant) failure to obey the relevant compliance orders are declarations, on any view a barren remedy given what has transpired. The ACCC submits that the absence of a warning endorsement is not a barrier to punishment, and in the alterative, if that absence would be such an impediment, that the Court should exercise the discretion to dispense with compliance with r 41.06, so as to enable the Court to proceed to punish Ultra Tune for the admitted four charges of contempt of court.

33    Ultra Tune relies upon past authority arising from, or commenting upon, the former Federal Court Rules 1979 (Cth) (former Rules), which were in operation from 1 August 1979 until they ceased to be in effect on 31 July 2011, due to the commencement of the current Federal Court Rules on 1 August 2011. It is instructive to consider the relevant former Rules, and then some of the authority in relation to them, in order to better understand the meaning and effect of r 41.06, in the context of rr 41.07 and 41.08.

34    Order 37 of the former Rules was titled “Judgments and orders: enforcement” and was principally, if not wholly, directed to compliance. Order 40 dealt separately with contempt, again with a regime for charging and the process for dealing with it through to punishment.

35    Order 37 rule 2 of the former Rules provided as follows:

Service before committal or sequestration

(1)    Subject to the Rules, an order shall not be enforced by committal or sequestration unless:

(a)    the order or a certified or office copy thereof is served personally on the person bound; and

(b)    if the order requires the person bound to do an act within a specified time, the order or a certified or office copy thereof is so served before that time expires.

(2)    Subject to the Rules, where the person bound by an order is a corporation or organisation the order shall not be enforced by committal of an officer of the person bound or by sequestration of the property of an officer of the person bound unless, in addition to service under sub-rule (1) on the person bound:

(a)    the order or a certified or office copy thereof is served personally on the officer; and

(b)    if the order requires the person bound to do an act within a specified time, the order or a certified or office copy thereof is so served before that time expires.

(3)    An order or a certified or office copy thereof served under this rule must bear a notice (naming the persons concerned) that the person served is liable to imprisonment or to sequestration of property if:

(a)    where the order requires the person bound to do an act within a specified time, the person bound refuses or neglects to do the act within that time; or

(b)    where the order requires the person bound to abstain from doing an act, the person bound disobeys the order.

(4)    Subject to the Rules, where:

(a)    an order requires the person bound to do an act; and

(b)    another order specifies the time in which the act is required to be done,

each order or a certified or office copy thereof shall be served on the person bound before the expiry of that time as so abridged or extended.

(5)    Where a person liable to committal or sequestration of his property by way of enforcement of a judgment or order has notice of the judgment or order:

(a)    by being present when the judgment is pronounced or when the order is made; or

(b)    by being notified of the terms of the judgment or order whether by telephone, telegram or otherwise,

the judgment or order may be enforced by committal of that person or by sequestration of his property notwithstanding that service has not been effected in accordance with this rule.

(6)    The Court may dispense with service under this rule.

36    It is convenient to refer to the notice described in O 37 r 2(3) as the warning notice, which helps to distinguish it from its replacement warning endorsement in the current r 41.06. It is also important to note again that the term “committal” is a reference to imprisonment, as is made clear enough by the use of the word “imprisonment” in r 2(3): see also Mason v MWREDC Ltd [2012] FCA 1083 at [48]. Again, imprisonment or sequestration was directed to securing compliance rather than imposing punishment for a proven contempt following the processes in Order 40.

37    The scheme of O 37 r 2, according to its express terms, was that an order of the Court requiring someone to do an act, or not to do an act, could only be enforced by imprisonment or sequestration of property if one of the following circumstances existed:

(a)    the person bound by the order was served with a certified or office copy of the order containing the warning notice, provided the order was served before the time for compliance expired: O 37 r 2(1) and (3); or

(b)    if the person bound by the order was a corporation or organisation, and enforcement was sought against an officer of that corporation or organisation by imprisonment of that officer or sequestration of the property of that officer, in addition to that corporation or organisation as the person bound being served in accordance with r 2(1) described immediately above, the officer is also served with a certified or office copy of the order containing the warning notice, provided that the order was served before the time for compliance expired: O 37r 2(2) and (3); or

(c)    the person liable to imprisonment or sequestration of property was present when the judgment was pronounced or when the order was made, or was notified of the terms of the judgment or order, whether by telephone, telegram or otherwise, notwithstanding that service had not been effected in accordance with r 2: O 37r 2(5); or

(d)    the Court dispensed with service under r 2: O 37r 2(6).

38    A number of judgments during the currency of the former Rules dealing with O 37 r 2 need to be read with the full terms of that rule as set out above, to avoid potentially being misled into thinking that the requirement for the warning notice as to the liability for imprisonment, or sequestration of property, for non-compliance with an order of the Court arose from O 37 r 2(3) alone, even though that subrule set out the terms of the warning notice. Rather, the requirement arose from the combined effect of the requirement for personal service of the order (under r 2(1) or the combination of r 2(1) and r 2(2)), and the requirement that the order so served contained the warning notice (r 2(3)). That is important in this case, because there is no relevant provision in the Federal Court Rules accompanying r 41.06, akin to O 37 r 2(1) or (2) accompanying O 37 r 2(3), with the accompanying provision that does exist, r 41.08(3), not extending to anyone other than an officer of an organisation or corporation bound by the order of the Court.

39    The prohibition on enforcement by imprisonment or sequestration in O 37 r 2 turns on the requirement for personal service if the person was not present when the judgment was pronounced or the order was made, or the person was not notified of the terms of the judgement or order. In that event, the order served must contain the warning notice before any subsequent failure to comply can be enforced by imprisonment or sequestration of property.

40    Reading O 37 r 2 as a coherent scheme, the requirement for service of the order with the warning notice was evidently and logically designed for a circumstance in which it is likely that the first that the person being served knew about the existence of the order, and therefore of the requirements that had been imposed upon them, was when the order was served. In that way, when the order was served, the person bound by it was to be made aware explicitly by the warning notice as to the consequences of non-compliance. The evident primary purpose of serving a copy of the order with the warning notice was to secure compliance in the first place, because such service must take place before the expiry of the time for compliance and therefore before a contempt for not doing an act has been committed (noting that an injunction restraining conduct may be immediate, but taking effect upon service of the order).

41    In Re Modern Woodcraft Pty Ltd (In Liquidation) (1997) 75 FCR 245 at 252–253, Lindgren J addressed a submission that there should not be a finding of contempt because O 37 r 2(3) had not been complied with by the inclusion of the warning notice in the court order. After quoting O 37 r 2(1) and (3) in full, his Honour said at 252-3 (emphasis added):

I think that r 2(3) is directed only to the situation in which enforcement by imprisonment or sequestration is ultimately sought. Although r 2(3) could be better expressed, it is clear, in my view, that it and r 2(1) are addressed to the point of time at which the Court is asked to enforce an order by committal or sequestration. The expression “served under this rule” in r 2(3) refers to a service which is relied upon for the purpose of the making of such an order. It remains possible, in my view, for a contempt of the Court to be committed even though the order served does not bear the endorsement referred to. This view is supported by Windsurfing International Inc v Sailboards Australia Pty Ltd (1986) 19 FCR 110 at 113 (Burchett J) and Bourke Shire Council v Dwyer (1993) 79 LGERA 185 at 186 (Talbot J) (this case concerned the similar provision in Pt 42 subr 8(3) of the Supreme Court Rules 1970 (NSW)).

42    In Siminton v Australian Prudential Regulation Authority [2006] FCAFC 118; 152 FCR 129, the Full Court (North, Goldberg and Weinberg JJ) observed at [67]:

Although the copy of the order of 15 December 2005 served on the appellant did not bear the notice required by O 37, r 2(3), it does not follow that it was not open to Merkel J to find that the appellant had committed the contempts alleged against him. The opening words of O 37, r 1 are clear, namely that “an order shall not be enforced by committal or sequestration” unless, inter alia, it bears the notice required by O 37, r 2(3). The restraint on enforcement does not extend to precluding a finding of contempt otherwise open or the imposition of any fine which has been ordered. It is only committal or sequestration which are precluded. Although a fine might, in any given case, be enforced in default of payment by ordering committal, such an event is not contemplated or referred to in O 37, r 2, and, in any event, there are intermediate steps which have to be undertaken and additional requirements met before that ultimate destination is achieved.

43    The text of the former O 37 r 2 is of assistance in interpreting the current rr 41.06, 41.07 and 41.08 as a coherent scheme in that historical context. As an initial observation, it seems inherently unlikely that it was intended that the new Federal Court Rules would make it harder to enforce compliance with orders of the Court without clear language to that effect. At the very least, such restrictions should not be implied in place of the clear terms deployed. That view does not detract from the desirability of having the endorsement warning contained in orders, and in having orders so endorsed served, if only to increase the likelihood of compliance and reduce the likelihood of contempt of court either occurring in the first place, or continuing.

44    The language in O 37 r 2(1) and (2) that an “order shall not be enforced” by committal or sequestration without service of the order has not been maintained in Div 41.1 of the Federal Court Rules. The decision not to retain that restriction on enforcement must be taken to be deliberate. In any event, that change counts against inferring such a restriction in the absence of language that compels it.

45    In place of the restriction on enforcement arising from the combined effect of O 37 r 2(1) and (2) of the former Rules, when read with r 2(3), the current r 41.08(3) does not permit an application for an order for committal (that is, imprisonment) to be made under r 41.08(2)(a) in relation to an officer of a corporation or an organisation bound by an order of the Court unless either that order has been served in accordance with r 41.07(1) and carries the warning endorsement, or that officer was present when the order was made or was notified in accordance with r 41.07(2). It makes better sense to preclude an application being made than to allow it to be made, but for it to be a doomed enterprise because the relief sought cannot be granted without dispensation from the application of that subrule.

46    The obligation to serve an order for the purposes of enforcement is provided by r 41.07. While r 41.07(1) requires an order containing a warning endorsement (per r 41.06) to be served personally, r 41.07(2) provides that if the person bound by the order was present when the judgment was pronounced or the order was made, or was notified of the terms of the order orally, by telephone, or electronically, that person is taken to have been served with the order at the time the person heard or was notified of the order. Rule 41.07(2) is an express exception to the requirement in r 41.07(1) of personal service of an order containing a warning endorsement. The effect of r 41.07(2) is to permit enforcement of an order to take place without it having been served at all, provided the person bound is on notice of the order by other means, necessarily without any endorsement or other warning. The obligation under r 41.06 is wholly dispensed with if the person bound by the order has been given notice of it by other means. That is so even when no contempt of court has been charged, much less proven or admitted, the threshold in r 41.08 being only failing to comply with an order.

47    That is, r 41.07(2), very much in keeping with the former O 37 r 2(5), dispenses with the need for there to be any service of an order requiring things to be done or not done if notice is otherwise given of the order having been made, albeit that the former O 37 r 2(5) went further in expressly providing that the enforcement by committal or sequestration may take place notwithstanding that service has not been effected.

48    A warning endorsement is expressly only indispensable to enforcement action being taken by the terms of r 41.08(3) if the officer of a company or organisation bound by the order was not present when the order was made and was not notified of it having been made (noting that being present for the pronouncement of the judgment will not suffice). That is a lesser restriction than under the former O 37 r 2(3), because it does not restrict bringing an application for sequestration. Moreover, no restriction is imposed in bringing an application for either committal (that is, imprisonment) or sequestration of property of a natural person bound by an order under r 41.08(1)(a) or (b) respectively because of the absence of an endorsement warning.

49    I am unable to accept the submission by Ultra Tune that the absence of a barrier to making an application, means that while an application for that relief is not precluded, the relief sought nonetheless cannot be granted. The rules cannot sensibly be read as permitting an application to be made seeking an order that a natural person bound by an order be imprisoned or have their property sequestered as a means of compelling compliance, yet not allow that application to be heard and determined, and that remedy granted, without dispensing with the requirements of r 41.06.

50    The evidence summarised above at [3]-[10] above makes it clear that Ultra Tune was on notice of the compliance orders being made, having been involved in the process of drafting and settling their terms, consenting to them being made, and being furnished with a copy of them on multiple occasions. It is difficult to see how rr 41.07(2) and 41.08(1) rationally could have allowed for an application brought for the sequestration of Ultra Tune’s property, or for the imprisonment or sequestration of the property of one of its officers, without an order even being served upon the basis only of failing to comply with the order, yet produce the result that Ultra Tune is immune from punishment for contempts of court clearly able to be proven beyond reasonable doubt (and as resulted, admitted to) because of the absence of the r 41.06 warning endorsement on orders that it had consented to.

51    It needs to be remembered that r 41.08 is principally directed to securing compliance prior to any finding of contempt, with punishment being reserved as a sanction for a proven charge of contempt brought under Ch 6, Pt 42; and that the person bound will often have the option of purging their contempt. For a natural person, punishment for contempt may include imprisonment, but that is different from imprisonment by way of committal to secure compliance, which can take place without proof of contempt or even a charge of contempt. Similarly, imposition and enforcement of a fine for contempt may result in bankruptcy and sequestration of property to secure payment, but that too is different from sequestration of property to secure compliance, which again can take place without proof of contempt or even a charge of contempt.

52    It follows from all of the foregoing that I adhere to the views I expressed in Mensink v Parbery [2018] FCAFC 101; 264 FCR 265 at [192]-[204] and [207], noting that the above reasoning only serves to bolster the conclusion I reached as to the absence of the endorsement warning required by r 41.06 not being fatal to contempt proceedings generally, and certainly not in this case due to the involvement of Ultra Tune in the making of the compliance orders which it later did not comply with.

53    I remain of views expressed in Mensink, and consider that the above comparison with the former O 37 r 2 serves only to bolster those conclusions, which I summarised as follows:

[203]    In light of the above authority, it may safely be concluded that:

(1)    notification of orders in accordance with the alternative means in r 41.07(2) dispenses with the requirement for a warning in the form of the endorsement stipulated by r 41.06;

(2)    compliance with rules such as rr 41.06 and 41.07 may be dispensed with in appropriate cases;

(3)    the absence of an endorsement in accordance with r 41.06 will not necessarily be fatal to contempt proceedings; and

(4)    if an endorsement in accordance with r 41.06 is absent, that will almost invariably be a factor to take into account in deciding whether contempt charges should issue, whether to make a finding of contempt if charges do issue, and as to the sanction to be imposed if that finding is reached.

However, that factor may be diminished in importance, or even become practically irrelevant, depending on the circumstances.

…

[207]    The short answer is that [absence of] service in accordance with r 41.07 is not fatal, for the same reason that an [absence of an] endorsement in accordance with r 41.06 is not fatal. The Rules require both service and endorsement in that form, but the absence of either is not fatal. That is because the Rules do not so provide, especially by the terms of r 41.08 and, in particular, the limited stipulation in the Rules of when the absence of either will preclude an application from being made. The reasons for taking this stance are obvious enough, including those expressed by Jagot J in Humane Society International [Inc v Kyodo Senpaku Kaisha Ltd [2015] FCA 1275; 238 FCR 209] at [18], and reproduced above at [200(1)]. The contempt power is not meant to be a limp and technical response to disobedience of orders made by a Court, to be governed by pedantic adherence to form ahead of substance. In some cases, the absence of an endorsement or of actual service of orders will be of no moment in all the circumstances. Contempt is meant to be a serious response, but still a flexible remedy, to be applied fairly and judicially and to enforce not just orders and the conduct of proceedings free of improper influence, but also the integrity of judicial and related proceedings and thereby the administration of justice: see Kazal v Thunder Studios Inc (California) (2017) 256 FCR 90 at [97].

54    The conclusion I reached in Mensink about being able to dispense with the need for compliance with r 41.06 is also supported by the authority discussed by the Full Court in Siminton on the topic of dispensation with compliance with the warning notice requirement in the former Rules, equally applicable to the question of dispensation with the endorsement warning requirement in r 41.06. Their Honours observed:

[75]    We do not consider that this is an appropriate case whereby where we should exercise the dispensation power given to the Court under O 37 r 2(6). We adopt the observation of Kaye J in Clifford v Middleton [1974] VR 737 at 741:

In my opinion, the power to relieve a party from the consequences of non-compliance with the Rules of the Court where the liberty of the subject is in jeopardy should not be exercised unless the evidence shows that the requirements of and purpose for the particular rule have been fulfilled in a manner otherwise than in the form provided.

Kaye J observed that a similar view had been expressed by Lord Greene MR in Gordon v Gordon [1946] [LR]P 99 at 103:

Attachment and committal are very technical matters, and as orders for committal or attachment affect the liberty of the subject such rules as exist in relation to them must be strictly obeyed. However disobedient the party against whom the order is directed may be, unless the process of committal and attachment has been carried out strictly in accordance with the rule he is entitled to his freedom.

[76]    As Nettle J pointed out in Primelife Corporation Limited v Newpark Pty Ltd at [31]:

The purpose of the indorsement is to warn the party of the consequences which might befall him should he fail to perform the act directed.

There have been a number of cases in which dispensation has been given by a court but in such cases the court was satisfied either that the party alleged to be in contempt was present in court at the time when the order was made (Takhar v Animal Liberation (SA) Inc [2002] SASC 71), or that the terms of the undertaking had been expressly drawn to the attention of the party the subject of the order who had acted on legal advice (Keith Harris & Co Limited v Bryant (1980) 30 ALR 663 at 666) or that there was some evidence from the party alleged to be in contempt which disclosed that he had knowledge of the need to obey the order (Keith Harris & Co Limited v Bryant (supra) at 666). None of those circumstances exist, on the evidence, in the present case.

55    The facts in this case are quite unlike those in Siminton. The evidence clearly establishes that Ultra Tune had ample notice of the terms of the compliance orders, starting with involvement through its lawyers in the ACCC’s formulation of draft orders and agreeing with them being made (and being amended to correct typographical errors), bringing an appeal to the Full Court directed to the Franchising Code obligations that underpin the first three contempt charges, having concerns expressed by the ACCC about non-compliance, and giving an undertaking to comply which was not honoured. It follows that the need to comply, and the opportunity to be made fully aware of the terms of the compliance orders and the consequences of not complying with them was extensive. The evidence also discloses that Ultra Tune was fully aware of its obligations and had concerns about its continuing and protracted failure to comply, which is what compliance order 2 in particular was directed to, but despite that took wholly inadequate steps to comply.

56    The policy objective standing behind the requirement in r 41.06 has been amply met. It would be a travesty not to exercise the discretion to dispense with that requirement, if, contrary to my primary conclusion, that is needed. This explains the order I make to that effect. The alternative, if dispensation was needed, would be for Ultra Tune to get away with the four serious and admitted contempts that have taken place.

57    Additionally, Ultra Tune submits that charge 4 can be distinguished from charges 1 to 3 as that charge relates to a failure to comply with the March Orders which is not of a kind that flows from a failure to comply with the Franchising Code. It seemed to be faintly suggested that I may choose to exercise a discretion to permit punishment for contempt in relation to charges 1 to 3 but not in relation to charge 4. I reject that suggestion. It is not appropriate in this case to exercise that discretion. As noted above, the reason for requiring Ultra Tune to ensure its compliance officer made quarterly reports to the board or senior management was to encourage and keep an eye on compliance. It would also serve to fix the board with knowledge about any compliance problems that were raised in such a report, providing an incentive to ensure they were addressed and rectified. But provision of the quarterly reports did not take place for three consecutive quarters, disabling this compliance enhancing mechanism. Plainly as evidenced by the other three charges, compliance remained an issue at Ultra Tune during the period it failed to ensure such reports were made, so the board was not informed and was not armed with the knowledge necessary to take steps to ensure this was addressed.

Chronology of key events

58    As Ultra Tune has entered a guilty plea in relation to each of the four charges against it, the evidence goes only to penalty. The parties disagree as to the characterisation of Ultra-Tune’s commitment and attitude to compliance, and further disagree about what the evidence before this Court demonstrates as to the seriousness and characterisation of the contempts. As such, it is necessary to provide a reasonably detailed chronology of key events, which deals with the important events leading to and occasioning the four contempts to shed light on the nature of Ultra Tune’s contempts and its attitude towards compliance with the March Orders.

59    Ultra Tune submits that the contempts, while wilful, were reflective of “unfortunate circumstances” and “incompetence”. The ACCC submits that Ultra Tune’s submissions regarding its intentions and actions being demonstrative of an attempt to comply with the March Orders should be rejected as the “evidence demonstrates that the respondent adopted a cavalier attitude to compliance”. The parties agree that the contempts were not contumacious.

Background to the contraventions

60    According to the affidavit evidence of Mr Lachlan Watts, Ultra Tune’s barrister on retainer, in or about August 2018 Mr Sean Buckley, director of Ultra Tune and its founding principal, asked Mr Watts to consider the “various issues pertaining to the Respondent’s marketing fund accounts”, including what might need to be done if the Court found that Ultra Tune’s Marketing Fund Statement (MFS) did not comply with the Franchising Code. In September 2018, Mr Albert Chong, then secretary and in-house solicitor for Ultra Tune, provided to Mr Watts an outline of the Ultra Tune accounting system and a summary of how marketing fund related expenditures were recorded in that system. Mr Watts then requested a meeting with the company engaged by Ultra Tune to assist with media advertising, which was held on 3 September 2018. At that meeting, additionally attended by Mr Chong, the media advertising company outlined Ultra Tune’s marketing strategy and explained the expenditure recorded on its invoices.

61    In September 2018, Mr Watts and Mr Chong also met with ASV Wadeson (ASV), Ultra Tune’s external accountants who were responsible for the preparation of Ultra Tune’s MFS. Mr Watts gave evidence that at this meeting he explained “the requirements for particularity and transparency of descriptions of expenditure in the MFS, and how … the current level of particularity could be improved”.

62    As already noted, the primary judgment followed on 18 January 2019, followed in turn by the March Orders. The March Orders required that Ultra Tune appoint a compliance officer. Mr Chong was appointed as compliance officer on 1 April 2019.

Charge One

63    It is agreed between the parties that Ultra Tune was obligated to update its disclosure document for the financial year 19/20 by 31 October 2020. It is also agreed that Ultra Tune did not update its disclosure document until 10 days after it was due, on 10 November 2020, in contravention of cl 8(6) of the Franchising Code and Order 2 of the March Orders.

64    The ACCC has characterised the contempt that is the subject of charge 1 as “at the less serious end of the scale” due to the short period of delay between when the disclosure document was due and when it was submitted. Ultra Tune in its oral submissions stated that this offending was “beyond the lower level” of offending, suggesting it was of negligible seriousness. On any view that is a curious way to describe deliberate failure to comply with an order made by this Court, which was also a statutory obligation which had not been complied with in the past. It could not be characterised as being out of character for Ultra Tune to behave in this way. The ACCC characterisation should therefore be accepted, having regard to what follows.

65    Ultra Tune submits that while the disclosure document was substantially prepared on time on 30 October 2020, its finalisation was delayed as it could not be finalised prior to the receipt of the solvency statement from its auditor. That solvency statement was provided to Ultra Tune on 10 November 2020. Mr Chong stated in his affidavit that the 2019 Disclosure document was completed, but for the solvency statement, on 30 October 2020. The directors’ solvency statement, another required component of the disclosure document, was signed by Mr Buckley on 31 October 2020. Ultra Tune updated the disclosure document 10 days late on 10 November 2020, on the same day that the audited solvency statement was provided to Ultra Tune from the external auditor.

66    Ultra Tune provided a number of reasons for the delay in the provision of the auditor’s solvency statement, which ultimately led to the delay in finalisation of the disclosure document:

(1)    The operations of both Ultra Tune and ASV (who dealt with the external auditors) were disrupted by the lockdown in Victoria which spanned from 9 July 2020 to 27 October 2020.

(2)    ASV, more specifically Mr Alguera-Lara of ASV, did not agree that the disclosure document could be audited prior to and separately to the Marketing Fund Statement for the financial year ending 30 June 2020 (2020 MFS), as they had been processed together in previous years. The 2020 MFS was not completed on time by 31 October 2020. Accordingly, ASV had not sought that the solvency statement be separately audited, even though there was no true reason for delaying this. Ultra Tune’s evidence is that it took time to convince ASV that the solvency statement and the MFS could be audited separately, and eventually, after Mr Buckley and Mr Chong sought the expedition of the processing of the solvency statement, ASV came to an agreement with the external auditor to have the solvency statement audited separately.

(3)    The external auditor was unwell in November 2020, which caused additional minor delay of the finalisation of the solvency statement.

67    Mr Buckley in his affidavit evidence states that while he was aware of the need for Ultra Tune to comply with its disclosure obligations under the Franchising Code and the March Orders, he relied upon Ultra Tune’s compliance officer, at that time Mr Watts, to ensure those obligations were met, but now appreciates that he could have been more closely involved in ensuring that compliance. Mr Chong admits that he was responsible for the preparation of Ultra Tune’s disclosure document, as he had been in previous years and was in subsequent years. Mr Chong did not appreciate the delay in the processing by the auditors of the solvency statements until late October, and he states that he sought that it be urgently processed once he realised the delay. If Mr Chong had been more engaged in this process, perhaps he would have realised this issue was likely to arise earlier.

68    There is no evidence that any requests were made by prospective franchisees for a copy of the disclosure document, nor any existing franchise agreements renewed or extended, in the time between 31 October 2020 and 10 November 2020.

69    Ultra Tune has updated its disclosure documents on time in the subsequent two years prior to the hearing of this matter.

70    Ultra Tune submits that the delay in distributing the 2019/2020 financial year disclosure document “arose from a breakdown in communications and a failure to adequately foresee and deal with circumstances that had not previously arisen”. This characterisation seems accurate.

Charge Two

71    Ultra Tune, under cl 15(1) of the Franchising Code and the March Orders was required to prepare the Marketing Fund Statement for the financial year ending June 2019 (2019 MFS) by 31 October 2019. Ultra Tune did not complete the 2019 MFS until 17 December 2019, seven weeks late, and distributed copies of the 2019 MFS to its franchisees four days later on 21 December 2019. The ACCC has characterised this contravention as one which “does call into question Ultra Tune’s commitment to compliance” and is of a “mid-level of seriousness”. Ultra Tune submits that the evidence does not show that Ultra Tune “was not intending to comply with its obligations” and that the delay was “largely due to Mr Watts’ lack of familiarity with the requirements of the [Franchising] Code, the workings of [Ultra Tunes]’s accounting systems and his fractious relationship with [Ultra Tune’s] external accountants”.

72    By reason of judgment in the primary proceedings being handed down on 18 January 2019, and in the appeal on 20 September 2019, Ultra Tune had been squarely on notice that its process in creating past MFSs had been found to be inadequate in early 2019 and this had been confirmed by a Full Court by September 2019. Mr Buckley in his affidavit evidence states that, following the March Orders, Mr Watts, a barrister who worked for Ultra Tune under a retainer agreement, told him that Ultra Tune needed a new way of recording its marketing expenses and suggested he look into this. Mr Buckley said he agreed to this. By contrast, Mr Watts gave evidence that in or about August 2018, Mr Buckley asked Mr Watts to consider various issues regarding the marketing fund accounts, including what might need to be done if the court ended up finding their MFSs had been deficient. Mr Watt’s evidence is that he began the process of reviewing these processes and meeting with Ultra Tune’s advertising company and accountants in 2018. This is supported by documentary evidence.

73    Mr Chong took on the role of compliance officer for Ultra Tune from 1 April 2019 to March 2020, and as such was acting in the role during the time that the 2019 MFS was being prepared and was due. Mr Chong gave evidence that he found the role of compliance officer more demanding than anticipated in terms of both technical requirements and time required. He sought advice from Mr Watts regarding changes that needed to be made to ensure a compliant 2019 MFS would be created, and Mr Watts advised that changes to accounting software and recording systems were required. Mr Watts suggested to Mr Chong, and later Mr Buckley, that Ultra Tune could go back to the person who installed the existing accounts program to explore restructuring it to overcome the issues with insufficient data recording. Mr Buckley told Mr Watts that while ASV (the external accountants) would have responsibility for the preparation of the 2019 MFS, Mr Watts could independently explore the possibility of a system upgrade.

74    Mr Watts led the attempt to amend Ultra Tune’s accounting systems, though Mr Buckley was kept informed of how he sought to do so. Mr Chong in his affidavit evidence stated that the required changes “created significant complexity and delay which I had not anticipated and over which I did not retain close supervision… I relied heavily upon Mr Watts to effectively manage that process and did not appreciate its complexity or its impact on [Ultra Tune’s] ability to satisfy the obligations under the March Orders or under the [Franchising] Code more generally.”

75    Despite Mr Chong being the compliance officer during this time, Mr Chong “did not retain close supervision of Mr Watts, as it was [his] understanding and expectation that [Mr Watts] would ensure that the necessary work would be done in time to enable [Ultra Tune] to meet its various obligations.” It is unclear to me why Mr Chong maintained this expectation, or thought it appropriate to maintain this expectation, without retaining supervision of the processes for preparation of the 2019 MFS, either as internal counsel for Ultra Tune or as its compliance officer, or in both capacities, particularly in light of the previous breaches of the Franchising Code by Ultra Tune and in light of the then-recently handed down primary judgment and associated March Orders.

76    Mr Watts met numerous times with ASV to discuss how the accounts needed to be changed to be compliant. Mr Alguera-Lara of ASV had initially assured Mr Watts he was “onto the task”, but later tensions arose between Mr Watts and Mr Alguera-Lara, largely regarding the changes Mr Watts was attempting to make to Ultra Tune’s accounting program, with which Mr Watts had made no progress by August 2019 . At that point, Mr Watts considered that the 2019 MFS would have to be prepared within the same systems used previously. Throughout the period from August to September 2019 Mr Watts continued to emphasise to the accountants that the MFS needed to be prepared with more detail than it had been in previous years.

77    While ASV was working with Ultra Tune discussing ways to manage the accounts, the accountants wanted to prepare the MFS largely as they had in previous years, which Mr Watts considered would be insufficient to comply with the Franchising Code following what had been found in the primary judgment. At one stage, Mr Watts advised Mr Buckley that he should “sack” the external accountants, ASV. Mr Buckley was aware of the disagreements between Mr Watts and Mr Alguera-Lara in 2019 regarding how the accounting statements should be prepared, giving evidence that Mr Watts and Mr Alguera-Lara were “arguing their arguing points” to him. Even so, Mr Buckley did not instruct the accountants to comply with the directions of Mr Watts, instead leaving them to communicate with each other directly. Mr Buckley describes the disagreements as “causing a lot of angst in the company and with myself”. Mr Buckley “went with the accountants” despite Mr Watts’ advice that that form of the 2019 MFS that was being prepared would not be compliant with the Franchising Code. The reasoning for Mr Buckley choosing to continue to retain ASV against Mr Watts’ advice seems to be that Mr Alguera-Lara and his firm had worked for him for 20 years. Neither Mr Buckley nor Mr Chong intervened to tell the accountants to follow the instructions of Mr Watts.

78    On 1 October 2019, Mr Chong emailed Mr Watts the draft 2019 MFS, which had been provided to him by ASV the same day. Mr Watts found that these statements were largely deficient in the same way as previous years’ accounts, and told Mr Chong that he would need to go back and start the MFS process “almost from scratch”.

79    Mr Watts discussed with Mr Buckley and Mr Chong that the MFS failed to meet the Franchising Code’s requirements and that Ultra Tune “was caught in a conundrum between the need to comply with the 31 October 2019 deadline for the preparation of the MFS and the need to comply with the requirements for the MFS to provide sufficient detail as to how the funds had been expended”. Mr Watts also reminded Mr Buckley that he had been warning him about ASV needing to change its approach so that the MFS would be compliant for some time. Mr Watt’s affidavit evidence in this regard is consistent with both his oral testimony that he felt he had been “beating his head against a brick wall” with the accountants, and with Mr Buckley’s testimony regarding the known conflicts between Mr Watts and the accountants. Mr Buckley failed to instruct the accountants to follow Mr Watts’ instructions. This is significant, because it puts lie to the proposition that somehow Mr Watts should be in some way morally culpable for Ultra Tune’s failings, as does the events described in the next paragraph.

80    In response to Mr Buckley asking how to address the problem of the draft 2019 MFS provided by ASV being insufficient given the urgency, Mr Watts suggested retaining another firm of accountants to prepare the MFS. This suggestion was rejected by Mr Buckley. Mr Watts volunteered to restructure the accounts with help from the Ultra Tune internal accounts department, telling Mr Buckley that he was not sure how long this would take as he was not an accountant, but was familiar with the legal requirements of the Franchising Code. By his own admission, this process ended up taking longer than Mr Watts expected. Mr Watts worked on preparation of the 2019 MFS with the assistance of Ms Bull of Ultra Tune. Mr Chong occasionally checked in on the progress of this with Mr Watts, and states he was concerned that the MFS would not be prepared on time, giving evidence that he raised this concern with Mr Watts and the accountants, but not necessarily with Mr Buckley.

81    Mr Watts provided draft marketing fund accounts on 22 October 2019 to ASV, copying the email to Mr Buckley (though not Mr Chong). Mr Buckley gave evidence that he did not look at these documents, despite also asserting that he was chasing Mr Watts at this time for the 2019 MFS. Mr Buckley states that from mid-2019 to December 2019 he had regular conversations with Mr Watts and Mr Chong, and several with Mr Alguera-Lara, regarding the preparation of 2019 MFS.

82    Mr Buckley gave evidence that he expressed concern to Mr Watts that the 2019 MFS would not be prepared on time in or around late October 2019. In October 2019 Mr Watts informed Mr Buckley that the preparation of the 2019 MFS was taking longer than he expected, but that it was better for the MFS to be late and accurate than on time and inaccurate. Ultra Tune submits that Mr Watts did not suggest that Ultra Tune should make an application to the Court despite the impending breach of the March Orders, and that Ultra Tune “considered that it had no alternative to ensure compliance any more promptly”. It is not apparent to me that this assists Ultra Tune in any meaningful way.

83    Mr Chong gave evidence that on more than one occasion Mr Watts informed him that he would rather be accurate and late than on time and wrong. Both Mr Watts and Mr Buckley confirm that this was the approach taken, and communicated, by Mr Watts. Mr Buckley said that he was informed of this attitude by Mr Watts in late October 2019, but “did not have any means to force [Mr Watts] to complete the task any earlier than he did”. Mr Buckley in cross-examination also stated that during this time he would be in regular contact with Mr Watts for other matters, such as family law matters. This suggests that Mr Watts was focussing on things other than the MFS alone, at the behest of Mr Buckley, which is likely to have hampered his effectiveness and efficiency in addressing this task.

84    On 29 October 2019, Mr Watts sent an email titled “Marketing Fund Accounts” to ASV, copying the email to Mr Buckley’s EA, Mr Chong and Ms Bull. In the email Mr Watts stated that he was reviewing the “structural presentation of the Marketing Fund accounts” in light of the judgment in the appeal of the primary judgment, and was very close to finalising his advice on how the marketing fund chart of accounts needed to be revised, and once completed he would send through the draft set of accounts and supporting documentation. Mr Watts also stated that “[i]n light of the conferences which [Mr Chong] and I have had with you over the last 18 months where I have drawn your attention to the requirements clause [sic] 15(1) of the Franchising Code, I was disappointed and surprised that the draft 2018-2019 accounts produced by ASV were presented in the same deficient format as in prior years.” Mr Watts stated that he was therefore attending to the structural formatting of the marketing fund chart of accounts and allocation of expenditure “which should have been addressed by ASV several months ago”, and anticipated his proposed draft would be provided the day after his email or by Thursday.

85    On 1 November 2019, Mr Watts sent an email to Mr Alguera-Lara and Mr Abbas (also of ASV), copying the email to a Ms Davey (of Ultra Tune), Ms Bull, Mr Chong and Mr Buckley titled “Marketing Fund”. That email stated that Ms Davey and Ms Bull spent most of the day prior reviewing progress, the chart of accounts for the marketing fund had been settled, and all expenditure reviewed to ensure it was correctly described and entered into the correct ledger account and that Ms Bull was now in the process of completing data entry with more precise identification. Mr Watts stated that they had “uncovered a myriad of problems” such as television advertising being entered under “promotions” and that he anticipated a draft would be completed over the long weekend.

86    Mr Watts continued working on the marketing fund accounts through November 2019, and eventually provided the information required to finalise the 2019 MFS to ASV in early December 2019. The 2019 MFS was completed by ASV on 17 December 2019.

87    Mr Buckley did not read the final 2019 MFS before he signed it, and in oral evidence provided the reasoning that if his accountants, who have been with him for 20 years, “tell him it’s good, it’s good”.

88    Mr Watts did not recommend that Ultra Tune seek to vary the March Orders to allow for the extended period it would take for him to complete the 2019 MFS, and acknowledges he should have done so. However, Mr Chong was the compliance officer and Ultra Tune’s in-house counsel at this time, and also did not do so. That is where responsibility in this regard lay, close to the heart of the inner workings of Ultra Tune.

89    In a letter dated 5 February 2020 from Webb Henderson, solicitors for the ACCC, to Ultra Tune, it was noted that Ultra Tune had failed to comply with Order 5 of the March Orders as it had not filed and served on the ACCC an affidavit verifying compliance with Orders 4(a), 4(b), and 4(c) of the March Orders and, as such, the ACCC is not aware of whether Ultra Tune had complied with Orders 4(a), 4(b) and 4(c) of the March Orders. The ACCC requested that Ultra Tune provide a copy of the required affidavit, and reasons for the failure of compliance by 11 February 2020. The letter further requested details from Ultra Tune to allow the ACCC to assess Ultra Tune’s compliance with Order 2 of the March Orders, which required Ultra Tune to comply with clause 15(1) of the Franchising Code by 18 February 2020. It was only in response to this letter that Ultra Tune informed the ACCC that it had failed to comply with the March Orders by completing the 2019 MFS late.

90    Mr Buckley in cross-examination did not accept that his refusal to direct the accountants at ASV to follow the instructions of Mr Watts caused any delay to finalisation of the 2019 MFS, and instead insisted that it was Mr Watts’ lateness that was the issue. Mr Chong as compliance officer relied on Mr Watts to effectively manage the process and gave evidence that he realised he should have been more involved only once Mr Watts took over as compliance officer in April 2020.

Charge Three

91    The ACCC characterised the contempt that is the subject of charge 4 as “particularly serious given the extensive delay, that it involved a repeated breach, and in light of an undertaking provided to the ACCC by [Ultra Tune]”. Ultra Tune submits that the evidence is inconsistent with the [ACCC's] contention that [Ultra Tune] was not taking steps consistent with its best endeavours to finalise the 2020 MFS at all times, and that there was strong intention to try to get out the marketing fund statement, but Ultra Tune simply failed to do so on time.

92    Mr Buckley provided affidavit evidence that he requested that Mr Watts begin work on the 2020 MFS in July 2020. Mr Buckley gave evidence that he was “very keen to ensure that the MFS for the 2019/2020 financial year was prepared and distributed to franchisees in time”. Mr Buckley criticised Mr Watts for being responsible for the late 2019 MFS, and, on his account, chose to give Mr Watts a high level of responsibility in relation to the preparation of the 2020 MFS, rather than seeking to implement new systems or assign new personnel. Mr Buckley’s evidence in this regard is somewhat contrary to Mr Watts’ evidence that he was told to “back off” in regard to the preparation of the MFS in 2020, as the accountants had not appreciated his involvement in 2019, and that he “kept on warning throughout 2020”. According to Mr Watts, it was the accountants’ role to prepare the 2020 MFS. I prefer the evidence of Mr Watts, and find that it was ASV’s role to prepare the 2020 MFS, up until the time it did prepare that draft in September 2020.

93    Mr Watts was Ultra Tune’s compliance officer at this time, accepting that role despite being of the opinion that an experienced accountant would be better suited to that role. Mr Chong was still Ultra Tune’s in-house counsel at this time. Mr Watts met with ASV, and also conducted further training for ASV personnel in relation to the requirements of the Franchising Code, from June to August 2020.

94    ASV provided a draft 2020 MFS on 3 September 2020. In his oral testimony Mr Watts stated that the draft arrived at Ultra Tune on 3 September 2020 “in the expectation that it could be signed off to meet the deadline, but the documentation that was delivered was incapable of achieving that objective”. Mr Watts then took the view that he needed to review “everything related to the inputting of the data” and asked for the invoices on which that draft MFS had been based, which arrived some weeks after 3 September 2020. This draft included questions for Ultra Tune to answer, including around a missing sum of approximately $200,000. Mr Chong in cross-examination confirmed that, though he received the draft MFS at that time, he cannot recall whether he reviewed that statement, and he left Mr Watts to review the marketing fund and respond to the accountants.

95    Around this time in September 2020, Mr Watts informed Mr Buckley that he would need to repeat the exercise performed in 2019 to get the MFS up to standard, and Mr Buckley allowed Mr Watts to proceed. In September of 2020 Mr Watts began experiencing health issues, which impeded his ability to conduct the accounting work required to amend the MFS accounts. Mr Buckley provided affidavit evidence that he knew about Mr Watt’s health issues in mid-late 2020, but did not think that they would affect or delay the preparation of the MFS. Mr Watts gave evidence that from October 2020 he was under pressure from Mr Buckley to sign off on the 2020 marketing accounts, but told Mr Buckley that he would not do so until satisfied with the underlying accounts and supporting material.

96    Mr Chong sent many text messages to Mr Watts in the period from early September to late November 2020 seeking the 2020 MFS. These text messages show a degree of panic and urgency from Mr Chong, who was indicating in early October that time was running out for the completion of the MFS, telling Mr Watts that “everyone is waiting for you.” Mr Watts responded to these messages in early October, stating that he was almost done with the 2020 MFS. While these text messages demonstrate that Mr Chong was aware of the encroaching deadline and eager for Mr Watts to complete the 2020 MFS on time, they also demonstrate that Mr Watts was not particularly responsive (with over a week between responses to Mr Chong). Further, it is apparent from those text messages that Mr Watts was engaged in other work for Mr Buckley at that time which took priority over preparation of the MFS. In these text messages, Mr Watts also refers to other work he is doing for Ultra Tune holding him up. While Mr Chong says that work for the MFS is much more important than other work for Ultra Tune, he did not direct Mr Watts to focus wholly on that work.

97    Mr Watts continuously reassured Mr Chong that the MFS was almost complete prior to the 31 October 2020 deadline. On 28 October 2020 Mr Chong texts Mr Watts “we are going to be late again” and receives no response. It appears that after the 31 October 2020 deadline had passed, Mr Chong was less concerned with seeking the 2020 MFS from Mr Watts, as the frequency of his communications reduced significantly. Ultra Tune submits that the ACCC has made deficient submissions in not referring to these text messages, and that these text messages are consistent with Mr Buckley’s and Mr Chong’s evidence that they were relying upon Mr Watts, and that Mr Watts played a significant role in the failure to prepare the 2020 MFS on time. I do not need to decide whether it is fair to characterise the ACCC submissions as defective. It is more important to note that I regard the text messages as distinctly double-edged for Ultra Tune. While they establish concern on the part of Mr Buckley and Mr Chong about Mr Watt’s performance, this is in the context of this arising from their prior complacency. I do not regard the problems that Ultra Tune was experiencing with Mr Watts as amounting the any real degree of mitigation for the failure to comply with the Court’s March Orders. It was all part of Ultra Tune’s defective systems and approach to compliance. I take the same view towards more of the same as now follows.

98    On 8 October 2020, a text message from Mr Buckley received by Mr Watts, and also Mr Chong, likely forwarded from Mr Alguera-Lara says “Please kick Lachlan up the arse for me mate? We need to finish this audit ASAP. We CANNOT afford to be late!”. Mr Watts replied to this by text message on 9 October 2020 stating that there are things he is still sorting out but he will be giving ADV (presumably a typographical error, which should instead be “ASV”) the final product soon.

99    On 6 November 2020 Mr Chong sent an email with the subject line “MPF” (Marketing Promotional Fund, being another shorthand way of saying MFS) to Mr Watts querying how Mr Watts was going with the MPF as “[e]veryone is waiting for you.” Mr Chong in his affidavit evidence recalls this as his last conversation with Mr Watts regarding the 2020 MFS until February 2021, despite the deadline for compliance having passed on 31 October 2020, and that he was “distracted by other unrelated matters” during that intervening period. ASV also tried to obtain the MFS from Mr Watts in early November, unsuccessfully. It seems that once the MFS was late, the sense of urgency on the part of Ultra Tune, via Mr Chong at least, dissipated.

100    In cross-examination, Mr Watts stated that in late November and early December 2020, he had discussions with Mr Buckley, who could not understand what Mr Watts was doing (regarding the 2020 MFS) as the accountants had told Mr Buckley that there was no more work for Mr Watts to do, so he was angry that Mr Watts was doing things he had been told were not necessary.

101    On 16 December 2020, Mr Watts emailed Ms Bull, copying the email to Mr Chong, attaching a memo with the suggested final changes required to be made to the marketing fund accounts.

102    On 21 December 2020, Mr Watts emailed Mr Chong with the subject line “MPF Accounts” saying that the biggest problem with the accounts was the incorrect labelling of expenditure, and addressing the reasons for this, which included issues caused by both Frontier’s (Ultra Tune’s advertising company) invoicing being sloppy, and Ultra Tune staff not understanding how or why to categorise expenditure.

103    Through January and early February 2021, Mr Andrew Farrell (of the external auditors) and Mr Chong continued to follow up with Mr Watts about the MFS. On 22 February Mr Chong shared a folder with Mr Farrell and Ms Bull titled “MPF FY2020 ASV”. On 24 February 2021, Mr Watts emailed Mr Farrell, Mr de Bondt (of Ultra Tune) and Mr Chong with the subject line “2020 Marketing Fund accounts revised” attaching those accounts, being a draft of the marketing fund accounts, and providing notes to accompany those accounts. In cross-examination, Mr Watts referred to this version of the 2020 MPF accounts as a version he was “happy with”.

104    On 10 March 2021, Mr Chong emailed Mr Farrell and Mr Alguera-Lara an email titled “MPF FY 2020 audit”. In this email Mr Chong asked for an update on when Mr O’Kane of the auditors would be done with the MPF accounts. That same day Mr Farrell responded that they had been in discussions with Mr Watts after Mr Farrell’s review of the final draft, and Mr Watts was preparing to update the Notes to the statement of receipts and payments, including reclassifying audit feeds not previously separated, and was due to send that update to Mr Farrell over the weekend but had not done so. Mr Farrell said he would follow up. On 15 March 2021, Mr Chong emailed Mr Farrell and Mr Alguera-Lara following up on this, asking if Mr Farrell was able to get hold of Mr Watts the previous week. Mr Farrell responded the same day that the draft 2020 MFS “[w]as sent to the auditor this morning.”

105    On 15 March 2021, Mr Fernando of ASV emailed LD Assurance, copying the email to ASV Wadeson, with the subject line “RE:Marketing Fund UTA-2020”. That email had attached the income and expenditure account for the year ending June 2020 for the Marketing Fund Audit (draft marketing fund statement). Mr O’Kane replied the same day, saying that he would start to review that soon. On 22 March 2021, LD Assurance emailed Mr Fernando in reply, asking a number of follow up questions required to finalise the review of the draft 2020 MFS.

106    On 18 March 2021, Mr Watts, from the Ultra Tune compliance officer email address, emailed a “Delegates at Ultra Tune” email address, copying the email to Mr Buckley and Mr de Bondt with the subject “Update”. Mr Watts stated that the accounts and supporting material went to the auditor on Monday (15 March 2021) and should be back shortly. On 19 March 2021, Mr Watts provided his only written compliance report as compliance officer to Ultra Tune, which detailed the issues with the marketing funding accounts.

107    Mr Buckley in his affidavit evidence stated that he spoke to Mr Watts and instructed him to make contact with the ACCC in early 2021. He also gave evidence that Mr Watts told him that the ACCC were aware of the work he was doing. Mr Bridges of Webb Henderson, acting for the ACCC, has no recollection of any contact with Mr Watts in 2021. Ultra Tune submits that a lack of contact between Mr Watts and the ACCC at this time does not mean that Mr Buckley is being untruthful in his evidence, the implication of that submission being that I should find Mr Watts lied to Mr Buckley about having spoken to the ACCC in early 2021 regarding the 2020 MFS. While the evidence does show that Mr Watts was repeatedly less than candid in his communications with Mr Chong and others, that was in relation to overestimating his abilities and repeated overpromises of when he could deliver sought outcomes. I do not think it is fair to paint Mr Watts with a brush of being generally untruthful to the extent that he would have lied about informing the ACCC and am unable to accept his evidence in that regard as being unreliable, rather than untruthful. It is also possible that Mr Watts spoke to someone else at Webb Henderson, and for some reason, that did not get conveyed to Mr Bridges. More than that, I do not think that Mr Buckley was involved enough with compliance to have been the one to suggest Mr Watts contact the ACCC, so am unable to accept his evidence that he did so, without needing to reach any conclusion as to whether that is the product of anything more than unreliability or wishful thinking after the event. As well, Mr Chong was aware that the ACCC had not been informed of the breaches, at least in any formal way.

108    The draft 2020 MFS stayed with the auditors for three months until June 2021, as the auditors were waiting on further questions, sent to Ultra Tune on 22 March 2021, to be answered by Ultra Tune before the 2020 MFS could be finalised. Some of those questions were left until May 2021 in anticipation that Mr Watts would answer them. Mr Chong in cross-examination stated that the preparation of the 2020 MFS was taken over by him in May 2021, after which point Ultra Tune, primarily himself, attempted to answer the auditor’s outstanding questions “to the best of [their] abilities” on 4 June 2021.

109    Mr Buckley in his affidavit evidence states that the COVID-19 lockdowns in Melbourne required Mr Watts to work on the 2020 MFS from home, without being able to attend the Ultra Tune offices for much of 2020, which meant that he was working without the assistance of administrative staff who had helped him in 2019, and also meant Mr Watts took possession of much of Ultra Tune’s original marketing material and source documents, including invoices and receipts which had not yet been entered into the Ultra Tune systems. In its submissions, Ultra Tune states that while Mr Buckley grew frustrated with Mr Watts as the delays continued, he “felt unable to do anything” as Mr Watts held most of the original material relied upon in preparing the 2020 MFS and was not responsive. Ultra Tune submits that its ability to address the delay in preparing the 2020 MFS was “hampered by Mr Watts having possession of original documents, his lack of responsiveness to requests for updates and his assurances that the finalised MFS was imminent”.

110    In cross-examination, Mr Watts stated both that he believed he was only provided with copies of invoices, and not original material as barristers do not like taking originals, and that he was provided original copies of the Frontier invoices.

111    Mr Chong, in cross-examination, admitted both that Ultra Tune did have access to all documents needed to answer the questions that the auditors posed in March 2021, though he was not aware of that at the time, and that Ultra Tune would have kept original invoices. Mr Buckley stated that in March or April of 2021, he told Mr Watts that he wanted the 2020 MFS done by ASV, and that he wanted Mr Watts to send all the original source documents and his workings to date to Mr Alguera-Lara, but that Mr Watts did not send all the original material at that time and, despite efforts to collect that material in May 2021 which failed, the material eventually had to be sourced from the vendors themselves.

112    I am not satisfied that the version of events provided in Mr Buckley’s affidavit, repeated in Ultra Tune’s submissions is reliable, falling short of finding that evidence was deliberately false. On consideration of all of the evidence on this topic, I conclude that it is most likely that what occurred is that the MFS 2020 financial year audit, being the draft 2020 MFS accounts, was provided to the auditors in March 2021. The auditors had follow-up questions required to finalise this draft 2020 MFS in late March 2021. Ultra Tune failed to answer some of those questions at that time, and the outstanding questions meant that the auditors could not finalise the 2020 MFS. Ultra Tune was waiting for Mr Watts to answer those questions, but eventually realised he would not do so. That is why in early June 2021 Mr Chong answered those questions “to the best of his ability”. The MFS was then completed in late June 2021.

113    The ACCC in its written submissions refer to a draft 2020 MFS provided by Mr Watts in December 2020. Ultra Tune has fairly criticised the ACCC’s reference to this document, as there is no evidence, other than Mr Watts’ testimony, that such a draft existed. This document was not tendered, and, as Ultra Tune submits, there is no contemporaneous document that supports a December draft version of the 2020 MFS existing. Mr Watts sent an email to Ms Bull on 16 December 2020, attaching a memo of the final round of changes to be made to the Marketing Fund. An email of 21 December 2020 from Mr Watts to Mr Chong refers to changes which still need to be made to Frontier’s invoicing and further work to be done on Ultra Tune’s end for processing of invoices. These documents suggest that any completed 2020 MFS would still be a way off, and support Ultra Tune’s submissions that a draft 2020 MFS was not provided by Mr Watts in December 2020. It remains possible that Mr Watts is correct in his statement that he sent a draft in December 2020 as the next draft of the accounts is sent in an email called “2020 Marketing Fund accounts revised” and the notes to those revised accounts sent in an email titled “Notes to Accounts 2”, both sent by Mr Watts on 24 February 2021. “Revised” accounts tend to suggest that there has been a previous draft that is now being amended. However, there is no evidence other than Mr Watts’ testimony of this first draft existing, as it has not been tendered. In the result, there is not enough to safely conclude that a draft was earlier provided by Mr Watts that could have been submitted, or adjusted and submitted, by Ultra Tune, and certainly not with such specificity to timing. I also note that an email was sent from Mr Farrell to Mr Watts in October 2020 which says that “the draft 2020 report” (referring to a 2020 Marketing Fund Statement of Receipts and Expenses it seems) was forwarded several weeks ago (mid-September). I am unable to form any concluded view as to whether or not there was some form of earlier draft MFS (or pre-stage to the draft MFS) that existed in September, but find that this probably unlikely given the rest of the evidence.

114    The 2020 MFS was finalised on 28 June 2021, and sent to franchisees on 9 July 2021. On 9 July 2021 Ultra Tune provided to its franchisees copies of the 2020 Marketing Fund accounts together with the Auditor’s report and statement dated 28 June 2021. A copy of these documents was provided to Webb Henderson on 29 July 2021. In a letter from Ultra Tune to my associate, the justification provided to my chambers for the late finalisation of the 2020 MFS was delay caused by Mr Watts cross-checking accounts and seeking to further refine and reformat the chart of accounts, Mr Watts’ ill health, and the COVID-19 lockdowns.

Charge Four

115    The ACCC has characterised the offence constituting charge 4 as at a “mid-level of seriousness”. While Ultra Tune has plead guilty to this charge, the benefit of the plea is somewhat dissipated by the attempts to downplay this conduct.

116    In its submissions, Ultra Tune states that it “admits that the compliance officer failed to provide quarterly briefings for the last 3 quarters of the 2021 calendar year…”. The specifics of charge 4 are important. This charge is not that Ultra Tune failed at all to engage with the requirements of order 6 of the March Orders. The charge is that Ultra Tune breached order 6 specifically by failing to comply with the compliance program by not ensuring that Ultra Tune’s compliance officer reported to the board and/or senior management on the continuing effectiveness of that program in respects of the June, September and December quarters of 2021.

117    Mr Watts was appointed to the role of compliance officer in April 2020, taking over from Mr Chong. Due to Mr Watts’ significant health issues, which began in September 2020 and eventually led to him requiring, and undergoing, a surgical procedure in late May 2021, Mr Watts functionally ceased performing in the role of compliance officer in approximately April 2021. The last report Mr Watts prepared before functionally ceasing in the role was a written compliance officer report on 18 March 2021. Mr Watts was not functionally acting as compliance officer from, at the latest, May 2021.

118    Ultra Tune did not appoint a replacement compliance officer until 9 December 2021, when it appointed an external compliance officer Ms Vucic. During the period from late April or early May 2021 to 9 December 2021, Ultra Tune did not functionally have a compliance officer. No quarterly reports were provided by a compliance officer in the period between when Mr Watts functionally ceased performing his role as compliance officer, and the new appointment.

119    The reason given for Ultra Tune’s failure to appoint a compliance officer in Mr Watt’s absence was that Ultra Tune “hoped that Mr Watts would be able to resume his role following his recuperation”, and that “as soon as it became evident that Mr Watts would not be capable of resuming his role, [Ultra Tune] sought to… appoint a new compliance officer”. Mr Chong in his affidavit evidence stated that, while he knew Mr Watts was not functionally performing his role as compliance officer from April 2021 as Mr Watts had “largely ceased to have any involvement” with Ultra Tune from May 2021, he believed that they were anticipating Mr Watts return after his surgery in May 2021, and believed that Mr Watts was the compliance officer until he was replaced by Ms Vucic in December 2021. Mr Buckley in cross-examination suggested that he stopped paying and “sacked” or “postponed” Mr Watts sometime between April and May 2021. Mr Watts confirmed that he was last paid for his services on 19 April 2021. Ultra Tune submits that the termination of Mr Watts’ services and cessation of payment to Mr Watts was only in relation to Mr Watts preparing the 2020 MFS, and not his role as compliance officer.

120    Mr Buckley gave evidence that he arranged for Mr Michael Fetter, of an external law firm, Tisher Liner, to provide case-by-case advice and to undertake compliance activities and training in Mr Watts’ absence. Mr Fetter did not provide quarterly reports regarding the compliance program to the Ultra Tune board.

121    Mr Buckley states that Mr Watts informed Mr Buckley that he would be unable to return to the role of compliance officer in mid-October 2021, at which point Mr Buckley instructed Mr Chong to find and engage a new compliance officer. Ultra Tune began the process of finding a new compliance officer in late October 2021.

122    Ultra Tune notified the ACCC in October 2021 that it intended to replace its compliance officer with an external hire, in breach of the March Orders requiring the compliance officer be a senior manager or director of Ultra Tune. Ultra Tune requested the ACCC’s approval for that hire. Clause 4.3 of the Undertaking to the ACCC that Ultra Tune executed in May 2020 stated that it would notify the ACCC in writing within 5 business days of any intention to replace the compliance officer. The ACCC approved the engagement of Ms Vucic as compliance officer in place of Mr Watts on 28 October 2021. Ultra Tune formally appointed the replacement compliance officer on 9 December 2021. Ms Vucic presented a Compliance Report to the Ultra Tune board on 14 March 2022, which covered the period between 10 December 2021 to March 2022. Since her appointment, Ms Vucic has reported to the Ultra Tune board on a quarterly basis.

123    To understand Ultra Tune’s attitude to compliance it is useful to consider a number of facts that do not relate directly to charge 4, but add context to Ultra Tune’s general attitude to compliance with Order 6 of the March Orders.

124    Ultra Tune appointed Mr Chong as compliance officer on 1 April 2019. Mr Chong was then the in-house solicitor for Ultra Tune, as he had been at the time of Ultra Tune’s breaches of the Franchising Code the subject of the primary judgment. Mr Chong had been criticised in that judgment, including for failing to act as an independent legal voice for Ultra Tune but instead largely bending to Mr Buckley’s interests. Even after the primary judgment, Mr Chong believed he had the time and ability to discharge the responsibilities of being compliance officer. Mr Buckley’s loyalty to Mr Chong again seems to be because of their history as they have worked together since 1995. As at the time Mr Buckley gave evidence, he continued to think that Mr Chong was “the best man for the job”. I note that Mr Chong was made a director of Ultra Tune in February 2021.

125     Both Mr Tony Truong of Ultra Tune and Mr Watts provided assistance with the compliance program from 1 April 2019. On 3 April 2019, Mr Watts provided compliance training to Ultra Tune staff, including state managers, regarding compliance with the Franchising Code and ss 18 and 29 of the ACL. On 30 April 2019, Mr Watts provided additional training to state managers.

126    The ACCC’s solicitors, Webb Henderson, wrote to Ultra Tune on 5 February 2020 asking about compliance with the March Orders. In that letter, Webb Henderson requested documents constituting Ultra Tune’s compliance program, and details regarding its compliance officer and compliance advisor.

127    On 19 February 2020 Ultra Tune wrote to Webb Henderson informing the ACCC that it had been working on the compliance program since March 2019, that Albert Chong was appointed as compliance officer on 1 April 2019, and that Mr Watts was providing assistance and legal training as needed. Ultra Tune also stated in the letter that it would not be able to provide the compliance program documents for another month.

128    On 30 March 2020, Webb Henderson wrote to Ultra Tune stating that the ACCC was concerned with the status of Ultra Tune’s compliance program, as it appeared Ultra Tune had failed to comply with the March Orders, which required it to institute a compliance program. The letter also stated that the ACCC was concerned with Mr Chong having been appointed as compliance officer and Mr Watts as compliance advisor, given Mr Chong’s previous failures to ensure compliance with the Franchising Code which led to the primary judgment, and Mr Watts’ lack of expertise in the area of consumer law, as well as him having been providing advisory services in the period in which Ultra Tune failed to comply with the Franchising Code and ACL, including its recent non-compliance following the primary judgment. The ACCC provided a list of alternative law firms from which it recommended Ultra Tune source a new compliance advisor, and recommended that Mr Chong be replaced as compliance officer. The letter stated that if these replacements were made, the ACCC would allow a two-month extension for Ultra Tune to comply with the March Orders, and if not the ACCC may commence proceedings for non-compliance.

129    Ultra Tune did not replace Mr Chong as compliance officer or Mr Watts as compliance advisor, informing the ACCC that it thought those appointments reasonable, and on 4 May 2020 Webb Henderson emailed Ultra Tune again requesting the documents earlier requested on 5 February 2020, and informing Ultra Tune that the ACCC was considering an application for contempt due to Ultra Tune’s failure to comply with the March Orders, but would not do so if Ultra Tune executed an undertaking. That undertaking required Ultra Tune to appoint a suitable compliance officer approved by the ACCC within two months, and a compliance advisor from one of the firms listed by the ACCC within a month, as well as requiring Ultra Tune to complete a number of tasks relating to its compliance program. After back-and-forth correspondence between Ultra Tune and Webb Henderson regarding appropriate compliance advisors and Independent Reviewers, Ultra Tune executed a revised version of that undertaking on 15 May 2020 (Undertaking). Ultra Tune informed the ACCC that it had appointed a compliance advisor and Independent Reviewer from MST Lawyers on 15 June 2020. Mr Chong did not make any quarterly reports to the board or senior management while he was Ultra Tune’s compliance officer, though this failure to ensure reporting for that period is not charged.

130    Mr Watts commenced as compliance officer in April 2020. Mr Buckley states that he was “confident that Mr Watts would be capable of fulfilling the role [of compliance officer] based on his long association with, and knowledge of, the company and the assistance provided to [Ultra Tune] and the assistance provided to [Ultra Tune] up to that date with its compliance obligations]. Mr Watts provided training to Ultra Tune staff in accordance with the requirements of Annexure B of the March Orders.

131    Webb Henderson requested copies of Ultra Tune’s reports to the board or senior management regarding compliance on 22 July 2021. In response to that request, on 29 July 2021, Ultra Tune provided minutes of the reports for the period between July 2020 and March 2021, and stated that reports had not been completed after that point as Mr Watts had been ill. The minutes of reporting provided largely referred to multiple telephone conversations between Mr Buckley and Mr Watts. Ultra Tune informed the ACCC that the compliance officer, being Mr Chong at the relevant time, had not provided quarterly reporting to the board/senior management for the period prior to July 2020. On 8 October 2021, Webb Henderson informed Ultra Tune that the ACCC considered that Ultra Tune had failed to complete and provide the ACCC with copies of the reports for the period from March 2021 to June 2021 to the board/senior management, which it considered amounted to a failure to comply with the March Orders.

132    The minutes provided to the ACCC for the quarterly period between July 2020 and December 2020 were not prepared by Mr Watts or with his involvement. I find that, most likely, they were prepared by Mr Chong in conjunction with solicitor Mr Fetter. These minutes were presumably based on Mr Buckley’s recollections of conversations with Mr Watts. Mr Chong in cross-examination by the ACCC admitted that these minutes did not reflect the entirety of the advice that Mr Watts had provided, as they excluded key advice provided by Mr Watts, including that he did not think the draft 2020 MFS contained sufficient detail. Mr Watts prepared a written report in March 2021, after he had submitted a draft 2020 MFS, which detailed some of his concerns with how the MFS was prepared.

133    Ultra Tune submits that the “failure to comply with the requirement to provide quarterly reports should be seen in the context of Mr Watts’ illness and the uncertainty as to his return, together with steps taken by [Ultra Tune] to obtain legal advice as necessary” from Mr Fetter.

134    Ultra Tune appeared unconcerned with this kind of non-compliance during the period when this was taking place, and subsequently. Webb Henderson wrote to Ultra Tune on 8 October 2021, informing it that the ACCC considered Ultra Tune had breached the March Orders amounting to a contempt of court, including by failing to complete and provide the ACCC with copies of reports to the board or senior management regarding the compliance program for the period from March 2021-June 2021. The ACCC submits that Ultra Tune was only prompted to hire a new compliance officer following this letter. Mr Buckley has stated that he was prompted to seek to hire a new compliance officer by a call from Mr Watts in late October 2021 informing Mr Buckley that he was not capable of “continuing” as compliance officer. Mr Watts in cross-examination did not directly confirm or deny whether this conversation took place, his evidence indicating confusion, but did state that he stopped his role as compliance officer after April 2021.

135    On 5 February 2020, Webb Henderson sent a letter to Ultra Tune requesting documents constituting Ultra Tune’s compliance program. In response, Ultra Tune stated that it would need a month to provide the compliance program documents. The ACCC then expressed concern that Ultra Tune had failed to implement a compliance program, eventually providing an undertaking which it requested Ultra Tune sign to avoid the ACCC proceeding with an application for contempt. On 16 April 2020 Ultra Tune sent a reply letter to the ACCC which noted difficulties Ultra Tune was having with developing a compliance program and advised that Mr Watts had been engaged as compliance advisor. Mr Chong supplied a draft compliance program, which he had prepared, to the ACCC on 7 May 2020. Ultra Tune eventually completed the compliance program on 28 November 2020.

Resolving the competing characterisation arguments on the charges of contempt of court

136    The parties put forward competing characterisations of Ultra Tune’s commitment to, and efforts to, comply with the March Orders. The key events chronology at paragraphs [58]-[134] above go some way to resolving those competing characterisations, reflecting my findings as to the vital facts of and surrounding the contraventions, again noting that the parties did not agree regarding the factual circumstances and events, nor what those factual circumstances and events indicated about Ultra Tune’s attitude towards and actions in pursuit of compliance.

137    Ultra Tune submits that the contempts occurred, despite it using its best endeavours and intentions to comply with the March Orders, and that despite wanting to comply with the Franchising Code, due to its own incompetence it failed to do so. The ACCC submits that Ultra Tune’s approach to compliance was deficient and cavalier.

138    I have dealt with the conduct leading to charge 1 above at [63]-[70]. I find that this contempt was caused primarily by misunderstanding and miscommunication between Ultra Tune and its external accountants and auditors, as the disclosure document was completed on time but for the solvency statement required to finalise it, which was provided late by the auditors. Mr Chong, who was the compliance officer at the time, sought the solvency statement once he became alive to the issue. However, if Ultra Tune had been more focussed on, and been more active, to ensure compliance by communicating with its accountants and auditors in the lead up to the disclosure document being due, this relatively minor breach of the Franchising Code and the March Orders may not have happened. No prospective franchisees sought the disclosure document during the period it was overdue. This does not mitigate the conduct but does demonstrate this potential source of aggravation was lacking. The parties are largely in agreement as to the nature and severity of this contempt as one that is at the lower end of the scale.

139    In regard to the three remaining contempt charges, the parties made substantial submissions regarding the part that Mr Watts had to play, and it is worth dealing globally with this issue first. Mr Watts appeared to be a truthful witness, though by his own admission he could be an unreliable historian when it came to granular detail and the sequencing of events. Ultra Tune has placed significant emphasis upon the failings of Mr Watts, and I accept that Mr Watts continuously promised that he could complete the tasks he was doing much faster than he did in relation to the MFS preparations. Mr Watts contributed to the delays in submitting the 2019 MFS and the 2020 MFS, although, for reasons I will come to, this contribution does not serve to mitigate the severity of Ultra Tune’s contempts, and his illness was a contributing factor as to why he did not provide quarterly reports for the period between April and December 2021. I accept that Mr Watts had, at certain times, near sole responsibility for preparing the substance of the 2019 MFS and the 2020 MFS before they were sent to the accountants and auditors for finalisation. Ultra Tune was, however, aware of this and indeed had instructed Mr Watts to take on these tasks after he, reluctantly due to his lack of accounting experience, volunteered to do so.

140    It was well within Ultra Tune’s power and capacity to provide Mr Watts with extra resources or, perhaps more appropriately, to assign the responsibility to someone else entirely. Ultra Tune has in its submissions repeatedly stated that it takes responsibility for the actions of Mr Watts, and as he was Ultra Tune’s agent this must be the case, unless Ultra Tune was unaware of his conduct, which did not occur here. The repeated emphasis upon the actions of Mr Watts in Ultra Tune’s submissions, however, seemingly as an attempt to suggest mitigation of the severity of Ultra Tune’s conduct by placing a significant amount of blame upon Mr Watts alone, suggests that while Ultra Tune accepts responsibility for Mr Watts’ actions, it is less willing to accept full culpability for contraventions that it purports lead from his conduct.

141    Ultra Tune submits that its identification of Mr Watts’ role in the contempts is not blame shifting, as it acknowledges that Mr Watts is a contractor and agent of Ultra Tune and pointing to his failures does not mean that Ultra Tune is not admitting to its own failures. Ultra Tune submits that it acknowledges that the incompetence within Ultra Tune was not limited to Mr Watts but extended to general disorganisation within the company in terms of gathering information for the MFS and the subsequent processing of that information by the accountants, Mr Buckley failing to adequately supervise compliance, and Mr Chong failing to carry out the tasks he was left to do.

142    I agree with the thrust of the ACCC submissions that Ultra Tune attempted to lay the majority of the blame for the conduct that is the subject of charges 2 and 3 at Mr Watts’ feet to make it appear as though Ultra Tune was hindered in its progress to compliance as it was battling against the tardiness and general failures of Mr Watts. It is clear from the evidence that Mr Watts did mislead Ultra Tune via Mr Chong and others as to his progress, though I do not consider maliciously so, by promising to meet deadlines and failing to do so. However, I do not consider that this goes far to substantiating Ultra Tune’s claims that it used its best endeavours to comply with the March Orders. The actions of Ultra Tune were far from best endeavours, in the sense of being the best that it could reasonably have done in the circumstances.

143    In relation to the late 2019 MFS, the subject of charge 2, Ultra Tune’s submissions characterise the events which led to the late 2019 MFS in a way which clearly attempts to pin the blame for that lateness on Mr Watts. Those submissions state that Mr Watts undertook the review of the original invoices and starting the MFS process from scratch “as a result of his disagreements with Mr Alguera-Lara [of ASV]”. That is a distorted portrayal of what took place as established by the evidence. The evidence shows that, rather than Mr Watts undertaking that process from scratch due to the disagreements, it was ASV’s failure to adjust the way it prepared the first draft of the 2019 MFS according to Mr Watts’ advice that led to ASV preparing a draft 2019 MFS in early October 2019 in substantially the same way as previous non-compliant MFSs, which Mr Watts considered not to be compliant with the Franchising Code. This was unsurprising given Mr Watts’ repeated warnings that the processes around the creation of the MFS must be changed if a compliant MFS were to be produced. Mr Watts had attempted to effect this change through his earlier attempts to make changes to the software systems used by Ultra Tune (which were ultimately unsuccessful), and meetings with the advertising company which provided the invoices and with the accountants that prepared the MFS to advise what needed to be done to prepare a compliant MFS.

144    The disagreements referred to and relied upon by Ultra Tune were those between Mr Watts and the accountants about how the MFS should be prepared, with the accountants preparing the 2019 MFS in substantially the same non-compliant form as they had done in previous years. Mr Chong in his oral evidence agreed with the proposition that the draft version of the 2019 MFS prepared by the accountants was not consistent with the advice provided to them by Mr Watts in meetings at which Mr Chong had been present, describing them as “not correct” in cross-examination. When Mr Watts found the draft 2019 MFS inadequate and communicated this to Mr Buckley and Mr Chong, his suggestions to hire new accountants having been rejected by Mr Buckley, Mr Watts then volunteered to restructure the accounts upon which the MFS was based himself.

145    The approach of Ultra Tune to rely upon what happened in October to December 2019 and point the finger at Mr Watts is to deny the necessary context and history leading up to that point. Mr Watts had been trying to prevent the issue of non-compliance occurring at all, in the face of the accountants not listening to him and not being instructed to do so by Mr Chong or Mr Buckley, since May 2019. While it is true that the delay manifested as a breach of the Franchising Code in October to December 2019, the root cause took place over the entire period from May to December 2019. If Mr Watts had been listened to in May 2019, even though it is not entirely clear how much of what Mr Watts proposed at that time could truly have been done, it is highly likely that there would not have been any issue by October 2019, and so no delay to December 2019 in preparing the 2019 MFS.

146    While the draft 2019 MFS was provided to Ultra Tune by its accountants at the start of October 2019, and while Mr Watts then took nearly three months to amend the accounts to ensure the MFS would be compliant with the Franchising Code, he had been warning Ultra Tune of changes that needed to be made to the accounts and MFS process since May 2019. Mr Buckley also gave evidence that he did not accept that the draft 2019 MFS provided by ASV was non-compliant and in fact thought “they were totally compliant”. Yet he allowed Mr Watts to restructure the accounts in October 2019, despite Mr Watts telling him he was unsure how long that process would take. This does not reflect a concerted effort to comply with the March Orders. I find that the delay in the preparation of the 2019 MFS cannot be substantially attributed to Mr Watts, at least in any way that assists Ultra Tune.

147    For completeness, I note that Ultra Tune did take some measures in an attempt to improve the structure of the MFS in 2019. Advice from Mr Watts about restructuring ledger codes was taken. Mr Watts suggested that the software Ultra Tune used for preparation of accounts be changed, and Mr Buckley allowed Mr Watts to look into that, though ultimately that process did not proceed and the software system used for the previous years’ MFS system was used in 2019.

148    Ultra Tune submits that “during the course of October 2019, Mr Chong and Mr Buckley each became aware that the MFS would not be prepared in time and chased Mr Watts to complete it as soon as possible”. Ultra Tune additionally submits that Mr Chong “presumed Mr Watts was conscious of the requirements of the March Orders”. This submission by Ultra Tune that Mr Chong, as both in-house counsel for Ultra Tune and its compliance officer at that time, thought it sufficient to “presume” a focus on compliance, works against its submission that Ultra Tune was using its best endeavours to comply with the March Orders. Indeed, the subsequent submission of Ultra Tune that Mr Chong had been told by Mr Watts that he would rather the 2019 MFS be “late and accurate rather than on time and wrong” shows that Mr Chong was on notice that Mr Watts did not intend, or did not think himself capable, of submitting the 2019 MFS on time. Ultra Tune’s submission that Mr Buckley and Mr Chong “wanted the MFS to be prepared in time” but “neither understood the work being undertaken by Mr Watts or felt that there was anything that they could do to ensure the work would be completed earlier” suggests that Ultra Tune’s then-sole director Mr Buckley, and its in-house counsel and compliance officer Mr Chong, chose not to take effective action to ensure the timely preparation of the 2019 MFS, or to even understand what was being done around its preparation, despite the March Orders.

149    Ultra Tune in its submissions also states that Mr Watts did not recommend Ultra Tune seek a variation of the March Orders or otherwise address the consequences for Ultra Tune failing to comply with the March Orders. This submission is a further unmeritorious attempt to shift blame to Mr Watts for Ultra Tune’s actions. Mr Chong was also in a position to give this advice, in fact perhaps better placed to do so, and did not. The actions of Ultra Tune in regard to the conduct which led to charge 2 were wholly inadequate, and Mr Buckley and Mr Chong’s deliberate inaction, and apparent choice to turn a blind-eye to what was occurring despite admitted knowledge that Ultra Tune would be in breach of the Franchising Code and the March Orders, in the immediate wake of other significant breaches of the Franchising Code, demonstrates that Ultra Tune had, at the very least, a careless attitude towards compliance.

150    The ACCC submits that Mr Watts made Ultra Tune aware of deficiencies with the accounting software and the external accountant’s method of preparing the accounts, but neither Mr Buckley nor Mr Chong demonstrated a willingness to address those deficiencies. Mr Buckley did allow Mr Watts to investigate making changes to the software used to prepare accounts, as well as to meet with the advertising company regarding how invoices were prepared and with the accountants to discuss how the marketing fund statements should be prepared. Despite this, I find the ACCC’s submission is substantially supported by the evidence, particularly the evidence of Mr Buckley and Mr Chong that they chose not to involve themselves in the conflict between Mr Watts and the accountants, despite having the power to direct the accountants to follow the instructions of Mr Watts.

151    The approach adopted by Mr Chong and Mr Buckley was to leave Mr Watts and the accountants to see if they could sort out the conflict between themselves, rather than implement a solution. Ultra Tune submits that it accepts the major cause of delay in preparation of the 2019 MFS was a result of attempts to obtain further information in relation to marketing expenditure, and that the decision not to follow Mr Watts’ formulation of the draft 2019 MFS is “beside the point” as Mr Watts’ evidence is that he was still reviewing the MFS during November 2019 and met with the accountants to discuss the revised accounts information in early December 2019. What remains relevant is that an inability or unwillingness on the part of Ultra Tune to grapple with this dispute about compliance between its advisers substantially contributed to the delay and thus to the contempt taking place, for which it bears responsibility in a culpable way. Had that been done, it may have been the case that the draft 2019 MFS provided in October 2019 would have been prepared on time and been compliant with the Franchising Code. The hands-off approach taken by Ultra Tune in this respect, and indeed its passive approach more generally, was demonstrative of Mr Buckley’s unwillingness to commit fully either to take the accountant’s advice, or that of Mr Watts, leaving Ultra Tune in a state of non-compliant limbo.

152    The ACCC also submits that Mr Watts provided a draft 2019 MFS to Mr Buckley on 22 October 2019, within the deadline. Mr Watts described that document as draft accounts, and agreed it was a draft 2019 MFS which set out what needed to be amended for it to be compliant with the Franchising Code, and that he had sent it to Mr Buckley for the purpose of “educating him”. While the ACCC submits that I should find this was a draft 2019 MFS, I do not make a finding either way regarding whether that document truly constituted a draft 2019 MFS. I note that, by Mr Watt’s own account, he continued to work towards finalising the 2019 MFS until early December 2019 and the final version of the 2019 MFS varied greatly from that late October draft. In any event, Mr Buckley’s evidence that he did not recall that email, and so did not look at that document when it was emailed to him by Mr Watts and in any event would have sent it on to others rather than consider it himself, regardless of whether it was actually draft accounts in a preparatory stage to becoming an MFS, or a draft 2019 MFS, seems to conflict with, or at least be inconsistent with, Mr Buckley’s evidence that he was concerned with the MFS being prepared on time in October 2019 and had been “hassling” Mr Watts about it. Ultra Tune submits that there is no evidence Mr Buckley indicated he would review and settle that draft, as he was not involved in the day-to-day business and instead relied on his management team. This may be accurate, but again conflicts with Mr Buckley’s own accounts of his personal involvement in seeking the 2019 MFS, though not necessarily with Ultra Tune as a whole being committed to compliance.

153    Ultra Tune accepts that it should have been taking steps from the time of the primary judgment in January 2019 to bring the MFS into accord with that decision. Ultra Tune criticised the ACCC’s emphasis in its submissions that Ultra Tune failed to take Mr Watts’ advice as to the substance of the 2019 MFS, given that it is not a component of the charges that the MFSs produced failed to comply with the Franchising Code, other than as to the timing of their provision. The ACCC accepts that Ultra Tune is not guilty of an uncharged contempt in relation to whether the form of the 2019 MFS was compliant with the Franchising Code, but submits that the decision by Ultra Tune not to follow Mr Watt’s advice in regard to the form of the MFS goes to whether at all times Ultra Tune used its best endeavours to ensure compliance with its obligations under the March Orders and the Franchising Code. Ultra Tune submits that this submission by the ACCC goes nowhere, and I accept that, again as far as it goes, as it was open to Ultra Tune not to take the legal advice, and elsewhere accounting advice, provided by Mr Watts. That it chose not to take his advice does not necessarily speak to a lack of commitment to compliance, and there is no allegation that the final 2019 MFS was noncompliant in form. However, as I have discussed elsewhere in these reasons, it was not necessarily Ultra Tune’s failure to take the advice of Mr Watts that shows a lack of commitment to compliance, but rather its failure to take Mr Watts’ advice early enough if it were going to at all, or assist him adequately with the implementation of changes that it did instruct him to make, combined with its later decision to have him remedy the issues he had foretold, which contributed to the delays. This itself does point to a failure by Ultra Tune to adequately commit to compliance.

154    I conclude that the evidence establishes clearly enough that Mr Chong and Mr Buckley, and hence Ultra Tune, were insufficiently concerned with compliance in the period leading up to the finalisation of the 2019 MFS.

155    At the time of the contempt that is the subject of charge 2, Mr Chong was acting as Ultra Tune’s in-house legal advisor, and was also the compliance officer. Mr Chong appointed himself to that position, apparently without appreciating that he would be unable to meet the time commitments required of him by that role. Mr Buckley gave evidence that he was confident Mr Chong was capable of performing the role of compliance officer, without having any objective basis for that confidence. The ACCC submits that, given the adverse findings in relation to Mr Chong in the primary judgment, his appointment as compliance officer suggests that Ultra Tune was not taking an active approach to remedying the defects with its compliance practices as a matter of urgency or priority and that Mr Chong's appointment as compliance officer is one of the factors which exemplifies Ultra Tune’s failure to actively address its shortcomings in relation to compliance. I agree with those submissions. Mr Chong’s appointment to that role, sanctioned by Mr Buckley, does not support an assertion of best endeavours, and this was certainly borne out by what followed.

156    Mr Buckley maintained in his oral evidence that it was a good decision to appoint Mr Chong as compliance officer, a surprising stance to take in light of all that had transpired. Mr Chong gave evidence that, at the time he took on the role of compliance officer, he believed he was best suited for the role but stated that he “probably would not take on that role again”. Ultra Tune submits that Mr Chong’s failure to assess his capability and capacity for the role of compliance officer reflects poorly on his own self-assessment, but does not evidence a cavalier attitude to compliance or anything other than an intention to comply with the Court’s orders, and the same is true of Mr Buckley’s failure to assess Ultra Tune’s capability. I do not accept this submission. Mr Chong, despite taking on the role of compliance officer, left Mr Watts to deal with the preparation of the 2019 MFS and the restructuring of the accounting practices related to it, and acknowledges that he did so without retaining supervision of the process or of Mr Watts.

157    Mr Chong was aware in late October 2019, after ASV had provided the first draft 2019 MFS that Mr Watts advised was non-compliant, that Ultra Tune was not going to meet the deadline to prepare the 2019 MFS as it was required to do under the Franchising Code and the March Orders. Mr Chong “did not consider there was anything [he] could do about it, as [he] did not have a detailed understanding of the work being undertaken by Mr Watts or visibility over the status of his work and [he] was reliant upon Mr Watts completing his work”. It appears that Mr Chong took responsibility for compliance by taking up the role of compliance officer, and then almost immediately functionally relinquished significant elements of that responsibility to others, additionally failing to take effective action to ensure that those other people did what was necessary for compliance, even once he became aware that Ultra Tune was headed towards non-compliance. Mr Chong gave evidence that he “chase[d] Mr Watts”, but did not explicitly raise with him the failure to comply with the March Orders as he “presumed that [Mr Watts] was well aware of the obligation and was working as fast as he could”. This suggests an active decision not to encourage compliance, and to instead choose passivity. I find this to be demonstrative of Ultra Tune’s agents acting without any real or effective intention to ensure compliance with the March Orders as reflected in charge 2, and certainly not using its best endeavours to ensure compliance. Additionally, Ultra Tune at this time did not inform the ACCC or the Court that it was going to be, and then was, late in preparing the 2019 MFS in breach of the March Orders, with neither Mr Chong nor Mr Watts suggesting this should be done.

158    During the period that the 2020 MFS was due and then overdue, Mr Watts was Ultra Tune’s compliance officer, though for some of that time he was not functionally acting in that role due to illness. Mr Watts also gave evidence that he was initially told not to involve himself in preparation of the 2020 MFS due to his previous conflicts with Ultra Tune’s external accountants. I accept that evidence. Mr Watts then took on responsibility for conducting the same exercise he had for the 2019 MFS once the draft 2020 MFS was provided by the accountants in September 2020.

159    Ultra Tune submits that the repeated follow ups with Mr Watts in the period from mid-September to late October 2020 by ASV, Mr Buckley, and Mr Chong demonstrate the growing concern with the impending and subsequent failure to meet the statutory deadline for the 2020 MFS. Ultra Tune in its submissions regarding the evidence criticised the ACCC for failing to have regard to the text messages between Mr Chong and Mr Watts, referred to above at [96]-[97], and places particular emphasis upon those text messages from Mr Chong to Mr Watts. Ultra Tune submits that these messages, and others from that time, to Mr Watts regarding the 2020 MFS “leave little doubt” as to:

(a)    Ultra Tune’s focus on finalising the 2020 MFS by its due date;

(b)    the reliance placed by Ultra Tune on Mr Watts to prepare the MFS;

(c)    Mr Watts’ acknowledgement of his role in preparing the MFS; and

(d)    Ultra Tune’s concerns with the delay in Mr Watts’ finalising the 2020 MFS and Mr Watts’ failures to respond to various queries following him up.

160    I agree with this submission as far as it goes. However, I find that the reliance placed upon Mr Watts to finalise the 2020 MFS, after allowing the accountants to prepare the initial draft in September 2020, was wholly inappropriate and entirely inadequate. The conduct around the failure to produce the 2020 MFS on time was an exacerbated repeat of what had occurred with the 2019 MFS. At that stage, apparently having attributed the lateness of the 2019 MFS to Mr Watts, it seems nonsensical that Ultra Tune permitted the same thing to occur in 2020. Ultra Tune’s “focus” on finalising the 2020 MFS is evidenced by numerous messages to Mr Watts seeking the MFS, often without any reply. The ACCC submits that, while Mr Chong did attempt to chase up Mr Watts in the lead-up to the deadline for submission of the 2020 MFS, he should have realised far earlier in time that Mr Watts was not able to perform the tasks assigned to him and sought to have him replaced. I agree with this submission. This should have been a signal to Ultra Tune that it needed to do more to ensure the completion of the MFS, as its repeated messages to Mr Watts were not having an impact. Ultra Tune’s focus amounts to little more than ineffective worrying and needling of Mr Watts, without doing anything effective, or likely to be effective, in addressing the problem.

161    Ultra Tune in its submissions stated that during the period from September 2020, Mr Chong and Mr Buckley remained of the understanding that the 2020 MFS would be completed in time and later in October it became apparent to them that this was unlikely to occur. Ultra Tune’s submissions state that Mr Buckley was agitated about this, and he and Mr Chong sent emails to Mr Watts which were unanswered but for one response in which Mr Watts stated that he had been occupied by another matter, to which Mr Chong said that the MFS required priority. As I found above at [83] the “other matters” were other matters for Mr Buckley, and while Mr Chong said that the MFS was more important, this was not given as an instruction to Mr Watts. I infer from the evidence that if Mr Buckley wanted Mr Watts to work on other things that is what would be done. This shows that Mr Watts’ other work for Mr Buckley was likely also a contributor in his delayed preparation of the 2020 MFS in October 2020, and that there was a conflict between what Mr Buckley was asking Mr Watts to prioritise and what Mr Chong was asking him to. If Ultra Tune had truly been using its “best endeavours” to have the 2020 MFS it would not have given Mr Watts as much responsibility for its preparation as it did, for as long as it did, and certainly not while expecting him to juggle that work with other work for Ultra Tune.

162    While Mr Chong followed up numerous times with Mr Watts in the lead up to the deadline for the 2020 MFS, once that deadline had passed it appeared that he was less concerned, and did not make proper efforts to try to effect the finalisation of the 2020 MFS again until February 2021. Mr Chong gave evidence that this was because he considered Mr Watts was the only person who could finalise the MFS.

163    The ACCC submits that a draft 2020 MFS was provided to Ultra Tune by Mr Watts in December 2020. I have dealt with this substantially above at [113]. Ultra Tune criticised the ACCC’s submissions that a draft 2020 MFS existed which was not used, and that Ultra Tune failed to tender that draft. The thrust of the ACCC’s submissions in relation to that draft 2020 MFS are that I should accept that a close to final draft 2020 MFS was provided to Ultra Tune by Mr Watts in December 2020 that Ultra Tune has elected not to put into evidence before this Court. Mr Watts in his oral testimony referred to the existence of such a draft 2020 MFS being supplied by him to Ultra Tune in December 2020. I am not satisfied on the evidence that such a draft was provided to Ultra Tune. Nor do I accept that much would have turned on the existence of such a draft 2020 MFS. Even had I positively found that this December draft 2020 MFS existed, this cuts both ways. If Ultra Tune did not have a draft to submit to the auditors or accountants for finalisation in December 2020, they also allowed for the delay in preparation to continue until 24 February 2021 and beyond, without any earlier signs of significant progress being made. The lack of such a draft in December 2020 simply means that Ultra Tune failed to take the necessary steps to prepare a draft 2020 MFS at all until February 2021.

164    The 2020 MFS was eventually sent to the auditors on 15 March 2021. The ACCC submits that it was not clear why the finalisation was then delayed until late June 2021. The evidence shows that the auditors were waiting for clarifying questions to be answered in this period to be able to finalise the audit. Ultra Tune submits that Mr Watts was responsible for answering these questions, and was being chased by Mr Chong to do so. The evidence confirms that Ultra Tune appeared to be waiting for Mr Watts to answer some of the auditor’s questions from 22 March 2021 until 4 June 2021, when Mr Chong and the accountants eventually sent answers to the auditors without the involvement of Mr Watts. While there was some argument about whether or not Mr Watts held original invoices during this time which would have hampered Ultra Tune’s ability to answer those outstanding auditor questions, Ultra Tune acknowledged in its submissions that this is besides the point as it could have done something different in 2021. As noted above, I do not accept that Mr Watts held original material. But even if it were the case that he did, Ultra Tune was aware that Mr Watts was not well and not functionally assisting the company as of early May 2021 at the latest. It should have pursued other avenues to answer the auditor’s questions immediately upon their receipt in March rather than waiting until June to attempt to answer them. The fact that it did not again shows that Ultra Tune did not use its “best endeavours”, or anything close to it, in its attempts to prepare the 2020 MFS on time.

165    Mr Buckley gave evidence that he had instructed Mr Watts in early 2021 to contact the ACCC and inform them of the reasons for the delay in preparing the 2020 MFS, and that Mr Watts told him he had done so. That Mr Watts spoke to Webb Henderson about the delay in preparing the 2020 MFS is not borne out by the evidence, though Ultra Tune submits that this does not mean that Mr Watts did not tell Mr Buckley he spoke to the ACCC regardless. I do not accept Mr Buckley’s evidence on this matter.

166    The ACCC submits that the issues with the 2019 MFS should have demonstrated to Ultra Tune, and Mr Buckley in particular, that it would have to address deficiencies in its practices in order to prepare a compliant, timely 2020 MFS. Failure to sufficiently address the systems which caused the issues with the 2019 MFS, such as retaining the same external accountants, demonstrates that Ultra Tune was not committed to ensuring compliance with the Franchising Code or the March Orders. I agree with this submission. I agree as well with the submission by the ACCC that work should have been done prior to May 2021 to attempt an alternative means of preparing the 2020 MFS without relying on Mr Watts.

167    Turning to charge 4, Ultra Tune submits that it did not fail to have a compliance program as required by the March Orders during the period relevant to charge 4, which it did by holding training sessions and creating policies around compliance. It merely failed to ensure reporting about the effectiveness of that compliance program. While this may be true, this simply shows that there was a limit to the extent of Ultra Tune’s non-compliance. Ultra Tune was obliged to comply with the March Orders in their entirety, not parts of them. The focus in such a contempt proceeding is what was done, or in this case not done, that constituted non-compliance. I take into account the extent of the contempt as it indicates the seriousness of that contempt, but this does not render it trivial or of no great moment. Aspects of non-compliance may still be serious, even if they were not all-pervasive.

168    The ACCC submits that, as at May 2021, as Ultra Tune had realised Mr Watts’ health issues prevented him from assisting with the preparation of the 2020 MFS, Mr Buckley and Mr Chong should also have realised he could not function as compliance officer and, at that time, have appointed a new compliance officer. I agree with this submission. Ultra Tune in its oral submissions did not accept that it was without a compliance officer for the relevant period that no reports were made, and that that compliance officer was Mr Watts. Ultra Tune submits that from at least June 2021 people within Ultra Tune recognised that Mr Watts was not carrying out the duties of compliance officer, and Mr Buckley knew that Mr Watts was no longer being paid by Ultra Tune. I find this submission by Ultra Tune fanciful, but the focus remains on the reports not being provided to the board as required, which Ultra Tune via Mr Buckley and Mr Chong clearly must have known was not likely to happen.

169    It is disputed between the parties whether Mr Watts was terminated as compliance officer in April 2021 or merely terminated from his role of preparing the MFS at that time. Mr Buckley’s evidence was that he told Mr Watts he would not pay him any more in relation to the MFS preparation in March or April of 2021, and Ultra Tune submits he was no longer being paid in relation to his role as compliance officer because he was not well and hence not fulfilling the function of compliance officer. I note that Mr Chong was waiting for Mr Watts to provide answers to the auditor’s questions in relation to the MFS from March to June of 2021. This is inconsistent with an understanding that Mr Watts was no longer working for Ultra Tune after April 2021. Either option points to, at the very least, a breakdown of communication within Ultra Tune as to the status of Mr Watts, about an issue where there needed to be clarity and knowledge if the March Orders were going to be taken seriously so that they could be complied with.

170    Ultra Tune submits that the failure to ensure the reporting during the period that is the subject of charge 4 was “an obvious oversight” and that Ultra Tune “failed to turn their minds to it”. This obviously speaks against a culture of compliance. The requirement upon Ultra Tune was that it ensure the reporting, and it cannot wash its hands of that responsibility. Implicit in ensuring the compliance officer reports are made is a requirement that person fulfilling the role of compliance officer is capable of doing so, or, if they are not, of remedying that situation. Where a court orders that a compliance officer be appointed, it is implicit that the compliance officer should effectively and diligently be discharging their responsibilities in that role, or the order is barren.

171    Credit should be given for Ultra Tune appointing an external legal advisor during the period that is the subject of charge 4, and I take this into account. Mr Buckley gave evidence that he sought to hire a new compliance officer once Mr Watts told him he would not be able to resume his role in late 2021. It is ultimately of no moment if Ultra Tune failed to appoint a new compliance officer and hence failed to ensure that compliance officer provided quarterly reports because Mr Buckley anticipated the later return of Mr Watts, or some other reason. It is possible that Mr Buckley did expect Mr Watts to return to that role at a later date. Whether or not this is true, it was not acceptable to fail to hire a new compliance officer when Ultra Tune knew it did not functionally have one. The ACCC submits that Ultra Tune was prompted by the ACCC to find an alternative compliance officer. I take this submission to be suggesting that the reason that the offending the subject of charge 4 was not more serious is due to the ACCC’s scrutiny and prompting of Ultra Tune to comply with the Franchising Code and the March Orders. I find that it is highly likely that Ultra Tune was prompted to hire a new compliance officer in December 2021 by its concern that the ACCC would bring contempt proceedings against it. It follows that this action was not as a result of Ultra Tune otherwise being inherently focussed on compliance with the March Orders.

172    The ACCC submits that I should reject that the conduct that is the subject of charge 4 occurred due to Mr Watts’ health issues because:

(a)    Ultra Tune had already failed to ensure that such reports were provided throughout the entire period in which Mr Chong was the compliance officer;

(b)    Mr Watts did not author or approve the “minutes” of reporting which Ultra Tune put forward to the ACCC in response to a request for such reports;

(c)    the only written compliance report authored by Mr Watts during his tenure as compliance officer was the report he wrote in March 2021 to explain the delays in preparing the FY20 MFS: and

(d)    Ultra Tune terminated Mr Watts’ services as compliance officer in April 2021. This was at the very beginning of the first of the quarterly periods in which Ultra Tune failed to obtain the reports.