ACCC unconscionable conduct action against Retail Food Group adjourned to August

A high-profile court case between Australia’s consumer watchdog and franchisor Retail Food Group has been adjourned to August, as the battered company hints the regulator’s case had been weakened.

The ACCC has applied for its case against RFG to be confidential.

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A HIGH-profile court case between Australia’s consumer watchdog and franchisor Retail Food Group has been adjourned to August, as the battered company hints the regulator’s case had been weakened.

In the wake of a damning parliamentary inquiry into franchise operators, the Australian Competition and Consumer Commission brought an unconscionable conduct case against RFG, which operates about 1000 franchise outlets across brands including Donut King, Gloria Jeans and Brumbys.

The matter was due to begin with a case management hearing on Friday morning, but the instead ACCC has applied to the Federal Court for confidentiality orders in order to protect the identity of witnesses.

The commission alleges RFG breached Australian Consumer Law by engaging in false, misleading and deceptive conduct when it sold or licensed 42 loss-making corporate stores to incoming franchisees between 2015 and 2019.

The company’s conduct was a catalyst for a joint parliamentary inquiry which found RFG was at the centre of “systemic” exploitation of franchisees, enabled by legislation that was patently inadequate.

ACCC Chairman Rod Sims. Picture: Jonathan Ng

The inquiry recommended investigations by the ACCC as well as the Australian Securities and Investments Commission and the Australian Taxation Office.

ASIC has already decided not to take action, while it is understood the ATO is still investigating RFG’s tax position.

In its half-year results last week, RFG executive chairman Peter George described the ACC’s case as “relatively narrow in scope and focus having regard to the broad nature of the ACCC’s 2.5 years investigation of the group.”

His directors report said “the ACCC has not pursued several of the broad and serious allegations that were raised during the course of the investigation, including in relation to implementation of the Michel’s Patisserie ‘Fresh to Frozen’ model, the level of training and support provided to franchisees, and the competitiveness of the price of goods sourced on behalf of franchisees”.

The ACCC said it was common for courts to order personal details of witnesses be kept confidential.

“The ACCC’s claim against RFG arises in part from the personal experiences of witnesses and it’s not uncommon for identifying details of those witnesses to be protected,” a statement from the ACCC said.

“The proceedings will otherwise be open to the public.”

The action was to begin with a case management hearing via web conference and has been listed for a new case management on August 2.

As well as RFG Ltd, respondents include Brumbys Bakeries, Donut King, Michel’s Patisserie, RFGA Management and Jireh International Retail, which operates Gloria Jeans.

RFG executive chairman Peter George said the matter was still at an early stage.

“We still don’t have a detailed statement of claim from the ACCC but after (Thursday’s) court ruling expect this in six weeks,” he said.

“RFG intends to defend the matter. There is nothing else to report at this stage.”

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Maddison Johnstone, co-founder of franchisee advocacy group Franchise Redress, said

it was not fair for RFG to dismiss the matter as one “from the past”.

“Speaking to franchisees, it’s clear that the way they were treated in the past has caused severe and life-changing consequences that impact them today,” she said.

“Since the plight of Retail Food Group franchisees became known in 2017, many people have been on a journey with them while they fight for justice.

“We received countless contacts, spanning from contractors to former head office workers.”

The ACCC alleges RFG withheld important financial information from incoming franchisees “purchasing or licensing the loss-making corporate stores and made false or misleading representations to them about the viability or profitability of the stores”.

“We allege that Retail Food Group withheld critical profit and loss information about these corporate stores from incoming franchisees, and falsely represented that these loss making stores were viable or profitable,” ACCC chair Rod Sims said.

The ACCC is seeking declarations, injunctions, pecuniary penalties, disclosure and adverse publicity orders, a compliance program order, redress orders and costs.

Shares in RFG were trading at 6.8c at close of market on Thursday, its lowest since November last year.

The Robina-based company reported statutory net profit of $3.86 million for the six months to December 31, down from $13.9 million from the same time last year.

Profit for the group dived 72.2 per cent, the company’s revenue was slashed by more than half and it is $11.8 million behind in rent for its stores.

RFG said improvements in its Brumby’s Bakeries and Crust and Pizza Capers divisions had helped soften the COVID blow.

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