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The Federal Court has delivered a timely reminder to directors and managers about their personal liability when a company breaches the law.
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Are you next for company breaches of the Australian Consumer Law?
28 February 2020
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In the recent Geowash case, the Federal Court ordered $4.2 million in penalties against former carwash and detailing company Geowash Pty Ltd (Geowash) as well as its director (Ms Saman Ali) and its franchising manager (Mr Charles Cameron) for breaches of the Australian Consumer Law and the Franchising Code of Conduct.
Ms Ali is personally liable to pay $1.045 million in penalties, while Mr Cameron is liable to pay $656,000.
The court also ordered Ms Ali and Mr Cameron:
- to pay $1 million to franchisees as partial compensation for losses suffered by those franchisees; and
- each be disqualified from managing corporations in Australia for a specified period (Ms Ali is disqualified for five years and Mr Cameron is disqualified for four years).
The Geowash case is yet another example of the adverse consequences that follow when businesses (and directors) fail to take the necessary steps to establish and maintain an effective legal compliance framework.
The Geowash case
In February 2019, the ACCC was successful in its prosecution of Geowash when the Federal Court found Geowash had breached the Australian Consumer Law and the Franchising Code of Conduct by:
- engaging in misleading and deceptive conduct,
- engaging in unconscionable conduct, and
- failing to act in good faith
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in relation to the sale and marketing of its Geowash franchises.
The ACCC also succeeded in prosecuting the director (Ms Ali) and the franchising manager (Mr Cameron) of Geowash, on the basis that they caused Geowash to engage in the conduct and were thereby directly or indirectly knowingly concerned in, or a party to, the breaches by Geowash.
On 24 January 2020, the court ordered substantial penalties against Geowash, Ms Ali and Mr Cameron, as well as the disqualification of Ms Ali (five years) and Mr Cameron (four years) from managing corporations in Australia.
Following the banking royal commission and the Franchising Inquiry, regulators such as the ACCC and ASIC are not only focusing on the misconduct of companies, but also the misconduct of directors, officers and managers who cause companies to breach the law (whether directly or indirectly, and whether by act or by failing to act!).
If you are in business or you are a director, officer or a manager of a company, it is critical that you:
- establish an effective and robust legal compliance framework in your business, and
- review and monitor the legal compliance of your business operations on an ongoing basis.
Peter Wright, partner, and Suzanne Howari, associate, Brown Wright Stein Lawyers
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