ACCC hits Allphones with class action and contempt of court charges

The Australian Competition and Consumer Commission has launched a class action against mobile phone retailer Allphones on behalf of the company’s 74 franchisees, and has also instituted proceedings against the company alleging contempt of court.

The latest action comes after the ACCC launched legal in early 2008 which alleged Allphones engaged in unconscionable conduct.

The ACCC alleges that Allphones withheld commissions, rebates from mobile handsets and bonus payments from franchisees. The company could potentially be liable for millions of dollars in damages if the action is successful.

The statement released by the ACCC also names Allphones chief executive officer Matthew Donnellan, chief operating officer Tony Baker and former national franchising manager Ian Harkin for “allegedly being knowingly concerned in or party to the contravening conduct”.

The ACCC claims the company:

• Received commissions or bonuses from telecommunication networks, which failed to be passed on to franchisees as per the company’s agreements.
• Received rebates from mobile handsets and other product suppliers, which failed to be passed on to franchisees.
• Made unilateral deductions from commission payments that should have been given to franchisees, which were not included in the franchise agreements.

The ACCC began proceedings against Allphones during March 2008 for alleged contraventions of the Trade Practices Act, with a hearing set for 23 March 2010.

Additionally, the ACCC has instituted proceedings in the Federal Court against Allphones, claiming contempt of court. It alleges that Allphones preached two orders given by a Federal Court justice on 9 October 2008, during proceedings for alleged unconscionable content.

The October 2008 proceedings ended with Allphones giving interim undertakings to the Federal Court, and the court ordering injunctions which restrained Allphones from engaging in conduct in negotiations with franchisees.

The ACCC refers to the undertakings, which:

• Prohibit Allphones from withholding consent to the assignment of an Allphones franchise on the basis that the franchisee will not sign a deed releasing Allphones from liability.
• Require Allphones to give the ACCC seven days written notice of its intention to withhold consent to the assignment of an Allphones franchise on the basis that the new franchisee must enter into a new franchise agreement.

The ACCC alleges Allphones breached the first undertaking on one occasion, and the second undertaking on three occasions. A directions hearing has now been set for 21 August 2009.

Additionally, the ACCC states that the new actions taken against Allphones will not seek damages on behalf of franchisees for the earlier alleged breaches, but it will still seek declarations, injunctions, compliance programs and costs.