Court finds in favour of Harvey Norman franchisees in “hollow victory”

A court has dismissed all but one of the competition watchdog’s applications for injunctions against Harvey Norman franchisees because they were filed in a state where stores have no presence in what legal experts have described as a “hollow victory” for the franchisees.

All 11 Harvey Norman franchisees, except for one a store in Gordon, NSW, were ordered to be removed from the proceedings brought by the Australian Competition and Consumer Commission.

“I propose to do this because, so far as I can ascertain, only it and one other of the respondents are trading in New South Wales; the balance are trading in other states of Australia and, without agreement, any proceeding of this kind, by a regulator such as the ACCC, should not be brought in a registry of this court other than in the registry of a state in which a respondent is trading,” Justice Richard Edmonds found in a judgment in the Federal Court of New South Wales on Monday.

The Harvey Norman franchisees face fines of up to $1.1 million for allegedly giving customers misleading information about their rights under Australian Consumer Law.

The ACCC claims the franchisees made representations including that customers did not have to provide remedies for damaged goods unless notified within a specific period of time such as 24 hours or 14 days; and that the franchisees did not have to provide remedies for goods still covered by the manufacturer’s warranty.

Justice Edmonds said he would have heard the applications against all the defendants if the ACCC commenced the proceeding against one of the respondents and then applied for the other 10 to be joined.

Alternatively, the watchdog could have applied to join the other 10 respondents as parties to the proceeding, or commenced 11 separate proceedings.

Melissa Monks, senior associate at law firm King and Wood Mallesons, told SmartCompany while at first glance the judgment looked like a win for franchisees, it was really “just a bump in the road”.

“It is just a defect in how the ACCC brought the matter to court,” she says.

Monks says the court is saying the watchdog’s claims are all separate and distinct matters as the misrepresentations made at the point of sale are all likely to be very different, so this is really a warning to the ACCC about bringing multi-party proceedings.

“It is a costly and inconvenient warning but it is a hollow victory for the franchisees as they are not off the hook yet, it is easy for the ACCC to reinstitute the proceedings,” she says.

“If the ACCC is really serious about the consumer guarantees, it is questionable whether this Harvey Norman action and the Hewlett Packard action are really the right actions, as they are in essence misleading and deceptive conduct cases; they are not really testing the regimes themselves.”

Monks says businesses and consumers don’t have practical guidance about the substance of the regime because it is so new.

Sally Scott, lawyer at Hall and Wilcox, says the ACCC shouldn’t be too concerned about this development.

“It just needs to recommence proceedings differently,” she says.

“It will involve additional cost and delay but it shouldn’t affect the overall result. One of the goals of the court process is to avoid duplication but there are processes to follow.”

A spokesperson for the ACCC told SmartCompany the watchdog was considering the decision but had no further comment at this stage.