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Estimates: Economics Legislation Committee: Treasury Portfolio: Australian Competition and Consumer Commission

Estimates & Committees
Lee Rhiannon 14 Jun 2017

Tuesday 30 May

Senator RHIANNON: I would like to ascertain ACCC's response on issues facing Domino's franchisees. Under the Franchising Code of Conduct, part 3, division 2, section 15, franchisors must have advertising funds audited each year unless 75 per cent of franchisees vote no. Audited or unaudited accounts must be sent to franchisees within 30 days of preparation. I understand Domino's franchisees should have received the accounts by 31 October 2016. The CEO of Domino's Australia emailed franchisees on 26 August last year, saying an audit would cost $35,000 and franchisees should vote no to getting the fund audited so that the money could be spent on advertising.

A follow-up email on 28 September last year, which was the day before the deadline, again requested franchisees to vote against an audit. However, there were not enough votes, so they had to ask Deloitte to audit the accounts. Domino's finally released these accounts to franchisees four months late and only after a series of questions from a media outlet. This is clearly a breach of the code and comes with a penalty where an individual can be fined, including directors. Is the ACCC aware of this issue? If so, what are you doing about it?

Mr Sims : Certainly, we are aware of it. We have engaged very closely with Domino's, and we have taken action that we think is proportionate to the situation. I might get Mr Gregson to elaborate on that.

Mr Gregson : Mr Sims is right that we were aware of it. We followed it up very quickly. We issued infringement notices in relation to those matters, and we announced the payment of those on 8 May. We issued two infringement notices for the breaches that we believe had occurred, and that involved $18,000 in pecuniary penalty.

Senator RHIANNON: Previously they have called these sorts of issues an 'honest oversight'. Do you think that is a description of what has happened here?

Mr Gregson : We have regard to the deliberateness and the background behaviour, but these are provisions that you comply with or not. We took it very seriously; hence, we moved very quickly.

Senator RHIANNON: So two infringement notices?

Mr Gregson : That is right.

Senator RHIANNON: Is that the sum total?

Mr Gregson : On this occasion, that is what we have issued.

Mr Sims : Which was $18,000. I guess it is worth pointing out that there have only been penalties under the franchising code for a very short period of time, so this is all very new. We did take that into account. We took into account a range of statements they made about it being inadvertent. We are very sceptical people. I guess we weigh up when to take court action and when to issue infringement notices. They do cause reputational harm, so it is not just the money that hurts. I think it is fair to say that if Domino's were to do anything like that again there might be much more severe consequences.

Mr Gregson : And, again, consistent with Mr Sims' advice, these are the first penalties we have applied under the franchising code.

Senator RHIANNON: What could more severe consequences be?

Mr Sims : What are the maximum penalties, Mr Gregson?

Mr Gregson : We may also go to court and seek a higher pecuniary penalty in court.

Senator RHIANNON: Because, while $18,000 sounds a lot of money to many people, to Domino's it is probably like petty cash; they may not notice it.

Mr Sims : We understand that. It had much to do with the glory of being the first ones to receive a penalty under the franchising code and the reputational harm, but if we were to take them to court there would be much more significant penalties. I think if this were to occur again that is what they would expect.

Senator RHIANNON: A copy of a franchise agreement includes a clause that says that Domino's obtained a blanket resolution from franchisees to not audit the advertising fund for the years 2013, 2014 and 2015. Is this allowed under the legislation?

Mr Sims : The legislation has changed a bit, but again I will pass to Mr Gregson.

Mr Gregson : I am not close to the details on that. We are happy to take that on notice.

Mr Sims : I think my memory is that the law changed so that there were ways that you could do what you have just described that are now no longer possible, but we will come back to you on notice.

Senator RHIANNON: Could you clarify, because I was not sure, from the work that we had done, if it is allowed or if it is another breach of the law. So can you clarify what part of the law it is.

Mr Sims : Under the law as it then applied, it was something that they could do, which, in the later event, they could not do. But we will clarify.

Senator RHIANNON: Thank you. A copy of the audited accounts released to franchisees shows the information is scant. It also lumps in revenue from New Zealand franchisees. Is the advertising fund in breach, as it includes revenue from a country that is not subject to the legislation?

Mr Gregson : I do not have an answer on that. We are going to have to take that on notice.

Senator RHIANNON: Because you are not sure about the New Zealand aspect?

Mr Gregson : That is right.

Senator RHIANNON: Have you looked into this at all? Were you aware of this problem?

Mr Gregson : I do not believe that was a matter that was under investigation, no.

Senator RHIANNON: But the question was: were you aware of it?

Mr Gregson : I am not aware of that being in our knowledge. My investigation teams may well have been.

Mr Sims : Having read the case pretty well, I think we were aware of that issue. We did look at it. We would have to get back to you on where we got to.

Senator RHIANNON: Right. So you were aware of it. Okay, could you get back to us on if you have done anything or, if you did not do anything, why you did not do anything.

Mr Sims : Sure. Absolutely.

Senator RHIANNON: Some of the expenses included in the accounts do not seem to be legitimate advertising fund expenses. They include mystery shopping; chief executive Don Meij's personal website; legal fees regarding protecting their trademarks; and seminars at head office. Have you looked into this?

Mr Sims : I do not believe we have.

Mr Gregson : I do not have the details on that investigation. As I said, we looked at a number of issues that were reported publicly. We made some very quick inquiries with Domino's. We formed the view that we should issue infringement notices for those two issues. I am happy to provide you, out of session, with further details of exactly what other issues we might have looked at and what views we formed on those.

Senator RHIANNON: Could I just clarify, though: on those things that I read out—the mystery shopping; personal website et cetera—were you aware of these?

Mr Gregson : I do not have the details of what our investigators looked at. Mr Sims seems to have a better memory than me on some of those facts.

Mr Sims : But I do not remember that one.

Senator RHIANNON: Right. We will get this on the record. Could you clarify if you have looked into this, and what conclusions the ACCC has come to with regard to these expenses.

Mr Sims : Absolutely, and I repeat again: Domino's is certainly on notice in terms of its behaviour in relation to the code.

Senator RHIANNON: Thank you very much.

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