The drowning of ‘JUMP! Swimming schools: more than $ 23 million in penalties ordered by the Federal Court

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On May 19, 2021, the Federal Court fined Jump Loops Pty Ltd (in liquidation) $ 23 million (Skip loops), the franchisor promoting and selling swim school franchises under the name “JUMP!” Swimming school brand (Franchise), for Australian Consumer Law violations (LCA): Australian Competition and Consumer Commission v Campbell (# 3) [2021] FCA 528.

In addition, the court ordered Mr. Campbell – the founder, sole director and CEO of Jump Loops – to pay a fine of $ 400,000; pay $ 500,000 in compensation to affected franchisees; and be prevented for a period of 3 years from being in any way, directly or indirectly, involved in the operation of a business as a franchisor.

Between March 2016 and February 2019, Jump Loops offered the Franchise to potential franchisees on a ‘turnkey’ basis, promising to deliver a business ready to go including premises, fit-out services, training and associated rights. according to a standard forms a franchise agreement. Jump Loops indicated that franchisees will benefit from an operational swim school within 12 months of signing the franchise agreement (Representation). Jump Loops has entered into 174 franchise agreements, receiving payment from franchisees for establishing a JUMP! Swimming school between $ 150,000 and $ 175,000. Of the 174 franchisees who signed up during this period, at least 152 never received an operational swimming school. Of these 152 franchisees, only 21 received a full or partial refund of the amounts paid to Jump Loops. Of the remaining 131 franchisees, at least 100 waited more than 12 months and never received a swim school and some 31 waited less than 12 months (as of the Jump Loops liquidation date) and never received a swim school. swimming school receipt.

Jump Loops admitted his conduct violated the ACL. The franchisor admitted that in making the representation he had engaged in business conduct that was deceptive or deceptive, or likely to mislead or deceive, in violation of section 18. The representation concerned a matter future and Jump Loops failed to have reasonable grounds to perform. Jump Loops also violated Section 36 (3) by accepting payment from franchisees where there were reasonable grounds, at the time the statement was made, to believe that Jump Loops would not be able to provide a franchise. of Jump Swim schools operational within 12 months of signing. the franchise agreement or within a reasonable period of time, and that he was aware or should reasonably have known of these reasons. Finally, Jump Loops violated Article 36 (4) by accepting payment from franchisees for the provision of the Franchise but did not provide any operational franchises within 12 months of signing the franchise agreement, or within a period of reasonable.

In determining the appropriate sanction, the Court took into account the recurring and systemic nature of the contraventions, as there were over 762 acts of contravention. Additionally, the loss suffered by franchisees as a result of Jump Loops ‘violating conduct was substantial – franchisees affected by Jump Loops’ conduct were typically small, unsophisticated businesses that made large payments to Jump Loops and received nothing in return. return. The court also ruled that while it was not a case of fraudulent conduct, there had been willful blindness to Jump Loops’ financial position, as it should have been obvious to the franchisor from the start. that its business and financial model was flawed. Likewise, Jump Loops was seen to have shown a reckless disregard for the consequences of his actions, as he knew he was not respecting the Representation, and despite this, he continued to enroll new franchisees and receive payments from them. There was also no evidence that Jump Loops had processes in place to ensure compliance with the LCA, and she showed no contrition for her conduct.

This is a particularly important decision that franchisors should be aware of, in large part because of the significant penalties and remedy orders imposed on consumers by the court. Specifically, the court ordered Mr. Campbell to personally pay a total of $ 900,000, including a penalty and an order to repair the losses suffered by the franchisees, and this amount would have been higher without Mr. Campbell. The possibility of engaging personal liability should alert directors and officers of franchisors to the risks of violating consumer protection laws. Regarding the penalty against Jump Loops, ACCC Vice President Mick Keogh said, “Unfortunately, because [Jump Loops has] put into liquidation, it is unlikely that many franchisees will ever be fully compensated for their loss and that the company’s penalties are unlikely to be paid. However, we consider that the sanctions ordered by the Court send a strong message of deterrence.

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