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Federal Court finds Pizza oven provider misled small business owners – ACCC

The Australian Competition and Consumer Commission (ACCC) has announced it obtained orders from the Federal Court finding that “Original Mama’s Pizza and Ribs Pty Ltd” a pizza oven provider, misled its business customers about the contracts by which they purchased the ovens. The ACCC said the terms under which their finance contracts provided for the ovens could be cancelled. Misleading representations caused business customers to detrimentally enter into long-term financing agreements

In a media release dated 19 March 2008, Original Mama’s managing director George Terence Hilder and sales representative Richard Soo, made misleading representations to small business owners including convenience store, service stations, and cafes owners. The misrepresentations, it was claimed, induced them to enter into long-term financing agreements with third party finance companies, in order to purchase the pizza oven systems.

The ACCC said these misrepresentations provided no recourse if the oven system purchased was defective. As a result they ordered:
* the small business owner would be able to cancel their financing agreements;
* Original Mama’s Pizzas & Ribs would be obliged to remove the oven, with no costs  incurred by the small business owner; and
* that the small business consumer would be released from all financial obligations with respect to the ovens.

The oven provider also made false statements to the effect that the oven system would be risk free because of a six or 12-month free trial period, the ACCC said.

On review, the Federal Court found that “once the small business owners had entered into the financing agreements, Mr. Hilder would sell the ovens to the finance companies at an inflated price of between $15,000 and $19,500 (plus GST). When the small business owners tried to terminate their obligations under the financing agreements, they were told the agreement could not be cancelled”. The Court declared that the Pizza over provider breached Trade Practices Act.

On 18 March 2008 in the Federal Court the ACCC obtained orders against Original Mama’s Pizza and Ribs Pty Ltd, Mr Hilder and Mr Soo, for breaches of the Trade Practices Act 1974 and the Australian Securities and Investments Commission Act 2001.

The orders included:
* “Original Mama’s breached sections 52 and 53(g) of the Trade Practices Act (or equivalent ASIC Act provisions);
* Mr Hilder and Mr Soo were knowingly involved in those contraventions; and
* Mr Hilder and Mr Soo, on behalf of Original Mama’s, made the misleading representations to small business owners.

The court made a range of orders against Mr Hilder and Mr Soo, including injunctions, costs and corrective orders.

One corrective order by the ACCC included requiring Mr Hilder and Mr Soo to publish an advertisement including the following:
* accurately summarising the Court’s judgement in daily newspapers in every region where an oven system was supplied; and
* advising persons who may have suffered losses as a result of their conduct deemed unlawful, of their entitlement to seek damages under the TPA and/or the ASIC Act.

The ACCC announced it did not institute proceedings against any of the financial companies that provided finance for the oven systems.

Justice Madgwick did however mention the need to examine to what extent financiers are allowed to profit from such transactions.

“It may bear examination that financiers should be able to profit from transactions induced by unlawful conduct such as the respondents engaged in here when in fact, whatever the legal position may be, the perpetrators of the unlawful conduct constitute the means and bridge, in non-technical language: the agency, by which the financiers acquire their borrowers,” Justice Madgwick stated.

ACCC Chairman Graeme Samuel said the outcome still serves as a warning against finance companies. “This is an important outcome for the small business owners who were misled by the actions of the company, Mr Hilder and Mr Soo,” Mr Samuel said. “Significantly, it also sends a strong message to finance companies to do their best to ensure that borrowers are not unlawfully induced by others to enter into such agreements.”