Reference no: EM131071725

Question 1: Eliza managed the Hip shop at the Bondi Junction shopping centre. Hip was owned by Hip Hop Pty Ltd (HH), a clothing manufacturer, wholesaler and retailer based in South Australia. Every month a NSW representative of HH would visit all Hip outlets, bring fresh display material and check the stock. Any stock that was not selling well was removed and sent to an outlet centre.

HH had been franchising some of its retail stores in Perth for some time. It decided to expand the franchise network to NSW. It would franchise the Bondi Junction store that was currently run as a company owned store. Because Eliza was so passionate about Hip she was offered the franchise. She was told it would run just the same as it always had and the franchisor (Hip Hop Supplies Pty Ltd) would supply all her stock, but once she was the franchisee, she would get the profits. She was given a disclosure document that complied with the Franchising Code of Conduct, She bought the business and she signed the standard Hip franchise agreement. 

Things changed overnight! HH required Eliza to refit the store as it said the shop fittings were needed in a new company owned store that was being set up two stores away, also in Bondi Junction. They required Eliza to lease shop fittings and a cash register from a subsidiary of HH. Eliza knew she could get equivalent items of the same or better quality elsewhere for cheaper. The franchisor's representative only visited every quarter.

HH also required Eliza to get all signage made up by an approved printer in South Australia. Again, she could have got the job done more cheaply and quickly in Sydney. Under the franchise agreement, Eliza was contractually bound to deal with certain approved suppliers, even when she could buy the identical product for 40% less in Sydney.

Eliza had ordered her stock of bikinis in good time for December but they had not arrived. She noticed that the new store at Bondi Junction that was owned by HH had received its bikinis order at the beginning of December. It was selling them as fast as they were
unpacked. HH told Eliza, sorry, there's nothing we can do till February. You'll just have to wait. Eliza knew, from her many years in retail in the area that sales would plummet after Christmas.

HH reminded Eliza that you "still haven't sold those fleeces we sent you in winter". Eliza was really unhappy about the fleeces because they had been a bad cut and she knew they would not sell. She had asked for HH to shift the fleeces to the outlet shop, like what used to happen when she had been running the store as a company owned store. Hip told her the outlet store is not for franchisee's unsold stock. HH's NSW manager said that if Eliza discounted the price of the fleeces to sell them she would have to pay the franchise royalty on the fleeces as if she had sold them for full price. This meant she would make a loss on every sale. The franchise agreement makes no reference to day to day management of the business.

Eliza complained to HH that she was not being treated fairly. In reply, HH sent Eliza an email from head office which said: Until your sales improve, your store's contact details will be left off the Hip website.

Advise Eliza.

Question 2 - Discuss the following scenarios if they have infringed the Australian Consumer Law and what is/are the penalty?

a) A big chicken supplier used the term ‘NO HORMONES ADDED' in its advertisement. In fact, hormones have not been used in any chickens in Australia since 1960s.

b) A children apparels supplier selling kid's nightwear with a ‘low fire danger' label attached. If fact, the kid's nightdress and pyjamas were made from fabric which posed a fire risk.

c) Messy Department Store has displayed a prominent sign at the cashier desk stating: ‘Consumers are entitled to get full refund of the goods if they were returned within 2 weeks of purchase. Any dispute would be resolved by the Consumer, Trader and Tenancy
Tribunal".