Resolving the competing characterisation arguments on the charges of contempt of court
136 The parties put forward competing characterisations of Ultra Tune's commitment to, and efforts to, comply with the March Orders. The key events chronology at paragraphs [58]-[134] above go some way to resolving those competing characterisations, reflecting my findings as to the vital facts of and surrounding the contraventions, again noting that the parties did not agree regarding the factual circumstances and events, nor what those factual circumstances and events indicated about Ultra Tune's attitude towards and actions in pursuit of compliance.
137 Ultra Tune submits that the contempts occurred, despite it using its best endeavours and intentions to comply with the March Orders, and that despite wanting to comply with the Franchising Code, due to its own incompetence it failed to do so. The ACCC submits that Ultra Tune's approach to compliance was deficient and cavalier.
138 I have dealt with the conduct leading to charge 1 above at [63]-[70]. I find that this contempt was caused primarily by misunderstanding and miscommunication between Ultra Tune and its external accountants and auditors, as the disclosure document was completed on time but for the solvency statement required to finalise it, which was provided late by the auditors. Mr Chong, who was the compliance officer at the time, sought the solvency statement once he became alive to the issue. However, if Ultra Tune had been more focussed on, and been more active, to ensure compliance by communicating with its accountants and auditors in the lead up to the disclosure document being due, this relatively minor breach of the Franchising Code and the March Orders may not have happened. No prospective franchisees sought the disclosure document during the period it was overdue. This does not mitigate the conduct but does demonstrate this potential source of aggravation was lacking. The parties are largely in agreement as to the nature and severity of this contempt as one that is at the lower end of the scale.
139 In regard to the three remaining contempt charges, the parties made substantial submissions regarding the part that Mr Watts had to play, and it is worth dealing globally with this issue first. Mr Watts appeared to be a truthful witness, though by his own admission he could be an unreliable historian when it came to granular detail and the sequencing of events. Ultra Tune has placed significant emphasis upon the failings of Mr Watts, and I accept that Mr Watts continuously promised that he could complete the tasks he was doing much faster than he did in relation to the MFS preparations. Mr Watts contributed to the delays in submitting the 2019 MFS and the 2020 MFS, although, for reasons I will come to, this contribution does not serve to mitigate the severity of Ultra Tune's contempts, and his illness was a contributing factor as to why he did not provide quarterly reports for the period between April and December 2021. I accept that Mr Watts had, at certain times, near sole responsibility for preparing the substance of the 2019 MFS and the 2020 MFS before they were sent to the accountants and auditors for finalisation. Ultra Tune was, however, aware of this and indeed had instructed Mr Watts to take on these tasks after he, reluctantly due to his lack of accounting experience, volunteered to do so.
140 It was well within Ultra Tune's power and capacity to provide Mr Watts with extra resources or, perhaps more appropriately, to assign the responsibility to someone else entirely. Ultra Tune has in its submissions repeatedly stated that it takes responsibility for the actions of Mr Watts, and as he was Ultra Tune's agent this must be the case, unless Ultra Tune was unaware of his conduct, which did not occur here. The repeated emphasis upon the actions of Mr Watts in Ultra Tune's submissions, however, seemingly as an attempt to suggest mitigation of the severity of Ultra Tune's conduct by placing a significant amount of blame upon Mr Watts alone, suggests that while Ultra Tune accepts responsibility for Mr Watts' actions, it is less willing to accept full culpability for contraventions that it purports lead from his conduct.
141 Ultra Tune submits that its identification of Mr Watts' role in the contempts is not blame shifting, as it acknowledges that Mr Watts is a contractor and agent of Ultra Tune and pointing to his failures does not mean that Ultra Tune is not admitting to its own failures. Ultra Tune submits that it acknowledges that the incompetence within Ultra Tune was not limited to Mr Watts but extended to general disorganisation within the company in terms of gathering information for the MFS and the subsequent processing of that information by the accountants, Mr Buckley failing to adequately supervise compliance, and Mr Chong failing to carry out the tasks he was left to do.
142 I agree with the thrust of the ACCC submissions that Ultra Tune attempted to lay the majority of the blame for the conduct that is the subject of charges 2 and 3 at Mr Watts' feet to make it appear as though Ultra Tune was hindered in its progress to compliance as it was battling against the tardiness and general failures of Mr Watts. It is clear from the evidence that Mr Watts did mislead Ultra Tune via Mr Chong and others as to his progress, though I do not consider maliciously so, by promising to meet deadlines and failing to do so. However, I do not consider that this goes far to substantiating Ultra Tune's claims that it used its best endeavours to comply with the March Orders. The actions of Ultra Tune were far from best endeavours, in the sense of being the best that it could reasonably have done in the circumstances.
143 In relation to the late 2019 MFS, the subject of charge 2, Ultra Tune's submissions characterise the events which led to the late 2019 MFS in a way which clearly attempts to pin the blame for that lateness on Mr Watts. Those submissions state that Mr Watts undertook the review of the original invoices and starting the MFS process from scratch "as a result of his disagreements with Mr Alguera-Lara [of ASV]". That is a distorted portrayal of what took place as established by the evidence. The evidence shows that, rather than Mr Watts undertaking that process from scratch due to the disagreements, it was ASV's failure to adjust the way it prepared the first draft of the 2019 MFS according to Mr Watts' advice that led to ASV preparing a draft 2019 MFS in early October 2019 in substantially the same way as previous non-compliant MFSs, which Mr Watts considered not to be compliant with the Franchising Code. This was unsurprising given Mr Watts' repeated warnings that the processes around the creation of the MFS must be changed if a compliant MFS were to be produced. Mr Watts had attempted to effect this change through his earlier attempts to make changes to the software systems used by Ultra Tune (which were ultimately unsuccessful), and meetings with the advertising company which provided the invoices and with the accountants that prepared the MFS to advise what needed to be done to prepare a compliant MFS.
144 The disagreements referred to and relied upon by Ultra Tune were those between Mr Watts and the accountants about how the MFS should be prepared, with the accountants preparing the 2019 MFS in substantially the same non-compliant form as they had done in previous years. Mr Chong in his oral evidence agreed with the proposition that the draft version of the 2019 MFS prepared by the accountants was not consistent with the advice provided to them by Mr Watts in meetings at which Mr Chong had been present, describing them as "not correct" in cross-examination. When Mr Watts found the draft 2019 MFS inadequate and communicated this to Mr Buckley and Mr Chong, his suggestions to hire new accountants having been rejected by Mr Buckley, Mr Watts then volunteered to restructure the accounts upon which the MFS was based himself.
145 The approach of Ultra Tune to rely upon what happened in October to December 2019 and point the finger at Mr Watts is to deny the necessary context and history leading up to that point. Mr Watts had been trying to prevent the issue of non-compliance occurring at all, in the face of the accountants not listening to him and not being instructed to do so by Mr Chong or Mr Buckley, since May 2019. While it is true that the delay manifested as a breach of the Franchising Code in October to December 2019, the root cause took place over the entire period from May to December 2019. If Mr Watts had been listened to in May 2019, even though it is not entirely clear how much of what Mr Watts proposed at that time could truly have been done, it is highly likely that there would not have been any issue by October 2019, and so no delay to December 2019 in preparing the 2019 MFS.
146 While the draft 2019 MFS was provided to Ultra Tune by its accountants at the start of October 2019, and while Mr Watts then took nearly three months to amend the accounts to ensure the MFS would be compliant with the Franchising Code, he had been warning Ultra Tune of changes that needed to be made to the accounts and MFS process since May 2019. Mr Buckley also gave evidence that he did not accept that the draft 2019 MFS provided by ASV was non-compliant and in fact thought "they were totally compliant". Yet he allowed Mr Watts to restructure the accounts in October 2019, despite Mr Watts telling him he was unsure how long that process would take. This does not reflect a concerted effort to comply with the March Orders. I find that the delay in the preparation of the 2019 MFS cannot be substantially attributed to Mr Watts, at least in any way that assists Ultra Tune.
147 For completeness, I note that Ultra Tune did take some measures in an attempt to improve the structure of the MFS in 2019. Advice from Mr Watts about restructuring ledger codes was taken. Mr Watts suggested that the software Ultra Tune used for preparation of accounts be changed, and Mr Buckley allowed Mr Watts to look into that, though ultimately that process did not proceed and the software system used for the previous years' MFS system was used in 2019.
148 Ultra Tune submits that "during the course of October 2019, Mr Chong and Mr Buckley each became aware that the MFS would not be prepared in time and chased Mr Watts to complete it as soon as possible". Ultra Tune additionally submits that Mr Chong "presumed Mr Watts was conscious of the requirements of the March Orders". This submission by Ultra Tune that Mr Chong, as both in-house counsel for Ultra Tune and its compliance officer at that time, thought it sufficient to "presume" a focus on compliance, works against its submission that Ultra Tune was using its best endeavours to comply with the March Orders. Indeed, the subsequent submission of Ultra Tune that Mr Chong had been told by Mr Watts that he would rather the 2019 MFS be "late and accurate rather than on time and wrong" shows that Mr Chong was on notice that Mr Watts did not intend, or did not think himself capable, of submitting the 2019 MFS on time. Ultra Tune's submission that Mr Buckley and Mr Chong "wanted the MFS to be prepared in time" but "neither understood the work being undertaken by Mr Watts or felt that there was anything that they could do to ensure the work would be completed earlier" suggests that Ultra Tune's then-sole director Mr Buckley, and its in-house counsel and compliance officer Mr Chong, chose not to take effective action to ensure the timely preparation of the 2019 MFS, or to even understand what was being done around its preparation, despite the March Orders.
149 Ultra Tune in its submissions also states that Mr Watts did not recommend Ultra Tune seek a variation of the March Orders or otherwise address the consequences for Ultra Tune failing to comply with the March Orders. This submission is a further unmeritorious attempt to shift blame to Mr Watts for Ultra Tune's actions. Mr Chong was also in a position to give this advice, in fact perhaps better placed to do so, and did not. The actions of Ultra Tune in regard to the conduct which led to charge 2 were wholly inadequate, and Mr Buckley and Mr Chong's deliberate inaction, and apparent choice to turn a blind-eye to what was occurring despite admitted knowledge that Ultra Tune would be in breach of the Franchising Code and the March Orders, in the immediate wake of other significant breaches of the Franchising Code, demonstrates that Ultra Tune had, at the very least, a careless attitude towards compliance.
150 The ACCC submits that Mr Watts made Ultra Tune aware of deficiencies with the accounting software and the external accountant's method of preparing the accounts, but neither Mr Buckley nor Mr Chong demonstrated a willingness to address those deficiencies. Mr Buckley did allow Mr Watts to investigate making changes to the software used to prepare accounts, as well as to meet with the advertising company regarding how invoices were prepared and with the accountants to discuss how the marketing fund statements should be prepared. Despite this, I find the ACCC's submission is substantially supported by the evidence, particularly the evidence of Mr Buckley and Mr Chong that they chose not to involve themselves in the conflict between Mr Watts and the accountants, despite having the power to direct the accountants to follow the instructions of Mr Watts.
151 The approach adopted by Mr Chong and Mr Buckley was to leave Mr Watts and the accountants to see if they could sort out the conflict between themselves, rather than implement a solution. Ultra Tune submits that it accepts the major cause of delay in preparation of the 2019 MFS was a result of attempts to obtain further information in relation to marketing expenditure, and that the decision not to follow Mr Watts' formulation of the draft 2019 MFS is "beside the point" as Mr Watts' evidence is that he was still reviewing the MFS during November 2019 and met with the accountants to discuss the revised accounts information in early December 2019. What remains relevant is that an inability or unwillingness on the part of Ultra Tune to grapple with this dispute about compliance between its advisers substantially contributed to the delay and thus to the contempt taking place, for which it bears responsibility in a culpable way. Had that been done, it may have been the case that the draft 2019 MFS provided in October 2019 would have been prepared on time and been compliant with the Franchising Code. The hands-off approach taken by Ultra Tune in this respect, and indeed its passive approach more generally, was demonstrative of Mr Buckley's unwillingness to commit fully either to take the accountant's advice, or that of Mr Watts, leaving Ultra Tune in a state of non-compliant limbo.
152 The ACCC also submits that Mr Watts provided a draft 2019 MFS to Mr Buckley on 22 October 2019, within the deadline. Mr Watts described that document as draft accounts, and agreed it was a draft 2019 MFS which set out what needed to be amended for it to be compliant with the Franchising Code, and that he had sent it to Mr Buckley for the purpose of "educating him". While the ACCC submits that I should find this was a draft 2019 MFS, I do not make a finding either way regarding whether that document truly constituted a draft 2019 MFS. I note that, by Mr Watt's own account, he continued to work towards finalising the 2019 MFS until early December 2019 and the final version of the 2019 MFS varied greatly from that late October draft. In any event, Mr Buckley's evidence that he did not recall that email, and so did not look at that document when it was emailed to him by Mr Watts and in any event would have sent it on to others rather than consider it himself, regardless of whether it was actually draft accounts in a preparatory stage to becoming an MFS, or a draft 2019 MFS, seems to conflict with, or at least be inconsistent with, Mr Buckley's evidence that he was concerned with the MFS being prepared on time in October 2019 and had been "hassling" Mr Watts about it. Ultra Tune submits that there is no evidence Mr Buckley indicated he would review and settle that draft, as he was not involved in the day-to-day business and instead relied on his management team. This may be accurate, but again conflicts with Mr Buckley's own accounts of his personal involvement in seeking the 2019 MFS, though not necessarily with Ultra Tune as a whole being committed to compliance.
153 Ultra Tune accepts that it should have been taking steps from the time of the primary judgment in January 2019 to bring the MFS into accord with that decision. Ultra Tune criticised the ACCC's emphasis in its submissions that Ultra Tune failed to take Mr Watts' advice as to the substance of the 2019 MFS, given that it is not a component of the charges that the MFSs produced failed to comply with the Franchising Code, other than as to the timing of their provision. The ACCC accepts that Ultra Tune is not guilty of an uncharged contempt in relation to whether the form of the 2019 MFS was compliant with the Franchising Code, but submits that the decision by Ultra Tune not to follow Mr Watt's advice in regard to the form of the MFS goes to whether at all times Ultra Tune used its best endeavours to ensure compliance with its obligations under the March Orders and the Franchising Code. Ultra Tune submits that this submission by the ACCC goes nowhere, and I accept that, again as far as it goes, as it was open to Ultra Tune not to take the legal advice, and elsewhere accounting advice, provided by Mr Watts. That it chose not to take his advice does not necessarily speak to a lack of commitment to compliance, and there is no allegation that the final 2019 MFS was noncompliant in form. However, as I have discussed elsewhere in these reasons, it was not necessarily Ultra Tune's failure to take the advice of Mr Watts that shows a lack of commitment to compliance, but rather its failure to take Mr Watts' advice early enough if it were going to at all, or assist him adequately with the implementation of changes that it did instruct him to make, combined with its later decision to have him remedy the issues he had foretold, which contributed to the delays. This itself does point to a failure by Ultra Tune to adequately commit to compliance.
154 I conclude that the evidence establishes clearly enough that Mr Chong and Mr Buckley, and hence Ultra Tune, were insufficiently concerned with compliance in the period leading up to the finalisation of the 2019 MFS.
155 At the time of the contempt that is the subject of charge 2, Mr Chong was acting as Ultra Tune's in-house legal advisor, and was also the compliance officer. Mr Chong appointed himself to that position, apparently without appreciating that he would be unable to meet the time commitments required of him by that role. Mr Buckley gave evidence that he was confident Mr Chong was capable of performing the role of compliance officer, without having any objective basis for that confidence. The ACCC submits that, given the adverse findings in relation to Mr Chong in the primary judgment, his appointment as compliance officer suggests that Ultra Tune was not taking an active approach to remedying the defects with its compliance practices as a matter of urgency or priority and that Mr Chong's appointment as compliance officer is one of the factors which exemplifies Ultra Tune's failure to actively address its shortcomings in relation to compliance. I agree with those submissions. Mr Chong's appointment to that role, sanctioned by Mr Buckley, does not support an assertion of best endeavours, and this was certainly borne out by what followed.
156 Mr Buckley maintained in his oral evidence that it was a good decision to appoint Mr Chong as compliance officer, a surprising stance to take in light of all that had transpired. Mr Chong gave evidence that, at the time he took on the role of compliance officer, he believed he was best suited for the role but stated that he "probably would not take on that role again". Ultra Tune submits that Mr Chong's failure to assess his capability and capacity for the role of compliance officer reflects poorly on his own self-assessment, but does not evidence a cavalier attitude to compliance or anything other than an intention to comply with the Court's orders, and the same is true of Mr Buckley's failure to assess Ultra Tune's capability. I do not accept this submission. Mr Chong, despite taking on the role of compliance officer, left Mr Watts to deal with the preparation of the 2019 MFS and the restructuring of the accounting practices related to it, and acknowledges that he did so without retaining supervision of the process or of Mr Watts.
157 Mr Chong was aware in late October 2019, after ASV had provided the first draft 2019 MFS that Mr Watts advised was non-compliant, that Ultra Tune was not going to meet the deadline to prepare the 2019 MFS as it was required to do under the Franchising Code and the March Orders. Mr Chong "did not consider there was anything [he] could do about it, as [he] did not have a detailed understanding of the work being undertaken by Mr Watts or visibility over the status of his work and [he] was reliant upon Mr Watts completing his work". It appears that Mr Chong took responsibility for compliance by taking up the role of compliance officer, and then almost immediately functionally relinquished significant elements of that responsibility to others, additionally failing to take effective action to ensure that those other people did what was necessary for compliance, even once he became aware that Ultra Tune was headed towards non-compliance. Mr Chong gave evidence that he "chase[d] Mr Watts", but did not explicitly raise with him the failure to comply with the March Orders as he "presumed that [Mr Watts] was well aware of the obligation and was working as fast as he could". This suggests an active decision not to encourage compliance, and to instead choose passivity. I find this to be demonstrative of Ultra Tune's agents acting without any real or effective intention to ensure compliance with the March Orders as reflected in charge 2, and certainly not using its best endeavours to ensure compliance. Additionally, Ultra Tune at this time did not inform the ACCC or the Court that it was going to be, and then was, late in preparing the 2019 MFS in breach of the March Orders, with neither Mr Chong nor Mr Watts suggesting this should be done.
158 During the period that the 2020 MFS was due and then overdue, Mr Watts was Ultra Tune's compliance officer, though for some of that time he was not functionally acting in that role due to illness. Mr Watts also gave evidence that he was initially told not to involve himself in preparation of the 2020 MFS due to his previous conflicts with Ultra Tune's external accountants. I accept that evidence. Mr Watts then took on responsibility for conducting the same exercise he had for the 2019 MFS once the draft 2020 MFS was provided by the accountants in September 2020.
159 Ultra Tune submits that the repeated follow ups with Mr Watts in the period from mid-September to late October 2020 by ASV, Mr Buckley, and Mr Chong demonstrate the growing concern with the impending and subsequent failure to meet the statutory deadline for the 2020 MFS. Ultra Tune in its submissions regarding the evidence criticised the ACCC for failing to have regard to the text messages between Mr Chong and Mr Watts, referred to above at [96]-[97], and places particular emphasis upon those text messages from Mr Chong to Mr Watts. Ultra Tune submits that these messages, and others from that time, to Mr Watts regarding the 2020 MFS "leave little doubt" as to:
(a) Ultra Tune's focus on finalising the 2020 MFS by its due date;
(b) the reliance placed by Ultra Tune on Mr Watts to prepare the MFS;
(c) Mr Watts' acknowledgement of his role in preparing the MFS; and
(d) Ultra Tune's concerns with the delay in Mr Watts' finalising the 2020 MFS and Mr Watts' failures to respond to various queries following him up.
160 I agree with this submission as far as it goes. However, I find that the reliance placed upon Mr Watts to finalise the 2020 MFS, after allowing the accountants to prepare the initial draft in September 2020, was wholly inappropriate and entirely inadequate. The conduct around the failure to produce the 2020 MFS on time was an exacerbated repeat of what had occurred with the 2019 MFS. At that stage, apparently having attributed the lateness of the 2019 MFS to Mr Watts, it seems nonsensical that Ultra Tune permitted the same thing to occur in 2020. Ultra Tune's "focus" on finalising the 2020 MFS is evidenced by numerous messages to Mr Watts seeking the MFS, often without any reply. The ACCC submits that, while Mr Chong did attempt to chase up Mr Watts in the lead-up to the deadline for submission of the 2020 MFS, he should have realised far earlier in time that Mr Watts was not able to perform the tasks assigned to him and sought to have him replaced. I agree with this submission. This should have been a signal to Ultra Tune that it needed to do more to ensure the completion of the MFS, as its repeated messages to Mr Watts were not having an impact. Ultra Tune's focus amounts to little more than ineffective worrying and needling of Mr Watts, without doing anything effective, or likely to be effective, in addressing the problem.
161 Ultra Tune in its submissions stated that during the period from September 2020, Mr Chong and Mr Buckley remained of the understanding that the 2020 MFS would be completed in time and later in October it became apparent to them that this was unlikely to occur. Ultra Tune's submissions state that Mr Buckley was agitated about this, and he and Mr Chong sent emails to Mr Watts which were unanswered but for one response in which Mr Watts stated that he had been occupied by another matter, to which Mr Chong said that the MFS required priority. As I found above at [83] the "other matters" were other matters for Mr Buckley, and while Mr Chong said that the MFS was more important, this was not given as an instruction to Mr Watts. I infer from the evidence that if Mr Buckley wanted Mr Watts to work on other things that is what would be done. This shows that Mr Watts' other work for Mr Buckley was likely also a contributor in his delayed preparation of the 2020 MFS in October 2020, and that there was a conflict between what Mr Buckley was asking Mr Watts to prioritise and what Mr Chong was asking him to. If Ultra Tune had truly been using its "best endeavours" to have the 2020 MFS it would not have given Mr Watts as much responsibility for its preparation as it did, for as long as it did, and certainly not while expecting him to juggle that work with other work for Ultra Tune.
162 While Mr Chong followed up numerous times with Mr Watts in the lead up to the deadline for the 2020 MFS, once that deadline had passed it appeared that he was less concerned, and did not make proper efforts to try to effect the finalisation of the 2020 MFS again until February 2021. Mr Chong gave evidence that this was because he considered Mr Watts was the only person who could finalise the MFS.
163 The ACCC submits that a draft 2020 MFS was provided to Ultra Tune by Mr Watts in December 2020. I have dealt with this substantially above at [113]. Ultra Tune criticised the ACCC's submissions that a draft 2020 MFS existed which was not used, and that Ultra Tune failed to tender that draft. The thrust of the ACCC's submissions in relation to that draft 2020 MFS are that I should accept that a close to final draft 2020 MFS was provided to Ultra Tune by Mr Watts in December 2020 that Ultra Tune has elected not to put into evidence before this Court. Mr Watts in his oral testimony referred to the existence of such a draft 2020 MFS being supplied by him to Ultra Tune in December 2020. I am not satisfied on the evidence that such a draft was provided to Ultra Tune. Nor do I accept that much would have turned on the existence of such a draft 2020 MFS. Even had I positively found that this December draft 2020 MFS existed, this cuts both ways. If Ultra Tune did not have a draft to submit to the auditors or accountants for finalisation in December 2020, they also allowed for the delay in preparation to continue until 24 February 2021 and beyond, without any earlier signs of significant progress being made. The lack of such a draft in December 2020 simply means that Ultra Tune failed to take the necessary steps to prepare a draft 2020 MFS at all until February 2021.
164 The 2020 MFS was eventually sent to the auditors on 15 March 2021. The ACCC submits that it was not clear why the finalisation was then delayed until late June 2021. The evidence shows that the auditors were waiting for clarifying questions to be answered in this period to be able to finalise the audit. Ultra Tune submits that Mr Watts was responsible for answering these questions, and was being chased by Mr Chong to do so. The evidence confirms that Ultra Tune appeared to be waiting for Mr Watts to answer some of the auditor's questions from 22 March 2021 until 4 June 2021, when Mr Chong and the accountants eventually sent answers to the auditors without the involvement of Mr Watts. While there was some argument about whether or not Mr Watts held original invoices during this time which would have hampered Ultra Tune's ability to answer those outstanding auditor questions, Ultra Tune acknowledged in its submissions that this is besides the point as it could have done something different in 2021. As noted above, I do not accept that Mr Watts held original material. But even if it were the case that he did, Ultra Tune was aware that Mr Watts was not well and not functionally assisting the company as of early May 2021 at the latest. It should have pursued other avenues to answer the auditor's questions immediately upon their receipt in March rather than waiting until June to attempt to answer them. The fact that it did not again shows that Ultra Tune did not use its "best endeavours", or anything close to it, in its attempts to prepare the 2020 MFS on time.
165 Mr Buckley gave evidence that he had instructed Mr Watts in early 2021 to contact the ACCC and inform them of the reasons for the delay in preparing the 2020 MFS, and that Mr Watts told him he had done so. That Mr Watts spoke to Webb Henderson about the delay in preparing the 2020 MFS is not borne out by the evidence, though Ultra Tune submits that this does not mean that Mr Watts did not tell Mr Buckley he spoke to the ACCC regardless. I do not accept Mr Buckley's evidence on this matter.
166 The ACCC submits that the issues with the 2019 MFS should have demonstrated to Ultra Tune, and Mr Buckley in particular, that it would have to address deficiencies in its practices in order to prepare a compliant, timely 2020 MFS. Failure to sufficiently address the systems which caused the issues with the 2019 MFS, such as retaining the same external accountants, demonstrates that Ultra Tune was not committed to ensuring compliance with the Franchising Code or the March Orders. I agree with this submission. I agree as well with the submission by the ACCC that work should have been done prior to May 2021 to attempt an alternative means of preparing the 2020 MFS without relying on Mr Watts.
167 Turning to charge 4, Ultra Tune submits that it did not fail to have a compliance program as required by the March Orders during the period relevant to charge 4, which it did by holding training sessions and creating policies around compliance. It merely failed to ensure reporting about the effectiveness of that compliance program. While this may be true, this simply shows that there was a limit to the extent of Ultra Tune's non-compliance. Ultra Tune was obliged to comply with the March Orders in their entirety, not parts of them. The focus in such a contempt proceeding is what was done, or in this case not done, that constituted non-compliance. I take into account the extent of the contempt as it indicates the seriousness of that contempt, but this does not render it trivial or of no great moment. Aspects of non-compliance may still be serious, even if they were not all-pervasive.
168 The ACCC submits that, as at May 2021, as Ultra Tune had realised Mr Watts' health issues prevented him from assisting with the preparation of the 2020 MFS, Mr Buckley and Mr Chong should also have realised he could not function as compliance officer and, at that time, have appointed a new compliance officer. I agree with this submission. Ultra Tune in its oral submissions did not accept that it was without a compliance officer for the relevant period that no reports were made, and that that compliance officer was Mr Watts. Ultra Tune submits that from at least June 2021 people within Ultra Tune recognised that Mr Watts was not carrying out the duties of compliance officer, and Mr Buckley knew that Mr Watts was no longer being paid by Ultra Tune. I find this submission by Ultra Tune fanciful, but the focus remains on the reports not being provided to the board as required, which Ultra Tune via Mr Buckley and Mr Chong clearly must have known was not likely to happen.
169 It is disputed between the parties whether Mr Watts was terminated as compliance officer in April 2021 or merely terminated from his role of preparing the MFS at that time. Mr Buckley's evidence was that he told Mr Watts he would not pay him any more in relation to the MFS preparation in March or April of 2021, and Ultra Tune submits he was no longer being paid in relation to his role as compliance officer because he was not well and hence not fulfilling the function of compliance officer. I note that Mr Chong was waiting for Mr Watts to provide answers to the auditor's questions in relation to the MFS from March to June of 2021. This is inconsistent with an understanding that Mr Watts was no longer working for Ultra Tune after April 2021. Either option points to, at the very least, a breakdown of communication within Ultra Tune as to the status of Mr Watts, about an issue where there needed to be clarity and knowledge if the March Orders were going to be taken seriously so that they could be complied with.
170 Ultra Tune submits that the failure to ensure the reporting during the period that is the subject of charge 4 was "an obvious oversight" and that Ultra Tune "failed to turn their minds to it". This obviously speaks against a culture of compliance. The requirement upon Ultra Tune was that it ensure the reporting, and it cannot wash its hands of that responsibility. Implicit in ensuring the compliance officer reports are made is a requirement that person fulfilling the role of compliance officer is capable of doing so, or, if they are not, of remedying that situation. Where a court orders that a compliance officer be appointed, it is implicit that the compliance officer should effectively and diligently be discharging their responsibilities in that role, or the order is barren.
171 Credit should be given for Ultra Tune appointing an external legal advisor during the period that is the subject of charge 4, and I take this into account. Mr Buckley gave evidence that he sought to hire a new compliance officer once Mr Watts told him he would not be able to resume his role in late 2021. It is ultimately of no moment if Ultra Tune failed to appoint a new compliance officer and hence failed to ensure that compliance officer provided quarterly reports because Mr Buckley anticipated the later return of Mr Watts, or some other reason. It is possible that Mr Buckley did expect Mr Watts to return to that role at a later date. Whether or not this is true, it was not acceptable to fail to hire a new compliance officer when Ultra Tune knew it did not functionally have one. The ACCC submits that Ultra Tune was prompted by the ACCC to find an alternative compliance officer. I take this submission to be suggesting that the reason that the offending the subject of charge 4 was not more serious is due to the ACCC's scrutiny and prompting of Ultra Tune to comply with the Franchising Code and the March Orders. I find that it is highly likely that Ultra Tune was prompted to hire a new compliance officer in December 2021 by its concern that the ACCC would bring contempt proceedings against it. It follows that this action was not as a result of Ultra Tune otherwise being inherently focussed on compliance with the March Orders.
172 The ACCC submits that I should reject that the conduct that is the subject of charge 4 occurred due to Mr Watts' health issues because:
(a) Ultra Tune had already failed to ensure that such reports were provided throughout the entire period in which Mr Chong was the compliance officer;
(b) Mr Watts did not author or approve the "minutes" of reporting which Ultra Tune put forward to the ACCC in response to a request for such reports;
(c) the only written compliance report authored by Mr Watts during his tenure as compliance officer was the report he wrote in March 2021 to explain the delays in preparing the FY20 MFS: and
(d) Ultra Tune terminated Mr Watts' services as compliance officer in April 2021. This was at the very beginning of the first of the quarterly periods in which Ultra Tune failed to obtain the reports.
173 I agree with the thrust of those submissions, subject to the discussed ambiguity as to when Mr Watts was terminated as compliance officer, but note two things. While there was a requirement in the March Orders that Ultra Tune, if requested to do so by the ACCC, provide written copies of the quarterly reports to the board or senior management, there was no explicit requirement that those reports be in written form at the time they were made. However, I agree with the ACCC that it would have been appropriate for the written summaries of those oral reports which were provided to the regulator to have been authored by either Mr Watts or Mr Buckley, as the only two parties to that reporting, rather than Mr Chong or any other person, particularly given that the written summaries of those oral reports were shown not to be comprehensive.
174 Ultra Tune accepts that inadequate records were kept of the meetings between Mr Watts and Mr Buckley. As it is not a component of the charges that quarterly reports were not delivered during the period Mr Watts reported orally to Mr Buckley, that goes only to understanding Ultra Tune's corporate culture around compliance generally.
175 While it is not charged, I note that Ultra Tune failed to ensure the compliance officer reported to the board or senior management for the entirety of the time that Mr Chong acted as compliance officer. This again speaks to Ultra Tune's commitment to compliance, and that the non-compliance that was the subject of charge 4 was not out of character for Ultra Tune.
176 The ACCC submits that the factors which exemplify Ultra Tune's failure to proactively address its shortcomings in relation the compliance are:
(a) it appointing Mr Chong as compliance officer despite his obvious unsuitability;
(b) it not ensuring that the compliance officer provided quarterly reports to the Board, save for the period during which Mr Watts reported orally [and the single written report by Mr Watts] to Mr Buckley on compliance issues. It is notable that, for reasons unexplained, Mr Chong did not prepare quarterly reports during the period in which he was the compliance officer;
(c) its failure to prepare the marketing fund statement within the required timeframe two years in a row as a result of its ongoing unwillingness to address underlying deficiencies in its accounting system and practices;
(d) it not having any procedures to monitor ongoing compliance with the Franchising Code or the March 2019 orders independently of what was being used by Mr Watts (if anything);
(e) its failure to complete the implementation of the compliance program until 28 November 2020, almost 21 months after the March 2019 orders; and
(f) it not taking any steps to replace Mr Watts as compliance officer until the ACCC required copies of reports and required it to advise the Court of its contempts.
I agree with this submission.
177 The ACCC repeatedly made submissions to the effect that the evidence provided by Mr Chong and Mr Buckley was not comprehensive, and in some instances untruthful. I am unable to conclude that Mr Buckley and Mr Chong gave affidavit and oral evidence that was deliberately deceptive or misleading, as opposed to confused and unreliable. It is clear from the documentary evidence provided to this Court that the evidence of Mr Buckley and Mr Chong is not entirely accurate, and indeed their evidence is not entirely internally inconsistent. The ACCC submits that Mr Buckley's evidence was tailored to unfairly shift the blame for the compliance failures to Mr Watts and is reflective of Mr Buckley's failure to accept the degree of Ultra Tune's responsibility for the contempt charge that is the subject of charge 3. I agree with this lesser submission and find that it applies to Ultra Tune's affidavit and oral evidence, as well as its submissions based on that evidence, without impugning counsel.
178 The ACCC submits that Ultra Tune's efforts to comply with the March Orders were due in large part to prompting by the ACCC. I accept Ultra Tune's submission that this must only be directed towards charges 3 and 4, having dealt with this submission in relation to charge 4 above. Ultra Tune submits that the contemporaneous documentary evidence that it was not prodding by the ACCC that caused Ultra Tune to ultimately get the 2020 MFS completed, but rather its own intense intent to try to get out the 2020 MFS. I agree that Ultra Tune was in communication with the ACCC at the time the 2020 MFS was due, and was not sufficiently engaged in self-reporting its lack of compliance. However, given the extreme degree of lateness of the preparation of the 2020 MFS, I find that it is not established that Ultra Tune was significantly spurred by prodding by the ACCC. It was ambling, rather than sprinting, towards compliance.
179 I find that the evidence shows that the contempts that were charged were not out of character for Ultra Tune, but in fact a reflection of its corporate character which was insufficiently concerned with, and with effecting, compliance, even when it came to Court orders. While Ultra Tune has not committed subsequent breaches of the Franchising Code there remains a strong need for specific deterrence. It is evident to me that Mr Buckley's unquestioning loyalty to those he has known for a long time contributed in a most material way to the contempts. It is reasonably apparent that this is why Mr Buckley failed to mediate the dispute between Mr Watts and the accountants and find a solution directed towards compliance, and why Mr Buckley allowed Mr Chong to be appointed as compliance officer. At the time of the hearing, Mr Watts had resumed providing legal services to Ultra Tune. Mr Buckley's resolve to rely on his agents well after a reasonable person would have drawn the conclusion that they should not be relied upon demonstrates that Ultra Tune, through Mr Buckley, had a culture of loyalty before compliance. That of itself points to a need for specific deterrence.
180 The combination of the requirements of the Franchising Code, the penalties Ultra Tune had faced in relation to its previous breaches of that Code that were the subject of the primary judgment, the March Orders requiring compliance with the Franchising Code and for the quarterly reports to be made, and the ACCC's interactions with Ultra Tune attempting to prompt compliance were not cumulatively sufficient to motivate Ultra Tune to act in a manner which was compliant. Clearly, something more is needed to deter Ultra Tune from non-compliance in the future, and to deter others in a like position from doing anything remotely like this.