Fraud charges over franchise sale

He told the hearing that from the material he received and the inquiries he made, he believed he could have made "somewhere around $80,000" in sales in the first year in a business with a very high profit margin. In fact, after being in business since early 2003, the best year's sales had been $7000.

The New Zealand Herald
October 24, 2007

Fraud charges over franchise sale

Low returns for carpet-cleaning and water-blasting business franchises led to Commerce Commission inquiries that resulted in two men facing fraud charges at a depositions hearing in Christchurch District Court.

Stewart John Brown, 43, was before the court yesterday on nine charges of fraud and four of forgery. Robert Llewellyn Parr, 55, of Horowhenua, faces a charge of obtaining by deception and one of fraud.

Aucklander Rodney Wardrop paid $62,000 plus GST for the Clean Co franchise on the North Shore.

He told the hearing that from the material he received and the inquiries he made, he believed he could have made "somewhere around $80,000" in sales in the first year in a business with a very high profit margin.

In fact, after being in business since early 2003, the best year's sales had been $7000.

Mr Wardrop said Brown, of Christchurch, did not carry out obligations under the franchise deal to place radio advertising and a Yellow Pages advertisement.

He said placement of their product stands in 10 North Shore outlets was also unsatisfactory and had to be moved at his own expense.

Mr Wardrop said Brown also did not go to Auckland to help him assemble the stands and show him how to operate the machines for hire he had bought from the United States.

Brown at first said it was because of family problems but later admitted that he owed Inland Revenue $60,000, the department had frozen his bank accounts and he was unable to travel.

The investigation was begun by the Commerce Commission, but the police have taken the matter to court.

Crown prosecutor Barnaby Hawes said: "The allegation is that the two defendants induced the complainants to enter franchise agreements for cleaning businesses by making false representations verbally, or in brochures, letters, and the agreement itself."

Nine complainants will give evidence at the two-day hearing before Dennis Rich and Bruce Dawson, Justices of the Peace.

Mr Wardrop said he answered a newspaper advertisement, spoke to Brown and received an information pack.

He asked to speak to another franchisee and was given a cellphone number for "Richard and Irene" in Invercargill.

Richard told him how busy the business was after three years and he was quite impressed.

Mr Wardrop asked for his home number but Richard said he was never there and it was best to get him on his mobile.

Months later, Mr Wardrop had to contact a "Bob" who was arranging the retail outlets where the business stands could be set up.

He was surprised to find later, when the Commerce Commission began making inquiries, that Bob's cellphone number was the same as Richard's.

Brown's lawyer, Jonathan Eaton, questioned Mr Wardrop about any business advice he had taken before buying the franchise and suggested that he had "moved with real haste" in signing the deal only a few days after his first inquiry.

Mr Eaton said he calculated that of the $62,000 purchase price, $58,600 was for the machines Mr Wardrop had bought and the cleaning chemicals he was going to sell.

Mr Wardrop said he believed that Brown had marked up the price of the machines quite considerably.

The case is proceeding.

- NZPA

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10471640&ref=rss


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