The Malaysian Court of Appeal has recently affirmed in Dr H K Fong Brainbuilder Pte Ltd v SG-Maths Sdn Bhd & Ors [2021] 1 CLJ 155, that an unregistered franchise agreement is void for illegality. This case emphasized that the conditions for franchise registration apply to the peril of international and local franchisors alike.
Brief Facts:
The nixed franchise concerned ‘Brainbuilder’ a mathematics teaching business which the Singaporean Plaintiff / Appellant had granted the 1st Defendant / Respondent the right to operate and manage in Malaysia under a ‘Master Licensing Agreement’. Both the High Court and Court of Appeal found the ‘Master Licensing Agreement’ to fall within the definition of a franchise under section 4 of the Franchise Act 1998 (“the Act”), which purports, an agreement by which a franchisor grants a franchisee the right to operate a business according to a franchise system using the franchisor’s trademark and other intellectual property, for a fixed term, where the franchisor possesses the right to administer continuous control over the franchisee’s business operations in accordance with the franchise system and, in exchange, the franchisee may be required to pay a fee or other form of consideration.
Held:
> Firstly, the High Court had held that despite being governed by Singaporean law, the ‘Master Licensing Agreement’ was void on account that all franchises, local and foreign, must comply with the Act and register with the Malaysian Franchise Registry to operate in Malaysia. The Court of Appeal has upheld the position taken by the High Court.
Both levels of the courts in this case observed that there were quiet a number of High Court decisions that have reached to a similar conclusion before. This case would be one of the first cases from the appellate courts which clearly confirmed that the non-registration of a franchise will render a franchise agreement void and unenforceable.
>Case was silent on distinction of ‘approval’ and ‘registration’. However, the question does appear to be addressed in amendments to the Act are expected to come into force soon. It is clear from these amendments that a foreign franchisor is required to register under section 6, however the transition provisions provided that a foreign franchisor who has obtained approval pursuant to Section 54 prior to the coming into force of the amendments will be deemed registered under Section 6.
>A foreign franchisor applying for Section 54 approval after the amendments come into force will need to separately register under Section 6 and it remains to be seen whether the foreign franchisor will then be required to comply with additional requirements or produce additional documents such as the operation manual and training manual when applying for registration.
>The High Court held that if the agreement had been valid, it would certainly have been breached by the franchisee’s actions. However, since the agreement was void for illegality, the franchisor was precluded from any remedy for breach of the same.
