NAME MATRIC NUMBER

AMIRA SYAKIRAH BINTI ABD WAHAB 255592

FARITH EMIER FARHAN BIN MORNI 256338

NADHIRAH BINTI ABDUL RAHMAN 255960

NUR ALYA SYAFIQA BINTI MOHD 256218

NUR HANISAH BINTI AZAMAN 255782

MOHD ALIFF HAIQAL BIN ROSLAN 255507

 TABLE OF CONTENT
NO. TOPIC

1. Introduction

2. Sources of law of franchise in Malaysia

3. The franchise business

4. Rights and liabilities of franchisor

5. Rights and liabilities of franchisee

6. Franchise agreement

7. Termination of franchise

8. Counclusion
 1. Introduction

 Franchising is simply a method for expanding a business and

distributing goods and services through a licensing
relationship

 In franchising, franchisors (a person or company that grants

the license to a third party for the conducting of a business
under their marks) not only specify the products and services
that will be offered by the franchisees (a person or company
who is granted the license to do business under the
trademark and trade name by the franchisor)

 Examples of well-known franchise business models include

McDonalds, Subway and KFC
HISTORY OF FRANCHISING
 The word “franchise” is derived from the Anglo-French word meaning
“liberty.”
 In Middle French, it is “franchir” which means, to free. According to Old
French, it is “franc,” signifying free. The French term “francis” means
granting rights or power to a peasant or serf
 Based on English term, it is “enfranchise” which can be defined as
empowering those who do not have rights
 All through history, franchising has advanced economic liberation,
cooperative energy, and opportunity, and has been consistent with its
etymological roots
 Franchise Act 1998 (ACT 590) And Regulations was regulates and enforce
by a governmental agency which is The Franchise Development Division
of Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC)
 It also formulate, plan and also implement initiatives and frame policies
to develop and promote franchises in Malaysia.
 2. Sources of franchise in Malaysia

 FRANCHISE CONSULTING FIRMS

A place to search for information after you have narrowed down the research and
decided what potential areas of franchise that we are interested in. It helps to focus on
the finances and the target market in the area of considering of the franchise set up.
Such firm will assist you To pick the best franchise in which has the highest potential to
be successful.

 INTERNATIONAL FRANCHISE ASSOCIATION

One brilliant source of information is the International Franchise Association, which
regulates a variety of franchises and provides information about opportunities, tips for
running a franchise, answers to questions and information regarding franchising
opportunities in the U.S. and abroad. IFA can tell you how to start a franchise or how to
decide if a franchise is the business opportunity for you.
 CONVENTIONAL BANKS AND CREDIT UNIONS
The top advantage of going to a bank or credit union for funding is that they will see
the benefits of working with an established franchise instead of an unknown start-
up company. You'll need to get your credit in order and have a comprehensive
business plan in place to have a shot at this route.

 SMALL BUSINESS ADMINISTRATION

SBA loans offer smaller down payments and longer repayment terms than
conventional bank loans which is ideal for those just starting out with a new
business venture. It reduces the risks that the lenders have to take on with this
venture.

 BUSINESS PARTNERS
It is an ideal option since it canhelp you to set some ground rules on who will
operate the business, manage the employees and split the profits. It eases our work
at the office.
SOURCES OF LAW FOR FRANCHISING IN MALAYSIA

 Malaysia uses Franchise Act 1998 (ACT 590) And Regulations which
effective since 8 October 1999 and amended by Franchise Act
2012.

 This Act applied to the sales and operations of any franchise in

Malaysia under Section 3(1) of Franchise Act 1998.

 It regulated registration, competition, disclosure, breaches and

also relationship in franchise.

 Other laws that relevant that can affect franchise industry are
Competition Act 2010, Contract Acts 1950 and the Guidelines of
Foreign Participation in Distributive Trade Services (2010).
 Franchise Act 1998 (ACT 590) And Regulations was regulates and enforce by a governmental
agency which is The Franchise Development Division of Ministry of Domestic Trade, Cooperatives
and Consumerism (MDTCC).

 It also formulate, plan and also implement initiatives and frame policies to develop and promote
franchises in Malaysia.

 There is a National Franchise Development Blueprint (NFDB) that implemented by Malaysia

Government.

 There are three objectives of NFDB:

a) To evaluate the development of franchise industry based on main indicators

which are sales, employment and also entrepreneur participation.

b) To review current policy, development programs and strategy

c) To determine the direction of franchise industry towards the goal of Malaysia

which is to be the franchise hub in South-East Asia by year 2020.
 Malaysian Franchise Association (MFA)
 It was formed to support the way of government programs
implement it to promote entrepreneurship through franchising.

 A resource centre for prospective and current franchisor and also

franchisee for public and media.

 MFA set standards and guidelines about ethical practice among their
member.

 Provides many inputs and liaises with government agencies and

departments about matter of franchising.

 MFA also conducts many exhibitions, seminars and educational

programs about franchising for their member.
The main objective of MFA is:

 to unite the franchisors, franchisees and other institution to

bond and establish the good image in franchise industry

 to consolidate the efforts of members in order to protect

their interest, encourage and maintain the good image of
franchising and encourage ethical business practice

 To support the effort from the government to encourage

Bumiputra involve themselves actively in the franchising
business

 To coordinate the facilities and infrastructure that existed

for development of Franchise at regional, national and
international level.
 3. The franchise business

 Business in which the owners, or "franchisors", sell the rights to their business logo,
name, and model to third party retail outlets, owned by independent, third party
operators, called "franchisees”
 In starting the franchise business, the franchising company (franchisor) will signs a
contractual agreement with the franchisee, explaining in detail the company’s rules
for operating the franchise
 There are differences between franchise business and non-franchise. For example
between McDonald’s and Chipotle
 Chipotle operates more than 2,000 restaurants worldwide, and it owns those
restaurants itself. The company bears all the cost of opening and running each
store, and keeps all the profits for itself. The people who run the stores and those
who make the burritos are all Chipotle employees
 On the other hand, McDonald’s only directly owns a minority of its 36,000 outlets.
Most of them are franchises which means that someone else owns and operates each
McDonald’s restaurant. McDonald’s gives those people the right to use its famous
brand, logo, and menu. In return for all that, the people who run each restaurant
pay fees to McDonald’s
 That’s the basic tradeoff in a franchising relationship. The franchisor
(in this case McDonald’s) lets other people (the franchisees) take
advantage of its brand, its business model, and its marketing clout,
and it takes a percentage of sales in return
 By this, they (the franchisee) can attract more customers than they
would if they opened up a new hamburger restaurant in their own
name. They also get to use a proven business model rather than
trying to invent their own
 The franchisor is frequently involved in specifying the products and
services offered by the franchisees. They may also provide a system
of operation, marketing tools, raw materials, training, and other
forms of support
 Franchisee pay a sum of money as fee for the rights to the business,
trademark, training and equipment that required by the franchise
 After they start their business, franchisee need to pay
for royalty payment regularly to franchisor either by
month, quarterly or annual basis
 The royalty payment calculated based on percentage of
gross sale for franchise operation
 After franchisee sign contract with franchisor, franchisee
will open a replica for the franchise business which
guided by the franchisor. Franchisor will required
franchisee to use the same business method, uniforms,
logos or signs of business itself
 It bring benefit to franchisee to invest in the name brand
which already-established and they would usually use
the similar or same pricing to keep the advertisement
streamlined
 5. Rights and liabilities of franchisor

Section 6 of Franchise Act 1998

 A franchisor shall register his franchise with the Registrar before
he can operate a franchise business or make an offer to sell the
franchise to any person

Section 15 of Franchise Act 1998

 A franchisor shall submit to a franchisee a copy of the franchise
agreement and disclosure documents including amendments to
the disclosure documents approved under section 11 at least
ten days before the franchisee signs the agreement with the
franchisor or after the disclosure documents is approved by the
Registrar under section 11, whichever is applicable
 Franchisor has the right to terminate a franchise relationship but only under certain
circumstances that prescribed by Franchise Act 1998 (ACT 590) And Regulations

 Section 31(1) of Franchise Act 1998 (ACT 590) And Regulations provides that no
franchisor or franchisee can terminate a franchise agreement before the expiration
date except of good cause as provided in subsections (2) and (3)

 Section 31(2) of Franchise Act 1998 (ACT 590) And Regulations provides that
“Good cause” shall include, but is not limited to—
(a) the failure of a franchisee to comply with any terms of the franchise agreement
or any other relevant agreement entered into between the franchisor and
franchisee; and

(b) the failure of a franchisee to remedy the breach committed by him or any of
his employees within the period stated in a written notice given by the franchisor,
which shall not be less than fourteen days, for the breach to be remedied
 Under Section 31(3) of Franchise Act 1998 (ACT 590) And Regulations
provides that:
“Good cause” shall include, but without the requirement of notice and
an opportunity to remedy the breach, circumstances in which the franchisor
or franchisee—

(a) makes an assignment of the franchise rights for the benefit of

creditors or a similar disposition of the assets of the franchise to any
other person;

(b) voluntarily abandons the franchised business

(c) is convicted of a criminal offence which substantially impairs the

goodwill associated with the franchisor’s mark or other intellectual
property; and

(d) repeatedly fails to comply with the terms of the franchise agreement
Section 32 of Franchise Act 1998 (ACT 590) And
Regulations
 A franchisor commits an offence if he refuses to renew a franchise agreement or extend a
franchise term without compensating a franchisee either by a repurchase or by other means at a
price to be agreed to between the franchisor and the franchisee after considering the diminution
in the value of the franchised business caused by the expiration of the franchise where—

(a) the franchisee is barred by the franchise agreement, or by the refusal of the franchisor at
least six months before the expiration date of the franchise agreement to waive any portion of
the franchise agreement which prohibits the franchisee, from continuing to conduct
substantially the same business under another mark in the same area subsequent to the
expiration of the franchise agreement; or

(b) the franchisee has not been given a written notice of the franchisor’s intent not to renew
the franchise agreement at least six months prior to the expiration date of the franchise
agreement.
Noraimi bt Alias v Rangkaian Hotel Seri Malaysia
[2009] 9 MLJ 475
Facts
 Defendant owned franchise rights of Seri Malaysia which is a medium cost hotel
chain
 Both parties entered into a separate Franchise and Premises Management
Agreements
 The franchise scheme stated that defendant will supplied premise, facilities and
equipment while plaintiff manage the hotel
 Defendant informed plaintiff that renewal of agreement was under consideration
 Then, defendant gave letter to plaintiff and informed that both the agreements
had expired and could not renewed
 Plaintiff sued defendant for breach of both the agreements and asked for claims
Issue
 Whether non-renewal of franchise was a breach of
agreement by defendant or as an excuse of right that
conferred to the defendant under terms and conditions of
Franchise Agreements?

Held
 Court held that plaintiff can claim for breach of both
agreements because the refusal to renew the franchise
agreement had violated the terms of Franchise Agreement
under Section 32 of Franchise Act 1998 (ACT 590)
And Regulations
SP Multitech Intelligent Homes Sdn Bhd v Home Sdn Bhd
[2010] MLJU 1845
 Franchisee(plaintiff) is in the business of operating a retail smart home concept chain
store. It entered into a franchise agreement with the franchisor(defendant) to operate
the business on 15 October 2001
 When the plaintiff was offered the franchise business, the business had not been
registered with the Registrar of Franchise as stipulated under section 6 of the FA. The
application to register the franchise business was only approved 5 months later, on 22
March 2002. The plaintiff also asserted that the defendant had failed to submit a copy of
the disclosure documents at least 10 days before the plaintiff signed the agreement as
required under section 15 of the FA
 The plaintiff filed an action in the High Court against the defendant for breach of
sections 6 and 15 of the FA. The plaintiff asked for a declaration that the franchise
agreement is unlawful and void ab initio and for restitution in the form of a refund of all
payments and benefits received by the defendant
 The defendant argued that it was the parties' intention that the agreement would
commence after the registration of the franchise business and the plaintiff was aware
that the application to register the business was pending approval at the time the
agreement was signed. The defendant further argued that notwithstanding this
knowledge, the plaintiff had carried out his obligations under the agreement
Issue
 Whether the franchise agreement is null and void ab initio by reason of illegality
for failure to register the franchise prior to making an offer to sell the franchise
and for failure to provide disclosure documents to the plaintiff?
Held
 The franchise agreement is tainted with illegality as the defendant had
contravened sections 6 and 15 of the FA. The Court ordered that all payments made
or benefits given to the defendant be refunded to the plaintiff. In coming to this
decision
 The plaintiff had made a number of payments to the defendant after the
agreement was made but before the approval was granted and concluded that both
parties had intended for the business to commence on 15 October 2001 when the
franchise agreement was signed
 On the defendant's assertion that the plaintiff was aware the application to register
the business was pending and nevertheless had continued to carry out the business,
the Court held that the issue of waiver and estoppel is inapplicable in cases of
illegality and section 28 of the FA provides that waiver of compliance with any
provisions in the FA is void
Tea Delights (M) Sdn Bhd v Yeap Win Nee
[2015] MLJU 673
Facts
 The Second Defendant had introduced the 'COMEBUY' bubble tea brand to the Plaintiffs claiming
the First Defendant to be the master franchisee of the 'COMEBUY' brand in Malaysia
 As a result, the Plaintiffs set up its partnership, Come Buy Tea in preparation of its purchase of
franchise rights to the 'COMEBUY' franchise
 The First Defendant prepared a franchise agreement which was executed on 28.10.2012.A
bubble tea beverage outlet under the 'COMEBUY' franchise was set up in the Queensbay Mall in
Penang
 Pursuant to the franchise agreement, the Plaintiffs paid a sum of RM172, 009.65 to the First
Defendant.The First Defendant had failed to register the 'COMEBUY' franchise with the Registrar
of Franchise as required Act 1998 before selling the 'COMEBUY' franchise to the Plaintiffs
Issue
 Whether a franchisor must register his franchise with registrar before he can make an offer to
sell franchise to any person?
Held
 On this issue whether the franchise is mandatory to be registered,
there is no reasons to dispute the grounds of the learned judge that
there is obligation for the registration of the franchise. The learned
judge had sufficiently considered that s. 6(1) of the Franchise Act
1998 ('FA') makes it mandatory that such franchise must be
registered. The provision states;
 A franchisor shall register his franchise with the Registrar before he
can make an offer to sell the franchise to any person
 Further s. 6 (2) of the FA states; A person who fails to comply with
this section commits an offence unless he has been exempted by
the Minister under section 58 from the requirement to register
under this section
 The franchise agreement is void ab initio
 The franchise is illegal for non-compliance of the FA and
consequently all monies paid by the Plaintiffs to the Defendants
towards this franchise should be fully refunded
 5. Rights and liabilities of
franchisee
 Section 4 of Franchise Act 1998
 means a person whom a franchise is granted and includes,
unless stated otherwise in this Act-
 A master franchisee with regard to his relationship with a franchisor; and
 A sub franchisee with regard to his relationship with a master franchisee;

 “master franchisee” means a person who has been granted

rights by a franchisor to sub franchise to another person, at his
own expense, the franchise of the franchisor
 In simple, someone who purchase or buy the name of the
business
 MASTER
FRANCISOR SUBFRANCHISEE
FRANCHISEE

• grants the • rights given by • rights given by master

franchise franchisor franchisee
• to franchisee • can expand his • franchisee to the
own sub master franchisee
franchise with
own expense
• franchisee to the
franchisor
• franchisor to the
sub franchisee
REGISTRATION
 Registration of franchisee of foreign franchisor
6A. (1) Before commencing the franchise business, a franchisee
who has been granted a franchise from a foreign franchisor shall
apply to register the franchise with the Registrar by using the
prescribed application form and such application shall be subject
to the Registrar’s approval

(2) The Registrar may impose any conditions for the

approval of registration of franchise referred to in subsection (1)

(3) Where a franchisee has been granted approval from a

foreign franchisor to sell the franchise, the franchisee shall
register such approval
 Registration of franchisee
6B. A franchisee who has been granted from a local franchisor or local
master franchisee shall register the franchise with the Registrar by using
the prescribed registration form within fourteen days from the date of
signing of the agreement between the franchisor and franchisee

 The process of registration of franchisor and franchisee may be are

different from every country
 Eg: Franchising Agreement in Louisiana, United States is govern by
either FTC Rule format or the UFOC format which is completely
different with our format of registration
 As we all know, agreement of franchise is a legal binding contract
between franchisor and franchisee. Therefore, all the documents and
recorded information about the franchisee agreement must be fulfilled
by both parties
CONDUCTS AND REGULATIONS

 Infranchising, both franchisor and franchisee are

bound to specific conducts and regulations as in
other normal contract
 As stated in Section 4 of Franchise Act 1998, the
subsections (a) (b) (c) (d) (e) and (f) regulate
both of franchisor and franchise in franchise
agreement
 PartIV on the other hand provides the conduct of
the parties in franchise agreement; Section 29
and Section 30
Section 4
“franchise” means a contract…………………… between two or more person by which—
(a) the franchisor grants to the franchisee the right to operates a
business according to the franchisee system as determined by the
franchisor during a term to be determined by the franchisor;
(b) the franchisor grants to the franchise the right to use a mark, or a
trade secret, or any confidential information or intellectual property,
owned by the franchisor or relating to the franchisor, and includes a
situation where the franchisor, who is registered user of, or is licensed
by another person to use, any intellectual property, grants such right
that he possesses to permit the franchisee to use the intellectual
property;
(c) the franchisor possesses the right to administer continuous control
during the franchise term over the franchisee’s business operations in
accordance with the franchise system; and
(d) (Deleted by Act A1442).
(e) in return for the grant of rights, the franchisee may be required to pay
a fee or other form of consideration.
(f) (Deleted by Act A1442).
Section 29
(1) A franchisor and franchisee shall act in an honest and lawful manner
and shall endeavour to pursue the best franchise business practice of the
time and place.

(2) A franchisor and a franchise in their dealings with one another shall avoid
the following conduct:
(a) substantial and unreasonable overvaluation of fees and prices
(b) conduct which is unnecessary and unreasonable in relation to the
risks to be incurred by one party: and
(c) conduct that is not reasonably necessary for the protection of
the legitimate business interests of the franchisor, franchisee or
franchise system

(3) The franchisee shall operate the business separately from the franchisor,
and the relationship of the franchisee with the franchisor shall not at
anytime be regarded as a partnership, service contract or agency.
Chiropractic Specialty Centre Sdn Bhd v
Orthorelief & Care Sdn Bhd [2017] MLJU 710
Facts
 Plaintiff is a company serving chiropractic services and sell a
franchise under a brand of Chiropractic Specialty Centre
 On 30 March 2012, plaintiff and defendant entered into a
contract of franchise for the terms of 5 years and plaintiff is
liable to give guidance to the defendant on certain things and
a fee up to RM25000.00
 Defendant bought a machine from Theramod (M) Sdn Bhd
which a supplier approved by Plaintiff
 Later, the defendant discover that the machine bought was
nonmerchantable quality and it is caused by misrepresentation
of the plaintiff regarding the purchase
Issue
 Whether the defendant can manage to get rescind the
contract and does the representation from the plaintiff is
false?

Held
 The defendant claim was failed
 The misrepresentation caused by the supplier Theramod (M)
Sdn Bhd
 The appellant is not privy to the contract
 Therefore, Theramod (M) Sdn Bhd was the one who is liable
for misrepresentation
Section 30
(1) A franchisor shall give a written notice about a breach of
contract by a franchisee and allow the franchisee time to remedy
the breach.

(2) A franchisee shall pay the franchise fees, royalty, promotion

fees or any other payment as provided in the franchisee
agreement.

(3) A franchisor and a franchisee shall protect the consumer’s

interests all times.
LIABILITY OF FRANCHISOR AND
FRANCHISEE IN CONTRACTS AND TORTS
 Franchisor and franchisee have separate
liability
 Any contract or tort by a party does not liable
to the other party
 Bothfranchisor and franchisee are given
responsibility of their own contracts and torts
accordingly
 Thisis because different business bodies have
different business entities
For examples,
 If the McDonald’s Corporation (the franchisor) permit a
franchise to Tina Corporation (the franchisee), whatever
happens as for example worker at the Tina Corporation
franchise spill a drink on the floor causing a customer sliped
and suffer injury, only the franchise of Tina Corporation is
liable for the tort, not the McDonald’s Corporation

 Using the same example, if McDonald’s apply a loan from a

bank, the franchisee which is Tina Corporation is not liable
for the contract of load between McDonalds and the debtor
(the bank)

 Both franchisor and franchise are free from liabilities of

others
Rainey v. Domino’s Pizza, LLC [2010]
998 A.2d 342, Web 2010 Me. Lexis 56 (2010)
Supreme Judicial Court of Maine
Facts
 Dominos pizza, LLC owns the Dominos Pizza (franchisor), TDBO (franchisee)
 Both of them are in the relationship of Franchise Agreement
 LLC had distributed quality-control marketing, and operational standards and has the right to
receive royalty from TDBO
 However TDBO have its own equipment and stated that in the agreement, TDBO is an independent
contractor and that Dominos was not liable for TDBO’s debts and obligations
 Edward Langen, employee of TDBO, the driver of a car that hit a motorcyclist who is Rainey, who
was about to deliver pizza to his employer
 Rainey sued Langen, TDBO and Dominos, alleging negligence and vicarious liability counts.
 The trial court granted Domino’s motion for summary judgment stated that they are not liable for
the for the franchisee’s negligence. Rainey appealed the judgment
Issue
 Whether domino’s be held vicariously liable for the alleged negligence of its franchisee TDBO?

Held
 Dominos was not vicariously liable for the alleged negligence of its franchisee, TDBO
 Affirmed the trial court’s grant of summary judgment in favor of Domino’s
 This is due to agreement of independent contractor
Cislaw v. Southland Corporation [1992]
4 Cal.App.4th 1384, 6 Cal.Rptr.2d 386, 1992 Cal.App. Lexis 375
Court of Appeals of California

Facts
 Southland Corporation own “7-Eleven” franchisees which operate at their own
independency as stated in the agreement of franchising
 One day, a boy aged 17 years old named Timothy Cislaw died due to lungs failure
 The cause of death was wrongfully filed by his parents as claiming the cause from the
cigarettes that was sold at The Costa Mesta 7-Eleven and stated that Southland is the
agent for the respective 7-Eleven
 Southland rebutted the claim
Issue
 Was the Costa Mesta 7-Eleven is an agent of Southland?
Held
 As stated in the franchise agreement, all the franchisees own by Southland are working
independently and Costa Mesta was not an agent to the Southland
 Therefore, the Southland Corporation is not liable to the Plaintiff’s claim
Martin v. McDonald’s Corporation [1991]
572 N.E.2d 1073, 1991 III.App. Lexis 715
Court of Appeals of Illinois

Facts
 McDonalds, the franchisor that can grants licences franchises
 A franchise own by McDonalds located in Oak Forest, Illinois operated by a
franchisee (McDonald’s Restaurant of Illinois)
 At that particular time, robbery cases were rising in Oak Forest
 The security manager for the franchise mentioned some new rules in managing
the problem in that area which includes to change the alarm system of the
backdoor
 A month later, there were killing happened of the workers including the
plaintiff at the Oak Forest McDonald’s
 There was evidence that the backdoor was not working in the way prescribed
by the security manager a month ago during the inspection
 The Martin family wanted to recover damages from the negligence of
McDonald’s
Issue
 Whether McDonald’s liable for negligence of not providing a better security to
the franchisee?
Held
 McDonald’s was liable to the negligence as it is the duty of a franchisor to
ensure all the security of workers as well as customers in all franchisees
 It was affirmed that the main question of the case is on the duty of franchisor
for its franchisees
 Not the separate liability but the duty of the franchisor
 McDonald’s Corporation (the franchisor) was liable for the death of the
workers
 6. Franchise agreement
 Franchise Agreement means a contract or agreement made between a franchisor and a franchisee in respect of a
franchise in return for any form of consideration
 All terms and conditions that are needed in the formation of the franchise agreement can be found in Part III in the
Franchise Act 1998. There are 11 sections, which is from Section 18 until Section 28

Section 18
 The requirements needed in the franchise agreement. According to Section 18(1), the franchise agreement shall be in
writing. For foreign franchising, it can be in English while a local franchising must be in both Malay and English
 While in Section 18(2) Franchise Act 1998, it mentioned regarding that a franchise agreement shall contain but is not
limited to-

(a) the name and description of the product and business under the franchise;
(b) the territorial right granted to the franchisee;
(c) the franchise fee, promotion fee, royalty or any related type of payment which may be
imposed on the franchisee,if any;
(d) the obligations of the franchisor;
(e) the obligations of the franchisee;
(f) the franchisee’s rights to use the mark or any other intellectual property, pending the
registration or after the registration of the franchise;
(g) the conditions which the franchisee may assign the rights under the franchise;
 (h) a statement on the cooling of period as provided in subsection (4);
(i) a description pertaining to the mark or any other intellectual property owned or related to
the franchisor which is used in the franchise;
(j) if the agreement is related to a master franchisee, the franchisor’s identity and the rights
obtained by the master franchisee from the franchisor;
(k) the type and particulars of assistance provided by the franchisor;
(l) the duration of the franchise and the terms of renewal; and
(m) the effect of termination or expiration of the franchise agreement

 Section 18(3) stated that failure to fulfil subsection (2), thus the franchise
agreement shall render as null and void
 Section 18(4) that a franchise agreement shall have a cooling of period,
which shall be determined by both contracting parties but shall not be less
than seven working days, during which the franchisee has the option to
terminate the agreement
 In Section 18(5), upon termination of the franchise agreement under
subsection (4), an amount to cover the reasonable expenses incurred by the
franchisor to prepare the agreement may be retained by the franchisor from
the initial fees paid under section 19; however, all other moneys shall be
refunded to the franchisee
DR PREMANANTHAN VASUTHEVAN v. PERMAI
POLYCLINICS SDN BHD [2014] 10 CLJ 251

Facts
 Plaintiff had agreed to pay the Defendant a franchise fee of 10% of all patient billing
subject to a maximum of RM2,000 a month and a fixed service fee of RM1,000 a month
in respect of the billing of panel patients
 Been agreed between the parties that all fees received from the panel patients shall be
paid weekly into the Defendant's account and after deduction for tax and payments due
to the Defendant or any retention sums as security for payment of any financial
obligations of the Plaintiff in respect of his branch of practice
 Defendant shall remit all monies due to the Plaintiff within 14 days of receipt of the
payment of the credit billing
 Vide 2 letters dated 24.3.2009 and 24.4.2009 respectively from PMCare to the Plaintiff's
branch, PMCare complained that they had not received claims from the Plaintiff and/or
the Defendant for February and March 2009
 Defendant alleged that Plaintiff had breached Clause 4 (c) of the Agreement and by a
letter dated 26.6.2009
 Plaintiff contended that the said termination was unlawful principally remised on the ground
that the Agreement is a Franchise Agreement and such termination was in breach of Section
31(2)(a) and(b) of the Franchise Act 1998 (Act 590) that no franchisor shall terminate a
franchise agreement before the expiration date except for a good cause such as the failure
of a franchisee to comply with any terms of the franchise agreement and the failure of the
franchisee to remedy the breach committed within the period stated in a written notice
given by the franchisor which shall not be less than 14 days for the breach to be remedied.
 Plaintiff's contention that the Agreement was a Franchise Agreement principally because
Clause 7 (b) (i)and (ii) and Clause 12 (f) and (g) of the Agreement used the words "franchise
fees“
 Defendant contended conversely that pursuant to sections 4, 6 (1), 7 (1), 18 (1) and (2) of
the FranchiseAct 1998,the Agreement was not a franchise agreement
Issue
 Whether the agreement was a Franchise Agreement under the Franchise Act 1998?
Held
 Under sections 4, 6 (1), 7 (1), 18 (1) and (2) of the Franchise Act 1998, the Agreement was
not a franchise agreement as the Agreement was not registered under the Franchise Act.
 The Agreement contravention with section 18(2) and section 31 (1) of the Franchise Act 1998
and it therefore could not render the Agreement to be franchise agreement
 Thus, Plaintiff had failed to prove his claim against the Defendant. Plaintiff's claim herein is
dismissed with cost of RM10,000.
Section 19
 requires that a franchisee makes a payment before signing a franchise agreement,
including a payment which is part of a franchise fee, the franchisor shall state in
writing in the disclosure document the purpose for the payment and the conditions
for the use and refund of the moneys

Section 20
 the prohibition against discrimination. It shall be an unfair franchise and a
contravention of this Act for any franchisor to unreasonably and materially
discriminate between franchisees operating a franchise in the charges offered or
made for franchise fees, royalties, goods, services, equipment, rentals or advertising
services if such discrimination will cause competitive harm to a franchisee who
competes with a franchisee who receives the benefit of the discrimination, unless
and to the extent that any classification of or discrimination between franchisees is—
(a) based on franchises granted at different times, and such discrimination is reasonably
related to the differences in time;
(b) related to one or more programmes for making franchises available to persons with
insufficient capital, training, business experience or education, or lacking other
qualifications;
 (c) related to efforts by the Government or any of its agencies to promote variation in
products or service lines or business formats or designs;
(d) related to efforts by one or more franchisees to cure deficiencies in the operation
of franchised businesses or defaults in franchise agreements; or
(e) based on other reasonable distinctions considering the purposes of this Act and is
not arbitrary

Section 21
 Payment of franchise fees or royalty. If a franchisee is required to pay any
franchise fees or royalty to a franchisor, the rate of franchise fees or royalty
shall be the rate as provided in the disclosure documents
Section 22
 Relating to the matters about promotion fund, it has been carefully laid out under
Section 22 of the Franchise Act 1998 (ACT 590) And Regulations
 Under Section 22(1) of the Franchise Act 1998 (ACT 590) And Regulations reviews that
a franchisor that requires a franchisee to make any payment for the purpose of the
promotion of a franchise shall establish a Promotion Fund (“Fund”)
 Section 22(2) of the Franchise Act 1998 (ACT 590) And Regulations mentions about the
fund shall be managed under a separate account and shall only be used for the
promotion of the product under the franchise
 Following is Section 22(3) of the Franchise Act 1998 (ACT 590) And Regulations where
if a franchisee is required to make any payment under Section 23, the franchisor shall
submit a financial statement of the Fund, which has been endorsed by a registered
public accountant, to the Registrar within thirty days after the conclusion of the last
financial term
 Section 22(4) of the Franchise Act 1998 (ACT 590) And Regulations explains about the
financial statement in subsection (3) shall be submitted to the Registrar together with
the annual report under section 16.
 Finally under Section 22(5) of the Franchise Act 1998 (ACT 590) And Regulations
clarifies that a person who fails to comply with this section commits an offence.
Section 23
 Discusses about promotion fees, etc. where under Section 23(1) of the Franchise Act 1998
(ACT 590) And Regulations enlightens them in details that if a franchisee is required to make
any payment for promotional purposes or pay promotion fees to the franchisor, the payment
shall be at the rate as provided in the disclosure documents
 Continuing under Section 23(2) of the Franchise Act 1998 (ACT 590) And Regulations where
the payment required to be made under subsection (1) shall be deposited into the Fund
 Continuing under Section 23(2) of the Franchise Act 1998 (ACT 590) And Regulations where
the payment required to be made under subsection (1) shall be deposited into the Fund
 In discussing about the registration of trade mark or service mark Section 24 of the
Franchise Act 1998 (ACT 590) And Regulations has precisely explains it that a franchisor is
required to register his trade mark or service mark relevant to his franchise in accordance
with the Trade Marks Act 1976 [Act 175] (if they are registrable under the Act) before
applying for the registration of the franchise under section 7

Section 24
 In Section 24, the franchisor need to register his trademark relevant to his franchise in
accordance with the Trade Marks Act 1976 Act 1976 [Act 175] before applying for the
registration of the Franchise Act under Section 7
Section 25
 In Section 25, franchise term shall not be less than five years
Section 26
 Confidential information of which under Section 26(1) of the Franchise Act 1998 (ACT
590) And Regulations states that a franchisee shall give a written guarantee to a
franchisor that the franchisee, including its directors, the spouses and immediate
family of the directors, and his employees shall not disclose to any person any
information contained in the operation manual or obtained while undergoing training
organized by the franchisor during the franchise term and for two years after the
expiration or earlier termination of the franchise agreement

 Not just that the franchisee, including its directors, the spouses and immediate family
of the directors, and his employees shall comply with the terms of the written
guarantee given under subsection (1) as illustrated clearly under Section 26(2) of the
Franchise Act 1998 (ACT 590) And Regulations.

 Not being able or fail to comply with subsection (1) or (2) is said to have committed an
offence as being stated in Section 26(3) of the Franchise Act 1998 (ACT 590) And
Regulations.
Section 27
 prohibition against similar business where which a franchisee shall give a written
guarantee to a franchisor that the franchisee, including its directors, the spouses and
immediate family of the directors, and his employees shall not carry on any other
business similar to the franchised business operated by the franchisee during the
franchise term and for two years after the expiration or earlier termination of the
franchise agreement as explained under Section 27(1) of the Franchise Act 1998 (ACT
590) And Regulations
 Whereas, Section 27(2) of the Franchise Act 1998 (ACT 590) And Regulations expounds
about the franchisee, including its directors, the spouses and immediate family of the
directors, and his employees shall comply with the terms of the written guarantee
given under subsection (1)

 Again not being able or fail to comply with subsection (1) or (2) is said to have
committed an offence as being stated in Section 27(3) of the Franchise Act 1998 (ACT
590) And Regulations
LA KAFFA INTERNATIONAL CO LTD v. LOOB HOLDINGS SDN BHD &
ANOTHER CASE[2017] 1 LNS 1234
Facts
 This is a dispute regarding "Chatime " bubble-tea franchise (Chatime Franchise )
between La Kaffa International Co. Ltd. (La Kaffa as Plaintiff ) and Loob Holding
Sdn. Bhd. (Loob as Defendant )
 After the termination of RERA, Loob started its Tealive franchise business (Tealive
Franchise). Chatime Franchisees “converted” to be Tealive Franchisees
 Loob, its directors and employees from, among others, disclosing, using and
converting La Kaffa’s Confidential Information for their new business which similar
business with the Chatime
Issue
 For Section 26, Whether Loob, its directors (including their spouses and immediate
family members) and employees should be injuncted from, among others,
disclosing, using and converting confidential information procured from La Kaffa (La
Kaffa’s Confidential Information) during the term of the following agreements
between the parties?
 For Section 27, Whether Loob, its directors (including their spouses and
immediate family members) and employees should be restrained from, among
others, carrying on business which is identical or similar to Chatime Franchise
business. This question concerns an interpretation of s. 27(1) of the Franchise
Act 1998

Held
 Mandatory Injunction is granted to compel Loob to return Chatime Materials
and La Kaffa’s Proprietary Information to La Kaffa; and the fact that Loob no
longer has possession or control of Chatime Materials and La Kaffa’s
Proprietary Information
 If Loob subsequently discovers or come into possession or control of Chatime
Materials and La Kaffa’s Proprietary Information, Loob shall undertake not to
use them and shall return them forthwith to La Kaffat
 Loob’s Suit is dismissed with costs of RM10,000.00 to be paid by Loob to La
Kaffa (Costs Sum) and an allocator fee of 4% is imposed on the Costs Sum
Section 28
 Section 28(1) stated that any conditions, provisions and
stipulated in franchise agreement purporting to bind the
franchisor and franchisee to dismiss any provision in the Act, is
void

 In Section 28(2) explains that this section shall not prevent any
person from entering into a settlement agreement or executing
a general release regarding a potential or actual civil action
filed in respect of the franchise nor shall it prevent the
arbitration of any claim
 7. Termination of franchise

 Termination of franchise, literally, means termination or put an end to

franchise business license or agreement between franchisor and
franchisee .

 Stereotypically, franchisor and franchisee may be provided the right

to terminate the franchise agreement on many grounds.

 However, unreasonable termination clause may constitute to a

wrongful termination. A wrongful termination will not accept as a
valid term
 In terminating a franchise agreement, there are a few sections that need to be
adhered all throughout the process of the termination and they are: -
 Under Section 31(1) of the Franchise Act 1998 (ACT 590) And Regulations that stated
that no franchisor or franchisee shall terminate a franchise agreement before the
expiration date except for good cause as provided in subsections (2) and (3).
 Next in Section 31(2) of the Franchise Act 1998 (ACT 590) And Regulations mentions
about the matter of “Good cause” of which it shall include, but is not limited to—

(a) mentions relating the failure of a franchisor or a franchisee to comply with any terms of
the franchise agreement or any other relevant agreement entered into between the
franchisor and franchisee; and

(b)the failure of a franchisor or the franchisee to remedy the breach committed by him or
any of his employees within the period stated in a written notice given by the franchisor,
which shall not be less than fourteen days, for the breach to be remedied.
Dunkin'Donuts of America v. Middletown Donut Corp.
100 N.J.166 (1985)
Facts
 A franchised donut shops was authorized by the franchisor, Dunkin’ Donuts of
America, Inc. throughout the United States
 Smothergill then entered into a franchise and lease contract with Dunkin’ Donuts
 Aftermath, the Dunkin’ Donuts franchise shops located in Middletown and West Long
Branch was operated by Smothergill
 Unfortunately, Smothergill seemed to breach the terms of agreement
 Later, Smothergill received a notice of termination from Dunkin’ Donuts due to his
unreasonable negligent to comply with terms under the agreement
 An opportunity was provided in the notice by Dunkin’ Donuts, which in order to cure
the breach, Smothergill make a swift payment of amounts due.
 Regrettably, he failed to do so
 Dunkin’ Donuts then sued him to claim for damages
Issue
 Whether the termination was properly conducted or not?

Held
 The Supreme Court of New Jersey held that Smothergill had
intentionally breached the agreement which entitle the right of
termination to Dunkin’ Donuts.
 Therefore, Dunkin’ Donuts had made a lawful termination and entitled
to claim for damages.
 Furthermore Section 31(3) of the Franchise Act 1998 (ACT 590) And
Regulations further explains in detail pertaining the matter “Good cause”
that it shall include, but without the requirement of notice and an
opportunity to remedy the breach, circumstances in which the franchisor or
franchisee—
(a) makes an assignment of the franchise rights for the benefit of creditors or a
similar disposition of the assets of the franchise to any other person;

(b) voluntarily abandons the franchised business;

(c) is convicted of a criminal offence which substantially impairs the goodwill

associated with the franchisor’s mark or other intellectual property; or

(d) repeatedly fails to comply with the terms of the franchise agreement.
According to Section 32, non-renewal of franchise
agreement was clarified
 A franchisor commits an offence if he refuses to renew a franchise agreement
or extend a franchise term without compensating a franchisee either by a
repurchase or by other means at a price to be agreed to between the franchisor
and franchisee after considering the diminution in the value of the frachised
business caused by the expiration of the franchise where;

(a) The franchisee is barred by the franchise agreement, or by the refusal of

the franchisor at least six months before the expiry date of franchise
agreement to waive any portion of the franchise agreement which prohibits
the franchisee, from continuing to conduct substantially the same business
under another mark in the same area subsequent to the expiration of the
franchise agreement or

(b) The franchisee has not been given a written notice of the franchisor’s
intent not to renew the franchise agreement at least sis months prior the
expiration date of the franchise agreement
 If a franchisor refused to renew a franchise agreement or extend a franchise term
without compensating a franchisee, he is consider as committing an offence.

 Compensating a franchisee can be either by a repurchase or by other means at a

price both parties agreed to after considering the diminution in the value of the
franchised business caused by the expiration of the franchise where

 Firstly, the franchisee is barred by the franchise agreement or at least six months
before the expiry date of agreement, the franchisor refuses to waive any portion of
the franchise agreement which forbids the franchisee from maintaining the same
business under another mark substantially in the same area subsequent to the
expiration of the franchise agreement.

 Secondly, a written notice detailed the intention of franchisor not to renew the
franchise agreement at least six months before the expiration date of the franchise
agreement.
 Section 33 also states about an earlier termination of franchise term for which
notwithstanding section 25, a franchise term may be terminated before the expiry of
the minimum term of five years in the following circumstances:
(a) where both parties to the franchise agreement agree to a termination; or

(b) where the court has decided that there are certain conditions in the franchise agreement
which merit the agreement to be terminated earlier than the minimum term
 Franchise Act 1998 (ACT 590) And Regulations also touched regarding the extension of franchise
term and they are specified in Section 34(1) where a franchisee may, at his option, apply for an
extension of the franchise term by giving a written notice to the franchisor not less than six
months prior to the expiration of the franchise term.
 Except when a franchisee has breached the terms of a previous franchise agreement, a franchisor
shall extend the franchise term to another period if the franchisee has applied for the extension of
term under subsection (1) as what has been clarified under Section 34(2) of the Franchise Act 1998
(ACT 590) And Regulations.
 Section 34(3) of the Franchise Act 1998 (ACT 590) And Regulations merely defines that a franchise
agreement which franchise term has been extended shall contain conditions, which are similar or
not less favourable than the conditions in the previous franchise agreement.
Noraimi bt Alias v Rangkaian Hotel Seri Malaysia [2009] 9 MLJ 475
Facts
 The defendant franchisor entered into franchise and premises management
agreements with the plaintiff franchisee on 18 April 1995 for the plaintiff to
manage the hotel chain ‘Seri Malaysia’
 The initial term of franchise was for 8 years, from 21 January 1995 until 21
January 2003
 The term of franchise was extended for another 3 years in 2003. Subsequently,
the defendant informed the plaintiff that both agreements which had expired on
21 January 2006 would not be renewed
 The plaintiff sued the defendant for breach of both agreements and claimed that
the non-renewal of the agreement was a breach of the franchise agreement and a
violation of the safeguards under the Act
 The defendant asserted that the franchise had simply come to an end and decided
not to renew it. The defendant also claimed that the Act is not applicable since
the agreements were made prior to its coming into force
Issue
 Whether the non-renewal of the franchise was a breach of agreement by the
defendant or an exercise of a right conferred on the defendant under the
terms and conditions of the franchise agreement?

Held
 The expiration of the franchise agreement was a reason for termination as
provided under the franchise agreement but not for the refusal to renew.

 Therefore, the defendant’s refusal to renew on the ground that it had expired
was invalid as it violated the terms of the franchise agreement.
DR Premananthan Vasuthevan V. Permai Polyclinics Sdn Bhd [2014]
10 CLJ 251
Facts
 Plaintiff had agreed to pay the Defendant a franchise fee of 10% of all patient
billing subject to a maximum of RM2,000 a month and a fixed service fee of
RM1,000 a month in respect of the billing of panel patients.

 Parties agreed that all fees received from the panel patients shall be paid weekly
into the Defendant's account and after deduction for tax and payments due to the
Defendant or any retention sums as security for payment of any financial obligations
of the Plaintiff in respect of his branch of practice.

 Defendant shall remit all monies due to the Plaintiff within 14 days of receipt of the
payment of the credit billing.

 Vide 2 letters dated 24.3.2009 and 24.4.2009 respectively from PMCare to the
Plaintiff's branch, PMCare complained that they had not received claims from the
Plaintiff and/or the Defendant for February and March 2009.
 Defendant alleged that Plaintiff had breached Clause 4 (c) of the Agreement
and by a letter dated 26.6.2009

 Plaintiff contended that the said termination was unlawful principally

premised on the ground that the agreement is a franchise agreement and
such termination was in breach of Section 31(2)(a) and (b) of the Franchise
Act 1998.

 Plaintiff's contention that the agreement was a franchise agreement

principally because Clause 7 (b) (i) and (ii) and Clause 12 (f) and (g) of the
Agreement used the words "franchise fees“.

 Defendant contended conversely that pursuant to sections 4, 6 (1), 7 (1), 18

(1) and (2) of the Franchise Act 1998, the Agreement was not a franchise
agreement.
Issues
 Whether the agreement was a franchise agreement under the
Franchise Act 1998

 Whether the termination of the agreement pursuant to

Clause 4(c) read with the Clause 11(b) of the agreement or
under the Franchise Act 1998 is lawful

 If the termination was unlawful, whether the plaintiff is

entitled to and had proved his loss or damages
Held
 Under sections 4, 6 (1), 7 (1), 18 (1) and (2) of the Franchise Act 1998, the
Agreement was not a franchise agreement as the Agreement was not registered
under the Franchise Act

 Clause 4 and Clause 11 do not provide for or require the party terminating the
agreement to give notice of such breach and to render the other party the
opportunity to remedy the breach before termination of the contract. Parties
must be bound by what they had so agreed. Defendant was therefore not
obliged under the contract to precede the notice of termination with a notice
to remedy the breach pursuant to Clause 11 of the agreement. Therefore, the
termination of the agreement by the Defendant was lawful and valid

 Plaintiff would not be entitled to claim the whole loss of his clinic which would
be excessive and unreasonable as the principal obligations of the defendant was
to enable the plaintiff to attend to the panel patients from defendant's panel
company
 8. Conclusion

 To conclude, franchising is a worldwide business which could be locally or

internationally
 Franchise agreement is a process between franchisor and franchisee for their own
needs and benefits
 Law and regulations are stated by legal statutes such as Franchise Act 1998 which
control their conducts and liabilities
 The validity of the franchise depending on the obligations of the franchisor, master
franchisee and sub franchisee
 Obligations on rights and liabilities of the franchisor and the franchisee are separately
different as stated in the Franchise Act 1998
 The decided cases mentioned portray how franchising actually works
 The Act also governs both requirement in making franchising agreement and
termination