The mislabeling of a franchise agreement as a License Agreement leads to its illegality under mandated laws governing franchises.

Mohd Radzi Harun J:

Introduction

[1] The plaintiff's claims are that the defendants acts tantamount to:

(i) illegality under the Contracts Act 1950 and the Franchise Act 1998 ;

(ii) tort of deceit

(iii) tort of conversion;

(iv) unjust enrichment; and

(v) tort of conspiracy to injure the plaintiff.

[2] The defendants' counterclaims are for:

(i) a declaration that the 2nd Defendant ("D2") and the plaintiff had entered into a License Agreement to allow the plaintiff to use the brand name "PANYA Bakery", and that the plaintiff had breached the said Agreement;

(ii) an order that the plaintiff pays Defendants an amount of RM149,834.08.00 comprising:

(a) RM18,100.00 paid by D2 as an advance payment to the landlord of the premise occupied by the plaintiff to operate the PANYA Bakery shop;

(b) RM50,000.00 for Security Bond as required by the License Agreement;

(c) RM81,734.08.00 in arrears for the Defendants' supply of pastry products for the period of 9 June 2019 - 15 July 2019.

[3] I had allowed the plaintiff's 1st claim for a document labelled as 'License Agreement' to be declared as illegal, void and unenforceable under the Contracts Act 1950 and the Franchise Act 1998 . Consequentially, I had allowed the plaintiff's claim for tort of deceit but I had disallowed the rest of the plaintiffs claims I had also dismissed the defendants' counterclaims.

[4] The defendants appealed against the above decision and these Grounds set out the reasons for this Court coming to such findings.

Background

The Plaintiff's Version

[5] Between November 2018 and May 2019, the plaintiff's daughter trained and worked as a baker at DTs PANYA Bakery at No 29, Jalan Seri Bintang 2, Taman Sri Bintang, Kuala Lumpur. Because of that, plaintiff often visited DTs PANYA bakery. It was during those visits that the plaintiff met D3, D4 and D3's husband, Alex Yeoh Joe Huat ("Alex"). D1 is mother to D3 (daughter) and D4 (son). D3 and D4 are directors of D2.

[6] Sometime in March 2019, D3, D4 and Alex made a proposal for the plaintiff to invest in DTs PANYA Bakery through a franchise business as D1, who is the sole proprietor of Pan Ya Resources, was intending to sell a franchise of her PANYA Bakery.

[7] Plaintiff was informed by D3 and D4 that for a sum of RM350,000.00 as franchise fee, D1 through Pan Ya Resources:

(i) will provide plaintiff with a bakery franchise business;

(ii) will give plaintiff the right to use a proven and successful franchise system to be supplied by D1's Pan Ya Resources;

(iii) will give plaintiff a 5-year franchise;

(iv) will give plaintiff the right to use the "PANYA" brand in the franchise outlet;

(v) will give plaintiff the right to use Pan Ya Resources' trade secrets and confidential information pertaining to the management of the franchise business and secrets on buns, bread and bakery production; and

(vi) will continuously control the franchise business based on D1's Pan Ya Resources' franchise system so that the plaintiff do not have to be concerned with the daily business, operations and management of the franchised outlet.

[8] In sum, the RM350,000.00 franchise fee includes all relevant expenses namely capital, management, administration, expenses, renovation, stocks, products and premise rental.

[9] For the purpose of investing and operating in the PANYA Bakery franchise business, the plaintiff set up "SD Pan Gourment Resources".

[10] D3, D4 and Alex were all authorised by D1 to act and represent D1 throughout the negotiation on the franchise business of D1's PANYA Bakery with the plaintiff.

[11] Having agreed with the franchise business proposal, plaintiff paid RM350,000 to D1 as the agreed franchise fees in the following manner:

- RM200,000.00 on 5 April 2019

- RM50,000.00 on 16 April 2019

- RM100,000.00 on 3 May 2019

(see Maybank pay-in slips at pp 11, 12 Bundle A1)

[12] The payment of RM350,000.00 made by the plaintiff to D1 is undisputed. (See answers to Q1 in DWTs (D1) witness statement)

[13] During trial, D1 testified that she had transferred the RM