Repeated breaches of a franchise agreement, even if previously remedied, can justify termination under the Franchise Act 1998 without detailed notice of grounds.

Introduction

[1] For ease of reference, parties to the present appeal shall be referred to as they were before the High Court below for Civil Suit No: KCH-22NCvC-7-2/2018.

[2] The Defendant in the present case is a company incorporated in Malaysia, having its principal place of business at Level 6, Bangunan TH, No 3, Damansara Uptown, Jalan SS21/39, Petaling Jaya, Selangor. The Defendant was granted the right to sub-franchise restaurants in Malaysia under the McDonald's System according to the terms of a Master Franchise from McDonald's Corporation.

[3] Following the 1st Plaintiff's intention to acquire the franchising rights in McDonald's Restaurant, the Defendant entered into various agreements with the 1st Plaintiff on 13 February 2007. These agreements are the Franchise Agreement (" FA "), the Operator's Tenancy Agreement ("OTA"), and the Sale and Purchase Agreement ("SPA").

[4] On the same day, the 1st Plaintiff had assigned all her rights, titles and interests in the FA , OTA and SPA to the 2nd Plaintiff through a Deed of Assignment.

[5] A dispute arose between the parties in 2017 when the Plaintiffs were allegedly found to have repeatedly failed to maintain and operate the McDonald's restaurant in a good, clean and wholesome manner. According to the Defendant, the Plaintiffs were in repeated material breach of cl 18(b) of the FA . This issue shall be dealt with later in this judgment.

[6] Consequently, on 26 December 2017, the Defendant issued a Notice of Termination ("Notice of Termination") under s 31(3)(d) of the Franchise Act 1998 [Act 590] to terminate the FA with immediate effect on the ground that the Plaintiffs had repeatedly breached the .

[7] Dissatisfied, the Plaintiffs filed this action before the High Court, claiming the following reliefs, namely:

a. a declaration that the Termination Notice is wrongful, null and void;

b. a refund of the security deposit in the sum of RM74,517.00 paid by the 1st Plaintiff to the Defendant under the OTA;

c. damages for wrongful termination;

d. damages for conversion of the 1st Plaintiff's food shop (fast food) license issued by the Majlis Bandaraya Kuching Selatan ("MBKS") and the 2nd Plaintiff's business license; and

e. interest and cost.

[8] On the other hand, the Defendant contended that the termination of the FA was lawful and filed a counterclaim against the Plaintiffs for general and special damages.

[9] The matter went for a full trial and was jointly tried with two other civil suits, i.e., Civil Suit No: KCH-22NCvC-11-3/2018 and Civil Suit No: KCH-22NCvC-27-6/2019. It was agreed between the parties that these civil suits were to proceed on the issue of liability first.

[10] On 3 August 2020, after a full trial, the learned trial Judge decided that the Plaintiffs had proven their case against the Defendant on the balance of probabilities and that the Notice of Termination by the Defendant to the Plaintiffs was wrongful, null and void. As such, the Plaintiffs' claim against the Defendant was allowed.

[11] Aggrieved with the said decision, the Defendant filed this appeal.

The Defendant's memorandum of appeal

[12] In the memorandum of appeal, the Defendant raised 15 issues to be determined in this appeal. Before us, the Defendant's submission was focused on the