JUDGMENT

Yusrin Faidz Yusoff JC:

Introduction

[1] This judgment addresses the claims made by the plaintiff against the defendants regarding alleged breaches of an Ar-Rahn Franchise Agreement, specifically focusing on the defendants' failure to uphold the exclusivity provisions concerning the operation of an Islamic pawnbroking franchise within a specified territory. The plaintiff, who operates a franchise under the defendants' brand and IT system, alleges that the defendants' inaction has led to significant financial harm. The defendants, however, contend that they did not breach the exclusivity provision and that they took all necessary steps to address the issue once they became aware of it. It is now the role of this Court to determine the merits of these competing claims and to adjudicate accordingly.

Background Facts

[2] The material facts of this case are largely uncontested, with the trial lasting only a single day and featuring testimony from one witness on behalf of the plaintiff and one for the defendants. The material facts, distilled from pleadings, witness testimony, and documentary evidence, are uncontroverted.

[3] The 1st defendant is the registered proprietor and franchisor of the Ar-Rahn franchise business, which operates as a Shariah-compliant Islamic pawnbroking scheme which is managed by the 2nd defendant. The franchise is governed by a standardised operational and technological framework, including the mandatory use of the franchisor's proprietary IT system to facilitate the execution of Islamic pawnbroking transactions across all franchise outlets.

[4] Based on the Ar-Rahn Franchise Agreement dated 24 March 2014 ("Franchise Agreement"), the plaintiff was granted territorial exclusivity to operate under the Ar-Rahn brand within the designated 3-kilometre radius area of Wangsa Melawati, Kuala Lumpur, at its premises known as No 39, Jalan Dataran Wangsa 1, Dataran Wangsa Melawati, Wangsa Melawati, 53300 Kuala Lumpur.

[5] On 2 February 2021, Koperasi Sahabat Amanah Ikhtiar Malaysia Berhad ("Koperasi Sahabat") notified the plaintiff of its intention to open a new outlet at No 56, Lorong Dataran Wangsa, Wangsa Melawati, 53300 Kuala Lumpur, which is an address that falls squarely within the plaintiff's exclusive territory (See: Bundle B, at pp 159 to 160).

[6] The defendants admitted awareness of this letter during cross-examination (See: Notes of Proceedings at pp 50 to 51). Save for arranging discussions, they took no action to prevent Koperasi Sahabat from commencing business operations in December 2021.

[7] The plaintiff sent letters dated 12 January 2022 and 3 March 2022 demanding clarification and enforcement of exclusivity (See Bundle B, pp 172-177). The defendants ignored these.

[8] After the defendants failed to respond to the plaintiff's solicitor's notice dated 25 April 2022, the plaintiff terminated the Franchise Agreement on 3 October 2022 (See Bundle B at p 189).

[9] The plaintiff initiated the present action against the defendants on 12 December 2022. Shortly thereafter, on 21 December 2022, the defendants commenced a separate action against Koperasi Sahabat via Suit No WA- B52NCC-995-12/2022 ("Suit 995") (See Bundle B, pp 191-216). In Suit 995, the defendants alleged that Koperasi Sahabat, which was already operating 23 branches under the defendants' Ar-Rahn brand, had unilaterally established two additional franchise branches without obtaining the defendants' prior consent. These newly established branches are situated in Wangsa Melawati, Kuala Lumpur, and Bachok, Kelantan.

[10] On 26 March 2023, the defendants, by way of encl 11, applied to join Koperasi Sahabat as a co-defendant in this suit. However, on 20 June 2023, I dismissed the application on the basis that no contractual relationship existed between the plaintiff and Koperasi Sahabat. In my view, the proper and procedurally sound course would have been for the defendants to bring Koperasi Sahabat into the proceedings by way of a third-party action