QIAN SUI F&B SDN BHD v 1. ) EXCELSIUS GLOBAL SDN BHD 2. ) KHONG WAI KEN 3. ) GAN THIN HUI 4. ) KHOO JIAN LIM

Case Significance

Illustrates how the courts test a claim that a business licence is in substance an unregistered franchise void under the Franchise Act 1998, and the burden on a party alleging fraudulent misrepresentation, holding the licence valid where the parties freely agreed and the complaint arose only after a downturn in income.

This High Court decision concerns whether a business licence agreement for a bubble-tea brand was in substance an unregistered franchise agreement void under the Franchise Act 1998, and the consequences of that characterisation. The plaintiff company, controlled by a married couple, had entered into a licence agreement in 2019 with the first defendant company, which operated the Chun Yang Tea business originating from Taiwan, under which the first defendant granted the plaintiff a non-exclusive right to open one outlet. The plaintiff opened its outlet and later moved location. When its income declined, the plaintiff took the position that the arrangement was in truth a franchise, that the terms resembled a franchise agreement, and that because the first defendant was not registered under the Franchise Act 1998 the agreement contravened section 4(c) and was void; it claimed the return of its investment of RM980,673.88, alleged fraudulent misrepresentation by the defendants and sought to lift the corporate veil against the directors. The first defendant counterclaimed for damages for the plaintiff's use of the Chun Yang Tea intellectual property. After a full trial, the court held that the plaintiff had not made out its case: the parties had freely agreed to be bound as expressed in the licence agreement, there was no fraudulent misrepresentation, and the complaint was an afterthought raised after the plaintiff's income fell following its relocation. It found that the defendants had discharged the burden of proof under section 101 of the Evidence Act 1950 on the balance of probabilities. The court dismissed the plaintiff's claim with costs, and allowed the first defendant's counterclaim, declaring the licence agreement valid and awarding it damages, to be assessed, for the plaintiff's use of the brand's intellectual property and goodwill and for the misuse of its online platform, with costs. The judgment is a useful illustration of how the courts test a claim that a licence is a disguised franchise and of the burden on a party alleging misrepresentation.