In many countries in the world, there is always two concepts of business, franchising and licensing. Many will asked whether the said business that they entered into a franchise or a license. And personally many came to me and asked me what is the difference between franchising and licensing in Malaysia.

Compare to the Franchise Act that governs franchising, there is no law or legislation governing the area of licensing. As such following the Latin phrase of generalis specialibus non derogant, if there is a specific law, that specific law will apply to that specific area of law compare to the normal laws of contract and the sale of goods.

The key difference between the two broad area is that franchise requires registration whereas licensing does not have a registration system. Failure to register a franchise will make the franchise unlawful thus creating an offence.

Another key difference is the issue of confidentiality and restrain of trade. Franchising protects confidentiality and able to restrain not only franchisee, but employees and family members into similar business for up to two years under section 26 and 27 of the Franchise Act 1998. Whereas in a licensing situation, its a free for all and any clauses to restrain a trade under section 28 of the Contracts Act 1950 will be void.

Interestingly the case of Dr HK Fong Brainbuilder Pte Ltd v SG-Maths Sdn Bhd & Ors [2021] 1 CLJ 155 which the Court of Appeal affirmed the decision of the High Court on the issue of whether the Master Licensing Agreement a franchise and if it is a franchise, would it be void due to the franchise not registered in Malaysia.

The facts of the case is interesting. I will not penned it here but the whole case can be found at page 1 and 2

Dr-HK-Fong-Brainbuilder-Pte-Ltd-v-SG-Maths-Sdn-Bhd-Ors-Court-of-Appeal

In reading the case of Dr HK Fong, it raises more confusion on the issue of licensing. Noting the fact that the Plaintiff in the case has no intention for it to be a franchise.

With the Court of Appeal in the above mentioned case decided that the Master License Agreement a franchise, my thought would then come to whether all license would fall under franchising as section 4 of the Franchise Act 1998 creates and open-ended definition for franchise. Section 4 provides

“franchise” means a contract or an agreement, either expressed or

implied, whether oral or written, between two or more persons by

which—

(a) the franchisor grants the right to operate a business according to the franchise system as determined by the franchisor during a term to be determined by the franchisor;

(b) franchisor grants the right to use a mark or trade secret or any confidential information or intellectual property owned including any license the franchisor owns;

(c) the franchisor possesses the right to administer continuous control during the term over the franchisee’s business operations; and

(d) – deleted-

(e) in return for the grant of rights, the franchisee may be required to pay a fee or other form of considerations.

In that case, the High Court rejected the argument that the Master License Agreement (MLA) signed in 2013 was a licence and not a franchise. The Court went further to state that the Court is not bound by the label or description given by parties to the agreement even though in Dr HK case, the agreement was a license agreement and not a franchise. The Court decided that since the MLA was not registered as a franchise, the agreement is in fact illegal and void and thus unenforceable. The Cour apparently look at section 4 and concluded, that the MLA is a franchise.

My comment : The court should have consider that Dr HK case is a Singapore case which is considered as a Singapore franchise and as such section 54 should come into place. However this is not the case. Should the High Court consider section 54, the case would have decided differently.

However the Franchise Act has been amended that all franchise, local or foreign MUST register with the Franchise Development Division.

Needless to say, the case of Dr HK causes more confusion as it creates uncertainty on the issue of licensing. It is worth to note that licensing need not be registered, but in glancing through Dr HK case, a license will be caught under section 4 and will it be then a franchise thus require registration? And if it is not registered, would a license agreement fall short in becoming unenforceable?

Dr HK case is an anomaly. This requires parliament intervention.