Ty Permanas Enterprise Sdn Bhd v Hot & Roll Holdings Sdn Bhd (BA-22NCvC-225-06/2024)

My judgment concerns a dispute between a franchisee and franchisor over the continuation and termination of a long-standing franchise relationship under the Hot & Roll brand. The Plaintiff having operated outlets at SOGO Shopping Mall and KL Sentral pursuant to successive Franchise Agreements, contends that the Defendant's issuance of a termination notice effective 1st June 2024 was wrongful, unlawful, and contrary to the parties' conduct and understanding over the years. On the other hand, Defendant, maintains that the Plaintiff failed to comply with the Franchise Agreement, and at the heart of this dispute lies the question of whether the Defendant's termination was valid in law.

The Plaintiff, a franchisee of Hot & Roll, entered into a Franchise Agreement with the Defendant (franchisor) for the SOGO outlet since May 2009, which was continuously renewed twice, firstly from 1st June 2014 to 31st May 2019 and secondly from 1st June 2019 to 31st May 2024. In addition to the above agreements, a separate franchise agreement was also entered between the parties for the KL Sentral outlet, starting from 1st April 2020 to 31st March 2025.

In essence, during the first renewal, the franchise fee was paid late, after expiry and the Plaintiff still continued operating without renewal for six months, effectively varying Clause 6.2 by conduct of the parties. Since the Defendant's proposed new terms for the continued renewal in November 2023, the Plaintiff expressed their intention to renew, however raised queries about the new increased fees and renovation additions.

Nevertheless, on 16th April 2024, the Defendant issued a termination notice to take effect from 1st June 2024, citing breach of Clause 6.2, and subsequently were planning to take over the SOGO concession directly. The Plaintiff claims the termination was wrongful and seeks a refund of RM10,000 security deposit and damages, while the Defendant counterclaims for an injunction compelling compliance with Clause 30 obligations upon termination.

This present dispute requires the Court to examine the interplay between contractual strictness and the realities of commercial conduct in a long-standing franchise relationship. The Plaintiff, as a franchisee of the Hot & Roll brand, asserts that the Defendant's termination notice was wrongful and without legal foundation. Plaintiff argues that the parties, through their prior course of dealings and conduct, had effectively waived the rigid requirements of Clause 6.2 of the Franchise Agreement, which prescribed a specific renewal window and payment schedule. The Plaintiff also points to the late remittance of franchise fees during the first renewal period as well as the continued operation of the franchise for six months beyond the expiry of the first renewal term as evidence of consent and variation by conduct. Consequently, this termination of the Franchise Agreement completely took the Plaintiffs by surprise as they were looking forward for the continuation in the normal course of business.

The Defendant, however, maintains that the Franchise Agreement expired naturally by effluxion of time on 31st May 2024 and that the Plaintiff's failure to exercise the renewal option strictly in accordance with Clause 6.2 disqualifies them to any further rights under the agreement. The Defendant relies on the principle that contractual terms must be observed as written and that the Plaintiff's noncompliance with the renewal mechanism constituted a breach justifying termination. Consequently, this termination of the Franchise Agreement completely took the Plaintiffs by surprise as they were looking forward for the continuation of the normal course of business

In brief, the issue before this court is whether the Defendant's notice dated 16th April 2024 amounted to a wrongful termination of the Franchise Agreement or whether the agreement expired naturally by effluxion of time on 31st May 2024, taking into account the parties' conduct.

The Court must determine whether commercial practices and mutual agreement can override express contractual provisions and that law and equity demands the Plaintiff to be protected from what seems to be an opportunistic termination by the Defendant. COURT ANALYSIS AND FINDINGS Natural Expiry and the Waiver of Clause 6.2

In my opinion, to resolve the above issues, this Court will examine Clause 6.2, of the Franchise Agreement which states the following: "The Franchisee may at its option renew this Agreement for the Renewal Term for a further term of five (5) years by giving notice in writing to the Franchisor exercising the said option no less than six (6) months and no more than nine (9) months before the expiry date of the Term. In the event the Franchisee fails and/or neglects and/or refuses to exercise the option to renew within the aforesaid option period, the Franchisee shall be deemed to forfeit its option to renew this Franchise."

In addition, the Defendants contention is that Clause 6.2 should be read with Clause 6.3, that sets out a pre-condition to the renewal option, in which the Franchisee must strictly comply with each of the following conditions prior to the expiry of the Term:

6.3 Pre-conditions to Renewal To exercise the option referred to in Clause 6.2, the Franchisee must strictly comply with each of the following conditions prior to the expiry of the Term:

(a) no later than ninety (90) days prior to the expiry date of the Term has paid to the Franchisor without set off or deduction a Renewal fee equivalent to the then current initial fee (RM22,500.00) or any other rates as may be mutually agreed in writing by the parties;

(b) prior to the expiry date of the term the Franchisee has as the Franchisor may request completed or agreed in writing to perform at its own expenses such maintenance, renovation, repairs and refurbishment of the premises and the equipment, fixture and fitting used in the Business and

(c) then standard agreement (which the Franchise agreement may differ from the terms of this Agreement) execute and return the agreement to the Franchisor; and

(d) within one (1) month of executing the new Agreement as provided in sub-clause (c) above, the Franchisee has completed or agreed in writing to send its personnel as may be required by the Franchisor for retraining; and

(e) the Franchisee has throughout the Term properly observed and performed all its obligations under this Agreement and is not at the expiry date of the Term in default of any such obligations.

(f) To undertake a kiosk facelift as and when required by the Franchisor.

The Defendant's contention, is essentially that the Franchise Agreement did not end by termination but expired naturally on 31st May 2024. This is because the Plaintiff failed to exercise its renewal option under Clause 6.2, which required a written notice between six and nine months before expiry. By missing this renewal window, the Defendant argues the Plaintiff forfeited its right to renew and the Agreement came to an end by effluxion of time.

Additionally, the Defendant relies on Clause 6.3, read together with Clause 6.2, setting out the strict pre-conditions for renewal. These include timely payment of the renewal fee, carrying out renovations, signing the new agreement, retraining staff, complying with all obligations, and undertaking a kiosk facelift. The Defendant maintains that the Plaintiff did not meet these requirements, and therefore renewal was invalid. On that basis, the Defendant insists since the agreement expired naturally no damages are payable to the Plaintiff. Both the parties had submitted their arguments based on several case laws. This court specifically refers to the case of Noraimi Alias v Rangkaian Hotel Seri Malaysia [2009] MLJU 1859.

In the case of Noraimi Alias, a franchisor who terminates a franchise agreement without sufficient cause or fails to follow the contractually mandated procedure, risks liability for wrongful termination. The courts must carefully examine whether the franchisor's actions amount to a genuine non-renewal at the natural expiry of the agreement or an improper termination disguised as non-renewal. Under Section 31 of the Franchise Act 1998, termination before expiry requires "good cause" and compliance with procedural safeguards, while Section 32 governs renewal rights when an agreement ends naturally.

If the franchisee has complied with all contractual obligations and invested substantial capital, the franchisor's refusal to renew may be challenged as a breach of both the agreement and statutory protections. The precedent in Noraimi Alias v Rangkaian Hotel Seri Malaysia [2009] MLJU 1859 confirms that the courts will look beyond labels and scrutinize the substance of the franchisor's conduct, ensuring that statutory protections cannot be circumvented by disguising termination as non-renewal. This makes the termination and renewal clauses central to judicial analysis and critical in determining whether the franchisor acted lawfully.

I observe that the notice of termination was fundamentally flawed because it relied on Clause 6.2 of the Franchise Agreement and Clause 6.2, as pleaded, exclusively governs the mechanism for a franchisee to exercise an option to renew the agreement. It outlines the timeframe within which such an option must be exercised and the consequence of failing to do so, which is the forfeiture of the renewal option. Consequence of which the Plaintiff has lost the chance to continue or no longer guaranteed the rights under the franchise agreement because certain conditions were not met. This is something exclusively different from a complete termination of the agreement.

Crucially, clause 6.2, do not by its nature confer any right upon the franchisor to terminate the agreement prematurely. Termination rights, are explicitly provided for within the contract, typically in a dedicated termination clause, in this case Clause 28. The Defendant's reliance on a clause solely dealing with renewal, therefore, represents a misapplication of the contractual provisions.

The Court observed, during trial, SD1 admitted that the parties did not strictly comply with the Renewal Window under Clause 6.2 for both the 1st and 2nd renewals of the Franchise Agreement. It was further acknowledged that the renewals were effected outside the stipulated timeframe and therefore did not conform to Clause 6.2. Despite this non-compliance, the Defendant did not terminate the agreement at those times, and the franchise relationship continued by mutual understanding.

This admission demonstrates that the parties, by their conduct, had effectively waived strict adherence to the renewal window and the Defendant's position is inconsistent with its own conduct leading to a flawed termination notice in law. The Court concludes that the parties mutual waiver of strict renewal compliance weakens the Defendant's reliance on Clause 6.2, rendering the termination notice invalid.

Even if Clause 6.2 could be read as allowing termination, the Defendant did not meet the strict requirements that apply to such clauses. I accept the Plaintiff's cited precedents, which establish that termination clauses must be interpreted narrowly. This means a party must show a clear and definite right to terminate and must follow all required procedures carefully. Since the Defendant failed to do so, their reliance on Clause 6.2 is invalid.

Furthermore, the Defendant did not rely on any specific termination clause, like in Clause 28 and failed to follow the usual safeguards for termination like for example giving notice to fix alleged breaches based on the franchise agreement.

In Fajar Menyensing Sdn Bhd v Angsana Sdn Bhd [1998] 6 MLJ 80, which was later endorsed by the Court of Appeal in Pembinaan LCL Sdn Bhd v SK Styrofoam (M) Sdn Bhd [2007] 4 MLJ 113, it was held that: "When interpreting and constructing termination clauses in particular, a strict approach ought to be adopted." The Court referred to the case DC Contractor Sdn Bhd v Universiti Pertahanan Nasional Malaysia, which reinforced earlier rulings Fajar Menyensing and Pembinaan LCL v SK Styrofoam. These cases confirm that termination clauses must be applied very strictly and have serious consequences, as they end contracts and release parties from their respective obligations, therefore, they cannot be used casually or by implication. I agree that termination rights must be clearly stated by the parties and when a breach occurs, the right to terminate only arises if proper notice is given and without following these procedures, any termination is invalid.

In my opinion the Defendant's failure to adhere to strict contractual and statutory requirements renders the termination notice wrongful and invalid. Any deviation or reliance on clauses not expressly conferring termination rights, such as Clause 6.2 in the present case, cannot be sustained. The contention that the agreement simply ended on 31st May 2024, rather than being terminated, to me, is an attempt to avoid their legal and contractual responsibilities. Renewal Terms

During the trial, I observed Plaintiff's testimonial, referring to an email dated 10th April 2024, which expressly conveyed their intention to renew the SOGO franchise, while raising queries on certain commercial aspects of the proposed renewal terms. Such queries are consistent with ordinary commercial negotiations and do not amount to a refusal to renew. In my opinion, ongoing discussions on renewal terms do not negate the existence of an intention to renew, particularly where the franchisor itself had introduced new terms differing from the original existing agreement.

The evidence before this court revealed that the Plaintiff had clearly communicated its intention to renew and most importantly both parties were in the "know" as well as engaged in negotiations for renewal terms, when the Defendant precipitately issued the termination notice. In these circumstances, the Defendant's assertion that the Plaintiff had no genuine intention to renew the Franchise Agreement cannot be sustained.

As mentioned above the intention to renew the SOGO franchise was clearly established and Defendant's argument about strict compliance with Clause 40 is weakened by the parties' past practice that renewals were often done outside the formal time limits, as Defendant's witnesses admitted during the trail. In addition, the Defendant's own letter dated 6 November 2023 shows it was actively discussing renewal terms with the Plaintiff, which contradicts its current contention. The Court therefore finds that Defendant's claim that no written notice was given is not sustainable by the conduct of both the parties and strict compliance with the formal notice rules have been waived. Franchise Act 1998 Compliance

Malaysia's Franchise Act 1998 is vital for the growth and stability of the country's franchise sector. By requiring compliance, it strengthens Malaysia's reputation as a franchise-friendly market, protects local entrepreneurs from exploitation, and ensures fair, transparent practices between franchisors and franchisees. The Act also prevents arbitrary termination of agreements and allowing franchisors to end contracts only on legally recognized grounds such as breach of terms or insolvency, with proper notice and opportunity to remedy. In this way, the Act balances brand protection with franchisee security, fostering sustainable development and long-term confidence in the industry.

The Plaintiff contend that the Defendant's conduct amounts to a breach of the Sections 31 and 32 of the Franchise Act 1998 in which the Act imposes statutory obligations on franchisors, particularly in relation to termination and non-renewal, designed to safeguard franchisees who are often in a weaker bargaining position. That requires lawful grounds for termination and procedural fairness, including proper notice and an opportunity to remedy breaches.

The Defendant's reliance on Clause 6.2, do not confer termination rights on the franchisor and therefore is misplaced and unlawful under the Act. The Court acknowledges the Plaintiff's precedents in their submissions, where franchisors have attempted to disguise improper termination as non-renewal and the judiciary looked beyond the label to the substance of the conduct. In the present case, the Defendant's issuance of a termination notice followed by an attempt to reframe the matter as mere expiry reflects a similar tactic aimed at evading statutory protections.

I find that such inconsistency amounts to an abuse of process and by disguising an early and improper termination as non-renewal, the Defendant has breached the Franchise Act 1998. The Defendant's reliance on Clause 6.2 as a basis for termination was unlawful, and its attempt to recharacterize termination as expiry constitutes a breach of statutory obligations and an abuse of process.

In conclusion, this court finds that the Defendant's termination of the Franchise Agreement was wrongful and unlawful, lacking both contractual justification and compliance with statutory requirements. Therefore, the Plaintiffs claim is allowed with cost and the Defendant's counterclaim is dismissed for lack of merits and failure to satisfy the burden of proof. Date: 4th June 2026 SHOBA DORAI RAJAH JUDICAL COMMISSIONER SHAH ALAM HIGH COURT Kavitharini A/P T Ramesh Solicitor for the Plaintiff: [MESSRS TANES, KHOO & PAULRA] Solicitor for the Defendant: Damian Yeo Shen Li [MESSRS DAMIAN S.L. YEO & L.C. GOH.]