A Legal Analysis on Misinterpreted Agreements: Dr Premananthan a/l Vasuthevan v Permai Polyclinics Sdn Bhd [2015] 5 MLJcon 127

By Yeshanthan Nair

Introduction

The case of Dr. Premananthan a/l Vasuthevan v Permai Polyclinics Sdn Bhd revolves around the issue on unlawful termination of a management agreement entered between the Plaintiff, a medical doctor operating a private clinic, and the Defendant, a company providing management services to medical practices. However, the Plaintiff raised an argument bringing an interesting twist, depicting the said management agreement as a Franchise Agreement and argued that the termination breached the Franchise Act 1998. This case brings our focus on the court’s determination as to whether the said agreement was in fact a Franchise Agreement to begin with and the evaluation of the lawfulness of the termination.

The Case Overview

In January 2006, Dr. Premananthan a/l Vasuthevan (the Plaintiff), a medical doctor, signed a Management Agreement with Permai Polyclinics Sdn Bhd (the Defendant). The terms were clear: the Defendant would provide vital management services for the Plaintiff’s medical practice, Permai Polyclinics Kingfisher. In return, the Plaintiff agreed to pay a franchise fee (10% of patient billing, capped at RM2,000) and a fixed RM1,000 service fee for panel patients.

Fast forward to March 2009, the Plaintiff, in a strategic move, directed the panel patient billings to be credited directly to the Plaintiff’s company account, deviating from the initial agreement that mandated crediting into the Defendant’s account.

This deviation triggered the Defendant to terminate the agreement with one month’s notice, citing a material breach of the clauses stated in the Management Agreement. However, the Plaintiff contends the said termination to be unlawful on the basis the agreement entered between the Plaintiff and the Defendant was a Franchise Agreement and the mere action of termination with one months’ notice by the Defendant clearly violates Section 31 of the Franchise Act 1998(FA 1998).

The Court’s Viewpoint                                             

The court’s initial findings painted a different picture. Despite the Defendant’s substantial control over managing panel patients, the Plaintiff exclusively oversaw the remaining operation and management of the clinic. This crucial setup, according to the court, did not align with the characteristics of a franchise, as it lacked absolute and uninterrupted control over the business by the Franchisor that typically defines a franchise agreement.

Moreover, the court emphasized that the intention of the parties at the agreement’s inception was evidently not to create a Franchise Agreement. The mere use of the term ‘franchise fee’ did not automatically classify it as such, and shared branding elements alone did not transform it into a franchise without clear evidence of ongoing, continuous control by the franchisor (the Defendant).

Even if the court were to recognize the agreement as a Franchise Agreement based on certain elements, the failure of registration required under Section 6(1) of FA 1998 became a pivotal point. Without proper registration, any Franchise Agreement was deemed illegal and ineffective. The present case, lacking evidence of registration, faced this legal hurdle. Nevertheless, the court concluded that the Plaintiff couldn’t rely on Section 31(1) of FA 1998, as there was no Franchise Agreement to begin with and that the termination was lawful.

Further Insight

Exploring the court findings, it is evident that a Franchise is a specific business model and Franchise Agreement is distinct from any other form of agreement. Unlike a Licence for example, a Franchise involves more than just granting permission; it includes an imposed operating system and control over how the business operates. These factors contribute to the heightened regulation of Franchise Agreements compared to licence agreements. What is crucial to understand is that the agreement’s title does not determine its nature; it is the operational dynamics that define whether it falls under the category of a franchise or a licence.

Key Takeaways:

In short, this case underscores the critical importance of paying attention to every detail in agreements, highlighting how even seemingly minor deviations can lead into significant legal disputes and far-reaching implications. In addition to that, this case also illustrates a clear definition of the franchise system and what constitutes a Franchise in Malaysia and stands as a clear reminder on the crucial requirement of registering your business as a franchise in Malaysia.

Get in touch with KASS, your franchise expert for a seamless, confident, and successful journey into franchising!

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