Madani Mart: Lawyer schools Fuziah after she doubles down on 'no franchise' claim

A legal expert has taken Deputy Domestic Trade and Cost of Living Minister Fuziah Salleh to task after the latter doubled down on her claim that the Madani Mart is not a franchise business. 

Earlier today, in reiterating her insistence that the grocery store is not a franchise, Fuziah told the New Straits Times that this was because the chain does not collect royalties and has a proper licensing structure.

Her comments came after Malaysiakini reported on legal eagles’ explanation of how Madani Mart fulfils many criteria of a franchise as defined under the Franchise Act, even though the business does not identify itself as such.

Lawyer Damian Yeo told Malaysiakini that the hallmarks of Madani Mart being a franchise are: granting the right to use its brand; services provided included training, system management, and marketing strategy; continuous control through mandatory stock items and performance monitoring; and the requirement for licensees to pay licensing fees and royalties.

In a separate statement following Fuziah’s remarks today, Yeo highlighted that Section 4 of the Franchise Act does not limit consideration to only “royalties”.

“The language of the Act is far broader, in that a franchise can be required to pay a ‘fee or other form of consideration’, while a ‘franchise agreement’ refers to an agreement made ‘for any form of consideration’.

“Thus, from a statutory standpoint, the focus is not on the label ‘royalties’, but on the existence of any form of consideration… I dare say the logic ‘no royalty, therefore no franchise’ is a legally insufficient argument,” Yeo said. 

He noted, however, that he is unable to definitely label Madani Mart a franchise pending a review of its actual agreement, operating manual, standard operating procedures, and documentation structure.

Up to RM420k per shop

Yayasan Madani, which is chaired and co-founded by Fuziah, previously said each Madani Mart startup would cost its operator a maximum of RM420,000, including a one-time RM30,000 licensing fee.

READ MORE: Madani Mart licensors will pay royalties to foundation tied to deputy minister, PM's aides

In a statement outlining the financial commitments required to set up an outlet under the Madani Mart scheme, foundation manager Lutfi Ariffin yesterday said licensors would also have to pay an annual licence renewal fee of RM5,000.

Licensors would also be charged an RM2,000 monthly “services fee” to cover Madani Mart’s system and operational costs, as well as corporate social responsibility measures.

‘It’s not just about payment’

Referencing the various payments required by Madani Mart licensors, Yeo asserted that just because a payment is not named a “royalty”, it does not mean it avoids falling under the purview of the Franchise Act.

He further cited how Yayasan Madani, as the licensor, will provide Madani Mart licensees training, support, performance monitoring, system management, and supply chain development in exchange for licensing fees.

“... the legal questions that arise are not just about payment, but also about the business system, the right to use the brand or concept, and continuous control over operations - (these are) elements that are very close to the definition of a franchise under Section 4 (of the Franchise Act),” Yeo said.

He also cited the case of Dr H K Fong Brainbuilder Pte Ltd v SG-Maths Sdn Bhd, in which the Court of Appeal had agreed that an agreement labelled as a license can still fall within the ambit of the Franchise Act when the elements of Section 4 are met.

Under the Act, a franchise business must be registered with the Registrar of Franchises before it can sign up franchisees.

On April 3, Fuziah said Madani Mart is aiming to expand to 640 outlets nationwide, with the first shop launched that day in her former parliamentary seat of Kuantan.

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