KUALA LUMPUR, Oct 16 — Not many legal disputes capture the imagination of Malaysians like a scintillating food feud.
We are referring to none other than the CHATIME bubble tea tug-of-war that was played out in the media extensively in the last few months.
The rise of CHATIME as a global franchise in a mere decade was fast and furious.
Founded in Taiwan in 2005 for its signature and best-selling “pearl” milk tea, La Kaffa International Co Ltd was the first public-listed bubble tea company in the country.
Although its international ambition only reached the shores of Malaysia in 2010, the operations here account for a mammoth piece of the global revenue “pie” at almost 50 per cent.
Hence it is not surprising that La Kaffa guards its market share and position in Malaysia fiercely.
The local obsession for milk teas with fancy toppings can be majorly credited to the man behind Loob Holding Sdn Bhd, Bryan Loo.
As an ambitious entrepreneur, Loo looked towards Taiwan (the world capital of milk tea) to bring in a bubble tea franchise that believes in global expansion.
A mere few months after contacting La Kaffa, Loob opened its first CHATIME outlet in a major KL shopping mall in August 2010 and the rest is history.
Thus it took the industry and customers by surprise when La Kaffa suddenly terminated its master franchise agreement (under a Regional Exclusive Representation Agreement or RERA) with Loob on January 5, 2017 due to disagreements on royalty and ingredient sources.
The contract was to run until 2041 i.e. at least another 24 years to go. Loob even lodged a police report over the termination.
Under the RERA, Loob had only 45 days to stop using the franchisor’s CHATIME name and trademark.
The former franchisee expeditiously made a rera
comeback by rebranding itself as TEALIVE. Their own trademark applications were quickly filed mere days after the termination.
It has been business as normal for TEALIVE, competing directly with CHATIME; which is now helmed in Malaysia by the new master franchisee, Will Group.
The latter is now embarking on an RM35 million expansion exercise, having grown from the initial four to 22 outlets in mere months.
To prepare for battle, La Kaffa expanded its trademark arsenal by registering its CHATIME stylised mark for various goods and services. And then to enforce the franchise termination further, La Kaffa submitted the main franchise and contractual dispute to be heard by the Singapore International Arbitration Centre (SIAC), as provided by the RERA.
Locally, a suit was filed in February with the Kuala Lumpur High Court. As a clapback to Loob running essentially the same but merely rebranded TEALIVE outlets, La Kaffa sought an injunction to restrain the defendant (and associated entities) from:
- carrying on, procuring, causing, enabling, authorising and/or permitting any other business identical or similar to the CHATIME franchised business; and
- disclosing and/or using confidential information of La Kaffa, including the operating mode, franchised concept, technologies, formulations, ingredients, programs and designs.
La Kaffa was clearly concerned with the use of its proprietary information (e.g. various operation manuals) by Loob to carry on a similar tea business.
The RERA has a non-competition clause that survives the termination of the agreement. Similar prohibition is recognised by the Franchise Act 1988, albeit it binds a franchisee for two years after the agreement and not perpetually.
If the injunction was granted, then Loob would have to stop operations of all its tea outlets immediately.
However, if the court opines that monetary compensation is adequate to remedy any damage caused, then the injunction should rightly be denied.
More than three months after the injunction was filed, it was dismissed by the High Court at the end of May.
In an oral judgment, the judge ruled that an injunction would cause great risk of injustice to the defendant, its business and its many outlets and sub-franchisees.
The livelihood of Loob’s hundreds of staff, suppliers, creditors, third parties associated with the business and the stores’ landlords would be adversely affected.
With this decision, Loob can continue its business subject to the outcome on the arbitration by SIAC and the court ordered them to disclose its monthly gross sales to SIAC.
The Commissioner also took the opportunity to point out that La Kaffa’s inconsistencies showed bad faith when they sent a notice of arbitration to Loob in October 2016 to demand for payment but at about the same time, they also presented Loob with its best partner award.
As the adage in the marketing world goes “no publicity is bad publicity"; the trial by media and the public helped revive local consumer interest in bubble tea after the fad went cold for awhile.
