Tealive version (Loob Holding Malaysia):
Source from: http://says.com/my/lifestyle/what-really-happened-between-la-kaffa-and-loob-holding-chatime-bryan-loo-tells-all
- In just six weeks since the termination of its master franchisee contract, Loob Holding seems to have bounced back from the Chatime debacle, having launched Tealive to replace the popular tea franchise last week
- Following the launch of Tealive on Friday, 17 February, 161 out of 165 existing Chatime outlets are set to move forward with the new brand.says.com
- However, the fact remains that the bad blood between La Kaffa - the Taiwanese company who owns the Chatime brand - and Loob Holding has yet to be resolved
- One month after announcing the termination of the contract on 6 January, La Kaffa held another press conference on 3 February, claiming that Loob Holding had breached the master franchisee contract by using unapproved ingredients and for owing La Kaffa more than a year's worth of royalty fees. The Taiwanese company's allegations over the use of "unapproved ingredients" also raised questions about Chatime's halal status.
In response, Loob Holding CEO Bryan Loo denied all of La Kaffa's "false and malicious" claims, clarifying that the ingredients used are halal-certified by JAKIM. Loo also stressed that they would rather not engage in litigation through the media, preferring to let the relevant legal processes take its course.says.com
- What actually transpired between both parties that it escalated to this point? And what does Loob actually have to say about the allegations?
- We sat down with Loob Holding CEO Bryan Loo to get the full (untold) story and to set the record straight:
1. There is a long of history of business disagreements between both companies in the past few years, but it was one particular act of bad faith in February 2016 that triggered the decline of the relationship
- "In February 2016, they quietly launched this 3-in-1 Chatime milk tea powder in the supermarkets without our consent and knowledge. We only realised two months later," Loo said.says.com
- "After I found out, I flipped. It's a conflict of interest, if this project is not run by the same people running the retail outlets. So when this happened, it means that there is no trust or respect at all," he explained, adding that when Loob told La Kaffa to pull the product off the shelves, all they heard back from the franchisor company were excuses and delayed answers.
Hence, Loob started an arbitration case against La Kaffa in Singapore about four months ago. Loo further revealed that his team had actually proposed a similar project two and a half years ago, hoping to initiate a joint venture with La Kaffa.
As an aside, this incident lines up with La Kaffa executive vice-president Teresa Wang's statement during the 6 Jan press conference, that La Kaffa has actually been preparing to take back the Chatime franchise in Malaysia for a year.says.com
2. Loo believes that Loob Holding's aggressive expansion plans over the next two years contributed to La Kaffa's desire to take over Chatime operations in Malaysia
- Loo divulged that the franchisor company was made aware of Loob Holding's plans to establish outlets in Shell petrol stations (as announced in June 2016) and to populate retails spaces in MRT stations (announced in October 2016).
"We were tapped to deliver a hundred outlets at Shell by 2018. There were also the MRT stations that are gonna be ready this year, that alone could give us a few hundred more outlets on top of what we already have," he explained.
"We thought that they would bless us, but they became greedy."says.com
3. Prior to the termination, Loob Holding was under the impression that La Kaffa came to Malaysia to introduce their new leadership team. In fact, Loo revealed that they were served a termination notice only on 5 January.
- "They served us the notice on 5 January. But four weeks ago, when they called to say they wanted to meet up, the original agenda was to introduce their new leadership team and to invite us for a Global Workshop that was happening in Bali," Loo explained.
It was a whole different story once La Kaffa's people arrived in Malaysia.
"So they came, only to tell us that the management has discussed and made the decision to terminate us as a master franchisee. That caught us by surprise. What's going on? Suddenly, it's the end of the world," he said.says.com
4. The next day, 6 January, La Kaffa sprang another surprise on Loob Holding. That morning, the Taiwanese company held a press conference announcing that they will be terminating Loob's master franchisee contract.
- "Before they left, they still told us to not worry about the termination, as 'everything can be discussed'. Then, the next day, at 9.00am, bam! Press conference," Loo said.
"How could you leave us with the mindset that 'everything can be discussed', only to turn the tables against us the next day? Malaysia being the largest market, contributing 50% of total revenue to them, we see no reason why you want to terminate us. But they left us with that mindset while they were buying time to prepare," he added.says.com
5. As Loob Holding scrambled to come to terms with the termination, La Kaffa acted quickly to execute their plan to take over operations of Chatime outlets in Malaysia
- "So, they terminated us on Thursday, and held a press conference on Friday. On Saturday, they contacted all our franchisees with the intention to entice them with better packages. On Sunday, they contacted our key management, all our people, to entice them to join their team. They even contacted our suppliers and malls," Loo divulged.says.com
6. Ultimately, Loob Holding decided that there is no way they will continue a business relationship with La Kaffa as there is no longer trust and respect between both parties
- "If these people can do all those things to us now, they will do it again. We feel that there's no longer trust, respect, and integrity in the relationship. So, the last option is to move on," Loo said.says.com
7. As for La Kaffa's allegations against Loob Holding, Loo explained that the "unapproved ingredients" were actually additions to the menu through partnerships with brands like Horlicks and Cadbury
- "When they say we're using unapproved ingredients, it's actually from the collaborations we did to localise and help us remain relevant over the years," Loo explained.says.com
8. What about La Kaffa's claims that Loob owed them over a year's worth of royalty fees? Loo said that he is unable to reveal much due to legal restrictions, but clarified that La Kaffa's allegations were grossly exaggerated.
- According to Loo, Loob Holding only held back their payment of royalty fees for the past quarter, under the advise of their lawyers. Beyond that, he explained that he cannot disclose any more details as they are part of arbitration proceedings, which are P&C until the end of arbitration.says.com
- Despite all that has happened, Loo said that the experience has taught him "more love than hate", adding that it's his people and the consumers that motivate him when the going gets tough
- "I owe a lot to my people, who have done a great job in the last six years. As a leader, you can dream big, but it doesn't matter how big your dreams are if you don't have people you can depend on to make them happen. So I'm very grateful that we have a balance of people with crazy, wild ideas, and people who are very good at executing them," he said.
He also said that he is grateful for the overwhelming support and assurance from consumers, as it's this positive sentiment that gave him and his team courage to move forward.
"We were very touched, and we felt that this is a real milestone for us. It's not about how many cups we serve a month, it's about how many lives we've touched with what we do, the emotional engagement we've created with the brand."
Chatime version (La Kaffa Taiwan):
Source from: http://archive.is/r6w2H
Original research: Blogpost written on Burgielaw.com titled “Bubble Tea War (CHATIME v TEALIVE)
So now you have heard Bryan Loo’s story. What about La Kaffa’s?
Since nothing was heard from them, we decided to do some investigative works and voila! We discovered an injunction was filed by La Kaffa in the Malaysian courts this week. We also subsequently discovered that there was an earlier dispute which has resulted in an arbitration matter filed in the Singapore International Arbitration Centre by La Kaffa.
As for the local suit, it was registered as Kuala Lumpur Originating Summons No. WA-24IP-3-02/2017 and an ad interim injunction was heard before the High Court Judge, Justice Wong Kian Kheong (who was the lawyer in Tun Dr Ling’s PKFZ case and also Abdul Razak’ lawyers in the Altantuya’s trial where Abdul Razak Baginda admitted to having an affair with Altantuya.)
No this is no conspiracy theory and let us not digress.
Coming back to the bubble tea war. We were made to understand that the Judge has directed Loob Holding to file an affidavit in reply to the allegations made against them but the High Court Judge did not allow a temporary injunction whilst parties exchange affidavits.
As of today, an affidavit in reply has yet to be filed. But in the interest of time we thought however the F&B community now must be anxious of what was the story behind so we combed through the documents filed in court in particular the affidavit and we found explosive allegations which include documentary and video evidences of alleged breaches.
In fact, the affidavit also goes to show that La Kaffa was accumulating evidence discreetly to an extent capturing extracts of the interview Bryan Loo gave to BFM recently.
Before we begin, let us look at the OS filed by LA Kaffa. In essence, La Kaffa has filed an injunction to:
- restrain Loob Holding and all his konco-konco (including its directors, spouses and immediately faily of its directors, and employees, whether directly or indirectly itself or themselves or through agents) from carrying on, procuring, causing, enabling, authorising and/or permitting any other business identical or similar to the “CHATIME” franchised business; and
- restrain Loob Holding and all his konco-konco as mentioned above to disclose and/or use confidential information of La Kaffa, including the operating mode, franchised concept, technologies, formulations, ingridients, programs and designs.
This is in light of the new found brand “Tealive” introduced by Loob.
So what were the grounds La Kaffa relied on and what are the actual allegations all about?
1. Loob Holding bought raw materials from 3rd party
According to the affidavit, it all started around January 2016 where LA Kaffa suspected something amiss when the order to the raw materials dropped despite an increase of revenue. The allegations were specific referring to milk tea powder, cocoa powder and polypropylene (PP) cups.
When there was no plausible explanation given by Loob, LA Kaffa decided to initiate its own investigation. They sent undercover representatives to various outlets in Malaysia and took evidence. In the course of doing that, they have video evidence showing the outlets were using an alleged CHATIME beverage cup which they labelled it as “fake CHATIME cup”.
The affidavit states that the authentic CHATIME cups should contain either “YM-500” or “YM-700” markings on the base of the cups and these markings are material confirming authenticity sourced through SCPP Ind Co Ltd.
LA KAFFA has then also sent various letters notifying such breach and the letters can be seen below:
Letter dated 12th May 2016
Letter dated 12 May 2016 – page 1
Letter dated 12 May 2016 – page 2
Letter dated 2nd August 2016
Page 1
Page 2
Page 3
Letter dated 3rd August 2016
Page 1
Page 2
Page 3
In the letter dated 20.9.2016, La Kaffa alleged that the sourcing of materials from 3rd party was made within the knowledge of Loob since they replied to La Kaffa and did not deny sourcing it from third party citing reasons “ it was inevitable that some of the key components will require local source from the readily available market in light of the competitive business environment.”
Page 1
La Kaffa alleged that the breach contravenes Article 7 of RERA and we enclose the actual clause below:
Article 7
2. Request to inspect books were denied
Since there was no convincing reason given by Loob, La Kaffa then wanted to exercised its rights to inspect and audit the books of Loob under Article 10(iv) of the Regional Exclusive Representation Agreement. (“RERA”)
However this was similarly delayed and rejected.
Article 10(iv)
3. There is an outstanding royalty due and owing by Loob Holding
Under the RERA, Loob was obliged to make full payment of the purchase of raw materials. From the papers we sighted, the outstanding sum was USD713,273.72 which was also the subject matter of the arbitration filed by La Kaffa in the Singapore International Arbitration Centre. The outstanding amount claimed was then reduced to USD644,536.32.
4. Non-competition
La Kaffa is also concerned with the use of its proprietary information being used by Loob to carry on its new business especially Bryan has openly announced that all 165 outlets will be converted to Tealive which is essentially running a similar business.
La Kaffa in essence relies on:
Section 27 of the Franchise Act 1988 which provides:
S.27 Prohibition against similar business
- A franchisee shall give a written guarantee to a franchisor that the franchisee, including its directors, the spouses and immediately family of the directors, and his employees shall not carry on any other business similar to the franchised business operated by the franchisee during the franchise term and for 2 years after the expiration or earlier termination of the franchise agreement
- The franchisee, including its directors, the spouses and immediate family of the directors, and his employees shall comply with the terms of the written guarantee given under Subsection (1)
- A person who fails to comply with subsection (1) or (2) commits an offence.
It is also interesting that Article 15 of the RERA has similar provision and we have extracted it below for your convenience.
Article 15
La Kaffa also alleged that it has provided various manuals and operation training manual of which these proprietary information is unique which La Kaffa has expended a vast amount of money and effort in developing it. Now that since RERA is terminated, Loob should not be using the confidential and proprietary information procured from La Kaffa.
This was corroborated by the fact that Bryan has in interview claimed that “the same team, the same people, both employees and partners, in place at the same outlets,….” Which La Kaffa finds it commercially improbable.
Article 16
Termination
Due to the breaches above, La Kaffa issued a notice of termination dated 5.1.2017.
All these allegations from La Kaffa surfaced for the first time in public domain and we are equally eager to see what Loob’s reply is. We will keep you posted.
Since the injunction mainly tries to restrain Loob from carrying out business under the non competition clause, we wanted to have a better idea what is it about and whether it is legally allowed.
We then contacted Lai Chee Hoe, who advises Rhombus Group and many other F&B brands and asked his opinion.
He replied that it is a precautionary step to avoid a licensee or franchisee from adopting the proprietary information obtained through the licensor / franchisor and make use of those information to carry out business not permissible under the Agreement. There is an increasing trend of such disputes in light of the bad turnover suffered by a lot of F&B brands. This has led to many licensees and/or franchisees considering to terminate its existing agreement to convert it to a similar business brand. In fact, he has 5 active disputes in hand.
As to what consists of “similar business” would really be a question of fact which includes, colour scheme, ingredients, sauces, food type, logo, food labelling and packaging.
Source from: http://archive.is/r6w2H