PUTRAJAYA: The Court of Appeal today granted an injunction filed by Chatime owner La Kaffa International Co Ltd against its former franchise holder, Loob Holding Sdn Bhd, from carrying out a similar business as the teahouse chain known for its bubble teas.
In the written judgment, Justice Hamid Sultan Abu Backer said that the High Court had erred in dismissing the injunction against Loob Holding based on the grounds that the livelihood of its outlets and employees would be affected if they were barred from running the business.
“The complaint of La Kaffa in crude terms means that Loob had changed the Chatime business overnight to ‘Tealive’.
“Their conduct is not only in breach of legal obligations related to restraint of trade but also a breach of franchise law which does not encourage criminal or tortious conduct of business,” he said in the 41-page written judgment.
Hamid said the injunction was needed as the prohibition order supports the breach of obligation and it was a fact that Loob Holding was using its former franchiser’s assets to run its Tealive business.
Last year, then High Court Judicial Commissioner Wong Kian Kheong, ruled that an injunction on Loob Holding would cause great risk of injustice to the business and also its associates.
“Its 161 Tealive stores and sub-franchisees will have to close shop.
“The lives of its 800 staff, third parties associated with the business, the shops’ landlords, suppliers and creditors will be adversely affected,” he had said.
On Feb 17 last year, La Kaffa sought an injunction to stop Loob Holding from selling similar products as theirs.
Company director Chen Zhao, through his affidavit, claimed Loob Holding had breached the terms of the main franchise agreement, leading to its termination.
He said the Taiwanese company began to have doubts about its then Malaysian counterpart in January 2016 when Loob Holding reduced its order of raw materials.
“This was in contrast to the increasing number of Chatime stores and growth in sales revenue,” Chen said.
Chen also claimed Loob Holding had failed to pay La Kaffa a sum of US$713,273.72 (about RM3.1 million) for the purchase of raw materials.
This amount was later reduced to US$644,536.32.
The dispute between La Kaffa and Loob Holding started in early December 2016 when the Taiwanese company terminated the master franchise agreement between the two parties even though there was more than 20 years left on the deal.