Saturday, October 28, 2017

Loob Holding and Tealive Don’t Want You To Read This Story

On February 23, we chanced upon an unassuming blog post written on Burgielaw.com titled “Bubble Tea War (CHATIME v TEALIVE): La Kaffa’s Version. In it were detailed accounts of La Kaffa’s side of the story in the tea-off between La Kaffa and Loob Holding regarding the termination of Chatime. The report was eye-opening and contained damning facts that were not known to the public beforehand.

A few days later, the article disappeared. 

Much has been reported over here in Malaysia in relation to the tiff between the two companies and the result, at least in the public eye, was that Bryan Loo and his team were blindsided by the letter of termination and were victims of an oppressive La Kaffa. Their Taiwanese franchisors were painted as the ‘Big Brother’ figure bullying the weak and Loob Holding playing the scrappy underdogs forced to ‘kow tow’ to their masters. Having read Burgielaw’s work thoroughly we’re convinced that there’s more to this story.

Bryan Loo’s ‘Victim’ Rhetoric

The Star first reported on January 6 that Loob Holding was seeking legal advice after La Kaffa International, the master franchisor of Chatime had terminated its franchise agreement with Loob Holding. Malaysians were shocked by this ‘sudden’ decision and Loob Holding released a press statement on Saturday stating that they were “…very much concerned over what will happen to these 1000 over workers and their dependents.” He then said that they would lodge a police report against La Kaffa’s “…sudden termination and (would) let the authorities take the necessary action against the law.”

The media ran with the story, highlighting the 1000 workers’ plight and the headlines ran wild with outlets like the NST stating “1,000 Chatime workers in Limbo as franchise’s fate thrown into doubt”. On February 3, La Kaffa released a statement accusing Loob Holding of “(Using) raw materials that were not part of the approved recipe.” To this, Bryan Loo stated on behalf of Loob Holding, “We vehemently deny all the false and malicious allegations set out in La Kaffa’s media statement issued on Feb 3.”

On February 17, The Star reported that all 161 Chatime outlets would be officially transformed to Tealive. The transformation came at a velocity that would put Usain Bolt to shame. The Tealive brand leaned in hard on the weak versus the strong rhetoric, so much so that it’s even emblazoned on their cups, “Never fear the strong. Especially strong tea”. The point was further pushed home in this poster.
“Over the past month, we have worked tirelessly to make right what we feel was wrong. To start over. To build from nothing.” Extremely impressive for a month’s worth of work. Their outlets even carry the same menu with the same exact taste as before (more or less, any experts want to weigh in on the difference?). A fairy tale ending of little David beating Goliath at his own game. Sticking it to the man. Right? 

La Kaffa’s Side (The Unauthorised Raw Materials)

For this, we must rely on the documents that were acquired by Burgielaw.com's now deleted page. La Kaffa’s tale actually begins in January 2016, one year before:

According to the affidavit sent in by La Kaffa, they had suspected something was amiss when the order of raw materials dropped despite an increase in revenue in Loob Holding. The allegations were specific in relating to milk tea powder, cocoa powder, and polypropylene (PP) cups. When no explanation was given by Loob Holding, La Kaffa sent an undercover representative to various outlets in Malaysia to obtain evidence. The result was video evidence that showed the local Chatime outlets were using unapproved cups that lacked the “YM-500” or “YM-700” markings on the base of the cups that proved its authenticity. La Kaffa then sent various letters notifying Loob Holding of the breach, which you can read below:



Letter dated 12th May 2016
Letter dated 2nd August 2016
E-mail dated 3rd August 2016
Because we know what a pain it is to read letters off the screen of your phone, here are the footnotes to the letters, in order: 

First Letter
  1. La Kaffa asserts that Loob Holding has entered into a Regional Exclusive Representation Agreement (RERA).
  2. According to Article 7 of this agreement, Loob Holding can only purchase raw materials from La Kaffa.
  3. La Kaffa questions the purchase of raw materials in particular: milk tea powder, cocoa powder, and PP cups in 2015.
  4. La Kaffa instructs Loob Holding to justify the purchase quantity issue, failure of which will result in a USD10,000 (RM44,500) penalty and instructs them to stop purchasing raw materials from other channels immediately.
Second Letter
  1. Loob Holding did not respond to the letter and the second letter was sent out by La Kaffa’s corporate counsel.
  2. The letter reasserts the first letter’s requests and adds further requests.
  3. La Kaffa had requested for an audit of the books on 1st June 2016 that Loob Holding did not reply.
  4. La Kaffa questions the lack of a convincing reason by Loob Holding.
  5. La Kaffa provided video evidence that 25 STORES under Loob Holding’s control did not use raw materials provided by La Kaffa and a penalty of USD250,000 (RM1.1 mil) was imposed.
The e-mail is a restatement of the second letter in e-mail form.

Now that we've read all that La Kaffa has to say regarding the alleged breaches of contract, we have an e-mail reply submitted by La Kaffa as evidence. Proving that Loob Holdings indeed used unauthorised raw materials. 
Again, here are the footnotes of Loob Holding's response to La Kaffa: 
  1. Loob contends that the prices of raw materials had risen by 20 – 30% blaming it on the exchange rate for USD-MYR.
  2. Loob requests La Kaffa to allow them to procure raw materials from local sources citing their relationship of six years.
  3. Loob contends that the cost of business has also increased significantly over the “past few years”.
  4. They end the letter saying that it was “inevitable” that key components would require local sourcing, admitting the breach in contract.

La Kaffa's Allegations Against Loob Holding

1. Inability to justify the purchase of unauthorized raw materials (Article 7 of RERA)

… 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”

Article 7 of RERA is reproduced here, found and highlighted in red 

2. Denying an audit by La Kaffa (Article 10(iv) of RERA)

Article 10 of RERA is reproduced here and highlighted in red
“The FRANCHISOR shall have the right to inspect and/or audit the MASTER FRANCHISEE’s accounts, books, records, tax returns, inventory stock, data of product-mix”.

3. Outstanding royalty payment 

The outstanding sum under RERA was USD713,273.72 (RM3.2 mil) which was also the subject matter of the arbitration filed by La Kaffa in the Singapore International Arbitration Centre. The claim was reduced to USD644,536.32 (RM2.9 mil).

4. Breaching the non-competitive clause of Article 15 of RERA and Section 27 of the Franchise Act 1988

Forbidden to Engage in Competition:
Forbidden during the term of the Agreement. Unless otherwise consented by the Parties in advance and in writing, during the term of this Agreement, either Party including their managers, employees, shareholders, subsidiaries, or parent companies shall not, in the Territory directly or indirectly, by itself or through agents, engage in any commercial activities that are identical or similar to those done in the Franchised Stores.

5. Franchised Stores


According to Section 27 of the Franchise Act 1988:

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.

La Kaffa and their injuction against Loob Holding

The injuction is dated 22nd February 2017 and seeks to stop Loob Holding from carrying out a similar business and to stop them from disclosing or converting Chatime’s proprietary information. 
We reached out to Lai Chee Hoe, a lawyer who advises F&B brands and who is also the founder and CEO of Burgielaw.com and asked him what are La Kaffa’s options against Loob Holdings and the entity Tealive:

“It’s not easy to argue against the non-competition clause because Tealive appears to be in a similar business segment.”

We also wanted to know Loob Holding’s chances against the injunction to which we asked lawyer Louis Liaw, a general litigator from Ramrais and Partners:

"Firstly, La Kaffa has to prove number one, that this is a serious issue that needs to be tried. They have to prove that they have to go to court. Secondly, they have to prove that damages to La Kaffa's business cannot be compensated by money. Finally, the court will consider the balance of convenience. This means they will consider if it is easier to stop Tealive or let them continue. For example, the courts may consider the loss of jobs for the Tealive employees as a factor to the case and let Tealive continue." 

"It is pretty much 50/50 up to the courts at this time which is in terms of where the balance of convenience lies."

The Truth

Well now you actually have the full story. The law is never so black and white and circumstances are not always what they seem. Also, if you're interested, Tealive may have allegedly ripped off their new mission statement from local boys Mutha Puaka. They contend that their slogan "NEVER BULLY THE WEAK, NEVER FEAR THE STRONG" was ripped straight from them. 
The research regarding La Kaffa's letters to Loob Holding was done entirely by BurgieLaw.com and was reproduced with permission. We asked them why the story was taken down and were told that they were directed by management to remove the post. That said, an archived version of the story can be found here*winky face*.  









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