Chatime vs Tealive: The Legal Drama Brewing in Malaysia

Over the last 18 months, you may have heard about a legal battle between two of Malaysia's most popular bubble tea brands: Chatime and Tealive - the standoff between the brands' owners, La Kaffa International Co Ltd and Loob Holding Sdn Bhd respectively, have left some people thoroughly confused. After all, weren't there rumours of Tealive shutting down before? Or was that Chatime? Wait, didn't Chatime rebrand as Tealive? Are they not the same thing? If you have only heard of this legal drama in passing, or would like a refresher on what actually happened between the two companies, here's a timeline of what took place since 2017.

January 2017: The initial fallout between La Kaffa and Loob Holding The dispute began in January 2017 when La Kaffa, the Taiwan-based company behind Chatime, terminated Loob Holding's contract as the franchise holder for Chatime in Malaysia based on an alleged breach of contract on Loob's part. Despite having more than 20 years to go in the contract, La Kaffa alleged that Loob had begun sourcing unapproved raw material, which violated the terms of the master franchisor contract, prompting the company to act. Loob accepted the termination, but here's where things took a remarkable twist: it "rebranded" virtually all Chatime outlets in Malaysia into its own brand, Tealive, and ran the outlets as usual. Naturally, La Kaffa sued Loob in the Malaysian courts, seeking an injunction to stop the Tealive outlets from operating.

February 2017: Loob Holding and Tealive What Loob Holding did to rebrand Chatime into Tealive almost literally overnight was honestly a remarkable feat, masterminded by CEO Bryan Loo. When news of the franchise termination broke in January 2017, Bryan Loo went on a series of charm offensives, delivering interviews, engaging social media, and releasing statements to make Loob Holding's side of the termination public knowledge in Malaysia. "We want to be the brand that protects the weak and isn't afraid of the strong; but also the brand that embraces changes. On the other side, with our hands untied, I believe that over the next quarters there is going to be a lot of innovation in terms of products, which we couldn't do before.

"When we used to collaborate with local brands, we were served warning letters; so moving forward that's something we don't have to worry about, so we can be innovative. I would also like to establish a regional Research & Development center to come up with more creative drinks that will excite the market. Also, we're looking to carry on with our aggressive expansion and move into other regions. We were already planning to do that with the previous brand, but now we get to do it with Tealive." Meanwhile, Taiwan-based La Kaffa did poorly in this respect, failing to communicate their narrative to their Malaysian customers.

Loo didn't stop there. By the end of the month, he announced that now that the master contract with Chatime was ended, 161 of the existing Chatime outlets (or 95% of all Chatime outlets in Malaysia) would be rebranded and operating under Tealive. Overnight, the familiar Chatime brand changed face - but Tealive's menu was virtually identical.

La Kaffa, clearly outraged, immediately began proceedings to seek a court injunction to stop Tealive from selling similar products to Chatime. These proceedings were heard in the High Court on 28 March 2017.

March 2017: Chatime takes Tealive to court and loses What Loob Holding CEO Bryan Loo basically did was to set up Tealive as a rival to Chatime, which is against both the terms of the master franchise agreement as well as the Franchise Act 1998. When La Kaffa brought this case to the High Court, it sought a mandatory injunction and a prohibitory injunction against Loob Holding.

? The mandatory injunction was for Loob to return all the confidential information and documents related to Chatime back to La Kaffa.

? The prohibitory injunction was to restrain Loob from continuing its trade as a competitor of La Kaffa for two years, as agreed in the post-termination terms of the franchise and in accordance with the law.

La Kaffa was successfully granted the mandatory injunction, but failed in obtaining the prohibitory injunction. The judge said that forcing Tealive to shut down its business would negatively affect the livelihood of over 800 employees of Loob, as well as the suppliers, landlords, and families of the employees. The judge also believed the damages that Tealive would have to pay Chatime in compensation would make up for any loss Tealive has inflicted on Chatime's business.

Thus, at this point of the legal battle, Tealive triumphed over Chatime.

Tealive continued to operate in competition with Chatime, which was still running what was left of its remaining operations in Malaysia, having found a new franchise holder to run the outlets that had not been taken over by Tealive, and slowly regrow the brand. It would take over a year before things would bubble over.

What's next?

The ruling in favour of La Kaffa at the Court of Appeal definitely swings a huge hammer into Loob Holding in this battle, but the war isn't won just yet. If Loob is granted leave to appeal to the Federal Court, it has one last chance to fight its case - and this time, a ruling for either party will be final with the Federal Court being the highest court in the nation.Should the Federal Court judge rule in La Kaffa's favour, it will be fascinating just how the outcome would impact the Tealive brand especially considering its presence in other markets. A victory for La Kaffa essentially means Tealive is illegal from day one, so will it be required to cease operations entirely?

Meanwhile, a Loob Holding victory will likely see the Tealive brand grow even stronger. CEO Byran Loo is a hugely ambitious entrepreneur, and the end of this legal distraction will likely see him double down on establishing Tealive as a global brand.

Now that the Federal Court has granted Loob the legal all-clear to continue operating until a final decision is reached, the only thing to do now is hang tight and watch the Federal Court for any further developments. Until then, thanks to the Federal Court and the valiant efforts of Tealive and its lawyers, you can still get your regular bubble tea fix from any neighbouring Tealive outlet.

a. From the allegation made by La Kaffa, Loob Holdings begun sourcing unapproved raw material which violated the terms of the master franchisor contract prompting the company (La Kaffa) to terminate their contract with Loob Holdings's Tealive. From your perspective, why La Kaffa disapproves action made by Loob Holdings and what are the impacts of it towards La Kaffa ChaTime indirectly? ( 8 marks)

b. Discuss the strategic factor that may lead La Kaffa Cha time to select Malaysia as its franchise location. (12 marks)

c. Referring to the case study above, describe Chatime current market share and presence in Malaysia market. Suggest several strategies that can boost Chatime presence and sales in Malaysia. (12 marks)

d. Based on the case study above, which promotional strategies are used by Tealive? Explain factors that lead to your chosen promotional strategy. (8 marks)

e. Assuming Cha Time planning to enter the market of Middle East countries, which component of culture that Cha Time's team needs to adapt to suit with Middle Easterner's preferences. Relate your answer with the case study above. (15 marks)

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