Wong Kian Kheong

Farewell for Justice Wong Kian Kheong

Farewell dinner with the members of Intellectual Property Bar for Justice Wong Kian Kheong who presided the Intellectual Property Court from 1st January 2016 to 31 August 2018.

We compiled all his intellectual property judgments into a book which consisted of 2 volumes as his farewell gift. He had contributed to the development of our intellectual property laws tremendously in the past 2 years.

Many have asked if the book is for sale. Unfortunately, it is not for sale as we have only printed a copy. However, you may download all cases from the book below-

Aktif Perunding Sdn Bhd v. ZNVA & Associates Sdn Bhd

Billion Prima Sdn Bhd & Anor v Nutech Company Limited & Anor

Chanel v Melwani2 International Sdn Bhd & 2 Ors & Another Case

Chow Chuan Fat v Yeo Chai Seng & Ors (No. 1)

>Chow Chuan Fat v Yeo Chai Seng & Ors (No. 2)

Chuah Aik King (Sole Proprietor of Syarikat B Three Technology) v Keydonesoft Sdn Bhd

Dart Industries Inc & Anor v CMN International Sdn Bhd & Other Cases

Darul Fikir v Dewan Bahasa dan Pustaka

Diesal SpA v Bontton Sdn Bhd

Doretti Resources Sdn Bhd v Fitter Marketing Sdn Bhd & 4 Ors (No. 2)

Doretti Resources Sdn Bhd v Fitter Marketing Sdn Bhd & 4 Ors (No. 3)

DR HK Fong Braindbuilder Pte Ltd v SG-Maths Sdn Bhd & 5 Ors

Goodway Retread Sdn Bhd v Goodway Rubber Industries Sdn Bhd

GS Yuasa Corporation v GBI Marketing Sdn Bhd

Huan Schen Sdn Bhd v SRAM LLC

Hyundai Motor v Sun Yuen Rubber Manufacturing Co Sdn Bhd

Iradar Sdn Bhd v Nutech Company Limited & Anor

Juris Technologies Sdn Bhd v Foo Tiang Sin & Ors

Jyothy Laboratories Limited v Perusahaan Bumi Tulin Sdn Bhd

Kraft Foods Schweiz Holdings GmbH v Pendaftar Cap Dagangan

La Kaffa International Co Ltd v LOOB Holdings Sdn Bhe & Another Case

Lim Teck Lee v Longcane Industries Sdn Bhd

Louis Vuitton Malletier v Renown Incorporated

Merck Sharp & Dohme Corp & Anor v Hovid Bhd

Motordata Research Consortium Sdn Bhd v Ahmad Shahril bin Abdullah & 3 Ors

Ooi Siew Bee (trading under the name and stye of Syarikat Perniagaan Eng Leong) & 2 Ors v Zhu Ge Kong Ming Sdn Bhd & Anor

Pentamaster Instrumentation Sdn Bhd v QAV Technologies Sdn Bhd & 3 Ors

Philip Morris Brands Sari v Goodness For Import and Export & Ors

Portcullis Trustnet (Singapore) Pte Ltd v George Pathmanathan_ al Michael Gandhi Nathan & 11 Ors

Prism Berhad v Measat Broadcast Network Sdn Bhd

R Ramani AL M Ramalingam (suing on behalf of the Recording Industry Association of Malaysia, a registered society) & 2 Ors v Deluxe Exclusive Lounge Sdn Bhd

Schwan-Stabilo Marketing Sdn Bhd & Anor v S & Y Stationery & 2 Ors

Sigma Glove Industries Sdn Bhd & 2 Ors v Ong Chin Kok & Anor

Singham Sulaiman Sdn Bhd v Appraisal Property Management Sdn Bhd and Another Case

Sri Paandi Restaurant Sdn Bhd & Anor v Saraswathy ap Kesavan & 3 Ors

Syarikat Faiza Sdn Bhd & Anor v Faiz Sdn Bhd & Anor

Syarikat Duasama Sdn Bhd v Abdul Aziz Ibrahim (Trading as Radiant Star Enterprise); 1st Third Party Tiong Sing Trading Co Sdn Bhd and another Party

Tokai Corporation v DKSH Malaysia Sdn Bhd

World Grand Dynamic Marketing Sdn Bhd v FJVAA SPA Sdn Bhd & Ors

X1R Global Holdings & Anor v Y – Teq Auto Parts (M) Sdn Bhd

Walmar Wil Heavy Duty Pumps Sdn Bhd v Pump Matrix Engineering Sdn Bhd

Bread & Kaya: Layperson’s guide to the Chatime v Tealive dispute

-By Foong Cheng Leong | Jul 17, 2018
– Trouble started brewing when La Kaffa alleged that Loob had breached RERA
– Case began in the High Court, went to the Court of Appeal, pending a hearing at the Federal Court

MUCH has been said about the dispute between the owners of the Chatime and Tealive bubble tea businesses. The dispute, however, is not as straightforward as the media has reported it to be. This article seeks to guide readers, especially laymen through this technical legal dispute.

Background

La Kaffa International Co Ltd (La Kaffa) is the registered franchise owner of the Chatime bubble tea franchise (Chatime Franchise). Prior to the opening of Tealive, Loob Holding Sdn Bhd (Loob) was appointed as the master franchisee for the Chatime Franchise and had entered into an agreement called Regional Exclusive Representation Agreement (RERA).

Due to the popularity of the Chatime Franchise, it had expanded to 165 outlets in Malaysia in a short period of time.

However, trouble started brewing when La Kaffa alleged that Loob had breached RERA by, among others:

– Loob’s failure to purchase all raw materials from La Kaffa as required by Article 7 RERA;
– Loob failed to allow La Kaffa to inspect and/or audit, among others, Loob’s accounts, books and records; and
– Loob’s failure to pay for raw materials purchased from La Kaffa.

The parties then had the dispute arbitrated by the Singapore International Arbitration Centre (Singapore Arbitral Proceedings). The RERA was also terminated by La Kaffa. Loob argued that the termination was unlawful but accepted the termination in any event.

The matter was arbitrated in Singapore because Article 18 of the RERA stated that the RERA is governed by Singapore laws and any disputes regarding the RERA shall be arbitrated at the Singapore International Arbitration Centre.

After the termination, Loob started its Tealive bubble tea business. Out of 165 Chatime franchisees, 161 Chatime franchisees in Malaysia “converted” into Tealive.

Pending the disposal of Singapore Arbitral Proceedings, La Kaffa and Loob filed applications for interim injunctions under s 11(1) of the Arbitration Act 2005 and/or inherent jurisdiction of the Court in the High Court of Kuala Lumpur.

La Kaffa sought orders for, among others, an interim injunction to restrain Loob, its directors (including their spouses and immediate family members) and employees from, among others, carrying on business which is identical or similar to the Chatime Franchise business.

What is an Interim Injunction?

The important point here to note is the interim injunction.

I will focus on La Kaffa’s interim injunction only as Loob’s interim injunction in its counterclaim was only to restrain La Kaffa from interfering with its business.

The purpose of the interim injunction is to restrain Loob and its related parties from carrying on business which is identical or similar to the Chatime Franchise. This would include running the Tealive bubble tea business.

If the Court grants the interim injunction, it would last until the disposal of the Singapore Arbitral Proceeding. La Kaffa did not ask for a perpetual injunction to restrain Loob from operating the Tealive bubble tea business.

The High Court held that it does not decide on the merits of the dispute which should only be decided by the arbitral tribunal as agreed by the parties. The High Court held that it would only need to decide if the interim injunction would support, assist, aid or facilitate the Singapore Arbitral Proceedings.

And to decide whether the interim injunction would support, assist, aid or facilitate the Singapore Arbitral Proceedings, the Court would need to determine if there is any bona fide and serious question to be tried in respect of the plaintiff’s cause of action against the defendant; and if so:

– whether damages constitute an adequate remedy for the plaintiff; and
– if damages do not constitute an adequate remedy for the plaintiff, whether the “balance of convenience” lies in favour of the granting or refusal of an interim restraining injunction.

In other words, the Court would need to balance the rights of the parties to determine if Tealive should close down pending the completion of the Singapore Arbitral Proceedings.

Should Tealive close down?

La Kaffa says that it should because of our franchise laws and Article 15 of the RERA.

Pursuant to s. 27 of the Franchise Act 1998 (FA 1998), a franchisee shall give a written guarantee to the franchisor that the franchisee including its directors, the spouses and immediate family of the directors, and his employees shall not carry on any other business similar to the franchised business during the franchise term and for two years after the expiration or earlier termination of the franchise agreement.

In brief, La Kaffa argued that s. 27 of the FA 1998 requires Loob and its directors (including their spouses and immediate family members) and employees from, among others, carrying on business which is identical or similar to Chatime Franchise business e.g Tealive.

S. 27 FA provides the following:

Prohibition against similar business

27(1) A franchisee shall give a written guarantee to a franchisor that the franchisee, including its directors, the spouses and immediate 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 two years after the expiration or earlier termination of the franchise agreement.

(2) 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).

(3) A person who fails to comply with subsection (1) or (2) commits an offence.

Article 15 of the RERA provides the following:

Article 15. Forbidden to Engage in Competition

I. Forbidden during the term of 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 through agents, engage in any commercial activities that are identical or similar to those done in the Franchised Stores.

II. The Parties agree that the commercial or business activities being done in the affiliate stores of the MASTER FRANCHISEE, including their managers, employees, shareholders, subsidiaries, or parent companies at the time of the execution of this Agreement would not be deemed to be identical or similar to those done in the Franchised Stores if the said activities do not form part of the core business or are complimentary to the core business of the affiliated stores.

III. Application scope. The Parties hereby consent that the aforesaid sub-articles (I) and (II) shall be applied to prevent the FRANCHISOR and the MASTER FRANCHISEE from engaging in unfair competition in breach of this Agreement.

IV. Default compensation. In the event any Party (Defaulting Party) violates this Article, the Defaulting Party shall pay the other Party (Non-Defaulting Party) a sum of US$10,000.00 as punitive penalty for each violation. All gains derive from the violation by the Defaulting Party shall also be paid to the Non-Defaulting Party as compensation and the Defaulting Party shall stop the competing activities immediately.

V. Validity of the provisions of this Agreement. This Article 15 shall survive the invalidity, expiration or termination of this Agreement.

In brief, Article 15(1) of the RERA prohibits La Kaffa and Loob from engaging in competing business during the term of the RERA.

What happened in the High Court?

As some of you may know, the case was first fought in the High Court. La Kaffa could not stop Tealive from operating.

The High Court held that it could not close Tealive down because the provision of s. 27 of the FA 1998 was not incorporated into the RERA and Loob and its related parties did not give a written undertaking to cease business for two years. Therefore, the High Court was of the view that there is no bona fide and serious issue to be tried as to whether Loob had breached s. 27 of the FA 1998.

Some may ask why the Court did not order the closure since it is clear that s. 27 of the FA 1998 requires Loob and its related parties to operate an identical or similar business as Chatime for two years.

The High Court was of the view that Tealive do not need to close down because Loob did not promise to close down after the termination of the RERA. The High Court Judicial Commissioner Wong Kian Kheong (as then he was) was of the view that the issue before the Court was whether La Kaffa is entitled to an interim injunction so that it can be used to support, assist, aid or facilitate the Singapore Arbitral Proceedings.

Based on my understanding of the grounds of judgment, the learned Judicial Commissioner was of the view that the action before him was not the forum for him to decide whether there was a breach of s. 27 of the FA.

Further, a breach of s. 27 of the FA amounts to a criminal offence. If it is a criminal offence, criminal action would need to be taken by the Government and it would need to go through a criminal trial to find liability. In a criminal trial, the burden of proof is beyond reasonable doubt as opposed to a balance of balance of probabilities in a civil case.

In addition, the learned Judicial Commissioner held that La Kaffa had been guilty of inequitable conduct. One of the inequitable conducts committed by La Kaffa was that it had sent a notice to “shopping mall owners” which stated, among others, all the agreements between Loob and the shopping mall owners regarding Chatime franchise business “shall be null and void”.

What happened in the Court of Appeal?

The Court of Appeal had a different view and overturned the High Court’s decision.

In granting overturning the High Court’s decision, the Court of Appeal held that:

– A simple construction of Article 15 of the RERA as well as s. 27 of FA 1998 will demonstrate that there is an obligation for Loob not to compete with La Kaffa’s business even after the termination of the RERA;
– In light of Article 15 of the RERA and s. 27 of FA 1998, the High Court ought not to have refused the prohibitory injunction. When parties have agreed not to do certain acts and a statute also provides for such protection, the court is obliged to give effect to ensure the salient terms of the agreement as well as the statute is not breached.

The Court of Appeal found it unjustifiable for the High Court to rely that the Tealive bubble tea business consisting of 161 outlets and the livelihood of 800 employees will be affected. The conduct of Loob on the face of record is not only in breach of legal obligation related to restraint of trade but also breach of franchise law which does not encourage criminal or tortious conduct of business, goodwill.

Therefore, the Court of Appeal held that the failure to grant the prohibitory injunction was flawed which requires appellate intervention.

What happened after that?

Loob thereafter filed an application to the Court of Appeal to stay (suspend) the Court of Appeal’s order for an injunction, among others, pending the disposal of the application for leave to appeal to the Federal Court. However, the Court of Appeal, on a majority decision of 2-1, dismissed the application for stay.

It is unknown why Tealive stores did not close its doors after the stay of execution application was dismissed by the Court of Appeal. My guess is that La Kaffa was not enforcing the interim injunction. If Tealive closes down but Loob succeeds in the Federal Court, La Kaffa would be liable to pay damages for the profit Loob could have made during the closure and other forms of damages. This is because La Kaffa had given an undertaking as to damages for all loss suffered by the Loob as a result of the interim injunction. Such damages could amount to millions of Ringgit.

What now?

Fortunately for Loob, the application for stay of execution was granted by the Federal Court on 16 July 2018. Loob has filed an application for leave to appeal (permission to appeal) to the Federal Court. The Federal Court will only hear limited type of cases and in civil cases, the Federal Court will hear cases involving a question of general principle decided for the first time or a question of importance upon which further argument and a decision of the Federal Court would be to public advantage, among others.

If the Federal Court refuses leave for Loob to appeal to the Federal Court or dismisses the appeal, Tealive will need to close down until the disposal of the Singapore Arbitral Proceedings.


First published on Digital News Asia on 17 July 2018

Postscript [30 August 2018]: Parties have come to an agreement in resolution of their disputes, in which the decision has also been made to stop all court or any other enforcement action against each other.

Download:-
1. High Court Judgement
2. Court of Appeal
2.1 Appeal Proper
2.2 Stay of Execution
2.2.1. Majority Judgement
2.2.2 Minority Judgment

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