The legal battle between La Kaffa International Co Ltd and Loob Holding Sdn Bhd, which has garnered much public attention, recently made its way to the Court of Appeal. The Court of Appeal handed down its decision on 27 June 2018.(1)

Facts

La Kaffa and Loob entered into an agreement (REDCA), wherein La Kaffa appointed Loob as the master franchisee of its bubble tea business, Chatime, in Malaysia. The parties later entered into another agreement (RERA) which superseded REDCA.

A dispute arose between the parties. La Kaffa gave Loob notice of arbitration in relation to the dispute in Singapore and alleged that Loob had breached RERA. Following the notice of arbitration, Loob immediately changed the name of the business (ie, Chatime) and began running the business under the name Tealive. Pending the disposal of the Singapore arbitral proceedings, both parties filed applications before the Kuala Lumpur High Court for interim injunctions under Section 11(1) of the Arbitration Act 2005. La Kaffa also applied to the high court to invoke its inherent jurisdiction.

In essence, La Kaffa was asking for both prohibitory orders (restraint of trade) and mandatory orders (return of property). Loob in turn sought to restrain La Kaffa from interfering with its Tealive business.

High court decision

The mandatory orders were granted in La Kaffa's favour, thus compelling Loob to return all materials relating to Chatime's trademarks and all proprietary information belonging to La Kaffa. However, the interim injunction to restrain Loob, its directors and employees from passing off La Kaffa's goodwill and reputation in the Chatime franchise was refused. The high court failed to see how such an interim measure could support, assist, aid or facilitate the Singapore arbitral proceedings. Loob's suit was dismissed with costs because the interim measures that it sought similarly did not support, assist, aid or facilitate the Singapore arbitral proceedings.

The high court additionally decided that La Kaffa could not rely on the court's inherent jurisdiction and the court could only exercise powers conferred by Section 11(1) of the Arbitration Act.

Both parties appealed to the Court of Appeal.

Court of Appeal decision

Inherent jurisdiction Under the Arbitration Act, courts are not ousted of their inherent jurisdiction or the power to order interim measures.

Section 8 of Arbitration Act provides that "no court shall intervene in matters governed by this Act, except where so provided in this Act".

The Court of Appeal disagreed with the high court's ruling that the courts have lost their inherent jurisdiction to act on matters relating to arbitration. The Court of Appeal emphasised that Section 8 of the Arbitration Act (which is similar to Article 5 of the United Nations Commission on International Trade Law Model Law) merely advocates minimum intervention by the courts, not no intervention at all.

In essence, this decision clarifies that the Arbitration Act does not oust the inherent jurisdiction or the powers of the courts to order interim measures. However, by virtue of Section 8, the court will be slow to provide relief which is not clearly spelled out in Arbitration Act.

Prohibitory injunction The Court of Appeal also took the position that La Kaffa's appeal in respect of the refusal to grant the prohibitory injunction must be allowed.

The Court of Appeal held that in concluding that a prohibitory injunction should not be granted, the high court had failed to consider the terms of the agreement and the Franchise Act 1998. The courts must ensure that the salient terms of the agreement and the statute are not breached. The mandatory injunction granted by the high court clearly supported Loob's breach of obligation. As such, the Court of Appeal allowed La Kaffa's appeal and granted a prohibitory injunction in its favour. Loob's appeal was dismissed.

The Federal Court has since granted a stay of the Court of Appeal order, allowing all Tealive stores to remain in operation pending a hearing of Loob's leave to appeal against the Court of Appeal's grant of the interim injunction.

It remains to be seen how the Federal Court will deal with the exercise of powers in relation to arbitration.

For further information on this topic please contact K Shanti Mogan at Shearn Delamore & Co by telephone (+60 320 272 727) or email (shanti@shearndelamore.com). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.

Endnotes

(1) La Kaffa International Co Ltd v Loob Holding Sdn Bhd (Civil Appeal W02(IM)(IPCV)1261-07/2017).

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