Taiwan’s La Kaffa alleges Malaysian franchisee used unapproved ingredients, and that Loob Holdings Bhd failed to pay royalties on time — for more than a year.

The Taiwanese company behind the Chatime franchise has finally spoken up on the reasons behind the sudden termination of its Malaysian franchisee.

Chatime franchisor La Kaffa has alleged Malaysian company Loob Holdings breached the terms of the franchisee agreement by using “raw materials that were not part of the approved recipe”, Channel News Asia (CNA) reported yesterday.

Additionally, La Kaffa alleged that Loob did not settle royalty fees in a timely manner.

“A substantial amount of money is owed to La Kaffa for a considerable period, with some amounts outstanding for more than a year,” La Kaffa told CNA.

On the raw materials allegation, La Kaffa believed it could jeopardise the brand’s image and cause serious loss to franchisees in the future.

Both companies have also initiated legal action against each other over the sudden termination notice, with Loob Holdings having lodged a police report last month, saying that the termination breached the terms of the agreement which gave the company franchisee rights until 2041.

Meanwhile, La Kaffa has launched its own legal action, alleging that Loob has been uncooperative.

“We decided to appoint a legal firm to handle the legal process because Loob Holdings decided not to respond to our requests to sit down and discuss the matter.

We are convinced that Malaysia is a country with a high degree of rule of law and a country that is absolutely committed to commercial integrity,” the Taiwan company was quoted as saying by the Singapore-based news broadcaster.

Malaysia is the second biggest market for Chatime, next to Taiwan. It was previously reported that Loob Holdings claimed the Malaysian outlets generated more than 50% of the food and beverage chain’s global revenue, excluding Taiwan.

On Jan 25, Loob Holdings CEO Bryan Loo said that the company was moving on following the termination and will be rebranding all the outlets it owns with the sudden termination of the Chatime contract.

Loo said the new brand will be launched next month after the 45-day winding down period is over, as stipulated in its agreement with La Kaffa.

La Kaffa is currently pursuing new franchise partners in Malaysia.