Chatime dispute a wake-up call for Malaysian franchising industry: MFA

The highly publicised dispute over the Chatime franchise highlights the need for better understanding of the mutually beneficial relationship between franchisors and franchisees, according to the Malaysian Franchise Association (MFA).

According to the MFA, franchise agreements provide a win-win situation for both parties, but the challenges inherent are the knowledge and capacity to observe the required conduct by both parties in keeping with the spirit of the agreement.

“The lessons (from disputes) are that one must have full understanding of the business and that one must not be arrogant. Be able to open up and seek prudent views in approaching the issues. You don’t want to waste money on disputes because we want that valuable time to do business,” MFA chairman Datuk Mohd Latip Sarrugi told, explaining that legal fees for franchise disputes can cost RM50,000 to RM100,000.

He said MFA, which has over 300 members, was not approached to mediate in the dispute between Loob Holding Sdn Bhd, the master franchisee for the Chatime brand in Malaysia, and Taiwanese franchisor La Kaffa International Co Ltd.

Loob is not a member of MFA.

“Hypothetically, when members have problem, we normally encourage them to discuss things amicably so that they’re not known to be having issues in the relationship (between franchisor and franchisee), which is not good for growth of that particular brand, nor is it good for the industry. Prudent business normally understands. They don’t want to wash dirty linen in public. If both parties have good conscience and want to do business, they normally settle the issues,” said Latip.

He said over the years, the Malaysian franchise industry has grown and its stakeholders, including franchisors and franchisees, have become more knowledgeable, and tolerance has always been the basis of moving forward.

“I appeal that during these difficult (economic) times, be understanding because this is the time a good franchisor will be seen to be able to guide franchisees in the business. Any changes in the mode of doing business must not result in less favourable (outcome) to the franchisees. The Franchise Act 1998 came into being to regulate the conduct of franchisors and franchisees doing business in this country,” said Latip.

The Franchise Act 1998 states that any changes in the franchise documents must be filed with the Registrar of Franchise under the Ministry of Domestic Trade, Cooperatives and Consumerism. The registrar can take action against the relevant party for an offence under the Act.

The minimum term for a franchise in Malaysia is five years.

Latip said if a franchisee has defaulted, the franchisor must send a notice to the franchisee to remedy the breach, giving 14 days before any further action is taken.

He highlighted that businesses, especially master franchisees, should consult legal advisers before and during the commencement of business to understand the franchise agreement, and not seek legal advice only when things have turned sour.

“The language in the (franchise) agreement is not ordinary language. You may understand the language but you may not be able to foresee the consequences. There are a lot of details to be aware of. Franchisees should equip themselves before embarking on the franchise business.

"Franchisees must not get lured by the external look of the franchise brand and fashion, because they’re going in for a long-term relationship," said Latip.

Loob, which is expected to unveil its new brand of tea stores by March 6, has lodged a police report against brand owner La Kaffa and is committed to keeping its 165 outlets in Malaysia open. The dispute between Loob and the franchisor came out in the open following La Kaffa’s announcement early last month that it had terminated the franchise and would immediately take over all the 165 Chatime outlets in the country. - The Sun