LAWASIA MOOT COMPETITION GREAT WALL NOODLE SHOP LLC. Claimant DR. ADI BUDIAMMAN. Respondent MEMORIAL FOR THE CLAIMANT

Transcription

1 LAWASIA MOOT COMPETITION 2012 GREAT WALL NOODLE SHOP LLC Claimant v. DR. ADI BUDIAMMAN Respondent MEMORIAL FOR THE CLAIMANT

2 TABLE OF CONTENTS INDEX OF AUTHORITIES I STATEMENT OF JURISDICTION 1 QUESTIONS PRESENTED 2 STATEMENT OF FACTS 4 SUMMARY OF PLEADINGS 7 I. THE LAW GOVERNING BOTH THE ARBITRATION AGREEMENT AND THE FRANCHISE AGREEMENT IS THE LAW OF SINGAPORE 10 A. Singapore law is the express choice of parties and should be applied under the Kuala Lumpur Regional Centre for Arbitration Fast Track Rules B. The application of conflict of laws rules similarly point to Singapore law as the governing law of the Arbitration Agreement and the Franchise Agreement (i) The Malaysian Arbitration Act requires the conflict of laws rules of the seat of arbitration to be applied (ii) Applying the conflict of laws rules of the seat is in the spirit of international arbitration practice (iii) Malaysian conflict of laws rules point to Singapore law as the governing law of the Arbitration Agreement and the Franchise Agreement II. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE.14 A. It satisfies the formal and substantial validity requirements under both Singapore and Indonesia law B. An award made by the Tribunal will be enforceable as it is not against public policy (i) It does not violate international public policy

3 (ii) It does not violate Indonesia s domestic public policy C. The difference in the availability of the remedy of specific performance to the Claimant and the Respondent does not invalidate the Arbitration Agreement (i) It does not violate the principle of good faith embodied in Article 1338 Indonesian Civil Code (ii) It was incorporated into the Franchise Agreement (iii) It satisfies the test of reasonableness under the Unfair Contract Terms Act (iv) It consists of distinct components III. THE FRANCHISE AGREEMENT IS VALID UNDER INDONESIA LAW.25 A. It is not invalidated by Article 31 of Law 24 of 2009 B. It is valid under Indonesia Franchise Laws IV. THE CLAIMANT GAVE THE RESPONDENT PROPER AND TIMELY NOTICE OF TERMINATION.27 A. The Claimant had terminated the Franchise in exercise of its contractual rights V. THE CLAIMANT WAS ENTITLED TO TERMINATE FOR ANY VIOLATION OF THE FRANCHISE AGREEMENT...29 A. Article XII(B) Franchise Agreement allows for such termination B. Strict conformity is of the essence to the Franchise Agreement, such that any violation of its standards entitles the Claimant to terminate

4 VI. THE INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING DOES NOT APPLY TO THE FRANCHISE AGREEMENT...31 A. At Singapore law, no general duty of good faith in contracts can be implied in law B. At Singapore law, no general duty of good faith arises in franchise agreements VII. THE RESPONDENT S BREACHES JUSTIFIED TERMINATION..33 A. Offering a single Indonesian dish as The Special of The Day breached Article III(A) Franchise Agreement B. Offering substitution of lamb for pork breached Article III(B) Franchise Agreement C. The uniform variation breached Article II(1)(G) Franchise Agreement D. Further and in the alternative, the above breaches, taken as a whole, indicated a continuing disregard of the Respondent s obligations VIII. PROHIBITING THE EMPLOYEES FROM WEARING THE HIJAB DOES NOT VIOLATE THE CONSTITUTION OF INDONESIA, INDONESIA LAW OR ANY INTERNATIONAL TREATIES TO WHICH INDONESIA IS A MEMBER...37 A. The employees rights to practise their religion is not limited B. The wearing of the hijab is not a practice of religion for the purposes of the Constitution of Indonesia C. The prohibition also applies to the Claimant s restaurants in Singapore and Malaysia CONCLUSION AND PRAYER FOR RELIEF 42

5 INDEX OF AUTHORITIES Singapore & English Judicial Decisions Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC Black-Clawson v Papierwerke [1981] 2 Lloyd s Rep C v D [2007] EWCA Civ Carlill v Carbolic Smoke Ball Co [1892] 1 QB Gibson v Manchester City Council [1979] 1 WLR Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd s Rep Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 SLR(R) Claxton Engineering Services Ltd v TXM Olaj-es GazkutatoKft [2010] EWHC L Estrange v F Graucob Ltd [1934] 2 KB Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB Press Automation Technology Pte Ltd v Trans-Link Exhibition Forwarding Pte Ltd [2003] 1 SLR(R) , 23, 24 Nitine Jantilal v BNP Paribas Wealth Management [2012] SGHC , 23 Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR(R) , 30 RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR(R) , 37 Ng Giap Hon v Westcomb Securities Pte Ltd [2009] 3 SLR(R) Telestop Pte Ltd v Telecom Equipment Pte Ltd [2004] SGHC Indonesia Judicial Decision Re Suryani, No. 19/PUU-VI/ Other Judicial Decisions Klockner Pentaplast Gmbh v Advance Technology [2011] HKEC Parsons & Whittemore Overseas Co Inc v Societe Generale de L Industrie du Papier (RAKTA) 508 F.2d 969 (2d Cir, 1974) CMS Energy Sdn Bhd v Poscon Corp [2008] 6 MLJ International Statutes UNCITRAL Model Law on International Commercial Arbitration 1985 Article 28(2) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards Article II(2).. 15 Article V(2)(b) 18 International Convention on Civil and Political Rights (16 December 1966), 999 UNTS 1057 (entered into force 23 March 1976) Article 18 37, 39, 40 Indonesia Statutes Indonesia Arbitration and Dispute Resolution Act, Law No. 30 of 1999 Article 1(3). 15 Article Indonesian Civil Code Article Article Article I

6 Article Law No. 12 of The Constitution of Indonesia Article 28E(1).. 38, 39 Law No. 39 of 1999 Article 22(2) 39 Singapore Statutes Application of English Law Act (Cap 7A, 1994 Rev Ed) Section International Arbitration Act (Cap 143A, 2002 Rev Ed) Article 7(2) First Schedule. 14 Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) Section 13(1)(b) Section 11(1) Second Schedule.. 24 Constitution of Singapore (1999 Reprint) Article Malaysia Statutes Arbitration Act 2005 (Act 646) Section 30(4)... 11, 12 Federal Constitution of Malaysia (2006 Reprint) Article Article Treatises & Commentaries Gary Born, International Arbitration: Cases and Materials, (Kluwer Law International, 2011). 10 Gary Born, International Commercial Arbitration (Kluwer Law International, 3 rd Ed, Halsbury s Laws of Malaysia vol 3 (LexisNexis Malaysia, 2009 Reissue) 13 Blackaby et al., Redfern & Hunter on International Arbitration (Oxford University Press, 5 th Ed, 2009) 15 The Law of Contract in Singapore (A Phang, gen ed) (Academy Publishing, 2012) 16 R. Subekti, The Law of Contracts in Indonesia Remedies of Breach (Haji Masagung, 1989) 17 Martijn W. Hesselink, The Concept of Good Faith, in Towards A European Civil Code (Arthur S. Hartkamp, Martijn W. Hesselink, Ewoud H. Hondius, Chantal Mak and C. Edgar du Perron, eds) (Kluwer Law International, 4th Ed, 2010) ch G. H. Treitel, The Law of Contract (11th Ed, Sweet & Maxwell, Journals & Articles Julian Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, ICCA Congress Series, 1998 Paris Volume 9). 11, 14 Carlo Croff, The Applicable Law in an International Commercial Arbitration: Is It Still a Conflict of Laws Problem? (1982) 16 Int l L Fred B. G. Tumbuan, Certain Indonesian Contract Law Principles That Are Relevant in International Arbitration (2008) 3 Indonesian Arbitration Quarterly Newsletter II

7 Ter Kah Leng, Assessing the Reasonableness of Exception Clauses (2011) 23 SAcLJ Heather Marie Akou, Interpreting Islam through the Internet: making sense of hijab, (2010) 4 Contemporary Islam Dima Dabbous-Sensenig, To Veil or Not to Veil: Gender and Religion on Al- Jazeera s Islamic Law and Life (2006) 3(2) Westminster Papers in Communications and Culture Web Resources Davidson and Rajoo, Arbitration Act 2005: Malaysia Joins the Model Law, The Malaysia Bar (10 July 2006) < malaysia_joins_the_model_law.html> 12 Lee, Koh and Tham, The Law of Contract, Singapore Academy of Law (30 April 2009) < 15 Makarim & Taira S, Indonesia: Law No. 24 of 2009 on the National Flag, Language, Emblem and Anthem (18 January 2012) < 4+of+2009+on+the+National+Flag+Language+Emblem+and+Anthem>. 19 Ministry of Education Singapore, International Student Admissions: General Information on Studying in Singapore < 20 Oxford Dictionaries Online < 27 The Pew Forum on Religion & Public Life website, < df> 40 Arbitration Rules Kuala Lumpur Regional Centre for Arbitration Fast Track Rules Article 6(1).. 10 III

8 STATEMENT OF JURISDICTION Great Wall Noodle Shop LLC (the Claimant ) and Dr. Adi Budiamann (the Respondent ) have agreed to submit the present dispute to arbitration in accordance with the Kuala Lumpur Regional Centre for Arbitration Fast Track Rules at a location acceptable to all parties. The agreement to submit to arbitration is embodied in Article XII Franchise Agreement. The Franchise Agreement was signed by Mr. Xuefeng Wang on behalf of Claimant, and the Respondent in his personal capacity. 1

9 QUESTIONS PRESENTED 1. Whether Singapore Law, Indonesia Law, and/or some other law, is the proper law to apply in resolving the dispute. 2. Whether the Arbitration Agreement is valid and enforceable. 3. Whether the Franchise Agreement is invalid under Indonesia Law; specifically under Article 31 of Law 24 of Whether Article XII of the Franchise Agreement is invalid and/or unenforceable because it authorises the granting of specific performance should the Respondent be found to have violated a provision of the Franchise Agreement while prohibiting the granting of specific performance should the Claimant be found to have violated a provision of the Franchise Agreement. 5. Whether proper and timely Notice of Termination was given to the Respondent. 6. Whether the Claimant may terminate the franchise for any violation of the Franchise Agreement or must the violation be substantial. 7. Whether the inherent warranty of good faith and fair dealing used in interpreting franchise agreements applies to this Franchise Agreement and, if so, whether a. by the serving of single Indonesian dish referred to as The Special of the Day ; b. by giving customers the option of substituting lamb for pork in menu items; c. by wearing of the new (white) hijab by the female Muslim employees; and/ or d. because the above violations of the Franchise Agreement reflect a continuing disregard of the Respondent s obligations under the Franchise Agreement termination was justified. 2

10 8. Whether an employment regulation prohibiting the wearing of a hijab by female employees Muslim employees or restricting the colour type of the hijab violates the Constitution of the Republic of Indonesia and/or the laws of Indonesia or any international treaties to which it is a member. 3

11 STATEMENT OF FACTS Signing of the Franchise Agreement 1 On 20 June 2011, Mr. Xuefeng Wang ( Wang ), who is a director of the Great Wall Noodle Shop LLC (the Claimant ), and Dr. Adi Budiamman (the Respondent ) met by happenstance at the Singapore Airlines Lounge in Changi Airport. Wang explained to the Respondent that he had visited Singapore for the purpose of seeing if Mr. Bao Shan ( Bao ), who is the Claimant s partner in Singapore, was interested in opening several franchise restaurants in Indonesia. However, Bao was not interested. 2 The Respondent expressed his interest in opening a few Chinese restaurants in Indonesia. Wang retrieved the Franchise Agreement (the FA ) from his briefcase and substituted Bao s name for the Respondent s on the contract, and explained the fee arrangements, as stipulated in paragraphs B, D, and F of Article V FA, in detail. 3 As Wang did not have the opportunity to go over the entire FA with the Respondent, he encouraged the Respondent to take the FA home to understand its terms. However, the Respondent was satisfied with reading the FA quickly and even referred to all the terms as lawyer mumbo jumbo. 4 The Respondent signed the FA before boarding his flight. 5 The next day, a copy of the FA and a Bahasa Indonesia copy were delivered to the Respondent. 4

12 6 In September 2011, two franchise restaurants were opened in Jakarta and Medan (collectively the Restaurants ). The First Inspection 7 In October 2011, Mr. Jianping Ji ( Ji ), the other director of the Claimant, made an unannounced visit to the Restaurants. Ji found several violations of the FA. Specifically, he found that traditional Indonesian dishes were being served in addition to food items on the Authorized Menu and that customers were allowed to request for pork to be substituted with lamb in the Chinese dishes. Further, he observed that some female employees were wearing red hijab which were not part of the official uniform. 8 On 4 November 2011, Ji sent an to the Respondent to follow up on the Respondent s violations. In his , Ji explained the importance of maintaining uniformity across the Claimant s franchises. He asked the Respondent to rectify the violations of the FA immediately. Further, he alerted the Respondent to a possibility of terminating the franchise if the violations continued. The Second Inspection 9 On 28 November 2011, an inspector visited the Restaurants. The inspector reported that an Indonesian dish, called The Special of the Day, was still being served at the Restaurants. The availability of this Indonesian dish was advertised on a chalk blackboard. The inspector also reported that female employees were wearing white hijab. 5

13 Termination of the Franchise 10 The next day, Wang and Ji sent a letter to the Respondent terminating the franchise. In it, the Respondent was directed to close the Restaurants and remove the signage within 15 days. 11 The Respondent refused to close the Restaurants. 6

14 SUMMARY OF PLEADINGS The law governing both the Arbitration Agreement and the Franchise Agreement is the law of Singapore 1 The parties expressly chose Singapore law to govern the AA and the FA. The KLRCA Rules obligates the Tribunal to give effect to the parties express choice. The Arbitration Agreement is valid and enforceable 2 There is a valid AA formed between parties in Article XII FA. The AA satisfies both the formal and substantial validity requirements under both Singapore and Indonesia law and does not violate any international and Indonesia law and public policy. The Franchise Agreement is valid under Indonesia law 3 There was no violation of Article 31 of Law 24 of The FA is also valid under Indonesia Franchise Laws as the FA had complied with the relevant government regulations requiring registration of the franchise. The Claimant gave the Respondent proper and timely Notice of Termination 4 The Claimant s right to terminate could be exercised at the Claimant s discretion given appropriate circumstances. Further, even if Article VIII FA gave the Respondent a right to be notified before termination, the Claimant more than satisfied the five-day period of notice stated in that clause. 7

15 The Claimant was entitled to terminate for any violation of the Franchise Agreement 5 Article XIII(B) FA gave the Claimant the right to terminate for any substantial violation of the terms and conditions of this Agreement we deem substantial. A violation is substantial for the purposes of Article XII(B) if the Claimant deems it to be so. Further, strict conformity was a condition of the FA, without which the Claimant would never have contracted. The inherent warranty of good faith and fair dealing does not apply to the Franchise Agreement 6 Singapore case law establishes that no general duty or warranty of good faith can be implied in contracts. Further, no duty of good faith has yet been recognised as arising in franchise agreements specifically. The Respondent s breaches justified termination 7 The Respondent s variations to the standard menu, to the ingredients used, and to the employees uniform breached Articles III(A), III(B) and II(1)(G) FA respectively. Even if substantial violations were required, the violations were indeed substantial, for they detracted significantly from the uniformity essential to maintaining the strength of the Claimant s brand. Further, the fact that the breaches went unremedied even after notification demonstrated the Respondent s continuing disregard for his obligations. Prohibiting the employees from wearing the hijab does not violate the Constitution of Indonesia, Indonesia law or any international treaties to which Indonesia is a member 8 The employees right to freedom of religion was not limited. Further, wearing of the hijab is not a practice of religion. There has also been no similar complaint in Singapore and 8

16 Malaysia. These countries are similar to Indonesia as they have significant Muslim populations. 9

17 PLEADINGS I. THE LAW GOVERNING BOTH THE ARBITRATION AGREEMENT AND THE FRANCHISE AGREEMENT IS THE LAW OF SINGAPORE 1 In determining the law governing the Franchise Agreement (the FA ) and the Arbitration Agreement (the AA ) (collectively the Agreements ), the Tribunal will be required to select the applicable substantive law either by directly applying a substantive law, or by applying a set of conflict of laws rules ( conflict rules ). 1 A. Singapore law is the express choice of parties and should be applied under the Kuala Lumpur Regional Centre for Arbitration Fast Track Rules 2 Article XII (Dispute Resolution) of the FA ( Article XII ) contains the AA between the Claimant and the Respondent (collectively the parties ). 3 The parties had agreed to settle any disputes by arbitration in accordance with the Kuala Lumpur Regional Centre for Arbitration Fast Track Rules 2 ( KLRCA Rules ). Article 6(1) KLRCA Rules requires that the Tribunal shall apply the law designated by the parties as applicable to the substance of this dispute. 4 Article XII states, This agreement and the parties rights under it and the relationship between the parties shall be governed by, and will be interpreted in accordance with the laws of Singapore (emphasis added). Since the parties chose 1 Gary Born, International Arbitration: Cases and Materials, (Kluwer Law International, 2011), p902 2 Moot Problem p29 10

18 Singapore law to apply to Article XII, the Tribunal must give effect to the parties choice. This approach of giving effect to the express choice of parties is also consistent with arbitration practice. 3 5 Accordingly, Singapore law governs both the Agreements. B. The application of conflict of laws rules similarly point to Singapore law as the governing law of the Arbitration Agreement and the Franchise Agreement 6 Even if the Tribunal declines to apply the direct approach, the conflict rules approach can also be used to determine the law applicable to both the AA and the law governing the substantive rights, obligations and performance of the FA. 4 7 Article 6(2) KLRCA Rules mandates that the seat of arbitrations applying the KLRCA Rules shall be Malaysia. Courts in countries adopting the UNCITRAL Model Law on International Commercial Arbitration 1985 ( Model Law ), as Malaysia does, have held that the governing law of the arbitration agreement is the law of the seat. 5 8 Since the seat of the arbitration is Malaysia, the Malaysian Arbitration Act 6 ( MAA ) applies. Section 30(4) MAA requires the Tribunal to apply the law 3 Julian Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, ICCA Congress Series, 1998 Paris Volume 9 pp [hereinafter Lew], p138 4 Lew, p135 5 Klockner Pentaplast Gmbh v Advance Technology [2011] HKEC 941, [26] and [33]; Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, 357A 358A; C v D [2007] EWCA Civ. 1282, [26]; Black-Clawson v Papierwerke [1981] 2 Lloyd s Rep. 446, Arbitration Act 2005 (Act 646) 11

19 determined by the conflict of laws rules. The conflict rules referred to in Section 30(4) are those of the seat of arbitration, Malaysia. This is required by the MAA and is also in the spirit of international arbitration practice. (i) The Malaysian Arbitration Act requires the conflict of laws rules of the seat of arbitration to be applied 9 Section 30(4) MAA does not afford the Tribunal the choice of the conflict rules it considers appropriate. It differs from its Model Law counterpart in Article 28(2) Model Law which provides that the Tribunal shall apply the law determined by the conflict of laws principles which it considers applicable. 10 As the MAA was meant to implement the Model Law with modifications, 7 almost all the provisions in the MAA follow their Model Law counterpart to the letter. Section 30(4) MAA s departure from Article 28(2) Model Law must therefore be deliberate. This is indicative of Parliament s intent to constrain the Tribunal to a single set of conflict rules. Since the Tribunal does not have the freedom to apply the conflict rules which it considers applicable, the conflict rules in the MAA must refer to Malaysia s conflict rules. 7 Davidson and Rajoo, Arbitration Act 2005: Malaysia Joins the Model Law, The Malaysia Bar (10 July 2006) < model_law.html> (accessed 11 September 2012) 12

20 (ii) Applying conflict of laws rules of the seat is in the spirit of international arbitration practice 11 Utilising the conflict rules of the seat promotes predictability and uniformity of result and avoids the complexity and ambiguity of arbitrators deciding between various existing conflicts rules, or even developing new ones The conflict rules of the seat are able to function as a neutral and non-partisan set of rules. Furthermore, they are also derived from a place which the parties can be considered to have impliedly regarded as acceptable Applying the conflict rules of the seat is therefore practical, and consistent with the aim of international arbitration of respecting parties will. 10 (iii) Malaysian conflict of laws rules point to Singapore law as the governing law of the Arbitration Agreement and the Franchise Agreement 14 Under Malaysian conflict rules, a Tribunal would have to determine the proper law of the contract. Primarily, the system of law governing the contract would be that which the parties choose or intended. Where their intention is neither expressed nor to be inferred from the circumstances, the system of law which the transaction has its closest and most real connection would prevail Carlo Croff, The Applicable Law in an International Commercial Arbitration: Is It Still a Conflict of Laws Problem? (1982) 16 Int l L 613 [hereinafter Croff], Gary Born, International Commercial Arbitration (Kluwer Law International, 3rd Ed, 2009), p Croff, Halsbury s Laws of Malaysia vol 3 (LexisNexis Malaysia, 2009 Reissue), [90.156] 13

21 15 Singapore law governs the Agreements as it is the express intent of the parties. 12 Since there is an express choice of law, the Tribunal does not need to apply the closest connection test. 16 Accordingly, regardless of the approach adopted by the Tribunal, both point to Singapore law as the governing law of the Agreements. II. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE A. It satisfies the formal and substantial validity requirements under both Singapore and Indonesia law 17 The direct effect of an arbitration agreement is to establish a special forum for disputes between the parties and to exclude the jurisdiction of the national court that would otherwise have had jurisdiction. 13 Thus, it is vital that the Tribunal examines the two types of validity of the arbitration agreement: the formal validity and the substantial validity. 18 The AA satisfies the formal validity requirements of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ( NYC ), the Singapore International Arbitration Act ( SIAA ) 14 and the Indonesia Arbitration and Dispute Resolution Act ( IADRA ) See [4] above 13 Lew, International Arbitration Act (Cap 143A, 2002 Rev Ed) 15 Indonesia Arbitration and Dispute Resolution Act, Law No. 30 of

22 19 The formal requirement under Article II(2) NYC requires that the arbitration agreement be in writing and signed by the parties. Similarly, the Article 7(2) First Schedule SIAA and Article 1(3) IADRA require the arbitration agreement to be in writing. The requirement for writing is especially relevant as evidence of the ousting of the jurisdiction of the court The formal validity of the arbitration agreement under NYC, SIAA and IADRA is satisfied. There is a written arbitration agreement between the parties in Article XII, which was signed by the parties In determining the substantial validity of the arbitration agreement, the Tribunal has to consider whether there was an agreement to arbitrate under the applicable law. 22 It should be noted that contract law in Singapore is largely based on the common law of contract in England. 18 Indeed, where there is no Singapore authority specifically on point, it will usually be assumed that the position will be no different from that of England Under Singapore law, a contract is formed when there is a valid offer by one party and an acceptance of that offer by the other party. 20 The essential requirement of an offer is that the party making it intends to be bound by its acceptance. 21 Such an intention to be bound will be made out if the essential terms of a contract have been 16 Blackaby et al., Redfern & Hunter on International Arbitration (Oxford University Press, 5 th Ed, 2009), p89 17 Moot Problem p33 18 Section 3 Application of English Law Act (Cap 7A, 1994 Rev Ed) 19 Lee, Koh and Tham, The Law of Contract, Singapore Academy of Law (30 April 2009) < (accessed 11 September 2012) 20 Carlill v Carbolic Smoke Ball Co [1892] 1 QB 256, Gibson v Manchester City Council [1979] 1 WLR 294,

23 established. 22 Article XII constituted an offer from the Claimant as it contains essential terms of the contract including fees and royalties, place of performance and the parties. 24 An acceptance is an unqualified expression of assent to the terms proposed by the offeror. 23 An acceptance must generally be communicated to the offeror 24 or through the conduct of the offeree. 25 The test is whether there has been an objective intention to be bound by the terms. 26 Objectively, the Respondent had communicated his assent to be bound by the terms proposed by the Claimant by signing on the contract, 27 and proceeding to open the Jakarta and Medan restaurants (collectively the Restaurants ) Alternatively, the Respondent had accepted the offer by conduct when he received a translated Bahasa Indonesia copy of the FA (the Bahasa copy ) on 21 June and proceeded to perform the contract by opening the Restaurants Further, it is irrelevant that the Respondent did not read the whole contract before signing it. Under Singapore law, the person signing the contract is bound by all the terms contained in the document whether he read it or not Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd s Rep. 601, Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 SLR(R) 332, [47] 24 Claxton Engineering Services Ltd v TXM Olaj-es GazkutatoKft [2010] EWHC 2567, [29] 25 The Law of Contract in Singapore (A Phang, gen ed) (Academy Publishing, 2012), [03.105] 26 Ibid. 27 Moot Problem p33 28 Id., p3 29 Id., p2 30 Id., p3 31 L Estrange v F Graucob Ltd [1934] 2 KB 394,

24 27 Under Indonesia law, there is a valid contract if the four conditions in Article 1320 Indonesian Civil Code ( ICC ), namely, consent, capacity of parties, a specific subject matter and a legal cause are satisfied. 28 The Respondent had voluntarily consented to the agreement by signing on it. As a general rule, all persons are legally capable of entering contracts except those who are declared incapable by law. 32 Article 1330 ICC states that minors, individuals under guardianship and married women are incapable of concluding contracts. Since the Respondent was neither a minor nor a person under guardianship, he had the capacity to enter into a contract. There was a specific subject matter in the agreement as the FA contained a clear description of what is agreed to. Legal cause means that what has to be performed by either party is not contrary to the law, public order or public morality. 33 Since the performance of the FA is not contrary to law, public order or public morality, the legal cause element is satisfied. 29 A contract is concluded at the moment the party who has made an offer is notified of the acceptance of the offer. 34 The contract between parties was thus concluded when the Respondent signed the FA at Changi Airport and returned the original to the Claimant. 32 Article 1329 ICC 33 R. Subekti, The Law of Contracts in Indonesia Remedies of Breach (Haji Masagung, 1989), p5 34 Id., p6 17

25 B. An award made by the Tribunal will be enforceable as it is not against public policy 30 Under Article V(2)(b) NYC, recognition and enforcement of an arbitration award may be refused if the competent authority of the enforcement country finds that the recognition or enforcement of the award would be contrary to the public policy of that country. (i) It does not violate international public policy 31 The public policy exception should be construed narrowly and should only be applied where enforcement would violate the most basic notions of morality and justice. 35 Since no issues of morality and injustice would arise in an award made by this Tribunal, the award would be enforced under the NYC. (ii) It does not violate Indonesia s domestic public policy 32 Since an award by the Tribunal would necessarily be enforced in Indonesia, the place of the performance of the contract, the Tribunal should consider the domestic public policies of Indonesia. Indonesia is a signatory to the NYC. 36 Article 66(c) IADRA states, An international arbitration award can be enforced in Indonesia unless it 35 Parsons & Whittemore Overseas Co Inc v Societe Generale de L Industrie du Papier (RAKTA) 508 F.2d 969 (2d Cir, 1974), [9] 36 New York Arbitration Convention Contracting States < (accessed 11 September 2012) 18

26 violates public order. It has been suggested that the Indonesian courts equate mandatory rules with public policy Article 31 Law 24 of 2009 ( Law 24 ) states that [the] Indonesian language must be used for a memorandum of understanding or an agreement which involves Indonesian parties, not only Indonesian State Owned Enterprises and government institutions, but also Indonesian companies and individuals 38 (emphasis added). 34 There was no violation of Law 24 because the agreement between parties was made when the Bahasa copy was sent to the Respondent, who accepted it through his conduct Even if the Tribunal finds that the agreement between parties was made through the English copy of the FA and thus was a violation of Law 24, Law 24 does not provide for any sanctions for violations of the obligation to use the Indonesian language in agreements. 36 Further, the implementing regulation of Law 24 was to be introduced by 9 July 2011 but has not been so as of Accordingly, a violation of Law 24 is not sufficiently severe to amount to being against the public policy of Indonesia. 37 Fifi Junita, Refusing enforcement of foreign arbitral awards under Article (V)(2)(b) of the New York Convention: The Indonesian Perspective, (2009) 2 Contemp Asia Arb. J 301, Herbert Smith Update: Indonesian language requirement for contracts - current position (20 November 2009) < 0Indolanguagereq.htm> (accessed 11 September 2012) 39 See [24] [25] above 40 Makarim & Taira S., Indonesia: Law No. 24 of 2009 on the National Flag, Language, Emblem and Anthem (18 January 2012) < on+the+National+Flag+Language+Emblem+and+Anthem> (accessed 11 September 2012) 19

27 37 Further, it may be inferred that the purpose of Law 24 is to ensure that the citizens of Indonesia fully understand the rights and obligations of the contracts which bind them. As the Respondent holds an MD from the United States and an MBA 41 and had studied in Singapore for 7 years 42 where English is the medium of instruction, 43 he was fully capable of understanding his rights and obligations under the FA. Thus, the purpose of Law 24 was not contravened and there is no violation of Indonesia s domestic policy. 38 Accordingly, any award by the Tribunal would be enforceable in Indonesia. C. The difference in the availability of the remedy of specific performance to the Claimant and the Respondent does not invalidate the Arbitration Agreement 39 Article XII authorises the granting of specific performance should the Claimant be found to have violated a provision of the FA while prohibiting the granting of specific performance should the Respondent be found to have violated a provision of the FA. 40 This difference in remedies available to each party does not invalidate the AA. 41 First Clarifications C Second Clarifications SR#20 43 Ministry of Education Singapore, International Student Admissions: General Information on Studying in Singapore < (accessed 11 September 2012) 20

28 (i) It does not violate the principle of good faith embodied in Article 1338 Indonesian Civil Code 41 Article 1338 ICC states, Agreements must be performed in good faith Article XII does not violate Article 1338 ICC because it is reasonable and justified. Additionally, Mr. Xuefeng Wang ( Wang ), the Claimant s representative, had negotiated the FA in good faith during the meeting at Changi Airport ( the Meeting ). 43 Article XII is reasonable and justified. First, it is reasonable because the Respondent is not prevented from seeking other remedies such as compensation of costs, damages and interest. 45 Given that the Restaurants were set up solely for the purpose of generating profit, monetary awards would adequately remedy any breach by the Claimant. 44 Second, Article XII is justifiable because it seeks to protect the business interests of both the Claimant and all its franchisees. One of the main business interests of the Claimant and its franchisees is the maintenance of uniformity across all franchise restaurants. Any violation by a franchisee will place the businesses of the other franchisees in jeopardy. Hence, Article XII, which gives the Claimant the right to pursue the remedy of specific performance, is especially necessary for the Claimant 44 Fred B. G. Tumbuan, Certain Indonesian Contract Law Principles That Are Relevant in International Arbitration (2008) 3 Indonesian Arbitration Quarterly Newsletter 19, Article 1267 ICC 21

29 to exercise control over the Respondent for the purpose of maintain uniformity across all franchise restaurants. 45 At the Meeting, Wang had suggested to the Respondent that he take his time to review the terms of the FA before signing it. 46 Wang s conduct reflects that he took into account the Respondent s interest. 46 Despite the fact that he was under no pressure to commit to the FA, the Respondent expressed his commitment to be bound by the terms. 47 (ii) It was incorporated into the Franchise Agreement 47 The English case of Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd 48 established the rule that where a contractual clause contains a particularly onerous or unusual condition, the party seeking to enforce that condition has to show that it had been brought fairly and reasonably to the attention of the other party. However, the Singapore court has consistently decided that this rule does not apply to cases where there is a signed contract Moot Problem p2 47 Ibid. 48 [1989] 1 QB 433, Press Automation Technology Pte Ltd v Trans-Link Exhibition Forwarding Pte Ltd [2003] 1 SLR(R) 712 [hereinafter Press Automation], [39]; Nitine Jantilal v BNP Paribas Wealth Management [2012] SGHC 28 [hereinafter Nitine Jantilal], [11] 22

30 48 In essence, the Singapore court s position is that [c]ontracting parties must have a care for their own legal positions by ascertaining what terms are to be part of a contract before signing it The Respondent signed the FA at the Meeting. Accordingly, it is no longer open to him to argue that Article XII is invalid because he failed to read or understand it, or that Wang had not brought his attention to the onerous or unusual provisions that deny him the remedy of specific performance. 51 In any event, he had failed to care for his own legal position. (iii) It satisfies the test of reasonableness under the Unfair Contract Terms Act 50 Under Singapore law, Article XII may amount to an exemption clause within the meaning of the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) ( UCTA ). 52 However, it remains valid because it satisfies the requirement of reasonableness prescribed by UCTA. 51 To satisfy the requirement of reasonableness, it must be shown that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. 53 Hence, the time for 50 Press Automation, [40] 51 Nitine Jantilal, [11] 52 Section 13(1)(b) UCTA 53 Section 11(1) UCTA 23

31 determining the reasonableness of an exception clause should be the time at which the contract was made and not the time when it was breached An important factor in applying the reasonableness test is the relative bargaining power of the parties Notably, during the time at which the FA was entered into, there was an absence of a concentration of bargaining power on the Claimant s side. The Respondent was given the opportunity review the FA over a longer period of time. This presented him with the opportunity to seek a more favourable term. Nevertheless, he chose to sign the FA hurriedly. 54 Accordingly, the reasonableness test would be satisfied. (iv) It consists of distinct components 55 Even if the Tribunal finds that the difference in the availability of remedies violates the principle of good faith and/or UCTA, the only consequence would be that only the offending elements of Article XII, and not the whole clause, would be found invalid. 56 Deleting only the offending segments of the clause is favourable. First, the provisions pertaining to remedies are distinct components of Article XII and may be struck out 54 Press Automation, [44] 55 Second Schedule UCTA; Ter Kah Leng, Assessing the Reasonableness of Exception Clauses (2011) 23 SAcLJ 577,

32 without affecting the rest of the clause. This is akin to the blue pencil test applied in Singapore. This test allows the court to find one part of a clause unenforceable but uphold the other portions if such severance would not alter the nature of the contract Second, severing the offending provisions would be in line with the policy to uphold arbitration agreements in Malaysia, 57 where the arbitration award may be set aside, and Indonesia, 58 where the arbitration award would be enforced. III. THE FRANCHISE AGREEMENT IS VALID UNDER INDONESIA LAW A. It is not invalidated by Article 31 of Law 24 of The AA is contained within the FA. Since Law 24 does not render the AA invalid, 59 the FA would similarly be valid under Law 24. Further, in various seminars held to discuss Law 24, officials of the Ministry have expressed a view that the Indonesian language requirement in Law 24 is guidance only and is voluntary on the basis that there is no stated sanction for non-compliance. Since there are no sanctions for violations of Law 24, the FA would not be invalidated. 56 Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR(R) 66 [hereinafter Man Financial], [127] 57 CMS Energy Sdn Bhd v Poscon Corp [2008] 6 MLJ 561, [18] 58 Article 3 IADRA 59 See [34] [37] above 25

33 B. It is valid under Indonesia Franchise Laws 59 There are two franchise related laws in Indonesia, namely, the Business Franchise Guide (Government Regulation No. 16/1997) ( GR 16 ) and the Government Regulation on Franchise (Law No. 42/2007) ( GR 42 ). 60 Article 2(2) GR 16 states that a franchise agreement shall be drawn up in Indonesian and shall be subject to the Indonesian laws. However, in the new franchise regulations GR 42, there is no longer a requirement that a franchise agreement be drawn up in Indonesian. Instead, Article 4(2) GR 42 states if the agreement is written in a foreign language, it must be translated to Indonesian. Further, it is not mandatory for a franchise agreement to be subject to Indonesian laws. Instead, the agreement now only has to observe Indonesian laws. The differences between the two regulations must be intentional and is indicative of legislative intent to loosen franchise regulations to encourage foreign investment. GR 42 is the applicable franchise law as it is more recent and thus accurately represents Indonesia s legislative intent. 61 The FA is valid under Indonesia law because the requirements under Article 2 GR 42 have been met. The FA between parties was written in English and was translated into Bahasa Indonesia. The Bahasa copy had been sent to the Respondent the day after the English copy had been signed Moot Problem p2 26

34 62 The FA between parties also observed Indonesia law. Oxford Dictionaries defines observe as fulfil or comply with (a social, legal, ethical, or religious obligation). 61 Since the Respondent had complied with the relevant government regulations requiring registration of the franchise, and had obtained the necessary Franchise Certificate, 62 the FA had necessarily observed Indonesian law and is therefore valid. IV. THE CLAIMANT GAVE THE RESPONDENT PROPER AND TIMELY NOTICE OF TERMINATION A. The Claimant had terminated the Franchise in exercise of its contractual rights 63 Article XIII(B) FA ( Article XIII(B) ) gave the Claimant the right to terminate the FA for any substantial violation of the terms and conditions of this Agreement [which they] deem substantial (emphasis added). 64 Article VIII FA ( Article VIII ) gave the Claimant the right to inspect the Restaurants without prior notification to the Respondent. It also stipulated that the Respondent had to correct deficiencies detected during such inspection within five days of receiving notice from the Claimant. 65 With regard to Article XIII(B), the Claimant had deemed the Respondent s violations to be substantial as the importance of maintaining uniformity through all the franchise restaurants was paramount. This was explained to the Respondent by Mr. 61 Oxford Dictionaries Online < (accessed 11 September 2012) 62 Second Clarifications SR#3 27

35 Jianping Ji ( Ji ) when he inspected the Restaurants in late October 2011 and again in his to the Respondent on 4 November 2011 (the 4 November ) With regard to Article VIII, the Claimant had given the Respondent more time than it was entitled to remedy the defects. The Claimant conducted a second inspection two weeks after the 4 November was sent 64 even though the Respondent was contractually entitled to only five days by virtue of Article VIII. 67 Further, the Claimant had made an effort to point out to the Respondent the specific violations and warned him that continued violations would warrant termination of the FA Admittedly, the Respondent tried to address the violations. Nevertheless, these violations remained uncured at the time of the second inspection. Even though the Respondent served only one Indonesia dish and allowed employees to wear only white hijab instead of red ones, he still failed to conform strictly to the Authorized Menu 66 and Article II(G) FA. 69 As such, the Respondent cannot claim that the changes resulting in employees wearing white hijab and the serving of only one Indonesian dish should be considered fresh violations so that he was entitled to another five days from the time 63 Moot Problem p3 64 Moot Problem p4 65 Ibid. 66 Moot Problem p

36 of the Second Inspection to cure the defects. 67 Instead, the Respondent s actions amount to persistent breaches of the Franchise Agreement. 70 Accordingly, the letter sent by Wang and Ji on 29 November 2011 constitutes proper and timely Notice of Termination. V. THE CLAIMANT WAS ENTITLED TO TERMINATE FOR ANY VIOLATION OF THE FRANCHISE AGREEMENT A. Article XII(B) Franchise Agreement allows for such termination 71 Article XII(B) FA ( Article XII(B) ) provides that We [the Claimant] have the right to terminate this Agreement for any substantial violation of the terms and conditions of this Agreement we deem substantial. It is possible to interpret this as requiring two conditions to be met that the violation must be (objectively) substantial and (subjectively) deemed to be substantial by the Claimant. However, this interpretation would not be reasonable. The Claimant in asserting that a violation was objectively substantial would, in so doing, necessarily be deeming that violation to be substantial. The requirement of deeming would thus be wholly otiose. 72 The only reasonable interpretation is that a violation is substantial for the purposes of Article XII(B) if the Claimant deems it to be so. Such an interpretation does not give the Claimant excessive power, for there still must be a violation of the FA for the Claimant to exercise its right to terminate under Article XII(B). 67 Moot Problem p5 29

37 B. Strict conformity is of the essence to the Franchise Agreement, such that any violation of its standards entitles the Claimant to terminate 73 Even without relying on Article XII(B), the Claimant is entitled to terminate for any non-de minimis violation of the FA. Under Singapore law, one situation in which breach of a term allows for termination is where the term breached is a condition. 68 Recital 4 FA ( Recital 4 ) has the effect of bringing all the franchise standards within the operation of the said situation. 74 Man Financial established that focus of the court, in determining whether a term was a condition, was to construe the contract in light of the surrounding circumstances, so as to determine whether the term was so important that the parties intended to allow for termination upon breach. 69 Recital 4, whether in itself or taken together with the commercial context of the FA, demonstrates that the parties intended all the terms of the FA to be conditions. 75 Under Recital 4, the Respondent undertook to operate [his] franchised business in strict accordance and conformity with the standards, specifications and procedures as set forth in this AGREEMENT (emphasis in original). 70 He further acknowledged that failure to meet those standards would have a deleterious effect on 68 RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR(R) 413, [97] [98] [hereinafter RDC Concrete]; Man Financial, [159] [174]. 69 Man Financial, [179] 70 Moot Problem p8 30

38 the Claimant s brand as a whole, not just on the business of the offending branch. 71 This demonstrates the importance of strict compliance with the terms of the FA. 76 But for the Claimant s agreement to comply strictly with those standards, the Respondent would never have entered into the contract, for fear of the damage that violations of that standard could do to the unified brand image that the Claimant had already built up in China, Singapore and Malaysia. This is borne out by Ji s subsequent correspondence with the Respondent, wherein he reiterated the overriding importance of maintaining uniformity and elaborated, with greater specificity, the reasoning found in the FA. 72 VI. THE INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING DOES NOT APPLY TO THE FRANCHISE AGREEMENT A. At Singapore law, no general duty of good faith in contracts can be implied in law 77 The implication in law of a general duty of good faith in contracts cannot succeed in light of the leading case of Ng Giap Hon v Westcomb Securities Pte Ltd. 73 That case unequivocally ruled out any possibility of a Singapore court applying the doctrine of good faith in contract until the theoretical foundations as well as the structure of this doctrine are settled. 74 Even a cursory survey of the academic literature shows that that pre-condition which is necessary, but not sufficient, for the introduction of the 71 Id., p9 72 Id., p4 73 [2009] 3 SLR(R) Id., [60] 31

39 doctrine into Singapore law has not yet obtained, for there is considerable variance of academic opinion on the content and nature of good faith. 75 Thus, there can currently be no general duty of good faith in contracts at Singapore law. B. At Singapore law, no general duty of good faith arises in franchise agreements 78 The argument that a duty of good faith arises out of the special character of franchise agreements cannot be sustained. Such an argument was attempted in Telestop Pte Ltd v Telecom Equipment Pte Ltd. 76 The Court in that case, although declining to consider the claim due to its having been improperly pleaded, made it clear that the existence of such a duty in franchise agreements had yet to be recognised at Singapore law. 77 It thus left a future Singapore court to decide the issue, should it arise. So far, no such case has presented itself. 75 See generally Martijn W. Hesselink, The Concept of Good Faith, in Towards A European Civil Code (Arthur S. Hartkamp, Martijn W. Hesselink, Ewoud H. Hondius, Chantal Mak and C. Edgar du Perron, eds) (Kluwer Law International, 4th Ed, 2010) ch 27, pp , discussing the uncertain content of good faith as a norm within the EU; Simon Whittaker and Reinhard Zimmerman, Good Faith in European contract law: surveying the legal landscape, in Good Faith in European Contract Law (Reinhard Zimmerman and Simon Whittaker, eds) (Cambridge University Press, 2000), pp7 62, on the differences between (inter alia) the notions of Roman bona fides, German treu und glauben, French bonne foi, and English good faith. 76 [2004] SGHC Id., [67] 32