MEMORIAL FOR CLAIMANT

Transcription

1 AT KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION MEMORIAL FOR CLAIMANT Claimant Great Wall Noodle Shop LLC Respondent Adi Budiamman, M.D.

2 TABLE OF CONTENS LIST OF ABBREVIATIONS... V RULES AND LAWS... Ⅵ INDEX OF AUTHORITIES... Ⅶ SCOLARLY WORKS... Ⅶ INDEX OF CASES... ⅩⅢ STATEMENT OF JURISDICTION... 1 QUESTIONS PRESENTED... 2 STATEMENT OF FACTS... 4 SUMMARY OF PLEADINGS... 6 PLEADINGS... 8 PART ONE: ARGUMENT ON PROCEDURE Applicable law Malaysian Law should be applied for deciding the validity of the arbitration agreement Singapore Law should be applied to substantive law issues The Arbitration Agreement is valid and enforceable Existence of a binding commitment by the parties to refer to arbitration Writing requirement i

3 3. The Franchise Agreement is also valid even under Indonesian Law Indonesian Law should not be applied The Agreement does not violate Art.31 of Law 24 of The Article XII of the Franchise Agreement (Dispute Resolution) is fair and valid The applicable law to the arbitration agreement is the law of Malaysia Dispute Resolution Clause is valid in relation with Article 12 of the First Track Rules Part III A of CPA does not apply to the Article XII of this Agreement Part III A of CPA applies only to the consumer contract The Franchise Agreement is excluded from the range of application of CPA Article XII of this Agreement is not against fairness The Article XII of the Agreement is not against the procedural fairness in the Section 24 C The Article XII of the Agreement is not against the substantial fairness in the Section 24 D The freedom of contract as a principle The application of CPA or the Article 12 of KLRCA First Track Rules do not affect the validity of the Arbitration Agreement PART TWO: ARGUMENT ON MERITS Claimant can terminate the Agreement when the violation leads to the decline of the reputation on the brand ii

4 2 Inherent warranty of good faith and fair dealing does not apply to this Franchise Agreement Claimant has to takes the risk of disorder caused by the abusive behaviors by Respondent The Special of the Day justifies the termination of the franchise The Special of the Day is a violation of the Agreement Serving an Indonesian food destroys the Uniformity of franchise Serving an unauthorized food makes it impossible for Claimant to manage the risk Substituting lamb for pork for menu items justifies the termination of the franchise Substituting the ingredients constitutes the substantial violation of the agreement Low percentage of customers requested substitution of lamb for pork Plenty of dishes which does not use pork is included in the menu The wearing of the new (white) hijab by the female Muslim employees justify the termination of the franchise The Agreement requires employees of GWNS restaurants to wear designated uniform Uniforms make it possible to make distinction from the other restaurants Permission for the different uniform leads violation on the uniform in other restaurants The above violations reflects a continuing disregard of the franchisee s obligations under the Franchise Agreement to justify its termination The violations should be corrected in five days as required by the agreement iii

5 8 The notice of termination was in a proper and timely manner Respondent did not correct the violations in spite of having had enough time to accomplish it Employment regulation prohibiting the wearing of a hijab by female Muslim employee or restriction is not illegal The requirement for guarantying the freedom of religion in Indonesia Prohibition of wearing of hijab is one of the elements of the work environment that employer provides and there is a room for accepting it Prohibition of wearing hijab in this case does not constitute the serious damage for the freedom of religion PRAYER FOR RELIEF iv

6 LIST OF ABBREVIATIONS Art. GWNS Inc. KLRCA Letter Menkumham Article Great Wall Noodle Shop/ Great Wall Noodle Shops Incorporation Kuala Lumpur Regional Centre for Arbitration The Indonesian Ministry of Law and Human Rights elaborate in Letter No.M.HH.UM LLC Pty Ltd M.D. P. Para. / % UNCITRAL Model Law Limited Liability Company Proprietary Limited company Doctor of Medicine Page Paragraph/ paragraphs Percentage UNCITRAL Model Law on International Commercial Arbitration of 1985 v

7 RULES AND LAWS ABBREVIATION CITATION CITED ON CPA Act 599 Consumer Protection (Amendment) Act Passim 1999 on Contract Terms in Malaysia First Track Rules KLRCA Fast Track Rules 2 nd Edition 2012 Passim Law 24 of 2009 Law No. 24 of 2009 on the National Flag, Language, Emblem and Anthem MAA Law of Malaysia Act 646 Arbitration Act SUPPLEMENT Undang-undang Ketenagakerjaan Indonesia; Major 33 Laws of Indonesia UNCITRAL Model UNCITRAL Model Law on International Law Commercial Arbitration 1985 With amendments as adopted in 2006 vi

8 INDEX OF AUTHORITIES SCOLARLY WORKS ABBREVIATION CITATION CITED ON Andrew Mika Tuunanen, Josef Windsperger, Gerard Cliquet 21 & George Hendrikse New Developments in the Theory of Networks Physica Verlag, Heidelberg, 2011 Andrew/Keren Andrew tweeddale and Keren tweeddale 8 Arbitration of commercial disputes International and English law and practice Oxford University Press, New York, 2005 Harahap/Nasution Ali Salmande Harahap & Sutan Nasution 12 Quick view Indonesia, vii

9 b72cee2944cc (accessed on 20 September 2012) Genzberger Christine Genzberger 9 Singapore Business: The Portable Encyclopedia for Doing Business With Singapore World Trade Pr, United states of America, 1994 Hamid/Mansor N. A. Hamid and H. Mansor 17 The Legal Implication of the Consumer Protection (Amendment) Act 2010 on Contract Terms in Malaysia Malaysia, ng/asbes2011_proceeding/036_188_asbes2011_pr oceeding_pg0471_0485.pdf (accessed on 18 September 2012) Huong Ha Huong Ha(Chief Editeor) 21 TMC Academic Journal viii

10 TMC Academy, Singapore, V5I1.html (accessed on 10 September 2012) J. Keup Erwin J. Keup 19 Franchise Bible 6 th ed. Entrepreneur Press, United States, 2007 Kevin T. L Kevin Y.L. Tan ed. 9 The Singapore Legal System 2 edition Singapore University Press, Singapore, 1999 KLRCA Kuala Lumpur Regional Centre for Arbitration 10 KLRCA Arbitration rules 2010 Malaysia, =10 (accessed on 10 September 2012) ix

11 Kröll Franco Ferrari, Stefan Kröll (eds.) 9 13 Conflict of Laws in International Arbitration European law publishers, Munich, 2011 Leks & Co Leks & Co 12 LEGAL UPDATE Memo on Law No. 24 of 2009 On Flag, Language, State Symbol and also National Anthem Leks & Co, Indonesia 1c3-90c07a9d43b3.pdf (accessed on 20 September) O Sullivan/ Janet O Sullivan & Janathan Hilliard Hilliard The Law of Contract 2nd ed Oxford University Press, New York, 2006 Putik Lada Putik Lada 15 More protection for consumers The Malaysian Bar, Badan Peguam Malaysia, 28 x

12 October wyers/more_protection_for_consumers.html (accessed on 31 August 2012) Shane/Hoy Scott A. Shane, Frank Hoy 19 Franchising : A Gateway to cooperative entrepreneurship Journal of Business Venturing, Volume 11, Issue 5, United States, September 1996 Spinelli/Birley Steve Spinelli, Sue Birley Toward a theory of conflict in the franchise system Journal of Business Venturing, Volume 11, Issue 5, United States, September 1996 Summer Robert S. Summers 21 Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code Virginia Law Review, United States,1968 xi

13 tasty-indonesian- Tasty-indonesian-food.com 25 food.com Kalasan Fried Chicken (Ayam Goreng Kalasan) Indonesia, kalasan.html xii

14 INDEX OF CASES ABBREVIATION CITATION CITED ON India Empire Art Supreme Court of India 10 Industries case 26 April 2007 Jagdish Chander v. Ramesh Chander & Ors Hong Kong William Company High Court of Hong Kong 11 Case 17 February 1993, HKCFI 215 William Company v. Chu Kong Agency Co. Ltd. and Guangzhou Ocean Shipping Company Malaysia Saad/Chan Court of Apeal of Malaysia 16 March 2001, CLJ 98 Saad Marwi v Chan Hwan & Anor Singapore xiii

15 Ng Giap Hon v Court of Apeal of Singapore 21 Westcomb 29 April 2009, [2009] SGCA 19 Securities Ng Giap Hon v Westcomb Securities Pte Ltd and Pte Ltd Others United Kingdom Bunge/Tradax HOUSE OF LORDS February 1981, [1981] UKHL 11 Bunge Corporation (New York) v Tradax Export SA (Panama) xiv

16 xv

17 STATEMENT OF JURISDICTION In the present case the tribunal does have jurisdiction because there is an arbitration agreement between Respondent and Claimant. The two parties signed the Franchise Agreement. According to the Franchise Agreement Art. XII A, it indicates that any dispute, controversy or claim arising out of or relating to this franchise agreement, the operation of the franchise or its termination contract shall be settled by arbitration in accordance with the Kuala Lumpur Regional Centre for Arbitration Fast Track Rules. Therefore the Kuala Lumpur Regional Centre does have jurisdiction in the present case. 1

18 QUESTIONS PRESENTED 1. What is the proper law to apply in solving this dispute 2. Whether the arbitration agreement is valid and enforceable; 3. Whether Art. XII B of the Franchise Agreement ( Restraining Order/Specific Performance) is invalid and unenforceable; 4. Whether Indonesian Law-Art. 31 of Law 24 of 2009-is relevant to the validity of the Franchise Agreement; 5. Whether Claimant can terminate the franchise only for substantial violation of the Franchise Agreement; 6. Whether the implied covenants of good faith and fair dealing apply to this Franchise Agreement; 7. Whether the serving of a single Indonesian dish ( The Special of the Day ) justified the termination of the franchise; 8. Whether the option of substituting lamb for pork for menu items justified the termination of the franchise; 9. Whether the wearing of the new (white) hijab by the female employees justified the termination of the franchise; 10. Whether the above three violations reflect a continuing disregard of the franchisee s obligation; 2

19 11. Whether a proper and timely Notice of Termination was given to Respondent; 12. Whether an employment regulation prohibiting the wearing of a hijab violates Art. 5 and Art. 80 of Act No.13 of

20 STATEMENT OF FACTS Claimant Great Wall Noodle Shop LLC was found by Jianping Ji and Xuefeng Wang. Over the 25 years, they have franchised many Great Wall Noodle Shops ( GWNS ) in China, Singapore, and Malaysia. Respondent Adi Budiamman, M.D., a prominent Jakarta surgeon, is the franchisee of two GWNS in Jakarta and Medan, Indonesia. Early 2011 June 2010 Claimant decided to expand its franchise to Indonesia. Claimant traveled to Singapore and met Mr. Bao Shan, the franchise owner of Singapore branches, to see whether he was interested in opening GWNS in Indonesia. However, he was not interested in it. 20 June 2011 Claimant met Respondent by chance in the Singapore Airline Lounge. Respondent was interested in operating GWNS in Indonesia. Both of them signed the Franchise Agreement. 21 June 2011 A photocopy of both the original English and a Bahasa Indonesia copy were delivered to Respondent. September 2011 The two new franchises, in Jakarta location and the Medan location were open 4

21 Late October 2011 Claimant made an unannounced visit to both of the Indonesia restaurants, and found three violations; sale of non-official menus, substitutions for ingredients, and unauthorized clothing (hijab) among female employees. 4 November 2011 Claimant sent an to Respondent requesting it to conform its operation with other franchise restaurants immediately. 19 November 2011 The inspector hired by Claimant visited the two restaurants and found that there is a few continuing violations of the Franchise Agreement. 20 November 2011 Claimant sent a letter to Respondent terminating the Franchise Agreement and directed Respondent to close both restaurants within 15 days. Later Respondent refused to close its restaurants. Claimant submitted a Notice of Arbitration, and Respondent filed a counterclaim. After that 18 November 2012 A Case Management Meeting was held by phone. The hearing will be held in Bali, Indonesia. 5

22 SUMMARY OF PLEADINGS Procedural Part Both parties agreed to submit their dispute to arbitration under Kuala Lumpur Regional Centre for Arbitration Fast Track Rules. The seat of arbitration is Malaysia. The validity and enforceability of the arbitration agreement is governed by the law of the seat of the arbitration. And Among the laws governing Arbitration in Malaysia, Malaysia Arbitration Act 2005 is the most relevant law to the dispute in question. The arbitration agreement is valid and enforceable as it was signed by both parties and contained certain commercial dispute arising out of the Franchise Agreement. Furthermore, the granting of interim measure under Article XII B of the Franchise Agreement is valid and enforceable. The Agreement of parties prevails over the mandatory rules of the forum. Consumer Protection (amendment) Act 1999 does not apply in this case. The Franchise Agreement is valid under Singapore Contract Law. Indonesian Law-Art. 31 of Law No. 24 of 2009-is irrelevant to this dispute. Law No. 24 of 2009 governs contracts under the scope of public international law. However, the Franchise Agreement falls under private international law. The arbitral tribunal has no obligation to apply Law No. 24 of Merits Part The law governing the substantive issues is Singapore Law as there is an express choice of 6

23 applicable law by both parties. The termination of the Franchise Agreement by Claimant is appropriate. The notice of termination was proper and timely. And there were substantial violations and they justify the termination. The implied covenants of good faith and fair dealing cannot be applied in interpreting this Franchise Agreement. The disorder caused by Respodent risks Claimant sbusiness.the tree violations namely the Special of the Day, substituting lamb for pork, and the wearing of the new (white) hijab, justify the termination of the Franchise Agreement. And also they reflect a continuing disregard of the franchisee s obligation under the Franchise Agreement to justify the termination. An employment regulation prohibiting the wearing of a hijab does not violate Indonesian law-act No. 13 of The freedom of religion is not seriously enough to lead the conclusion that the prohibition is illegal. Respondent have to make restriction that prohibit wearing hijab in order to fulfill its duty according to the Franchise Agreement. 7

24 PLEADINGS PART ONE: ARGUMENT ON PROCEDURE 1. Applicable law 1.1 Malaysian Law should be applied for deciding the validity of the arbitration agreement In the country that have adopted the UNCITRAL Model Law, the validity of the arbitration agreement is determined by the law of the seat of the arbitration, if there is no agreement between the parties [Andrew/ Keren 217]. The reason is that Art.34 of the UNCITRAL Model Law states that a ground for setting aside an awards is that the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State [Andrew/ Keren 217]. In this case, there is no explicit agreement on the seat of arbitration. According to Art.Ⅶ A of the Agreement, Any dispute, [ ] shall be settled by arbitration in accordance with the Kuala Lumpur Regional Center for Arbitration Fast Track Rules [ ]. The Art.6 (2) of Fast Track Rules provides that the seat of arbitration shall be Malaysia, and Malaysia is the country that adopts UNCITRAL Model Law. Therefore, Malaysia Arbitration Act 2005 which is based on UNCITRAL Model Law should be applied for deciding the validity of the arbitration agreement. 8

25 1.2 Singapore Law should be applied to substantive law issues. According to the Art.6 (1) of Fast Track Rules, the arbitral tribunal shall apply the law designated by the parties. In this case, the parties to the dispute included a choice of law clause in the contract. The Art.Ⅻ B of the contract states: This agreement and the party s rights under it and the relationship between the parties shall be governed by, and will be interpreted in accordance with the laws of Singapore. [Problem p.30]. Thus Singapore Law should be applied to the substantive issues. Also, Laws of Singapore, particularly its commercial ones, are largely and practically based on English legal system. There is continuous reception of English common law in practice [Kevin T. L 238] and contract rights are generally governed by the common law principle [Genzberger 190]. Therefore, common law principle which is also adopted in other countries can be a source of persuasive authority when we interpret this issue according to Singapore law. 2. The Arbitration Agreement is valid and enforceable As the doctrine of the separability shows, whether the Arbitration Agreement is valid or not is determined by the applicable law to the validity of Arbitration Agreement. It is separated from the substantive Franchise Agreement, as the main contract and the arbitral clause are viewed as two separate contracts [Kröll 26]. As a part of the applicable law to the validity of Arbitration Agreement, Malaysian Arbitration Act 2005 (Act 646) which stipulates about the validity of the Arbitration Agreement should be 9

26 applied. According to Article 9 of the MAA, there are two conditions to determine the validity of the Arbitration Agreement; (1.1) existence of a binding commitment by the parties to refer to arbitration, (1.2) the writing requirement. The Arbitration Act 2005 is based substantially on the UNCITRAL model law [KLRCA 2010]. So, we can interpret these conditions largely in accordance with the commentaries and cases on UNCITRAL Model Law, which are published in various countries adopting UNCITRAL Model Law. 2.1 Existence of a binding commitment by the parties to refer to arbitration One of the requirements is the existence of a binding commitment by the parties to refer to arbitration. [T]he words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement [Empire Art Industries case]. In this case, the Arbitration Agreement states: [a]ll disputes, controversy or claim arising out of or relating to this franchise agreement ( ) shall be settled by arbitration [Problem p.29 1] and [t]he decision of the arbitrators will be final and binding on all parties to the dispute [Problem p.29 2]. Therefore, there exists a binding commitment by the parties to refer to arbitration. 10

27 2.2. Writing requirement Article 9 of the Arbitration Act 2005 requires that the arbitration agreement shall be in writing. This is a condition to ensure that parties do not get forced into arbitration unless it is clear beyond doubt that they have agreed to it [William Company case]. In this case, the Arbitration Agreement is clearly written in the Franchise Agreement which is signed by both parties. So, it suffices the writing requirement. Therefore, the Arbitration Agreement is valid and enforceable pursuant to the Malaysian law. 3. The Franchise Agreement is also valid even under Indonesian Law In the present case, Indonesian Law should not be applied based on the agreement. Even though it is applicable, the agreement is valid and enforceable because the contract was properly made between parties under Indonesian Civil Code. The Agreement is also valid under Art. 31 of Law 24 of 2009 even though the contract was made only in English. 3.1 Indonesian Law should not be applied According to Art.ⅫB of the agreement, Respondent specifically waive any rights and protections that might be provided thorough the laws of any other country incuding the place where the franchise is operated [Problem p.30 3]. Therefore, Indonesian law should not be applied to this dispute, and the agreement is valid and enforceable under Singapore Law. Even though the law applies, the Franchise Agreement is valid and enforceable because the agreement was properly made even under Indonesian Law. 11

28 3.2 The Agreement does not violate Art.31 of Law 24 of 2009 The Agreement is valid under Art.31 of Law 24 of 2009, because it does not bind on the Agreement. According to Art.31 of Law 24 of 2009, The Indonesian Language shall be used in the memorandum of understanding or agreement involving state institutions, the Indonesian government agencies, private organizations or individuals Indonesia Indonesian citizen". In this case, when Dr. Budiamman signed the agreement, it was written only in English. The next day, Claimant sent two copies of contract form to Dr. Budiamman. One was written in English and another in Indonesian language [Problem p.2 4]. Therefore, it seems that the requirement of the Act was not fulfilled. However, not all contracts must be written in Indonesian language. The Indonesian Ministry of Law and Human Rights elaborate in Letter No.M.HH.UM (Letter Menkumhum) [Harahap/ Nasution][Leks & Co] that private commercial agreement in the English language without Indonesian language version does not violate the terms of such obligations requited by the Act. The phrase agreement mentioned in the Act includes international agreements in the area of public international law. Franchise is one of the forms of business run in the private commercial sphere. This franchise agreement was made between Dr. Budiamman and GWNS, both of whom were private citizens. Thus, the Law should not be applied to this agreement. In conclusion, this franchise contract does not violate Art.31 of Law 24 of 2009, and it is also valid under Indonesian Civil Code Art

29 4. The Article XII of the Franchise Agreement (Dispute Resolution) is fair and valid 4.1. The applicable law to the arbitration agreement is the law of Malaysia The Article XII A of the Agreement stipulates that the arbitrator may not under any circumstances ( ) enter a decree of specific performance requiring us to perform any part of this contract and the Article XII B stipulates that we will forthwith be entitled to an order restraining such breach or to a decree of specific performance. These are in the Article XII (Dispute Resolution) and therefore, as confirmed above [supra in p.9], the applicable law to the arbitration agreement in the Article XII is the law of Malaysia. 4.2 Dispute Resolution Clause is valid in relation with Article 12 of the First Track Rules The specific performance in the Article XII B is, unlike damages, the right to enforce[s] the primary duty of the defendant to perform the contract [O Sullivan/Hilliard 426]. On the contrary, the Article 12 of the First Track Rules stipulates that [d]ue to the overriding interest of an expeditious determination of the dispute[s] in the reference as a whole, the parties agree that they shall not apply for an interim award under these rules [First Track Rules]. The former admits an interim measure, but the latter does not. In the case of the conflict between party agreement and mandatory rules of the forum of arbitration, express party agreement on the tribunal s composition or procedure might override the mandatory rules of the forum [Kröll 330]. This reflects the principle of freedom of contract. In addition, if a sane adult signs a document, provided he was not misled or forced to do so, he is deemed to agree to 13

30 everything in it, even if he did not read it [O Sullivan/Hilliard 171]. Therefore, if the agreement is properly signed, the provisions in it are deemed to override the mandatory rules of the forum. In this case, the conflict between the agreement of the parties and mandatory rules of the forum exsists. As Mr. Budiamman, who is fluent in English [Problem p6 footnote] signed the agreement, therefore he is deemed to agree the stipulations of the Agreement. As the party agreement overrides the mandatory rules of the forum, the provision of the specific performance in the Article XII B overrides the Article 12 of KLRCA First Track Rules. Therefore, DISPUTE RESOLUTION clause is valid in relation with Article 12 of KLRCA First Track Rules Part III A of CPA does not apply to the Article XII of this Agreement In Malaysia, the law which regulates the unfair contracts terms is the Part III A of the Consumer Protection Act 1999 (CPA). However, CPA does not apply to this Agreement because; (2.1) Part III A of CPA applies only to the consumer contract, and (2.2) the Franchise Agreement is excluded from the range of application of CPA Part III A of CPA applies only to the consumer contract The new Section 24B of the Act states that the provisions of this Part IIIA shall apply to all contracts. However, if the intention of Parliament is to extend the principles in Part IIIA of the Act beyond consumer contracts, it should have enacted a separate legislation on unfair contract terms (like the case in the UK) or should have incorporated those provisions into the 14

31 Contracts Act 1950 rather than merely inserting a new part into an existing legislation on consumer protection [Putik Lada]. By inserting the new part into the Consumer Protection Act 1999, it is submitted that the new part only applies to consumer contracts that fall within the ambit of the Consumer Protection Act 1999 [Idem]. The Article 2 (1) of CPA stipulates that this Act shall apply in respect of all goods and services that are offered or supplied to one or more consumers in trade. In this case, the Franchise Agreement is an agreement between two parties in business and thus there is no consumer. Therefore, as the Franchise Agreement includes no consumer, CPA does not apply to this Agreement The Franchise Agreement is excluded from the range of application of CPA Furthermore, according to the Article 2 (2) (e), CPA shall not apply to services provided by professionals who are regulated by any written law. In Malaysia, there is a written law whose name is the Franchise Act As the franchising is a service by franchisor and franchisee, who are professionals of management and cuisine, CPA shall not apply to any agreement on franchising. Therefore, as The Franchise Agreement is mainly regulated by the Franchise Act 1998, it is excluded from the range of application of CPA in virtue of the Article 2 (2) (e). 4.4 Article XII of this Agreement is not against fairness Even if the tribunal find that Part III of CPA should be applicable to this Agreement, the 15

32 stipulation in the Article XII of the Agreement is not against either; (4.1) the procedural fairness in the Section 24 C, or (4.2) the substantial fairness in the Section 24 D of CPA The Article XII of the Agreement is not against the procedural fairness in the Section 24 C The Section 24 C of the Part III of CPA deals with procedural unfairness. It states [a] contract or a term of a contract is procedurally unfair if it has resulted in an unjust advantage to the supplier or unjust disadvantage to the consumer on account of the conduct of the supplier or the manner in which or circumstances under which the contract or the term of the contract has been entered into or has been arrived at by the consumer and supplier [ 24 C of CPA]. These provisions are based on the English doctrine of inequality of bargaining power and the doctrine of unconscionability. In Malaysia, Saad Marwi v Chan Hwan & Anor is a landmark case which adopted these doctrines. In that case, the court voided the agreement on the basis that plaintiff was dependent on the defendant for his livelihood, was lack of independent legal advice, and spoke no English even though the contract document was in English [Saad/Chan]. On the contrary, no condition above applies to this case. Dr. Budiamman is a prominent surgeon and operates the franchise restaurants in his spare time [Problem p.2 2], so he is totally independent from Claimant for his livelihood, supposedly profits independent legal service, and he is fluent in English [Problem p.6]. 16

33 Therefore, there is no room for admitting procedural unfairness and thus the terms in the Article XII of the Agreement is not against the procedural fairness in the Section 24 C The Article XII of the Agreement is not against the substantial fairness in the Section 24 D The Section 24 D of the Part III of CPA deals with substantial fairness. It states a contract or a term of a contract is considered to be substantively unfair if the contract or the term of the contract: (a) is in itself harsh; (b) is oppressive; (c) is unconscionable; (d) excludes or restricts liability for negligence; or (e) excludes or restricts liability for breach of express or implied terms of the contract without adequate justification [ 24 D (1) of CPA]. The Article XII of the Agreement is not against the substantial fairness because of the principle of the freedom of contract The freedom of contract as a principle The traditional view is that parties to a contract are free to agree to anything under the sun, as long as these terms are willingly agreed to by both parties [Hamid/Mansor 473]. As stated above, If a sane adult signs a document, provided he was not misled or forced to do so, he is deemed to agree to everything in it, even if he did not read it [O Sullivan/Jonathan 171]. Therefore, Courts have been reluctant to interfere in cases of substantive fairness because of the concept of freedom of contract [Hamid/Mansor 475]. Though interim award is not admitted in Article 12 of KLRCA Fast Track Rules, the term which authorizes Claimant the specific performance is quite normal, like the interim measure 17

34 in Article 17 of UNCITRAL Model Law, or that in Article 19 of Malaysia Arbitration Act2005. So it is not unfair. 4.5 The application of CPA or the Article 12 of KLRCA First Track Rules do not affect the validity of the Arbitration Agreement Even if the tribunal should find that the term in this agreement is unfair, therefore unenforceable and void, other terms remain effective [ 24 G (2) of CPA] because of the rule of separability. In this case, the agreement stipulates: the arbitrators may not under any circumstances ( ) enter a decree of specific performance requiring us to perform any part of this contract [Problem p.29 2] and it is mutually agreed that in the event of a breach of any of the terms of this Agreement by you, we will forthwith be entitled to an order restraining such breach or to a decree of specific performance [Problem p.29 4]. Even though the former is placed in the part A. Arbitration, both are about the power of the arbitral tribunal to order specific performance as a conservative/interim measure. It is essentially separable from the first paragraph of XII. DISPUTE RESOLUTION. Therefore, even if CPA or Article 12 of KLRCA First Track Rules is to be applied, the extent of application of CPA should be limited to the provision about conservative/interim measure, and, in any case, does not affect the validity of the Arbitration Agreement. 18

35 PART TWO: ARGUMENT ON MERITS 1 Claimant can terminate the Agreement when the violation leads to the decline of the reputation on the brand In common law jurisdiction, in case of defective performance or non-performance of obligations, whether Claimant can terminate the Agreement or not depends on the classification of the terms. If the commercial nature of the contract and the obligation and all other circumstances suggested that the parties intended that it should be a condition, and the violation of that can be a basis for termination [Bunge/Tradax]. In the Agreement, the Article XIII B stipulates about the termination by Claimant. It states we have the right to terminate this Agreement for any substantial violation of the terms and conditions of this Agreement we deem substantial [Problem p.31 2]. So the interpretation of the substantial violation depends on Claimant s intention. In this case, firstly, franchising is a method of marketing through which successful business owners (franchisor) expand the retail distribution of their goods or services by contracting with independent third parties (franchisees) [J. Keup xvi]. It is the profits of whole franchise restaurant which important for Claimant, and the franchising is a contractual form of business under which a franchisee purchase the right to use the trademark and operating system of franchisor [Shane/Hoy 325]. Actually, the profit creation is achieved through the valuation of the brand [Spinelli/Birley 330]. Therefore, building and maintaining the franchise brand becomes the theoretical focus for governance of the relationship between franchisor and 19

36 franchisees [Spinelli/Birley 329]. Maintaining the franchise brand means to maintain the reputation on that franchise chain. When a franchise restaurant had any scandalous affair, such as food poisoning or sanitary problem, it affects the reputation of the brand and the whole franchise chain. That means that it is Claimant who takes the risk. Once the reputation on the brand is damaged, it is difficult to rebuild the reputation. Therefore, it is normal to think that if any violation has the risk of leading to decline of the reputation of the brand, it justifies the termination of the Agreement. It is the uniformity that assures the reputation of the brand, because franchise restaurants should offer the same quality of service and foods so that the customers can rely on the brand. Claimant emphasized the strict accordance and conformity with the standards in the RECITALS of the Agreement [Problem p.8 4]. There are franchise restaurants for which the strict accordance is important, and those who have rights to decide to some extent. The GWNS restaurants are the former and for these restaurants, the uniformity is a way to assure the same food and service even in different regions. Customers can rely on the franchise chain thanks to this uniformed food and service. Claimant terminated the franchises, three of them were by failing two consecutive cleanliness inspections, and two of them were when an audit revealed that the franchisee has understated sales and profits [First Clarifications D-3]. This suggests that Claimant can terminate the Agreement not only in the case in which a franchisee badly destroyed the relationship by deceiving Claimant, but also in the case in which a franchisee risked the reputation of the 20

37 brand by continuing violation of the Agreement despite Claimant tried to keep the relationship by alerting twice. 2 Inherent warranty of good faith and fair dealing does not apply to this Franchise Agreement The general principle of good faith has been recognized in the civil law world. In the common law world, however there has been a confusion and debate in relation to the definition of good faith and whether it fits into common law, due to its lack of certainty and predictability. Robert S. Summers defines that it is a phrase without general meaning (or meanings) of its own and serves to exclude a wide range of heterogeneous forms of bad faith [Summers 201]. This approach however does not provide any real guidance on particular actions, to courts and contracting parties [Andrew 10]. Thomas J said that the "principle is already beset by agonizing inquiries into what is or can be meant by good faith" [Huong Ha 52]. The development of the doctrine depends on a country. England is the most barren jurisdiction and the United States is the most developed [Huong Ha 50]. In this regard, Singapore s position in the recent Singapore s Court of Appeal is that [until] the theoretical foundations as well as the structure of this doctrine are settled, it would be inadvisable (to say the least) to even attempt to apply it in the practical sphere [Ng Giap Hon v Westcomb Securities and Pte Ltd]. Therefore, as long as the applicable law to this Agreement is the Singapore law, the inherent warranty of good faith does not apply to the Agreement. 21

38 3 Claimant has to takes the risk of disorder caused by the abusive behaviors by Respondent Actually, Claimant relied on franchisees to keep the uniformity in GWNS franchise system. However, it is also true that [c]omplete and absolute uniformity under some unexpected conditions may not always possible, practical, or in the best interest of the System as stipulated in the Agreement [Problem p.28 2]. To put all franchisees under a transparent administration and to assure the reasonable expectations on franchisees, franchisees should ask franchisor for an approval, authorization, consent or permission, in the respect of following eight categories; Catering and Delivery [Problem p.12 2], Authorized Menu [idem p.16 2], Approved Supplies and Suppliers [idem p.17 1], Serving and Promotional Items [idem p.17 2], Vending Services [idem p.19 3], PERSONAL AND SUPERVISION STANDARDS (about uniforms) [idem p.21 2], Noncompete Covenants [idem, p.25 3], TRANSFER OF FRANCHISE [idem p.26 2]. Ensuring a complete and absolute uniformity is difficult and actually there are some franchisees who; use different spices to accommodate local tastes [First Clarifications G-4], alternate certain items for those which are not available [idem], offer some local Chinese dishes which is not listed on the Authorized Menu [First Clarifications G-5]. However, all of them were approved by Claimant. Like this, Claimant administrates the uniformity and differences, and Claimant approved them when Claimant judged to be able to take the risk. In this case, Claimant tried to keep the relationship with Respondent by alerting in advance, 22

39 however, Respondent neither asked Claimant for permissions about the unauthorized foods, red hijab or substitution of lamb for pork before the first inspection, nor for a special of the day, white hijab or substitution of lamb for pork after the first inspection [First Clarifications F-1/G-1], but continued to violate the Agreement by serving a Special of the Day, substituting lamb for pork, and granting employees to wear white hijab. Moreover, Respondent did not tried to read entire Agreement when he signed it [Problem p.2 4], and did not read it after that, as Respondent did not believe he was required to obtain permission from the Franchisors about permissions of hijab [First Clarifications F-1] and Indonesian foods [idem G-1], while these are explicitly stipulated in the Agreement [Problem p.16 2 / p.21 2]. The position of classic freedom of contract is, if a sane adult signs a document, he is deemed to agree to everything in it, even if he did not read it or agree to its contents in a meaningful sense, provided that he was not forced to do so [O Sullivan/Hilliard 171]. Normally, after receiving a message which defines the violation of the contract, that party tries to check which obligation in the contract they violated. So the fact that Respondent did not believed thay he was required to obtain permission suggests that Respondent did not read the Agreement. Respondent s attitude toward the relationship with Claimant was so rude. Therefore, Claimant has to take the risk of disorder caused by the abusive behaviors by Respondent even though there is no permission of Claimant. 4 The Special of the Day justifies the termination of the franchise Serving The Special of the Day is a violation of the Agreement and justifies its termination. 23

40 4.1 The Special of the Day is a violation of the Agreement The Special of the Day was an Indonesian dish which was not listed on the menu, but written in Bahasa Indonesia on a chalk blackboard, served both in Jakarta and Medan restaurant. According to the Article III A of the Agreement, Respondent must offer for sale from the Restaurant all items and only those items as Menu Items and other approved food and beverage [Problem p.16 2]. In this case, in the first place there is no serving of The Special of the Day in the Authorized Menu on the Appendix 1 of the Agreement, moreover no Indonesian food at all [Problem p.34]. This is a clear violation of the Agreement. 4.2 Serving an Indonesian food destroys the Uniformity of franchise The GWNS restaurants are Chinese restaurant with no Indonesian dish. This is obvious from the menu and the trademark, uniform. In addition, Claimant emphasized the strict accordance with the standards in the RECITALS of the Agreement [Problem p.8 4]. The GWNS restaurants are those which require the strict accordance and for these restaurants, the uniformity is a way to assure the same taste and food even in different regions. Customers can rely on the franchise chain thanks to this uniformed taste and food. On the contrary, The Special of the Day represented 50% to 10% of the sales [Further Clarifications SR#12]. This means Respondent s franchise restaurant offered the same amount of Indonesian dishes to the authorized Chinese dishes for some days. This is almost China-Indonesian restaurant, which is totally different from original Chinese GWNS restaurant. As Chinese restaurants in Indonesia serve primarily or exclusively Chinese dishes 24

41 [First Clarifications G-2], customers expect the same thing. Therefore, just one Indonesian dish is enough for the justification for the termination of this Agreement. 4.3 Serving an unauthorized food makes it impossible for Claimant to manage the risk As the Article III C stipulate, Respondent must only use ( ) approved supplies ( ) as set forth in the approved supplies and approved suppliers lists [Problem p.17 1] and Claimant has the right to approve the manufacturer, distributor and/or supplier of approved supplies [idem]. This is a system for Claimant to manage the supplies and suppliers. The GWNS restaurants provide customers foods and the sanitary problem is the most serious problem for restaurants. If franchisees obtain the ingredient for their own restaurants by themselves, it is impossible for Claimant to manage the risk of sanitary problem or food poisoning, and one accident in one franchise restaurant will cause a serious damage to the reputation of whole franchise brand name. Actually two restaurants were closed and the Agreements were terminated because of the cleanliness issue [First Clarifications D-3], which shows the Claimant s interest in sanitary issue. In this case, The Special of the Day was Indonesian food and different from Chinese foods, which are listed on the Authorized Menu. In Indonesian foods, of course, Indonesian original ingredients are used. For example, Ayam Kalasan, which was served at the time of the second inspection [Problem p.5], uses Salam leaf and galangal, which are original Indian ingredients [tasty-indonesian-food.com]. As there is no Indonesian food in the Authorized Menu, we can suppose that Respondent obtained such original Indonesian ingredients by themselves, 25

42 probably from different suppliers from approved suppliers in the Article III C of the Agreement. Moreover, The Special of the Day was not authorized and acknowledged by Claimant before the second inspection [Problem p.5], and Respondent did not try to inform it to Claimant [First Clarifications G-1]. In this situation, it is impossible for Claimant to manage the risk of foods. Therefore, serving The Special of the Day justifies the termination of the Agreement. 5 Substituting lamb for pork for menu items justifies the termination of the franchise Claimant s position is that because substitution of lamb for pork for menu items damages the uniformity, it justifies the termination of the franchise. 5.1 Substituting the ingredients constitutes the substantial violation of the agreement According to Art.Ⅲ B of the agreement, All supplies [ ] must meet our (Claimant s) standards of uniformity and quality [Problem p.16 2]. Franchisees must use in the operation of the Restaurant and in the preparation of Menu items and other food and beverage products only the proprietary sauces and mixes and other proprietary and non-proprietary ingredients, recipes, formulas, cooking techniques and process and supplies, and must prepare and serve Menu Items and products in such portions, sizes, appearance, taste and packaging, all as we specify in our most current product preparation materials or otherwise in writing [Problem p.16 2]. Therefore, the franchisee must not make substitution of the ingredient 26

43 without any approval of the franchisor, in order to sustain uniformity. As mentioned in the Clarification, in some restaurants, the different spices is used [First Clarifications G-4]. However, it is very different situation from this issue. Even though in some occasion, for some reason, spice which is not included in the original ingredient is allowed to be used, because the substitution of main ingredient is almost equal to the alternation of the menu, it should not be accepted. Moreover, such spices were approved by Mr. Ji and/or Mr. Wang [First Clarifications G-4]. However, Respondent substitutes lamb for pork which is not authorized by the GWNS. Even after receiving the sent on 4 November 2012 requiring that violation should be collected, Respondent continued to take such measure. It is obvious that different ingredient makes taste different. This measure clearly damages the uniformity which leads the substantial violation. 5.2 Low percentage of customers requested substitution of lamb for pork In Jakarta restaurant, only 1 in 40 or 50 customers request the substitution of lamb for pork. In Medan, the percentage is higher than Jakarta, but it is just 1 in 10 or 15 customers [Futher Clarifications #11]. This data shows that even if there was no substitution of lamb for pork, majority of customers can enjoys the food served in the restaurant. 5.3 Plenty of dishes which does not use pork is included in the menu Of course, Muslim people cannot eat pork, but the GWNS is not the restaurant which serves only the dishes including pork. According to the authorized menu, about 20% of all menu 27

44 items include pork, but about 80% of them do not. This means that the menu of the GWNS is enjoyable for Muslim people too, even if the restaurant does not provide substitution. As we mention above, there were a few customers who ordered the substitution of lamb for pork. However, they can choose another dishes which does not includes pork instead of the substitution. In conclusion, substitution of lamb for pork damages the uniformity, and there is no sufficient reason for allowing the substitution, it constitutes the substantial violation that justifies the termination of the agreement. 6 The wearing of the new (white) hijab by the female Muslim employees justify the termination of the franchise It is Claimant position that wearing of the hijab, even new (white) hijab, is the substantial violation of the agreement because it leads the damage of uniformity. 6.1 The Agreement requires employees of GWNS restaurants to wear designated uniform According to Art.ⅡG of the agreement, employees in the GWNS All employees are required to (i)wear uniforms of such color, design, and other specification as Company may designate from time to time, and (ii)jewelry or other adornment which detracts from the uniform appearance of our employees must not be permitted [Problem p.12 5 / p.13 1]. Wearing hijab is the violation of the agreement because what is required according to the agreement is the same uniform as explained in the agreement. The loss of the common 28

45 appearance occurs. Even though its color is white, the changing of its color does nothing to the violation. This violation is the substantial violation because it leads the damage of uniformity for following reasons. 6.2 Uniforms make it possible to make distinction from the other restaurants GWNS develops its business in China, Singapore, Malaysia, and Indonesia, and there are 35 restaurants [Problem p.2 1 / First Clarifications D-1]. It is essential that all of GWNS s employees in every country where Claimant operate dress the same. Because uniforms help distinguish GWNS from other establishments serving Chinese food. Even the slightest difference can cause a customer to doubt that a particulate restaurant is affiliated with all of the other GWNS [Problem p.4 2]. Therefore, uniform plays an important role to sustain its uniformity. 6.3 Permission for the different uniform leads violation on the uniform in other restaurants According to Clarification, no employees at least in Singapore and Malaysia have ever worn or request permission to wear a hijab at work [First Clarifications F-4]. In those countries, there are also Muslim people. If Claimant allowed Respondent s employees to augment the official uniform, it might encourage employees at other locations to believe they need not follow the regulations on the uniform [Problem p.4 2]. The violation of the uniform is not 29

46 only to be considered as the issue related to the one who makes it but also the other member of the GWNS. Therefore, the unification of the clothes is inevitable for Claimant to maintain the uniformity. In conclusion, the wearing of hijab damages the uniformity, it should be considered as a substantial violation. Therefore, the termination of the franchise is legal measure. 7 The above violations reflects a continuing disregard of the franchisee s obligations under the Franchise Agreement to justify its termination It is Claimant s position that The special of the day and new (white) hijab does not meet the requirement of collection of the violation because it had not solved the Uniformity issue, and the substation of lamb for pork still continued. Therefore, the above violations reflect a continuing disregard of the franchisee s obligations. 7.1 The violations should be corrected in five days as required by the agreement According to the Article VIII of the agreement, Claimant has the right to make inspection, and in the event Claimant give Respondent notice of any deficiency detected during inspection, Respondent must correct them within five days after the receipt of such notice [Problem p.26 4, 5]. In late October 2011, Claimant made inspection, and found violations of the Franchise Agreement: the sale of food products not on the official menu being served, substitution for the ingredients of others, female employees wore unauthorized clothing [Problem p.3 2, 3]. Therefore, Claimant sent the to Respondent on 4 November 2011 to require 30