LAWASIA MOOT COMPETITION THE GREAT WALL NOODLE SHOP PROBLEM IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION BALI, INDONESIA

Transcription

1 F1040-R LAWASIA MOOT COMPETITION 2012 THE GREAT WALL NOODLE SHOP PROBLEM IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION BALI, INDONESIA GREAT WALL NOODLE SHOP LLC CLAIMANT v ADI BUDIAMMAN, M.D. RESPONDENT MEMORIAL FOR RESPONDENT

2 TABLE OF CONTENT TABLE OF CONTENTS INDEX OF AUTHORITIES STATEMENT OF JURISDICTION QUESTIONS PRESENTED STATEMENT OF FACTS SUMMARY OF PLEADINGS RESPONDENT S PLEADINGS I. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THE DISPUTE A. AS A PRELIMINARY MATTER, THE CHOICE-OF-LAW CLAUSE IS INVALID FOR BEING NOT BONA FIDE AND NOT LEGAL--27 B. THE ARBITRATION AGREEMENT IS INVALID AND UNENFORCEABLE (i) Malaysian law should apply to substantive validity, under which the arbitration agreement is invalid in the absence of RESPONDENT s awareness of it (ii) Indonesian law would apply to the formal validity of the arbitration agreement (iii) The arbitration agreement has not fulfilled formal validity requirements under Indonesian law C. THE MATTERS SUBMITTED TO ARBITRAITON ARE NOT ALL ARBITRABLE (i) Indonesian and Malaysian law are applicable laws on arbitrability-32 (ii) The matters submitted to arbitration are not all arbitrable

3 (ii) Disputes involving the application of constitutional rights are inarbitrable (iii) Inarbitrability of the dispute invalidates the arbitration agreement-35 II. THE FRANCHISE AGREEMENT IS INVALID UNDER INDONESIAN LAW A. INDONESIAN LAW GOVERNS THE VALIDITY OF THE FRANCHISE AGREEMENT IN THE ABSENCE OF EXPRESS CHOICE OF LAW B. INDONESIAN PROVISIONS ON FRANCHISE AGREEMENTS SHOULD BE APPLIED AS MANDATORY RULES REGARDLESS OF THE LAW GOVERNING THE SUBSTANTIVE DISPUTE (i) Waiver of protection from Indonesian law under Article XIIB is invalid and should be severed from the contract (ii) Even if the waiver has been incorporated into the contract, it is ineffective in precluding the application of Indonesian mandatory rules (iii) Indonesian laws on franchise regulation are mandatory and should be applied to the present dispute C. THE FRANCHISE AGREEMENT IS INVALID UNDER INDONESIAN LAW (i) The Franchise Agreement fails to comply with language requirements (ii) CLAIMANT has not complied with the requirement on advance provision of franchise prospectus and written agreement

4 (iii) The parties have not registered the franchise prospectus in accordance with the Franchise Regulation, thereby invalidating the Franchise Agreement III. THE APPLICATION OF INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING IN INTERPRETATION AND PERFORMANCE OF AGREEMENTS A. THE SAID WARRANTY FULLY APPLIES TO THE AGREEMENT UNDER INDONESIAN LAW B. THE SAID WARRANTY APPLIES TO THE AGREEMENT TO THE EXTENT THAT CLAIMANT SHALL NOT ITS DISCRETION IN BAD FAITH OR IN A WHOLLY UNREASONABLE MANNER UNDER SINGAPOREAN LAW IV. THE TRIGGER OF PREMATURE DETERMINATION OF THE AGREEMENT A. CLAIMANT IS ENTITLED TO TERMINATE ON SUBSTANTIAL BREACH OF TERMS WHICH CLAIMANT REASONBLY DEEMS SUBSTANTIAL UNDER INDONESIAN LAW B. CLAIMANT IS ENTITLED TO TERMINATE ON A COMMON LAW REPUDIATORY BREACH UNDER SINGAPOREAN LAW V. CLAIMANT WAS NOT ENTITLED TO TERMINATE THE AGREEMENT A. SERVING CUSTOMERS A SINGLE INDONESIAN DISH REFERRED TO AS THE SPECIAL OF THE DAY AND GIVING 3

5 CUSTOMERS THE OPTION OF SUBSTITUTING LAMB FOR PORK DID NOT BREACH ARTICLE III(A) 1 WHICH PROHIBITS SERVICE OF UNAUTHORISED MENU ITEMS UNDER INDONESIAN LAW B. SERVING CUSTOMERS A SINGLE INDONESIAN DISH REFERRED TO AS THE SPECIAL OF THE DAY AND GIVING CUSTOMERS THE OPTION OF SUBSTITUTING LAMB FOR PORK DID NOT BREACH ARTICLE III(A) 2 WHICH PROHIBITS SERVICE OF UNAUTHORISED MENU ITEMS UNDER SINGAPOREAN LAW C. ALLOWING THE FEMALE MUSLIM EMPLOYEES TO WEAR HIJAB DID NOT BREACH ARTICLE IV 3 UNDER SINGAPOREAN AND INDONESIAN LAW D. PROHIBITING HIJAB AT WORK VIOLATES THE LAW OR CONSTITUTION OF INDONESIA E. EVEN IF EVERY INDIVIDUAL BREACH WAS ESTABLISHED, CLAIMANT WAS NOT ENTITLED TO TERMINATE THE AGREEMENT UNDER INDONESIAN LAW F. EVEN IF EVERY INDIVIDUAL BREACH WAS ESTABLISHED, CLAIMANT WAS NOT ENTITLED TO TERMINATE THE AGREEMENT UNDER SINGAPOREAN LAW VI. EVEN IF CLAIMANT WAS ENTITLED TO TERMINATE, THE NOTICE OF TERMINATION WAS NOT A PROPER AND TIMELY NOTICE AND THEREFORE THE TERMINATION WAS INVALID 1 Moot Problem, Moot Problem, Moot Problem, 21 4

6 UNDER INDONESIAN LAW A. THE NOTICE OF TEMINATION WAS IMPROPRER AND TERMINATION OF THE AGREEMENT WAS INVALID WITHOUT AN ORDER OF THE COURT UNDER INDONESIAN LAW B. THE NOTICE OF TERMINATION WAS NOT PROPER AND TIMELY UNDER SINGAPOREAN LAW VII. THE PRECLUSION OF AVAILABILITY OF SPECIFIC PERFORMANCE FOR RESPONDENT IS INVALID A. THE CLAUSE ON RESTRICTION TO AVAILABILITY OF SPECIFIC PERFORMANCE IS INVALID FOR BEING CONTRARY TO GOOD FAITH UNDER INDONESIAN LAW B. THE CLAUSE IS INVALID UNDER SINGAPOREAN LAW FOR NOT BEING VALIDLY INCORPORATED INTO THE CONTRACT C. SPECIFIC PERFORMANCE IS THE APPROPRIATE REMEDY FOR RESPONDENT (i) The tribunal has power to grant specific performance in general (ii) If the tribunal finds the exemption clause invalid, specific performance should be granted in favour of the Repsondent for being the appropriate remedy for RESPONDENT s loss CONCLUSION AND PRAYER FOR RELIEF

7 INDEX OF AUTHORITIES Statutes and Treaties Cited in Para. Constitution of Indonesia Undang-Undang Dasar Republik Indonesia Constitution of Constitution of Malaysia Malaysia Constitution of Singapore ICC Indonesian Arbitration Act Constitution of The Republic of Singapore 1965 Civil Code For Indonesia (S.1847 No.23) Translated into English from the Official Dutch text Law No. 30 of 1999, Translated into English by Hadiputranto, Hadinoto & Partners 24 9, 54, 56, 63, 64, 65, 90, 95, 96, 104, 105, Indonesian Law No.39 of 1999, Indonesia 86 Human Right law Language Law Law No. 24 of 2009, Indonesia 13, 14, 15, 48 KLRCA Fast KRLCA Fast Track Rules, 2 nd Edition (2012) 1, 7, 30 Track Rules Malaysian Malaysian Arbitration Act , 18, 30 Arbitration Act New York Convention Convention on the Recognition and Enforcement of Foreign Arbitral Awards , 7, 11 6

8 Regulation on Franchise Singaporean International Arbitration Act The Government Regulation on Franchise No 42/2007 International Arbitration Act (Chapter 143 A), Singapore 47, UDHR Universal Declaration of Human Rights 16, 24, 25 Scholarly Works and Articles Cited in Alfons Amerasinghe Claudia Alfons, Recognition and Enforcement of Annulled Foreign Arbitral Awards, (Frankfurt: Peter Lang, 2010) Chittharanjan F. Amerasinghe, International Arbitral Jurisdiction, (The Netherlands: Martinus Nijhoff Publishers, 2011) Para Bailey Julian Bailey, Construction Law (Volume 1), 39 Baker & McKenzie International Arbitration Yearbook Bermann (London: Informa Law, 2001) The Baker & McKenzie International Arbitration Yearbook 2009 Bermann, George A., Mandatory rules of law in international arbitration, in Ferrari, F, Kröll, S, (eds) Conflict of Laws in International Arbitration 97 34, 35, 41, 42 7

9 Berger Blessing Brekoulakis Carl Case Comment of Rice Chitty Dalimunte (Munich: Sellier, 2011) Berger, Klaus Peter, Re-examining the Arbitration Agreement: Applicable Law Consensus or Confusion?, in International Arbitration 2006: Back to Basics? ICCA Congress Series No. 13, 301, 304 (Albert Jan van den Berg ed., 2007) Marc Blessing, Mandatory Rules of Law versus Party Autonomy in International Arbitration (1997) 14(4) J. Int l. Arb Brekoulakis, Stavros, Arbitrability and conflict of jurisdictions: The (diminishing) relevance of lex fori and lex loci arbitri in Ferrari, F, Kröll, S, (eds) Conflict of Laws in International Arbitration (Munich: Sellier, 2011) Carl, Michael; Reni, Dewi Savitri, Indonesia, in The International Comparative Legal Guide to: International Arbitration 2011, (Global Legal Group, 2011), Case Comment of Rice (t/a Garden Guardian) v GreatYarmouth BC (2003) 19 Const. L.J. T1 (CA) H.G. Beale, Chitty on Contracts, (London: Sweet & Maxwell, 30 th edn., 2008) Dalimunte, Ahmad Amid, Indonesian Language- Status Planning through Language Policy, Law 24 of , 5, 7, , 11 12, , 59,

10 David Joseph Dubroff Graffi Greenawalt Hadfield Hanotiau < / /Indonesianstatus_Planning_through_Language_Policy_Law_No._24_of_2009> David Joseph Q.C., Jurisdiction and Arbitration Agreements and their Enforcement (2 nd Edition), (England & Wales: Sweet & Maxwell, 2010) H. Dubroff, The Implied Covenant of Good Faith in Contract Interpretation and Gap-Filling: Reviling a Revered Relic, (2006) SJLR 559 Graffi, Leonardo, The law applicable to the validity of the arbitration agreement: A practitioner s view in Ferrari, F, Kröll, S, (eds) Conflict of Laws in International Arbitration (Munich: Sellier, 2011) Greenawalt, Alexander K.A., Does International Arbitraiton Need a Mandatory Rules Method? 18 Am. Rev. Int l Arb. 103 (2007) Hadfield GK, Problematic Relations: Franchising and the Law of Incomplete Contracts? (1990) 42 SLR 927 Hanotiau, What law governs the issue of arbitrability, 12(4) Arbitration International (1996) Herbert Smith Indonesian language requirement for contracts 14 current position, (2009) < 9

11 Hickling Jaffey Joseph Junita Kartakusuma Law of Contract in Hong Kong Maroef AE8-82FC B4E8D0AAB6/13692/Newsletter32EDecember20 09.pdf> Hickling, RH, Wu, Min Aun, Conflict of Laws in Malaysia, (Butterworths Asia, 1995) A.J.E. Jaffey, Introduction to the Conflict of Laws (London: Butterworths, 1988) Louis Joseph, A Doctrine of Good Faith in Singapore? A Missed Opportunity!, (2010) 5(1) TMC Academic Journal 50 Fifa Junita, Judicial Review of International Arbitral Awards on the Public Policy Exception in Indonesia, Journal of International Arbitration (Kluwer Law International 2012 Volume 29 Issue 4) pp Kartakusuma, Galinar R, Indonesia, in Zeidman, Philip F (ed) Franchise in 30 jurisdictions worldwide 2012, (Getting the Deal Through: 2012) Stephen Hall, Law of Contract in Hong Kong: Cases and Commentary (2 nd ed), (LexisNexis, 2008) Taufik Mappaenre Maroef, The Shareholder Settlement Program: A Pragmatic Resolution to confront a Systemic Banking Crises in view of the Dysfunctional Legal System and Tradition of the Republic of Indonesia (Faculty of Law, Leiden ,

12 Mistelis Okezie Otto Papeil Persisting Misconceptions Perkins University, 2010) Mistelis, Loukas A., Arbitrability International and Comparative Perspectives, in Mistelis, L., Brekoulakis, S., (eds), Arbitrability: The International and Comparative Perspectives, (Wolters Kluwer, 2009), Okezie Chukwumerije, Choice of Law in International Commercial Arbitration (USA: Quorum Books, 1994) Otto, Dirk, Elwan, Omaia, Article V(2), in Kronke et al (eds.), Recognition and Enforcement of Foreign Arbitral Awards A Global Commentary on The New York Convention, (The Netherlands: Wolters Kluwer, 2010) Papeil, Anne-Sophie, Conflict of overriding mandatory rules in arbitration, in Ferrari, F, Kröll, S, (eds) Conflict of Laws in International Arbitration (Munich: Sellier, 2011) Stavros L. Brekoulakis, Persisting Misconceptions and New Areas of Concern, in Mistelis, L., Brekoulakis, S., (eds), Arbitrability: The International and Comparative Perspectives, (Wolters Kluwer, 2009) Perkins, Theresa, Unveiling Muslim Women: the Constitutionality of Hijab Restrictions in Turkey, ,

13 Pietro Premaraj Public Policy and Arbitrability Revisited Lex Fori Status 1958 Sudargo Gautama Tunisia and Kosovo, 30 B.U. Int l L.J. 529 (2012) Pietro, Domenico Di, General Remarks on Arbitrability under the New York Convention, in Mistelis, L., Brekoulakis, S., (eds), Arbitrability: The International and Comparative Perspectives, (Wolters Kluwer, 2009) Premaraj, Belden, The Choices of Law Better Safe Than Sorry The Malaysian Arbitration Perspective Böckstiegel, K., Public Policy and Arbitrability, in P. Sanders (ed), ICCA Congress Series No. 3 (Deventer: Klluwer Law and Taxation 1987) Brekoulakis, Stavros, Law Applicable to Arbitrability: Revisiting the Revisited Lex Fori, in Mistelis, L., Brekoulakis, S., (eds), Arbitrability: The International and Comparative Perspectives, (Wolters Kluwer, 2009) United Nations Commission on International Trade Law Status 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards < bitration/nyconvention_status.html> Sudargo Gautama, Indonesia Business Law, (Singapore: FT Law & Tax Asia Pacific, 1997) 20, , , 111 Sunaryati Sunaryati Hartono, The Indonesian Law on Contracts 56 Hartono 12

14 Traps Treitel Tumbuan Milenkovic-Kerkovie, Tamara, PhD, The Traps for the Unwary in Franchising Agreements and the Role of the Disclosure Registration- The Serbian Case, < -Kerkovic_01.pdf> G.H. Treitel, The Law of Contract, (London: Sweet & Maxwell, 11 th edn., 2003) Tumbuan, Fred B.G., Certain Indonesian Contract Law Principles That Are Relevant in International Arbitration, Indonesia Arbitration Quarterly Newsletter, Volume III (2008) 44 62, 95, Waincymer Jeff Waincymer, Part III: The Award, Chapter 14: 111 William M Xavier Youssef Remedies and Interest in Jeff Waincymer, Procedure and Evidence in International Arbitration, Volume (Kluwer Law International 2012) pp William M, What is the content of the common law obligation of good faith in commercial franchises?, ABLR, 33(3) Xavier, Grace, Law and Practice of Arbitration in Malaysia, (Malaysia: Sweet & Maxwell Asia, 2001) Karim Youssef, The death of Inarbitrability, in Mistelis, L., Brekoulakis, S., (eds), Arbitrability: The International and Comparative Perspectives, (Wolters Kluwer, 2009)

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16 Judicial decisions Cited in Automasters Australia American Mart v Joseph Jani-King Judgment of 11 May 1955 Satterthwaite Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286 American Mart Corp v Joseph E Segram & Sons 824 F 2d 733, 734 Jani-King (GB) Limited v Pula Enterprises Limited [2007] EWHC 2433 (QBD) Judgment of 11 May 1955, 1995 (3) Hukum 52, Subekti & Tamara 160 (Mabkamab Agung) New Zealand Shipping Co Ltd v A M Satterthwaite [1975] AC 154 Para Lloyds Bank v Bundy Lloyds Bank Ltd v Bundy [1975] Q.B Interfoto Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 ALL ER Walford v Miles Walford v Miles [1992] 2 WLR Union Eagle James Spencer v Tame Valley Padding Union Eagle Ltd v Golden Achievement Ltd [1997] A.C. 514 James Spencer & Co Ltd v Tame Valley Padding Co Ltd Unreported April 8, 1998 CA (Civ Div) MacNamara Lymington Marina Ltd v MacNamara [2007] 60 15

17 Paragon Finance Lugate Insurance EWCA Civ 151 Paragon Finance Plc v Nash [2001] EWCA Civ 1466 Ludgate Insurance Company Limited v Citibank NA [1998] Lloyds LR Guild Duke of Westminister v Guild [1985] QB The Moorcock The Moorcock [1889] 14 PD 64 /87 Hong Kong Fir Shipping Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB Rice Rice v Great Yarmouth BC (2001) 3 LHLR 4 68, 69 Ng Giap Hon Ng Giap Hon v Westcomb Securities Pte Ltd and Others [2009] SGCA Vigers v Cook Vigers v Cook [1919] 2 K.B. 475 / Copsey Williamson Golden Acres v. Queensland Copsey v WWB Devon Clays Ltd [2005] ICR 1789 R (Williamson) v Secretary of State for Education and Employment [2005] 2 AC 246 Golden Acres Ltd v. Queensland Estates Pty Ltd [1969], Queensland ICC Award No ICC Award No. 5730, Clunet Meadows v Baccala Meadows Indemnity v. Baccala & Shoop Insurance Services, et al, 760 F, Supp (EDNY 1991) 26 The Assunzione The Assunzione [1954] 1 All ER Spurling v Bradshow Spurling Ltd v Bradshow [1956] 1 WLR 461, 37 16

18 Tilden Rent-a-Car Co v. Clendenning Thames Valley v Total Gas Wing On v Wave Front CA Tilden Rent-a-Car Co v. Clendenning (1978), 83 DLR (3d) 400 Thames Valley Power Ltd v Total Gas and Power Ltd [2005] EWHC 2208 Wing On Properties and securities Co Ltd v Wave Front Enterprise (HK) Ltd [2005] HKEC

19 STATEMENT OF JURISDICTION CLAIMANT and RESPONDENT have agreed to submit the present dispute to the Kuala Lumpur Regional Arbitration Centre ( KLRCA ) in conformity with the KLRCA Fast Track Rules. Each party will accept the decision of this Arbitral Tribunal as final and binding. 18

20 QUESTONS PRESENTED I. Whether the tribunal has jurisdiction over the present dispute, specifically, whether the arbitration agreement is valid and enforceable. II. Whether the Franchise Agreement is valid and enforceable, and in particular, whether it is void under Indonesian law III. Whether the inherent warranty of good faith and fair dealing in interpreting and applying franchise agreements applies to this Franchise Agreement under Singaporean and Indonesian law. IV. What kind of violation that would entitle CLAIMANT to terminate the franchise under Singaporean and Indonesian law should it be any violation of the Franchise Agreement, substantial violation of the terms of the Franchise Agreement which CLAIMANT deems substantial or substantial violation of the Franchise Agreement or other else. V. Whether the breach of the terms of the Franchise Agreement by RESPONDENT, if any, justified the termination of the Franchise Agreement under Singaporean and Indonesian law. In particular, the following issues will be addressed: (a) Whether the serving of a single Indonesian dish referred to as The Special of the Day breached the terms of the Agreement. (b) Whether giving customers the option of substituting lamb for pork for menu items breached the terms of the Agreement. (c) Whether allowing female Muslim employees to wear hijab breached the terms of the Agreement. (d) As an incidental issue to (c), whether an employment regulation prohibiting the wearing of hijab by female Muslim employees 19

21 violates the Constitution and/or laws of Indonesia or any international treaties to which it is a member. (e) Whether each of the above breaches and/or a continuing disregard of the franchisee s obligations as reflected by the above breaches under the Franchise Agreement entitled CLAIMANT to terminate. VI. Whether a proper and timely Notice of Termination was given to RESPONDENT so that the termination was effective under Singaporean law and Indonesian law. VII. Whether the clause excluding the availability of specific performance for RESPONDENT is valid and enforceable. 20

22 STATEMENT OF FACTS BACKGROUND In 1983, the first Great Wall Noodle Shop Restaurant ( the Restaurant ) was opened in China by Mr. Ji and Mr. Wang. It serves Chinese cuisine and has been very successful. CLAIMANT, Great Wall Noodle Shop LLC, was later founded for the operation of the restaurant business. Mr. Ji and Mr. Wang are the co-managing directors of the company. In the past 25 years the company has also franchised numerous Restaurants in China, Singapore and Malaysia. RESPONDENT, Adi Budiamman, M.D., is an Indonesian who has been working as a surgeon. He spent 7 years studying in Singapore and knows English well. EVENTS LEADING TO THE FRANCHISE On 20 June 2011, Mr. Wang, the co-managing director of CLAIMANT, met RESPONDENT in the airport of Singapore. RESPONDENT expressed his interest in running franchised Restaurants in Indonesia. Mr. Wang agreed, and handed in a Franchise Agreement ( the Agreement ), which was written in English, for RESPONDENT to read over. Because of time constraint, RESPONDENT was not drawn to the key provisions of the Agreement except those about fee arrangement. REESPONDENT nevertheless signed the Agreement. 21

23 EVENTS LEADING TO THETERMINATION OF THE FRANCHISE Two new franchised Restaurants opened in September 2011, one in Jarkata and one in Medan. There were successful from the beginning. In late October 2011, Mr. Ji made a visit to both franchised Restaurants in Indonesia and discovered the following: (a) There was sale of food products not on the official Menu being served. (b) An option of substitution of lamb for pork was provided to customers. (c) Some of the female employees in the Jakarta restaurant and almost all of the female employees in the Medan restaurant wore a red hijab. On 4 November 2011, Mr. Ji, acting on behalf of CLAIMANT, sent an to RESPONDENT ( the Notice of Deficiency ) notifying him that he committed the above violations of the Agreement. After receiving the Notice of Deficiency, RESPONDENT removed all Indonesian dishes from the Menu. Only a single Indonesian dish of The Special of The Day was provided to customers. For improving uniformity, RESPONDENT requested all female employees in the two Restaurants to wear the less noticeable white hijab instead of a red one. 22

24 Two weeks later, CLAIMANT sent an inspector to visit both franchised Restaurants. The inspector reported that: (a) Indonesian food was not listed on the Menu, but a single Indonesian dish of The Special of the Day was available to customers (b) The option of substitution of lamb for pork still existed. (c) Most of the female employees wore a white hijab. On 19 November 2011, CLAIMANT sent a letter ( the Notice of Termination ) to RESPONDENT terminating the franchise and directing him to close the two franchised Restaurants and remove the signage within 15 days. RESPONDENT refused to close the two Restaurants. CLAIMANT thereafter submitted a Notice of Arbitration in conformity with the KLRCA Fast Track Rules seeking redress. RESPONDENT asserted a counterclaim for breach of the Agreement. 23

25 SUMMARY OF PLEADINGS I. The tribunal does not have jurisdiction over the dispute: First, the choice-of-law clause in the Franchise Agreement is invalid for being not bona fide and not legal. In the absence of a valid stipulation on governing law, the validity of the arbitration agreement is governed by two sets of laws. Second, Singaporean law, being that of the place of performance of the arbitration agreement, governs substantive validity. There is no valid consent to arbitrate as the arbitration agreement was not brought to the attention of RESPONDENT. Third, Indonesian law governs formal validity, and the arbitration agreement is invalid for having violated Indonesian law. Further, the arbitration agreement submits to arbitration dispute involving application of constitutional rights, and is therefore invalid. II. The Franchise Agreement is governed by Indonesian law, under which the Agreement is invalid: First, as the choice-of-law clause is invalid, the contract should be governed by Indonesian law, being the law most closely connected to the Agreement. Second, even if the choice-of-law clause is upheld, mandatory rules under Indonesian law should apply to the present dispute. Third, the contract, being in violation of language requirements and regulations on franchises, is invalid. III. The application of inherent warranty of good faith and fair dealing in interpretation and performance of agreements: 24

26 Under Singaporean law, the doctrine of good faith and fair dealing has no general application. No implied term can be implied in fact to restrict the ambit of the discretion of CLAIMANT as well since Article X(2) of the Agreement already delineates the ambit of the discretion exercisable by CLAIMANT. Under Indonesian law, the duty of good faith and the standard of the reasonableness in interpretation and performance of contract are recognised by legislation. However, its effect should be restricted by Article X(2) because of the character of optional law of the ICC. IV. The trigger of premature determination of the Agreement: Under Singaporean law, CLAIMANT is entitled to terminate on objectively substantial breach of terms which CLAIMANT deems substantial although the discretionary power of classifying term as important must be subject to Article X(2). Under Indonesian law, the position is the same. CLAIMANT is titled to terminate on objectively substantial breach of terms which CLAIMANT deems substantial, subject to the restriction of discretion by Article X(2). V. CLAIMANT was entitled to terminate the Agreement: Under both Singaporean and Indonesian law, the serving of The Special of the Day and the option of substituting lamb for pork breached Article III (A) of the Agreement. Allowing the female employees to hijab breached Article 25

27 IV of the Agreement since prohibiting hijab at work does not violate the Human Right Law or Constitution of Indonesia. Under both Singaporean and Indonesian law, the breaches would justify the termination of the Agreement by CLAIMANT as there was a substantial failure of performance depriving of the benefit which it was intended from the Agreement. VI. On the assumption that CLAIMANT was entitled to terminate, the Notice of Termination was proper and timely and hence the termination was valid: Under Singaporean law, the Notice of Termination was timely and proper and no implied term can be implied in law or in fact to oblige CLAIMANT to give a notice period to RESPONDENT prior to termination. Under Indonesian, the Notice of Termination was timely and proper in the absence of order of the court of Indonesia because the arbitration agreement and the Indonesia Arbitration Law preclude the jurisdiction of Indonesian court to order any dissolution of the Agreement. VII. The exemption clause excluding availability of specific performance for RESPONDENT is invalid and specific performance should be granted to RESPONDENT First, the exemption clause is invalid for being contrary to good faith under Indonesian law. Alternatively, it is invalid for not having been brought to the 26

28 attention of RESPONDENT under Singaporean law. Second, it is appropriate to grant RESPONDENT specific performance under both Indonesian law, which adopts a lenient approach towards the remedy, and Singaporean law, in view of inadequacy of damages. 27

29 RESPONDENT S PLEADINGS I. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THE DISPUTE 1. The arbitral tribunal s jurisdiction over any given matter originates from the consent of the parties embodied Article XII of the Franchise Agreement. 4 The arbitration is to be conducted in accordance with the KLRCA Fast Track Rules, 5 which incorporate the Malaysian Arbitration Act. 6 The tribunal can determine its own jurisdiction in accordance with the doctrine of Kompetenz-Kompetenz enshrined in the Malaysian Arbitration Act. 7 A. AS A PRELIMINARY MATTER, THE CHOICE-OF-LAW CLAUSE IS INVALID FOR BEING NOT BONA FIDE AND NOT LEGAL 2. RESPONDENT submits that the choice-of-law clause is void as it is not bona fide and not legal. The test is whether the sole reason behind the choice of law is to evade the mandatory rules of the law with which the contract is most closely connected. 8 CLAIMANT, having made the decision to expand the franchise business to Indonesia half a year before conclusion of the contract, must have conducted research into the regulations of franchises in Indonesia. 9 It is clear that the choice of Singaporean law, being only the law of the country where the 4 Amerasinghe, 55 5 Article XII (A) of the Franchise Agreement 6 Article 6(2), KLRCA Fast Track Rules 7 Section 18(1), Malaysian Arbitration Act Golden Acres v. Queensland; Jaffey, Moot Problem, 2 28

30 contract was signed, was made to evade the more stringent provisions under Indonesian law. 3. If this submission is accepted, this would give rise to questions on applicable laws. The tribunal should consider the widely recognized New York Convention in determining the laws applicable to the validity of the arbitration agreement and the underlying contract. The New York Convention, which has been signed by Singapore, Malaysia and Indonesia, 10 governs the recognition and enforcement of arbitral awards in Member States. Bearing in mind arbitrators soft obligation to render enforceable arbitral awards, 11 the tribunal should not depart from provisions of the Convention except with serious reasons. 12 The effect of the Convention and the applicable laws are discussed below. B. THE ARBITRATION AGREEMENT IS INVALID AND UNENFORCEABLE 4. The consent of the parties to arbitrate is embodied in the arbitration agreement, the validity of which is independent from that of the substantive contract under the doctrine of separability The arbitration agreement is invalid for lack of valid consent to arbitrate between the parties, and non-compliance with the Indonesian formal requirements. The former relates to substantive validity and latter concerns formal validity Status Berger, 16; Brekoulakis, ICC Award No. 5730, David Joseph,

31 6. RESPONDENT s primary submission is based on the premise that the choice-oflaw clause is invalidated. RESPONDENT would also address the alternative situation where Singaporean law governs the entire contract. 15 (i) Malaysian law should apply to substantive validity, under which the arbitration agreement is invalid in the absence of RESPONDENT s awareness of it. 7. If the express choice of law is ineffective, Malaysian law should apply to substantive validity. Malaysia is the country most closely connected to the arbitration agreement for being the place where it is performed. 16 Further, this accords with the approach under Article V (1)(a) of the New York Convention, whereby an arbitral award may be denied if the agreement is not valid under the law of the country where the award was made in the absence of valid indication on applicable law. By virtue of Article 6(2) of the Fast Track Rules, the award is deemed to be made in Malaysia. 8. It is submitted that it is a general rule in Malaysia that the arbitration agreement, despite not having to be signed, must be brought to the attention of the parties. 17 The application of this rule would be justifiable in the present case, as CLAIMANT was aware of RESPONDENT s background as a surgeon inexperienced in operating a business. 18 As a result, he must have reasonably known that RESPONDENT, who had never signed a contract of this kind, would 14 Berger, 2 15 SR#3, Supplement Clarifications 16 Berger, Xavier, Moot problem, 2 30

32 not have known of the existence of the arbitration agreement. In spite of the time constraint, CLAIMANT failed to bring the arbitration agreement to the notice of RESPONDENT If Indonesian law applies, RESPONDENT submits that RESPONDENT did not consent to the agreement to arbitrate for the purposes of Article 1320 of the Indonesian Civil Code, as RESPONDENT was not even aware of the existence of such agreement. Nonetheless, if the tribunal finds that the signature is conclusive evidence from which consent can be inferred, 20 RESPONDENT does not seek to dispute the validity of such inferred consent to arbitrate. 10. RESPONDENT does not seek to dispute the validity of consent to arbitrate if Singaporean law applies, under which signature to an agreement is conclusive indication of parties consent. 21 (ii) Indonesian law would apply to the formal validity of the arbitration agreement. 11. If the tribunal finds Article XII of the Franchise Agreement on governing law unenforceable, Indonesian law, being that of the country where recognition of the award is likely to be sought, should apply to formal validity. 22 It is submitted that lex loci arbiri, being the law of the country where the arbitration takes place, is of declining significance in view of widespread recognition that arbitration has no 19 First Clarifications, C Maroef, L Estrange v. F Graucob 22 Graffi, 33 31

33 forum. 23 Moreover, the New York Convention, despite being highly influential, merely addresses the enforcement of arbitral awards and arbitrators are not under a treaty obligation to apply the provisions on formal validity under the Convention. 24 (iii) The arbitration agreement has not fulfilled formal validity requirements under Indonesian law 12. The Indonesian Language Law mandates that a contract involving Indonesian parties must be translated into Indonesian. 25 This provision applies to arbitration agreements. 26 This should logically be assessed at the time of conclusion of contract as the Indonesian version would otherwise serve only as a record of the contract. By only providing the Indonesian contract after the signing of the contract, the requirement was not complied with Further, in view of the legislative intention to promote the integrity of national identity and language through the Language Law, 28 the requirement should serve as a mandatory rule applicable to all Indonesians, regardless of their proficiency in the foreign language used in a contract. This approach would minimize uncertainty and arbitrariness entailed if tribunals have to ascertain one s language proficiency to determine the applicability of the requirement. 23 Brekoulakis, Berger,15 25 Article 31, Indonesian Language Law 26 Carl, Moot Problem, 2 28 Dalimunte 32

34 14. In ascertaining the effect of the Language Law, the tribunal should not be bound by the letters issued by the Indonesian Ministry of Law and Human Rights and Director General. Being non-binding clarifications, they are of doubtful assistance. 29 RESPONDENT s submission is that the language requirement in the Language Law is mandatory, which would result in invalidation of contract if breached. 15. Taking into account the legislative intent behind the introduction of the Language Law, it is submitted that the language requirement in the Language Law is mandatory, the violation of which should result in invalidation of the Agreement. 16. If the choice-of-law clause is found to be valid, it is conceded that the formal requirements for an arbitration agreement under Singaporean law, specifically the Singaporean International Arbitration Act and the incorporated UNCITRAL Model Law, have been complied with. 30 C. THE MATTERS SUBMITTED TO ARBITRAITON ARE NOT ALL ARBITRABLE (i) Indonesian and Malaysian law are applicable laws on arbitrability 17. Arbitrability of the dispute, being an element of validity of the arbitration agreement, is to be decided as a preliminary matter Herbert Smith 30 Section 2A of the Singaporean International Arbitration Act ( SIAA ) and Article 7 of UNCITRAL Model Law incorporated therein by virtue of Section 3 of the SIAA 31 Persisting Misconceptions,

35 18. In determining arbitrability, the prominence of lex fori as the most relevant law remains unquestionable. 32 The Malaysian Arbitration Act Article 4(1) provides that the arbitration agreement must not be contrary to public policy, a requirement similarly embodied in Article 11(1) of the Singaporean International Arbitration Act. 19. Further, Article V (2) of the Convention provides that recognition of arbitral awards may be denied if the subject matter is not capable of settlement by arbitration under the law of the country where enforcement of the award is sought, or where it is contrary to the public policy of that country. 20. The law of Indonesia, being the place of performance of the agreement and consequently where enforcement is likely to be sought, is therefore relevant. Malaysian law, as the lex loci arbitri, should also be considered to avoid the possibility of having the arbitral award set aside by local courts. 33 (ii) Disputes involving the application of constitutional rights are inarbitrable 21. RESPONDENT s primary submission is that the arbitration agreement purports to arbitrate matters within the exclusive jurisdiction of national courts, namely the dispute over application of constitutional rights in the employment regulation, which prohibits employees from wearing a hijab Revisited Lex Fori, Revisited Lex Fori, 6-5; Mistelis, 1-33; Pietro, 5-23; Otto, Article II(G) of the Franchise Agreement 34

36 22. It is widely accepted that the notion of ordre public covers all provisions of cogent law affecting the basis of public or economic life, as well as the fundamental conception of justice, constitutional rights such as personal liberty, equality and the prohibition of (any kind of) discrimination Having regard to Indonesian law, only disputes in the commercial sector concerning rights which, according to the law and regulations, have the force of law and are fully controlled by the parties in dispute may be settled through arbitration The hijab is a widely recognized symbol of the Muslim faith. 37 The prohibition on the wearing of the hijab may potentially infringe the employees freedom of religion, a right enshrined in the constitutions of Indonesia, Malaysia and Singapore, as well as the Universal Declaration of Human Rights It is submitted that the enforcement of laws protecting equal and inalienable rights of all members of the human family 39 is of public interest and therefore outside the scope of parties autonomy and jurisdiction of arbitral tribunals. 26. The same conclusion is reached even if the narrower notion that matters are inarbitrable only where they conflict with international public policy is adopted, 40 as the safeguarding of human rights is of transnational concern. It would be 35 Alfons, Article 5(1) of the Indonesian Arbitration Law 37 Perkins 38 Article 15 of Constitution of Singapore; Article 11 of Constitution of Malaysia; Article of Constitution of Indonesia 1945; Article 18 of the Universal Declaration of Human Rights 39 Preamble, Universal Declaration of Human Rights 40 Youssef, 3-53; Meadows v Baccala 35

37 contrary to public policy to allow the parties to determine among themselves the enforcement of constitutional rights and the limits to the exercise of such rights by RESPONDENT s employees. 27. Being less pro-enforcement with regard to foreign arbitral awards, Indonesian courts construe public policy widely. 41 It is likely to find that the tribunal should have no jurisdiction over constitutional rights disputes. (iii) Inarbitrability of the dispute invalidates the arbitration agreement 28. RESPONDENT s submission is that the whole of the dispute must be arbitrable for the agreement to be valid, and non-arbitrability of the dispute over the wearing of hijab would render the arbitration agreement null and void in accordance with the prevailing view on the nature of arbitrability issues. 42 II. THE FRANCHISE AGREEMENT IS INVALID UNDER INDONESIAN LAW A. INDONESIAN LAW GOVERNS THE VALIDITY OF THE FRANCHISE AGREEMENT IN THE ABSENCE OF EXPRESS CHOICE OF LAW 29. Only if the tribunal finds the arbitration agreement valid that the substance of the Agreement should be considered. 41 Junita, Pietro, 5-30; Hanotiau; Public Policy and Arbitrability at

38 30. If the tribunal finds the choice-of-law clause invalid, as submitted by RESPONDENT, it should ascertain the law applicable the substantive issues by applying Malaysian conflict of laws rules, in accordance with Article 6 of the Fast Track Rules and Section 30(4) of the Malaysian Arbitration Act Under Malaysian conflict-of-laws rules, the law of the country most closely connected to the transaction should apply in the absence of express choice. 44 Indonesia, being the country where the contract is performed and the location of the subject matter, 45 would be the law just and reasonable persons ought to have intended if they had thought about the matter at the time when they made the contract. 46 B. INDONESIAN PROVISIONS ON FRANCHISE AGREEMENTS SHOULD BE APPLIED AS MANDATORY RULES REGARDLESS OF THE LAW GOVERNING THE SUBSTANTIVE DISPUTE 32. Alternatively, the fact that Indonesia is neither the law of the place where the arbitration takes place nor that chosen by the parties does not preclude the application of its mandatory rules. 33. Party autonomy is not absolute. The liberty of parties to choose arbitration and the law applicable to their dispute begins when the mandatory ends and vice 43 Premaraj, 3 44 Hickling, Article II(B) of the Franchise Agreement 46 The Assunzione per Singleton LJ at 176, Hickling,

39 versa. 47 It is clear therefore that party autonomy is subject to rules from which parties are not free to derogate. 34. Even if RESPONDENT s primary submission that Indonesian law is the applicable governing law fails, mandatory rules of Indonesian law should nevertheless apply to the mode of performing a contract, as distinct from the substance of the obligation. 48 This stems from the common law principle that a court may refuse to enforce and recognize a right arising under the law of a foreign country if it violates the fundamental public policy of the jurisdiction Apart from being directly applied to the substance, mandatory rules under Indonesian law may form the datum used in application of legal principles. 50 The tribunal should therefore consider Indonesian provisions to ensure that the award rendered is enforceable. (i) Waiver of protection from Indonesian law under Article XIIB is invalid and should be severed from the contract 36. The contractual term whereby RESPONDENT waives his rights and protections provided by any other laws, including Indonesian law, is an invalid term. 47 Papeil, Okezie, 186, citing L. Collins (ed) Dicey and Morris Conflict of Laws 11 th ed (London: Stevens and Sons, 1987) at Note 19, Okezie, 195; Bermann, Bermann,

40 37. It is established in common law that reasonable steps must be taken to ensure a party s awareness of onerous terms for them to take effect. 51 Further, regard should be given to the judgment of Court of Appeal for Ontario in Tilden Rent-a- Car Co v. Clendenning, which has subsequently been applied by the Hong Kong Court of Appeal. 52 It was held that the signer would not be bound by his signature if the other party did not reasonably believe that the signer did consent to the onerous term proposed. 38. It is submitted that the tribunal should apply the Tilden case, and consider whether the waiver clause constitutes an onerous term which would warrant reasonable steps to ensure that RESPONDENT is clear about its effect The determination of whether a term is particularly onerous is fact and context dependent. 54 The clause purports to exclude RESPONDENT from protection of the law, which is binding him on matters such as operation of the franchise and employment issues. The enforcement of the term would therefore put RESPONDENT in a difficult position. 40. CLAIMANT was aware that RESPONDENT did not read the Agreement in its entirety before signing the contract. He was also aware that RESPONDENT was a surgeon and did not have independent legal advice with regard to the Agreement before conclusion of the contract. 55 In this context, CLAIMANT should have 51 Spurling v Bradshow; Chitty, Wing On v Wave Front 53 Law of Contract in Hong Kong, Bailey, Moot problem, 2 39

41 explained the term to RESPONDENT. As a result, even though the term is encompassed in a signed contract, it is not valid or enforceable. (ii) Even if the waiver has been incorporated into the contract, it is ineffective in precluding the application of Indonesian mandatory rules 41. The nature of mandatory rules, being laws that cannot be derogated from, 56 indicates that they may be conclusively left to arbitral determination, but they cannot be waived. 57 The clause is therefore ineffective as against mandatory rules under Indonesian law. (iii) Indonesian laws on franchise regulation are mandatory and should be applied to the present dispute 42. In deciding the application of mandatory rules of a given jurisdiction, the tribunal should consider connection between the law and the transaction and applicationworthiness of the rules, among other things Indonesia, being the country where the contract is performed, is unquestionably closely linked to the transaction between the parties. In the absence of express stipulation as to whether the rules are mandatory, the arbitrators would have to ascertain the legislative intent on the nature of rules from the circumstances. 59 Indonesian regulatory laws that lay the foundation of governmental and 56 Bermann, Greenawalt, Blessing, at 32; Bermann, Papeil,

42 economic life are generally considered mandatory, the non-application of which is likely to result in setting aside of arbitral awards on the ground of public policy violation RESPONDENT submits that regulations on franchises, which relate to operation of business involving foreign entities, are mandatory. It is widely recognized that franchise regulations are designed to protect local parties to franchise agreements, who are generally economically weaker and with weaker bargaining power, from exploitation. 61 Indonesian laws on franchises are therefore applicable to the present case. 45. In particular, it is submitted that the requirements on language and advance provision of franchise-related documents, which the Franchise Agreement has failed to fulfill, appear to be intended to ensure that Indonesian businessmen have enough time to reflect upon the contract and not be coerced into agreements they do not understand. Their application should therefore not be excluded. C. THE FRANCHISE AGREEMENT IS INVALID UNDER INDONESIAN LAW (i) The Franchise Agreement fails to comply with language requirements. 46. RESPONDENT submits that absence of a signed Indonesian version of the Franchise Agreement renders the contract void and unenforceable. 60 Carl, 85; Junita, Traps 41

43 47. It is provided under Article 4 of the Indonesian Government Regulation on Franchise that a franchise shall be executed on the basis of a written agreement [which] shall be written in English language and translated into Indonesian language. Both RESPONDENT and CLAIMANT have failed to sign both versions as required The requirement is reinstated in Article 31(1) of the Indonesian Language Law, the effect of which has been discussed in paragraph 12 to The Indonesian version of the contract, which remains unsigned, was only mentioned and provided to RESPONDENT after the signing of the contract. 64 It is submitted that acceptance of this as effectual compliance with the language requirement would undermine the purpose of the law, for it could not have been the legislature s intention that the Indonesian copy is to serve as nothing more than a written record. (ii) CLAIMANT has not complied with the requirement on advance provision of franchise prospectus and written agreement 50. In addition, CLAIMANT did not comply with the requirement provided under the Implementing Regulations on Franchising that a prospectus and the written agreement must be offered to the prospective franchisee at least two weeks before 62 Kartakusuma, Supra, Moot Problem, 2 42

44 the signing of the contract. 65 Putting aside the written agreement, RESPONDENT has never been offered or provided with a franchise prospectus. 66 (iii) The parties have not registered the franchise prospectus in accordance with the Franchise Regulation, thereby invalidating the Franchise Agreement 51. Although the certificate for registration of a franchise agreement would only be revoked upon non-compliance with the third written warning issued by the government, 67 it is submitted that the certificate is bound to be revoked as CLAIMANT has never provided a franchise prospectus. Compliance with the requirement is therefore impossible. 52. It is only when the tribunal finds the Agreement valid that the contractual terms and properness of termination should be considered. III. THE APPLICATION OF INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING IN INTERPRETATION AND PERFORMANCE OF AGREEMENTS 53. The said warranty is a useful device of contract gap-filling or implying standard of good faith and reasonableness in contractual performance. 68 The Agreement confers discretionary power to CLAIMANT in making business decisions. The 65 Article 4(1) and Article 5(3), Implementing Regulation on Franchising 66 Moot problem, 2 67 Article 18(1), Regulation on Franchises 68 Dubroff 43