IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION KUALA LUMPUR, MALASIA BETWEEN GREAT WALL NOODLE SHOP, LLC (CLAIMANT) AND ADI BUDIAMMAN, M.D.

Transcription

1 F1010-C THE 7 TH LAWASIA INTERNATIONAL MOOT IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION KUALA LUMPUR, MALASIA 2012 BETWEEN GREAT WALL NOODLE SHOP, LLC (CLAIMANT) AND ADI BUDIAMMAN, M.D. (RESPONDENT) MEMORIAL FOR CLAIMANT

2 TABLE OF CONTENTS QUESTIONS PRESENTED... vi INDEX OF AUTHORITIES... viii STATEMENT OF FACTS... 1 SUMMARY OF PLEADINGS... 3 CLAIMANT S PLEADINGS... 5 I. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE... 5 II. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE... 7 A. THE TRIBUNAL SHOULD APPLY INDONESIAN LAW TO THE FRANCHISE AGREEMENT 8 B. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE UNDER INDONESIAN LAW The Franchise Agreement satisfies the substantive requirements under Indonesian law The Franchise Agreement satisfies the formality requirements under Indonesian law Alternatively, the Franchise Agreement remains valid and enforceable even if the formality requirements are not fully satisfied C. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE UNDER SINGAPOREAN LAW III. ARTICLE XII(B) IS VALID AND ENFORCEABLE A. ARTICLE XII(B) IS VALID AND ENFORCEABLE UNDER INDONESIAN LAW B. ARTICLE XII(B) IS VALID AND ENFORCEABLE UNDER SINGAPOREAN LAW C. THE TRIBUNAL RISKS GIVING AN UNENFORCEABLE AWARD IF IT DOES NOT COMPLY WITH ARTICLE XII IV. CLAIMANT GAVE PROPER AND TIMELY NOTICE OF TERMINATION TO RESPONDENT 15 A. CLAIMANT GAVE TIMELY AND PROPER NOTICE OF TERMINATION UNDER INDONESIAN LAW B. CLAIMANT GAVE TIMELY AND PROPER NOTICE OF TERMINATION UNDER SINGAPOREAN LAW ii

3 V. THE PRINCIPLE OF INHERENT WARRANTY OF GOOD FAITH APPLIES TO THE CURRENT FRANCHISE AGREEMENT WHILE THE PRINCPLE OF FAIR DEALING DOES NOT VI. CLAIMANT CAN TERMINATE THE FRANCHISE FOR SUBSTANTIAL VIOLATIONS OF THE FRANCHISE AGREEMENT VII. ALL OF RESPONDENT S VIOLATIONS ARE SUBSTANTIAL A. RESPONDENT S SERVICE OF UNAUTHORISED INDONESIAN FOOD VIOLATES THE FRANCHISE AGREEMENT Respondent s service of unauthorised Indonesian food violates a substantial term of the Franchise Agreement The service of Indonesian food is a substantial violation of Article III(A) a. Service of Indonesian food materially impacts the uniformity of Claimant s franchise b. Service of Indonesian food materially impacts Claimant s franchise trade dress Claimant did not waive its right to authorise service of Indonesian food B. RESPONDENT S UNAUTHORISED SUBSTITUTION OF LAMB FOR PORK VIOLATES THE FRANCHISE AGREEMENT Respondent s unauthorised substitution of lamb for pork violates a substantial term of the Franchise Agreement The substitution of ingredients is a substantial violation of Article III(B) a. Respondent s substitution of ingredients materially impacts the uniformity of Claimant s franchised restaurants b. Respondent s substitution of ingredients materially impacts Claimant s franchise trade dress Claimant never accepted the substitution of ingredients C. RESPONDENT S UNAUTHORISED ADDITION OF HIJABS TO EMPLOYEE S UNIFORMS VIOLATES THE FRANCHISE AGREEMENT Respondent s unauthorised addition of hijabs to employee s uniforms violates a substantial term of the Franchise Agreement Respondent s unauthorised addition of hijabs is a substantial violation of Article II(G) iii

4 a. The unauthorised addition to uniforms materially impacts the uniformity of Claimant s franchise b. The unauthorised addition of hijabs materially impacts the Claimant s franchise trade dress Claimant did not waive its right to authorise the hijabs D. ALL OF RESPONDENT S VIOLATIONS CUMULATIVELY CONSTITUTE CONTINUING DISREGARD FOR THE FRANCHISE AGREEMENT AND JUSTIFIES TERMINATION VIII. PROHIBITION OF EMPLOYEES FROM WEARING HIJABS DOES NOT INFRINGE THEIR RIGHTS A. THE TRIBUNAL HAS NO LEGAL BASIS TO ENFORCE HUMAN RIGHTS OBLIGATIONS AGAINST CLAIMANT B. PROHIBITING FEMALE MUSLIM EMPLOYEES FROM WEARING HIJABS DOES NOT VIOLATE THEIR RIGHT TO MANIFEST RELIGION C. PROHIBITING FEMALE MUSLIM EMPLOYEES FROM WEARING HIJABS DOES NOT DISCRIMINATE AGAINST WOMEN CONCLUSION AND PRAYER OF RELIEF iv

5 STATEMENT OF JURISDICTION Great Wall Noodle Shop, LLC ( Claimant ) and Adi Budiamman, M.D. ( Respondent ) jointly submit the present dispute to the Kuala Lumpur Regional Centre for Arbitration ( KLRCA ), Malaysia, according to the KLRCA Fast Track Rules ( KLRCA Rules ). The dispute includes issues on the Tribunal s jurisdiction. Pursuant to Article 6 of the KLRCA Rules, the Tribunal may elect to rule on its jurisdiction as a preliminary question or in an award on its merits. Both parties shall accept the judgment of the Tribunal as final and binding and execute it in good faith in its entirety. v

6 QUESTIONS PRESENTED A. What is the proper law to apply in resolving this dispute: Singapore Law, Indonesian Law, or some other law? B. In order to minimize additional delay in resolving this dispute, the parties are directed to address each of the following questions in the alternative: i.e., under both Indonesian and Singaporean law if they are different. 1. Is the Arbitration agreement valid and enforceable? 2. Is the Franchise Agreement invalid under Indonesian Law specifically Article 31 of Law 24 of 2009? 3. Is Article XII of the Franchise Agreement (Dispute Resolution) invalid and/or unenforceable as it authorizes the granting of specific performance should the Franchisee be found to have violated a provision of the Franchise Agreement while prohibiting the granting of specific performance should the Franchisor(s) be found to have violated a provision of the Franchise Agreement. 4. Was a proper and timely Notice of Termination given to the Franchisee [Dr. Budiamman]? 5. May the Franchisor terminate the franchise for any violation of the Franchise Agreement or must it be a substantial violation of the Agreement? 6. Does the inherent warranty of good faith and fair dealing in interpreting and applying franchise agreements apply to this Franchise Agreement and, if so: vi

7 a. Did the serving of a single Indonesian dish referred to as The Special of the Day justify the termination of the franchise? b. Did giving customers the option of substituting lamb for pork for menu items justify the termination of the franchise? c. Did the wearing of the new (white) hijab by the female Muslim employees justify the termination of the franchise? d. Do the above violations of the Franchise Agreement reflect a continuing disregard of the franchisee s obligations under the Franchise Agreement to justify its termination? 7. Does an employment regulation prohibiting the wearing of a hijab by female Muslim employees or restriction (or the colour type of the hijab) violate the constitution and/or laws of Indonesia or any international treaties to which it is a member. vii

8 INDEX OF AUTHORITIES Statutes and Treaties Act No.13 of 2003 on Concerning Manpower 64 Discrimination (Employment and Occupation) Convention, International Labour Organization 64 Indonesian Civil Code 9,29,32 Indonesian Law No. 8 of 1999 on Consumer Protection 17 Indonesian Law No.42 of 2007 on Franchising 7,23,24 Indonesian Regulation of the Minister Trade No. 31/M- DAG/PER/8/2008 7,15,23,24,27 International Covenant on Civil and Political Rights 62,63 Kuala Lumpur Regional Arbitration Center Fast Track Rules 1,3,4,5 Law No. 12 of 2005 Concerning the Ratification of the International Covenant on Civil and Political Rights 62 Law No. 39 of 1999 Concerning Human Rights 62 Law No. 21 of 1999 Concerning Discrimination in Respect of Employment and Occupation 64 Law No. 24 of 2009 regarding the State Flag, the National Language, the National Emblem and the National Anthem 10,11,12,15 Malaysian Arbitration Act New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 21 viii

9 Universal Declaration of Human Rights 62,63 The 1945 Constitution of the Republic of Indonesia 62,63 Arbitral Awards ICC Award No (1977) 1 ICC Award No (1979) 16 Australia Cases Thompson v Ice Creameries of Australia Pty Ltd NG 281 of Wayde & Anor v New South Wales Rugby League Ltd [1985] 59 ALR European Court of Human Rights Cases Kalac v. Turkey (1977) EHRR Malaysia Cases Chew Sang Hai v Intan Kinabalu Sdn Bhd & Ors [2011] MLJU Singapore Cases Lemon Grass Pte Ltd v Peranakan Place Complex Pte Ltd [2002] 4 SLR Over & Over Ltd v Bonvest Holdings Ltd [2010] 2 SLR Pasuma Pharmacal Corporation v McAlister & Co. Ltd [1965] 1 MLJ Press Automation Technology Pte Ltd v Trans-Link Exhibition Forwarding Pte Ltd [2003] 1 SLR ix

10 Rapiscan Asia Pte Ltd v Global Container Freight Pte Ltd [2002] 2 SLR UK Cases Bremer Vulkan Schiffbau and Maschinenfabrik v. South India Shipping Corp. Ltd [1981] A.C Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B L Estrange v F Graucob Ltd [1934] 2 KB R (Begum) v Governors of Denbigh High School [2005] 2 WLR 3372 R (on the application of X (by her father and litigation friend)) v Headteachers [2006] EWHC Westacre Inv. Inc. v. Jugoimport-SDPR Holdings Co. Ltd [1998] 4 All E.R USA Cases Republic of Ecuador v ChevronTexaco Corp., 376 F.supp.2d 334 (S.D.N.Y. 2005) 2 Terry International v Dairy Queen Inc. (N.D. Ind. 1983) 554 F. Supp. 1088, Wright-Moore Corporation v Ricoh Corporation, United States Court of Appeals, Seventh Circuit, 28 Aug 1990, 908 F.2d Scholarly Work and Articles Andrew Boon Leong Phang, Cheshire, Fifoot and Furmston s Law of Contract, (Lexis 1998) 19 x

11 Andrew Tweeddale, Keren Tweeddale, Arbitration of Commercial Disputes, International and English Law and Practice (Oxford University Press 2005) 1,16 Arifin Syamsui, Attitudes to Human Rights and Freedom of Religion or Belief of Indonesia (Voices of Islamic Religious Leaders in East Java), (Penebrit Kanisius 2010) 60 B Poznanski, The Nature and Extent of an Arbitrator s Powers in International Commercial Arbitration (1987) 4 Journal of International Arbitration (No 3 16 Christian Tonuschat, Human Rights: Between Idealism and Realism (Oxford University Press 2003) Elizabeth A. Martin and Jonathan Law (eds), Oxford Dictionary of Law (6th ed) (Oxford University Press 2006) Elizabeth Crawford Spencer The Regulation of Franchising in the New Global Economy (Edward Elgar Publishing Ltd. 2010) 27 Galinar R Kartakusuma, Indonesia in Phillip F Zeldman (ed) Franchise in 30 Jurisdictions Worldwide (Law Business Research 2012) 23,27,30 Gary B. Born, International Commercial Arbitration (Kluwer Law International 2009) 3,7,16 H.G. Beale (ed), Chitty on Contracts, (Thomason Reuters 2008) 14,32 Indonesian Minister of Manpower and Transmigration, Guidelines on Sexual Harassment Prevention at the Workplace, Circular Note of the Minister of Manpower and No. SE.03/MEN/IV/2011, Indonesia, April John J. Knox, Horizontal Human Rights Law, 102 The American Journal of International Law 1 (2008) 60 Julian M. Lew, Loukas A. Mistelis, et al., Comparative International Arbitration (Kluwer Law International 2003) 21 xi

12 Kerry L. Bundy and Scott H. Ikeda, How Waiver, Modification and Estoppel May Alter Franchise Relationships 30 Franchise Law Journal 3 (2011) Leks & Co, Law on Flaw, Language, State Symbol and National Anthem- Indonesia, 16 April 2010 Global Legal Resources < Makarim & Taira S., Indonesia: Law No. 24 of 2009 on the National Flag, Language, Emblem and Anthem, 18 January 2012, < /x/160944/constitutional+administrative+law/law+no+24+of on+the+National+Flag+Language+Emblem+and+Anthem > Margaret Chew, Minority Shareholders' Rights and Remedies (LexisNexis 2nd Ed, 2007) 30 Martin Mendelsohn, Franchising Law, (Richmond Law & Tax Ltd 2 nd Ed, 2004) 20,26,39 Odile Streed and Gerard Cliquet, Concept Uniformity: Control Versus Freedom in Business Format Franchising in Strategy and Governance of Networks: Cooperatives, Franchising and Strategic Alliances (Physica-Verlag 2008), p Redfern, Alan and Hunter, Martin, Law and Practice of International Commercial Arbitration (Sweet & Maxwell 2009), pp Scott C. Sandberg, Trade Dress: What Does It Mean? 29 Franchise Law Journal 10 (2010) Sigit Ardianto and Ibrahim Senin, Indonesia in Dennis Campbell and Antonida Netzer (ed) International Franchising (Special Issue) (Kluwer Law International 2008) 40,49,56 29 Simon Greenberg, Christopher Kee, J. Romesh Weeramantry, International Commercial Arbitration An Asia-Pacific Perspective (Cambridge University Press 2011) 7 Thomas Buergenthal, International Human Rights in a Nutshell (West Pub Co. 1988) 61 xii

13 Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, (Clark Boardman Callaghan 1996) 40 Visu Sinnadurai, The law of contract in Malaysia and Singapore (Oxford University Press 1979) 14 International Organizations Documents NGO Law Monitor: Indonesia, The International Center for Not-for- Profit Law, available at < 62 UN Human Rights Committee, Consideration of reports submitted by States parties under article 40 of the Covenant, Initial reports of States parties, Indonesia, 19 January 2012 UN Human Rights Committee, Singh Bhinder v Canada, Communication No 208/1986, UN Doc, CCPR/C/37/D/208/1986 (1989) United Nations, United Nations Conference on Trade and Development: Dispute Settlement, (New York and Geneva 2005) 30 xiii

14 STATEMENT OF FACTS CLAIMANT Claimant is a chain of Chinese restaurants founded and co-owned by Mr. Ji Jianping ( Mr. Ji ) and Mr. Wang Xuefeng ( Mr. Wang ). The restaurants are known for and specialize in Chinese dishes. In June 2011, Mr. Ji and Mr. Wang decided to expand their restaurants into Indonesia. RESPONDENT Respondent is a prominent surgeon based in Jakarta, Indonesia. Mr. Wang met Respondent in Changji Airport, Singapore. Respondent was excited at the notion of franchising Claimant s restaurants into Indonesia due to his fond memories of working in a Chinese restaurant when in school and his love of Chinese food. THE FRANCHISE AGREEMENT The Franchise Agreement was signed between Claimant and Respondent at Changji Airport, Singapore. Respondent decided not to further review the Franchise Agreement before signing it, notwithstanding Claimant s suggestion to do so. The Franchise Agreement obligates Respondent to operate the Franchise in strict accordance and conformity with the standards, specifications, and procedures as set in the Franchise Agreement. Particularly, it stipulates the specific foods to be prepared in the form of an authorised menu, their preparation method, their presentation method, specific uniforms that employees must wear, operating procedures, inspection procedures, personnel and supervision standards, and provisions for termination. 1

15 THE ARBITRATION CLAUSE Article XII of the Franchise Agreement is an arbitration clause ( Arbitration Agreement ). It stipulates that any dispute arising out of the Franchise Agreement, its operation and its termination shall be settled by arbitration in accordance with the KLRCA Rules. RESPONDENT S BREACHES OF THE FRANCHISE AGREEMENT In late October 2011, Mr. Ji visited the Jakarta franchised restaurant and discovered several violations of the Franchise Agreement. These included the sale of unauthorised dishes that are not on the authorised menu, unauthorised substitution of ingredients within the dishes, and unauthorised augmentation of the specified uniform in the form of a red hijab worn by some female employees. A notice of deficiency was sent to Respondent articulating those violations. Two weeks later, Claimant sent an inspector to the same Jakarta franchised restaurant. Claimant was informed that Respondent s violations were still ongoing. Claimant accordingly sent Respondent a letter terminating the Franchise Agreement. 2

16 SUMMARY OF PLEADINGS I. THE AGREEMENT TO ARBITRATE AT THE KLRCA IS VALID AND ENFORCEABLE. First, Singaporean law is the applicable law in determining the validity and enforceability of the Arbitration Agreement. Second, the Arbitration Agreement satisfies the requirements of formation of a collateral contract under Singaporean Law. The Arbitration Agreement confers jurisdiction powers on the Tribunal. II. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE. First, Indonesian law governs the Franchise Agreement. Second, the Franchise Agreement meets the substantive and formality requirements for constituting a valid and enforceable agreement. Third, the Franchise Agreement is valid and enforceable even if Singaporean law applies. III. ARTICLE XII(B) IS VALID AND ENFORCEABLE. This is because Article XII(B) is not prohibited under Indonesian law and Singaporean law. If the Tribunal acts outside of the agreed applicable laws, the Tribunal risks awarding an unenforceable arbitral award. IV. CLAIMANT GAVE PROPER AND TIMELY NOTICE OF TERMINATION TO RESPONDENT. The notice is proper and timely under either Indonesian or Singaporean law. V. THE PRINCIPLE OF INHERENT WARRANTY OF GOOD FAITH APPLIES TO THE CURRENT FRANCHISE AGREEMENT WHILE THE PRINCIPLE OF 3

17 FAIR DEALING DOES NOT. Good faith and fair dealing are separate concepts. Only good faith is relevant to franchising law. VI. CLAIMANT CAN TERMINATE THE FRANCHISE FOR SUBSTANTIAL VIOLATIONS OF SUBSTANTIAL TERMS. Claimant has the discretion to decide whether a term is substantial or not. Whether a violation is substantial is interpreted according to the natural meaning of the word under either Indonesian or Singaporean law. VII. ALL OF RESPONDENT S VIOLATIONS ARE SUBSTANTIAL. Respondent violated substantial terms of the Franchise Agreement. Respondent s violations were substantial as they undermine the uniformity of Claimant s franchise and consequently affect its value. VIII. THE PROHIBITION OF EMPLOYEES FROM WEARING HIJABS DOES NOT INFRINGE THEIR RIGHTS. Respondent has no standing to challenge Claimant in terms of human rights and prohibiting female employees from wearing hijabs does not violate their right to express their religion. It also does not discriminate against women. 4

18 CLAIMANT S PLEADINGS I. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE 1. Singaporean law is the applicable law in determining the validity and enforceability of the Arbitration Agreement. The Tribunal should uphold the parties choice of law clause when determining the proper applicable law in resolving a dispute. The parties choice of law clause binds the Tribunal as the KLRCA Rules recognizes party autonomy. 1 The parties have chosen Singaporean law as the applicable law in the choice of law clause. 2 The parties choice of law governing the substantive dispute also governs the arbitration agreement in the absence of a provision stating otherwise. 3 The Tribunal has ruled to the same effect. 4 The Tribunal should therefore respect the parties choice and rule that Singaporean law applies to determine the validity of the arbitration agreement. 2. Respondent may contest that Singaporean law does not apply as he did not know about the choice of law clause. However, ignorance of the choice of law clause does not invalidate it. By signing the agreement, Respondent is deemed to have accepted all the terms in the Franchise Agreement. 5 Respondent has agreed to the choice of law clause. This applies even if Respondent did not have prior notice of the relevant contractual clauses in dispute. 6 The only exception to this is if there is presence of fraud or 1 KLRCA Rules, Art Moot problem, p.30 3 ICC Award No (1977); Andrew Tweeddale, Keren Tweeddale, Arbitration of Commercial Disputes, International and English Law and Practice (Oxford University Press 2005), p Second Clarifications, SR#3 5 Republic of Ecuador v ChevronTexaco Corp., 376 F.supp.2d 334 (S.D.N.Y. 2005) 6 L Estrange v F Graucob Ltd [1934] 2 KB 394 5

19 misrepresentation. 7 This is not the case here. Claimant gave Respondent the opportunity to consult legal advice before concluding the Franchise Agreement, but Respondent chose not to do so. 8 Accordingly, the choice of law clause is valid. 3. The Arbitration Agreement is valid as it satisfies the requirements of formation of a collateral contract under Singaporean Law. The Arbitration Agreement is collateral to the Franchise Agreement under the separability doctrine. 9 An arbitration agreement is collateral to the principal contract as the arbitration agreement s function is to provide a mechanism to resolve disputes should they arise. 10 There are two primary elements to consider for the constitution of a collateral contract. First, the party seeking to rely on the principle must establish certainty of the contractual terms. Second, there must be consideration. 11 Here, the arbitration clause is sufficiently certain to amount to a binding contractual term as it is drafted according to the KLRCA Fast Track Model Arbitration Clause. In accordance with the KLRCA Rules, the arbitration clause clearly submits the dispute to KLRCA. 12 To establish consideration for a collateral contract, the promisee must enter or promise to enter into a principal contract with the promisor 13. Here, consideration is established as Respondent as promisee has entered into the Franchise Agreement with the Claimant as promisor. 7 Press Automation Technology Pte Ltd v Trans-Link Exhibition Forwarding Pte Ltd [2003] 1 SLR First Clarifications, C10 9 Bremer Vulkan Schiffbau and Maschinenfabrik v. South India Shipping Corp. Ltd [1981] A.C. 909; Westacre Inv. Inc. v. Jugoimport-SDPR Holdings Co. Ltd [1998] 4 All E.R. 570 (Q.B.); Gary B. Born, International Commercial Arbitration (Kluwer Law International 2009), p Ibid 11 Lemon Grass Pte Ltd v Peranakan Place Complex Pte Ltd [2002] 4 SLR KLRCA Rules, Art Lemon Grass Pte Ltd v Peranakan Place Complex Pte Ltd [2002] 4 SLR 439 6

20 4. The Arbitration Agreement is valid as it also complies with all the requirements set out in the KLRCA Rules. The requirements for a valid arbitration agreement are set out in the Malaysian Arbitration Act 2005 (Act 646) ( MAA ) under the KLRCA Rules. 14 In compliance with these requirements, the Arbitration Agreement is in writing and contained in a document signed by both parties The Arbitration Agreement is enforceable. The valid Arbitration Agreement grants the Tribunal authority over these proceedings by submitting their dispute to the KLRCA. 16 The Tribunal can determine the scope of its jurisdiction based on the well-established competence-competence doctrine. 17 The proceedings here are duly commenced in accordance with Article 3 of the KLRCA Rules. 18 The Tribunal confirms that there are no procedural issues in this arbitration. 19 Therefore the Tribunal can enforce the Arbitration Agreement. II. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE 6. The Tribunal should rule that Indonesian law governs the Franchise Agreement [A]. The Franchise Agreement meets the substantive and formality requirements for constituting a valid and enforceable agreement under both Indonesian [B] and Singaporean law [C]. 14 KLRCA Rules, Art MAA, ss.9(2)-9(4)(a) 16 Franchise Agreement, Art.XIIA 17 Redfern, Alan and Hunter, Martin, Law and Practice of International Commercial Arbitration (Sweet & Maxwell 2009), pp Moot problem, p.5 19 Second Clarifications, SR#10 7

21 A. THE TRIBUNAL SHOULD APPLY INDONESIAN LAW TO THE FRANCHISE AGREEMENT 7. The parties choice of Singaporean law is not absolute and is subject to mandatory rules of law that reflect public policy objectives. 20 In Wright-Moore v Ricoh, 21 the Indiana court overrode the parties choice of law clause (New York law) in their franchise agreement. To uphold Indiana s public policy against contracting out of the protections of its franchise law, it applied Indiana franchise law as the franchise was based in Indiana. Similarly here, the Indonesian Franchising regulations, specifically Government Regulation No. 42 of 2007 on Franchising 22 ( Regulation No. 42 ) and its implementing regulation, Regulation No. 31 ( Regulation No. 31 ) 23 are mandatory rules of law that reflects the public policy in regulating and enhancing franchising business in Indonesia. 24 Regulation No. 31 seeks to protect franchising parties by ensuring an equal legal position between them. It states clearly that Indonesian law applies to franchise agreements. 25 Accordingly, this limits the application of Singaporean law in the present case. The Tribunal should rule that Indonesian law governs the Franchise Agreement to the extent that Singaporean law still governs the Arbitration Agreement via the separability doctrine Gary B. Born, International Commercial Arbitration (Kluwer Law International 2009), p.2190; Simon Greenberg, Christopher Kee, J. Romesh Weeramantry, International Commercial Arbitration An Asia-Pacific Perspective (Cambridge University Press 2011), Wright-Moore Corporation v Ricoh Corporation, United States Court of Appeals, Seventh Circuit, 28 Aug 1990, 908 F.2d Law No.42 of 2007 dated 23 July 2007 on Franchising 23 Regulation of the Minister Trade No. 31/M-DAG/PER/8/2008 dated 21 August 2008 on Implementation of Franchising 24 Regulation No Regulation No. 31, Art.5 26 Above Submission I 8

22 B. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE UNDER INDONESIAN LAW 8. The Franchise Agreement satisfies the substantive [1] and formality requirements [2]. Alternatively, the Franchise Agreement remains valid and enforceable even if it does not fully comply with Indonesian formality requirements [3]. 1. The Franchise Agreement satisfies the substantive requirements under Indonesian law 9. A valid agreement must satisfy four conditions listed in Article 1320 of the Indonesian Civil Code. There must be consent, capacity to conclude an agreement, a specific subject, and a lawful cause. Here, the parties consented and had the capacity to conclude the Franchise Agreement. 27 The specific subject was the franchise of the Great Wall Noodle Shop and the franchise was lawful in Indonesia 28. Thus, the Franchise Agreement is valid. 2. The Franchise Agreement satisfies the formality requirements under Indonesian law 10. Article 4 of Regulation No. 42 requires a franchise agreement to be in writing and translated into Bahasa if drafted originally in English. Article 31(1) of Law 24 of ( Law 24 ) requires agreements that involve Indonesian citizens to be written in Bahasa. Article 31(2) allows parties to draft an agreement in an additional foreign language when foreign entities are involved. Here, the Franchise Agreement is in writing. The Franchise Agreement has copies in English and Bahasa. 30 The Bahasa 27 Indonesian Civil Code, Art Second Clarifications, SR#2 29 Law No. 24 of 2009 regarding the State Flag, the National Language, the National Emblem and the National Anthem 30 Moot problem, p.2, para.4 9

23 copy was sent to Respondent the next day immediately after the parties signed the copy in English. 31 Respondent never raised any issue. 11. The fact that only the English copy was signed does not invalidate the Franchise Agreement. Elucidation of Law 24 on Article 31(2) states that each language shall be treated as the original version. 32 Nothing in Law 24 requires both copies to be signed or to be shown to the parties at the same time. Since the English copy is regarded as the original version and no formality requirement has been breached, the Franchise Agreement is valid and enforceable under Indonesian law. 3. Alternatively, the Franchise Agreement remains valid and enforceable even if the formality requirements are not fully satisfied 12. The Tribunal has no legal basis to invalidate the Franchise Agreement even if the Franchise Agreement does not comply with Law 24. Agreements written in English remain valid until implementing regulations on Law 24 are made 33. Currently, the Indonesian government has not issued implementing regulations on Law 24. Accordingly, there are no sanctions available in the event of non-compliance with Law 24 and the Tribunal has no authority to rule otherwise. 13. The failure to meet the language requirements does not invalidate the Franchise Agreement. An error shall not render a contract invalid unless it relates to the 31 Ibid 32 Leks & Co, Law on Flaw, Language, State Symbol and National Anthem- Indonesia, 16 April 2010 Global Legal Resources < 33 Letter issued by the Indonesian Ministry of Law and Human Rights in December 2009; see Makarim & Taira S., Indonesia: Law No. 24 of 2009 on the National Flag, Language, Emblem and Anthem, 18 January 2012, < of+2009+on+the+national+flag+language+emblem+and+anthem >, accessed 19 Sep

24 substance of the subject matter. 34 Even if the Franchise Agreement has failed to comply with the language requirements, there is still compliance with the substantive requirements of the Franchise Agreement such as those discussed above. 35 Accordingly, non-compliance with the language requirements does not invalidate the Franchise Agreement. C. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE UNDER SINGAPOREAN LAW 14. The Franchise Agreement meets the substantive requirements for constituting a valid contract under Singaporean law. There must be an offer, acceptance, consideration, intention to create legal relations and certainty of terms. 36 Claimant offered a franchise to Respondent who accepted the offer by signing the Franchise Agreement and paying various fees as consideration. 37 Both parties intention to create legal relations is presumed in such a commercial agreement and nothing here suggests anything otherwise. 38 Further there is nothing here to suggest that the terms are uncertain. Accordingly, the Franchise Agreement is valid in substance according to Singaporean law. 15. The Franchise Agreement also meets the formality requirements for constituting a valid contract under Singaporean law. Regulation No. 42 and Law 24 still operate here even though Singaporean law applies. This is because Regulation No. 31 states that 34 Indonesian Civil Code, Art Above Submission II.B.1 36 H.G. Beale (ed), Chitty on Contracts, (Thomason Reuters 2008); Visu Sinnadurai, The law of contract in Malaysia and Singapore (Oxford University Press 1979) 37 Moot problem, p H.G. Beale (ed), Chitty on Contracts, (Thomason Reuters 2008); Visu Sinnadurai, The law of contract in Malaysia and Singapore (Oxford University Press 1979) 11

25 Indonesian law governs franchise agreements in Indonesia. 39 The analysis would be as above. 40 It is evident that under Singaporean law, the Franchise Agreement is valid and enforceable. III. ARTICLE XII(B) IS VALID AND ENFORCEABLE 16. The restriction in the granting of specific performance does not affect the validity and enforceability of Article XII(B) of the Franchise Agreement under both Singaporean and Indonesian law. The Tribunal s powers are derived from the parties agreement. 41 Parties therefore can contractually limit the Tribunal s powers by restricting it from granting specific performance. The Tribunal has a duty to conduct arbitration according to the parties Arbitration Agreement 42 unless restricted by law. 43 Article XII is valid and enforceable because it is not prohibited under Indonesian law [A] and Singaporean law [B]. The Tribunal s award would be unenforceable if it acts outside of the Arbitration Agreement [C]. A. ARTICLE XII(B) IS VALID AND ENFORCEABLE UNDER INDONESIAN LAW 17. Under Indonesian law, there is no applicable unfair term legislation which would limit the parties contractual freedom in this case. There is consumer protection law in Indonesia. 44 However, it does not apply here as Respondent as a franchisee is not treated as a consumer under Indonesian law. Franchisees are business agents whereas 39 Regulation No. 31, Art.4(1) 40 Above Submission II.A 41 Andrew Tweeddale, Keren Tweeddale, Arbitration of Commercial Disputes, International and English Law and Practice (Oxford University Press 2005), p ICC Award No (1979); B Poznanski, The Nature and Extent of an Arbitrator s Powers in International Commercial Arbitration (1987) 4 Journal of International Arbitration (No 3), pp Gary B. Born, International Commercial Arbitration (Kluwer Law International 2009), p Indonesian Law No. 8 of 1999 on Consumer Protection 12

26 consumers are the end-users of products and services. 45 Even if franchisees are regarded as consumers, a franchisor is only prohibited from limiting his obligations to compensate, indemnify and replace products. 46 Franchisors are not prohibited from restricting the right of specific performance. Accordingly, Article XII is valid and enforceable. B. ARTICLE XII(B) IS VALID AND ENFORCEABLE UNDER SINGAPOREAN LAW 18. Article XII(B) does not violate the Singaporean Unfair Contract Terms Act 47 ( Unfair Contract Terms Act ). Liability can be excluded in a contract as long as the exclusion is reasonable. 48 Reasonableness is determined by whether, having regard to all circumstances at the time of contract, it was fair and reasonable to include the term It was fair and reasonable to include Article XII(B) for two reasons. First, the circumstance in which the parties signed the agreement was fair and reasonable. Under the doctrine of non est factum, a party cannot avail itself if it signed the agreement without fully understanding the legal effects of the terms. 50 In Press Automation Technology Pte Ltd v Trans-Link Exhibition Forwarding Pte Ltd, 51 once a contracting party signs an agreement, it is bound by it in the absence of fraud or misrepresentation by the other party. There is no evidence of fraud or misrepresentation. At the Claimant s insistence, Respondent had ample opportunity to 45 Ibid, Art.1 46 Ibid, Chapter V 47 Unfair Contract Terms Act (396) 48 Ibid, Art Ibid, Art Andrew Boon Leong Phang, Cheshire, Fifoot and Furmston s Law of Contract, (Lexis 1998), pp [2003] 1 SLR

27 review the Franchise Agreement and consult expert advice, legal or otherwise. 52 Respondent never did so. 20. Second, Article XII is reasonable because it is a limitation clause that allows Respondent to claim remedies other than specific performance. Specific performance is restricted here because the nature of a franchise requires the franchisor to have ultimate authority over the franchised business in another country. 53 For this reason, specific performance is a particularly onerous remedy here as it affects Claimant s business decisions in a greater way than payment of compensation. In contrast to exclusion clauses, limitation clauses have been upheld. 54 Article XII is a limitation clause as it only limits the Tribunal from granting specific performance. It is not an exclusion clause that provides Claimant with blanket protection from liability. 55 C. THE TRIBUNAL RISKS GIVING AN UNENFORCEABLE AWARD IF IT DOES NOT COMPLY WITH ARTICLE XII 21. The Tribunal must act according to Article XII. Any failure to comply with the parties agreement may render any arbitral award given here to be unenforceable. 56 This would undermine the Tribunal s duty to render an enforceable award in arbitral proceedings First Clarifications, C10 53 Martin Mendelsohn, Franchising Law, (Richmond Law & Tax Ltd 2004), p Rapiscan Asia Pte Ltd v Global Container Freight Pte Ltd [2002] 2 SLR Ibid 56 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art.V(1)(c) 57 Julian D M Lew, Loukas A Mistelis, Stefan M Kröll Comparative International Commercial Arbitration (Kluwer Law International 2003), p

28 IV. CLAIMANT GAVE PROPER AND TIMELY NOTICE OF TERMINATION TO RESPONDENT 22. Claimant gave proper and timely notice of termination to Respondent under both Indonesian law [A] and Singaporean law [B]. A. CLAIMANT GAVE TIMELY AND PROPER NOTICE OF TERMINATION UNDER INDONESIAN LAW 23. The current Indonesian Franchise law to apply is Regulation No. 42 and its implementing regulation titled Regulation No Article 20 of Regulation No. 42 provides that Regulation No. 16 Year 1997 regarding Franchise be revoked and declared invalid. 59 Claimant s Franchise Agreement with Respondent was signed on 20 June Regulations No. 42 and No. 31 were in effect at that time. It follows that Regulation No. 42 and Regulation No. 31 are the correct and current Indonesian law to apply. 24. Claimant gave proper notice of termination to Respondent under Indonesian Law. Regulations No. 42 and 31 are silent on procedural requirements for termination of a franchise. Further, there is no specific form of notice required under the Franchise Agreement. 60 Claimant had consistently notified Respondent of imminent termination. Claimant stipulated clearly in the sent to Respondent on 4 November 2011 that failure to comply with the notice of deviation would result in termination of the franchise. 61 Respondent never complied with the notice of deviation. 62 Claimant sent a letter to Respondent 15 days after the notice of deviation, officially terminating the 58 Galinar R Kartakusuma, Indonesia in Phillip F Zeldman (ed) Franchise in 30 Jurisdictions Worldwide (Law Business Research 2012), p Regulation No. 42, Art Franchise Agreement, Art.XIII(B) 61 Moot problem, p.4, para.4 62 Moot problem, p.5, para.1 15

29 franchise and directing him to close his restaurants. 63 Claimant s and letter constitute proper notice of termination absent any legal or contractual obligation stating otherwise. 25. Claimant gave timely notice of termination to Respondent under Indonesian Law. First, Respondent has agreed that Claimant can terminate at Claimant s own discretion without observing time constraints. Article XIII(B) of the Franchise Agreement does not provide time constraints to termination. 64 Second, even given no time constraints, Claimant has already issued fair warning to Respondent for termination in the notice of deficiency given on 4 November Claimant was never obliged to issue a notice of deficiency, 66 but did so immediately within days of notice of Respondent s deficiencies. 67 The notice of deficiency required Respondent to rectify any deficiency in 5 days, failing which Claimant would terminate the Franchise Agreement. 68 Claimant had generously given Respondent 16 days to rectify Respondent s deficiencies before the second inspection on 19 November However, Respondent still failed to comply with the notice of deficiency by 19 November The time period is vital here because it is in Claimant s best interests to have franchised restaurants running under a compliant franchisee as soon as possible. 63 Moot problem, p.5, para.2 64 Franchise Agreement, Art.XIII(B) 65 Moot problem, p.3, para.4 66 Franchise Agreement, Art.VIII 67 Moot problem, p.3, para.4 68 Franchise Agreement, Art.VIII 69 Moot problem, p.3, para.4 70 Moot problem, pp

30 Having given an additional 11 days to the agreed 5-day period for rectification, Claimant has given timely notice of termination to Respondent. 26. Respondent may argue that Claimant s notice of termination is improper because Respondent should have 30 days to comply with post-termination duties according to Article XIV of the Franchise Agreement. Claimant s letter of termination gave Respondent 15 days to close both restaurants and remove signage. 71 However, Article XIV does not guarantee Respondent 30 days to comply with post-termination duties. Instead, it only stipulates that Respondent must complete post-termination duties within a maximum of 30 days. 72 It is also in the best interests of business that the franchised restaurants be re-opened as soon as possible after the Franchise Agreement is terminated. 73 Therefore, Claimant granting Respondent 15 days to perform posttermination duties does not make the notice improper. 27. Respondent may further argue that Claimant s notice is improper as Claimant is not entitled to appoint a new franchisee within 30 days of the termination. Article 6 of Regulation No. 31 provides that a franchisor cannot appoint a new franchisee within 6 months of termination unless all issues are settled. However, Claimant s appointment of a new franchisee here does not render the notice improper. Claimant could not have known that there will be outstanding issues at the time of termination which would prevent it from appointing a new franchisee. In any event, this is immaterial to the current dispute as of now. The Ministry of Trade will issue a franchise certificate to a new franchisee if Claimant and Respondent fail to settle their 71 Moot problem, p.3, para.4 72 Franchise Agreement, Article XIV 73 Martin Mendelsohn, Franchising Law, (Richmond Law & Tax Ltd 2004), p. 3 17

31 issues within 6 months of the termination of the Franchise Agreement. 74 A date 6 months from 19 November 2011 is 19 April It is now late According to Article 6 of Regulation No. 31, the Ministry of Trade is in a position to issue a franchise certificate to a new franchisee of Claimant s choice. B. CLAIMANT GAVE TIMELY AND PROPER NOTICE OF TERMINATION UNDER SINGAPOREAN LAW 28. If Singaporean law applies, Indonesian Franchise Regulations must still be satisfied as they are mandatory laws. They would apply in the same manner discussed above. 75 V. THE PRINCIPLE OF INHERENT WARRANTY OF GOOD FAITH APPLIES TO THE CURRENT FRANCHISE AGREEMENT WHILE THE PRINCPLE OF FAIR DEALING DOES NOT 29. The principle of good faith is inherent in the current Franchise Agreement. Good faith is a phrase referring to an implicit but fundamental promise between two parties that each will act honestly in exercising their contractual obligations. 76 In Indonesia, there is a general legal obligation on parties to deal with each other in good faith. 77 The applicability of good faith to franchise agreements is well established. 78 In Singapore, there is a corresponding common law duty to deal in good faith Elizabeth Crawford Spencer The Regulation of Franchising in the New Global Economy (Edward Elgar Publishing Ltd. 2010), p.288; Galinar R Kartakusuma, Indonesia in Phillip F Zeldman (ed) Franchise in 30 Jurisdictions Worldwide (Law Business Research 2012), p.87; Regulation No. 31, Art Above Submission IV.A 76 Elizabeth A. Martin and Jonathan Law (eds), Oxford Dictionary of Law (6th ed) (Oxford University Press 2006), p Indonesian Civil Code, Art Sigit Ardianto and Ibrahim Senin, Indonesia in Dennis Campbell and Antonida Netzer (ed) International Franchising (Special Issue) (Kluwer Law International 2008), p Pasuma Pharmacal Corporation v McAlister & Co. Ltd [1965] 1 MLJ 221 (Federal Court, Singapore) where it was stated that [It is] an implied condition that in relation to their business as covered by the contract the parties should be reasonably honest and truthful to each other. 18

32 30. The principle of fair dealing does not apply here. Fair dealing refers to behaviour on the part of the controllers of a company that departs from the standards of fair play amongst commercial parties. 80 Fair dealing is traditionally applicable to relationships between directors and shareholders, 81 which does not apply to the current dispute. The Tribunal s consideration of fair dealing is excluded here based on Article XII of the Franchise Agreement. Article XII states that the Tribunal cannot decide the current dispute ex aequo et bono. This means that the Tribunal can only consider the dispute according to a strict set of legal reasoning premised on applicable law. 82 The Tribunal is bound strictly to the applicable laws prescribed in the Franchise Agreement. These are the Indonesian Franchise laws or alternatively, Singaporean laws. The principle of good faith is the only factor expressly provided for within those laws. 83 It follows that only the principle of good faith applies here. VI. CLAIMANT CAN TERMINATE THE FRANCHISE FOR SUBSTANTIAL VIOLATIONS OF THE FRANCHISE AGREEMENT 31. Article XIII(B) of the Franchise Agreement states, [Claimant] has the right to terminate this Agreement for any substantial violations of the terms and conditions of this Agreement [Claimant] deems substantial. 84 Respondent has inherently agreed with Claimant that this is so and cannot dispute otherwise. Claimant deems a term or condition substantial according to reasonable business judgment stipulated in Article 80 Chew Sang Hai v Intan Kinabalu Sdn Bhd & Ors [2011] MLJU 936; Over & Over Ltd v Bonvest Holdings Ltd [2010] 2 SLR 776; Margaret Chew Minority Shareholders' Rights and Remedies (LexisNexis 2nd Ed, 2007) 81 Wayde & Anor v New South Wales Rugby League Ltd [1985] 59 AJLR United Nations, United Nations Conference on Trade and Development: Dispute Settlement, (New York and Geneva 2005), Chapter 5.5, para Galinar R Kartakusuma, Indonesia in Phillip F Zeldman (ed) Franchise in 30 Jurisdictions Worldwide (Law Business Research 2012), p Franchise Agreement, Art.XIII(B) 19

33 X(2). Article X(2) provides that Whenever [Claimant] reserves discretion in a particular area [i.e. what is a substantial term or condition], [Claimant] will exercise Reasonable Business Judgment in making our decision. 85 Reasonable business judgment is exercised where Claimant is of the view that a term is intended to promote or benefit the franchise system generally. 86 This includes factors such as improving customer service, improving product quality, or maintaining uniformity What is substantial in the phrase substantial violation must be understood according to the respective applicable laws. Whether under Indonesian or Singaporean law, the word substantial carries similar meaning. Under Indonesian law, the Indonesian Civil Code provides that If the wording of an agreement is clear one shall not deviate from it by way of interpretation. 88 This indicates that substantial must be taken to indicate its natural meaning, such as material or real. Under Singaporean law, substantial will be decided according to common law principles, which would mean a material breach so significant that it affects the very substance of the contract or goes to the root of the contract. 89 It is evident that substantial is similar under both streams of law. VII. ALL OF RESPONDENT S VIOLATIONS ARE SUBSTANTIAL 33. Respondent has breached the Franchise Agreement under either Indonesian or Singaporean law. The Franchise Agreement obligates Respondent to operate the 85 Franchise Agreement, Art.X(2) 86 Franchise Agreement, Art.X(2) 87 Franchise Agreement, Art.X(2) 88 Indonesian Civil Code, Art H.G. Beale (ed), Chitty on Contracts, (Thomason Reuters 2008), pp ; Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26 at 66 20

34 franchised business in strict accordance and conformity with the substantial terms that promote and benefits the system by preserving the system s uniformity. 90 Respondent did not act in accordance with those terms. Respondent s unauthorised service of an Indonesian dish [A], unauthorised substitution of ingredients in dishes [B] and unauthorised additions to employee uniforms [C] all separately and cumulatively constitute continuing and substantial disregard for the Franchise Agreement and justifies Claimant s termination [D]. A. RESPONDENT S SERVICE OF UNAUTHORISED INDONESIAN FOOD VIOLATES THE FRANCHISE AGREEMENT 34. Respondent s service of unauthorised Indonesian food violates the Franchise Agreement [1]. This violation is substantial [2]. Claimant did not waive its right to authorize additions to the authorised menu [3]. 1. Respondent s service of unauthorised Indonesian food violates a substantial term of the Franchise Agreement 35. The fundamental business purpose of Claimant s Franchise Agreement with Respondent is to create a uniform series of restaurants in Indonesia. Uniformity is a key factor of a successful franchise. 91 Claimant s franchised business has a 25-year strong reputation built on their service of Chinese dishes. 92 Respondent agreed to prepare and sell only such Menu Items and other foods as [Claimant] designates and approve in writing under Article III(A). 93 Respondent is required to sell all items 90 Franchise Agreement, Recital 4 91 Odile Streed and Gerard Cliquet, Concept Uniformity: Control Versus Freedom in Business Format Franchising in Strategy and Governance of Networks: Cooperatives, Franchising and Strategic Alliances (Physica-Verlag 2008), p Moot problem, p.1, para.1 93 Franchise Agreement, Art.IIIA 21

35 and only those items [on the authorized menu]. 94 This is a substantial term as its purpose is to maintain the uniformity of the franchise system. 95 Respondent served several Indonesian dishes within the franchised restaurant 96 and never obtained Claimant s approval to do so. 97 Respondent s service of Indonesian food clearly breaches the Franchise Agreement. 2. The service of Indonesian food is a substantial violation of Article III(A) 36. Respondent s service of Indonesian food is substantial as it materially impacts the uniformity of Claimant s franchised restaurants [a] and Claimant s franchise trademarks [b]. a. Service of Indonesian food materially impacts the uniformity of Claimant s franchise 37. Mr. Ji emphasized that Claimant s restaurants are Chinese restaurants in his dated 14 November Mr. Ji further emphasized that UNIFORMITY is the key to any successful franchise operation. 99 He also adds that destroying uniformity would mean a disappointed customer which destroys profits since a disappointed customer isn t likely to return! 100 The service of Indonesian food in a Chinese restaurant undermines the uniformity of Claimant s franchised business. 94 Franchise Agreement, Art.III(A) & Appendix 1 95 Franchise Agreement, Art.X(2) 96 Moot problem, p.4, para.3 97 First Clarifications, G1 98 Moot problem, p.4, para.1 99 Moot problem, p.4, para Moot problem, p.4, para.1 22