SENVENTH ANNUAL LAWASIA INTERNATIONAL MOOT COMPETITION KUALA LUMPUR REGIONAL CENTER FOR ARBITRATION GREAT WALL NOODLE SHOP, LLC.

Transcription

1 SENVENTH ANNUAL F1030-C 2012 LAWASIA INTERNATIONAL MOOT COMPETITION KUALA LUMPUR REGIONAL CENTER FOR ARBITRATION GREAT WALL NOODLE SHOP, LLC (Claimant) V. ADI BUDIAMMAN, M.D. (Respondent) MEMORIAL FOR CLAIMANT I

2 TABLE OF CONTENTS INDEX OF AUTHORITIES... IV QUESTIONS PRESENTED... XI STATEMENT OF JURISDICTION... XII STATEMENT OF FACTS... XIII SUMMARY OF PLEADINGS... XVI PLEADINGS... 1 I. SINGAPOREAN LAW SHOULD BE THE PROPER LAW TO BE APPLIED IN RESOLVING THIS DISPUTE The Tribunal should apply the law chosen by the parties in the FA pursuant to the Arbitration rule governing this case The Singaporean Law should be respected based on the assent of both parties Alternatively, a conflict of laws analysis favors the application of the Singaporean Law... 4 II. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE AS IT MEETS ALL REQUIREMENTS OF THE NYC, THE AADR AND THE IAA 6 1. The parties validly agreed on arbitration... 6 I

3 2. The arbitration agreement is in writing The dispute is in respect of a defined legal relationship The subject matter is capable of being settled by arbitration The Arbitration Agreement is not null and void, inoperable nor incapable of being performed III. THE FA IS VALID UNDER INDONESIAN LAW SPECIFICALLY ARTICLE 31 OF LAW NO The FA is valid under the ICC The FA is valid under Article 31 of the Law No IV. ARTICLE XII OF THE FA IS NOT INVALID BECAUSE THERE IS AN ASSENT BETWEEN TWO PARTIES UPON THE GRANTING OF SPECIFIC PERFORMANCE V. ACCORDING TO THE FA, IT MUST BE A SUBSTANTIAL VIOLATION OF THE FA FOR THE FRANCHISOR TO TERMINATE THE FRANCHISE 18 VI. THE INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING SHOULD NOT BE APPLIED TO THE FA UNDER SINGAPOREAN LAW. BESIDES, IT SHOULD BE APPLIED CONSISTENTLY WITH THE FA UNDER INDONESIAN LAW Under Singaporean Law, the inherent warranty of good faith and fair dealing should not be applied to the FA II

4 2. Under Indonesian Law, the inherent warranty of good faith and fair dealing should be applied consistently with the FA a. Pursuant to the implied covenant of good faith and fair dealing, the violations of the FA justify the termination of the Franchise as each violation amounts to the Respondent s substantial breach of obligation under the FA 21 b. The above violations of the FA reflect a continuing disregard of the Respondent s obligations under the FA to justify its termination VII. THE NOTICE OF TERMINATION IS PROPER AND TIMELY AS IT IS ISSUED IN COMPLIANCE WITH THE FA VIII. AN EMPLOYMENT REGULATION THAT PROHIBITS FEMALE MUSLIM EMPLOYEES FROM WEARING HIJAB DOES NOT VIOLATE THE CONSITUTION AND THE ICCPR PRAYER FOR RELIEF III

5 INDEX OF AUTHORITIES INTERNATIONAL LAWS AND DOCUMENTS Declaration on the Elimination of All Forms of Intolerance and of Discrimination Based on Religion or Belief 1981) (the Regulation 36/55 ) The International Covenant on Civil and Political Rights 1966 ( ICCPR ) NATIONAL LAWS Indonesian Civil Code 1847 ( ICC ), Art , 25 International Arbitration Act (Amendment) 2012 of Singapore (Law No. 12 of 2012) ( IAA ) Law No. 24 of 2009 of the Indonesian government regarding the National Flag and Language, State Symbols and the National Anthem ( Law No. 24 ) Regulation 31/m-dag/per/8/2008 of the Minniste of Trade of the Republic of Indonesia dated August 21, 2008 regarding Franchising CASES Ad hoc Award Libyan American Oil Co. (LIAMCO) v. Government of the Libyan Arab Republic, 6 Y.B. Comm. Arb. 89 (ICC Int l Ct. Arb.) Addison v. Carballosa, 48 So. 3d 951, 954 (Fla. 3d Dist. Ct. App. 2010) Azhar Ali Khan v. Parsons Global Services, 480 F.Supp. 2d 327, 340 (D.C Cir. 2007). 22 Carriere v. Frank A. Occhipinti, Inc., 570 So.2d, 44 (La. App. 5 th Cir. 1990) IV

6 Case No 6379 of 1990, 17 Y.B Comm. Arb.212 (ICC Int l Ct. Arb.) Case No of 1992, 25 Y.B. Comm. Arb. 279 (ICC Int l Ct. Arb.) Case No of 1995, 25 Y.B. Comm. Arb. 312 (ICC Int l Ct. Arb.) Chaplin v. the United Kingdom App. No /10 (2010) Collins v. Countrywide Home Loans, Inc., 680 F. Supp. 2d 1287, 1294 (M.D. Fla. 2010) DiMercurio v. Sphere Drake Ins. PLC, 202 F.3d 71, 79 (1st Cir.2000) Economy Forms Corp. v. Islamic Republic of Iran, Award No (14 June 1983), 3 Iran-US C.T.R. (1983) Eweida v. the United Kingdom App. No /10 (2010) Gezer v. Turkey, App. No /97 (2001) Hubbard Chevrolet Co. v. General Motors Cor., 873 F.2d 873, (5th Cir. 1989). 32 Kose and 93 others v. Turkey App. No /02 (2006) Kurtulmus v. Turkey App. No /01 (2006) Laboratorios Grossman S.A. v. Forest Laboratories Inc., Supr. Ct. (N.Y.A.D.), Laboratorios. Grossman, S.A. v. Forest Laboratories, Inc., 295 N.Y.S.2d 756 (N.Y.A.D 1968) LeylaŞahin v. Turkey, App.No /98 (2004) V

7 MCC Marble Ceramic Center. Inc. v. Ceramica Nuova D'Agostino, 144 F.3d 1384, 1387 n.9 (11th Cir. 1998) , 19 Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983) Ng Giap Hon v Westcomb Securities Pte Ltd & Ors [2009] S.G.C.A 19 (Sing.) Postal Instant Press v. Sealy, 52 Cal. 2d 365, 373 (Cal. Ct. App. 1996) Premiere Development Bank v. Central Surety & Insurance Company, Inc., G.R. No , S.C.R.A (February 13, 2009) Radio Communications of the Philippines, Inc. v. Verchez, G. R. No , 481 S.C.R.A 384, 401 (January 31, 2006) (Phil.) Rhone Mediterranee Compagnia v. Lauro, 712 F.2d 50, 53 (3d Cir. 1983) Solel Boneh v. Republic of Uganda, Award No of 1975, (ICC Int l Ct. Arb.) State Of Punjab vs N.C. Budharaj (Dead) By L.Rs., Supreme Court of India (on 10 January, 2001), 27 Teck Guan Sdn Bhd v. Beow Guan Enterprises Pte Ltd, [2003] SGHC 203, [2003] 4 SLR Telestop Pte. Ltd. v Telecom Equipment Pte. Ltd. [2004] SGHC 267 (Sing.) Texaco Overseas Petroleum Company & Californian Asiatic Oil Company v. The Government of the Libyan Arab Republic, Award on the Merits, 53 I.L.R. 420 (1977) VI

8 Ytlmaz v. Turkey, App. No /05 (2007) TREATISES AND OTHER BOOKS Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration para 1-13 (4th ed. 2004) Albert Jan van den Berg, The New York Convention of 1958: An Overview 28 (2003) ICCA Yearbook Black s Law Dictionary 1351 (9th ed.2009)... 44, 52, 57, 58, 62,73 Charlene Harrington & Cassandra Crawford, Health Policy: Crisis and Reform in the U.S. Health Care Delivery System 7 (Jones and Bartlett Publishers, Inc., 4th ed. 2004) Chukwumerije & Okezie, Choice of Law Issues in International Commercial Arbitration 1999 (Quorum Books 1994) Henry Cheeseman, Business Law: Legal environment, online commerce, business ethiscs, and international isues 230, (7th ed. 2009)... 14, 30 Iain Murray, The Franchising Handbook: The Complete Guide to Choosing a Franchise 23, (Kongan Page Limited, Iain Murray 2006) Lord Steyn, Contract Law: Fulfilling the Reasonable Expectations of Honest Men, 113 L.Q.Rev., 433 (1997) Margaret L. Moses, The Principles and practice of international commercial arbitration 30 (2008)... 20, 21, 23, 27 VII

9 Pieter Sanders, International Encyclopaedia of Comparative Law 5, Volume XVI, Chapter 12 (Mohr 1996) JOURNAL ARTICLES AND ESSAYS Boyd Allan Byers, Making a Case for Federal Regulation of Franchise Terminations-A Return-of-Equity Approach, 19 J. Corp. L. 607, 625 ( ) , 33 Choong Thung Cheong, Franchising Schemes in Singapore Legal Aspects of Public Offers, 26 Malaya L. Rev. 256, 256 (1984) Gary B. Born, International Commercial Arbitration 2153 (Kluwer Law International, 2001) Gayaneh Melkom Melkomian, Choice of Non-State Law in International Commercial Contracts, International Business Law, CMPL 604, Research Essay, Winter 2010, IBL_paper_final.pdf Gehan Gunasekara & Alexandra Sims, Franchising: A case for regulation, 9 Univ. of Auckland Bus. Rev. 48, 52 (2007) Human Rights Watch, Out of Sight: Endemic Abuse and Impunity in Papua's Central Highlands Indonesia, Volume 19 No.10(C), at 19 (July 2007) Indonesian Constitution John Sotos, Recent Trends In Franchise Relationship Laws given at Annual Conference of the International Bar Association in Dubai, October , 37 VIII

10 Max Ng Chee Weng and MaanKaur Bajaj, Franchise in 33 jurisdictions worldwide Singapore, 2009 Gateway Law Corp. 160, Milan Parivodi, Termination of Franchise Contracts A comparative Study, 7 Int l J. Franchising L. 5, 12 (2009) Religion - Staat - Gesellschaft Zeitschrift, Religious Intolerance and Discrimination in selected European countries Part II, 2011 Journal for the Study of Beliefs and Worldviews Sunaryati Hartono, SH, Setiawan, SH, Taryana Sunandar, SH, The Indonesian Law on contracts 18, IDE Asian Law Series No. 10 (March 2001) (Japan) T. Mark McLaughlin and Caryn Jacobs, Termination of Franchises: Application of the Implied Covenant of Good Faith and Fair Dealing, 7 Franchise L. J 1, 16 ( )... 30, 31 Thomas J. Chinonis, Implied Covenant Of Good Faith: A Two-Way Street In Franchising, 11 DEPAUL BUS. L.J. 229, 235 ( )... 34, 35 Tracey A. Nicastro, How the Cookie Crumbles: The Good Cause Requirement for Terminating a Franchise Agreement, 28 Val. U. L. Rev. 785, 811 (1994) MISCELLANEOUS MATERIALS ARIAS - U.S SPRING CONFERENCE: AVAILABLE RELIEF INARBITRATION, April 10-12, 2003, 27 IX

11 Franchising Licensing Association Singapore, Franchise Star Achiver, (last visited on July 8, 2012) Trannette Ledford, Food Service Franchises: Owners are hungry for success, hise_122808/ (last visited on July 8, 2012) X

12 QUESTIONS PRESENTED I. What is the proper law to apply in resolving this dispute? II. Is the Arbitration Agreement valid and enforceable? III. Is the Franchise Agreement invalid under Article 31 of Law 24 of 2009? IV. Is Article XII of the Franchise Agreement invalid and/or unenforceable? V. May the Franchisor terminate the franchise for any violation of the Franchise Agreement or must it be a substantial violation of the Agreement? VI. Does the inherent warranty of good faith and fair dealing in interpreting and applying franchise agreements apply to this Franchise Agreement and, if so: (i) Whether the serving of a single Indonesian dish referred to as The Special of the Day justified the termination of the franchise? (ii) Whether giving customers the option of substituting lamb for pork for menu items justified the termination of the franchise? (iii) Whether the wearing of the new (white) Hijab by the female Muslim employees justified the termination of the franchise? (iv) Whether the above violations of the Franchise Agreement reflect a continuing disregard of the franchisee s obligations under the Franchise Agreement to justify its termination? VII. Was a proper and timely Notice of Termination given to the Franchisee? VIII. Whether an employment regulation prohibiting the wearing of a Hijab by female Muslim employees or restriction violate the constitution and/or Indonesia Law or any international treaties to which it is a member? XI

13 STATEMENT OF JURISDICTION Great Wall Noodle Shop, LLC ( GWNS ) and Dr. Adi Budiamman agreed that the dispute would be covered at the November Hearing to be held on November 18, 2012 in Bali, Indonesia. The acceptance of Arbitration authority is in conformity with the Kuala Lumpur Regional Arbitration Centre (the KLRCA ) Fast Track Rules (the FTR ) and Article XII (A) of the Franchise Agreement between the parties (the FA ). The Arbitral Tribunal is requested to decide on the submitted issues which do not include the amount of damages that either party may recover and any claims by any employees of the Indonesian GWNS restaurants. The parties agree, pursuant to Article XII (A) of the FA, that the decision of the arbitrators will be final and binding on all parties to the dispute. XII

14 STATEMENT OF FACTS BACKGROUND This case involves a legal dispute between the GWNS, which is the Franchisor of numerous GWNSs, a Chinese food restaurant chain based in China, and Dr. Adi Budiamman, who is the Franchisee in Indonesia, over the Franchise Agreement on June 20, CONCLUDING THE FA The GWNS was first established in Tianjin, China on May 20, 1983 and founded by Jianping Ji and Xuefeng Wang. In 2011, they decided to expand two franchises in Medan and Jakarta, Indonesia (the Franchise ). On June 20, 2011, Mr. Wang met Dr. Adi Budiamman a prominent Jakarta surgeon who undergone medical training in the United States. After talking with Mr. Wang, Dr. Budiamman became increasingly interested in the restaurant business. He then suggested signing the FA. Mr. Wang took the FA from his briefcase and explained it to Dr. Budiamman. Nevertheless, Dr. Budiamman had to catch his flight home and was unable to listen to Mr. Wang s explanation, of the whole Agreement. Mr. Wang then suggested that Dr. Budiamman take the FA home to read and consider it thoroughly before signing. However, Dr. Budiamman refused to do so. He just read it quickly, referred derisively to all the lawyer mumbo jumbo and signed it. A photocopy of both the original English and Bahasa Indonesian copy were delivered to Dr. Budiamman the next day. XIII

15 FRANCHISING DISPUTES ARISING The Franchises were opened in September 2011 and were both successful. In late October 2011, Mr. Ji made an unannounced visit to two restaurants in Jakarta and Medan as authorized by Article III (G) and/or Article VIII. He found out some violations including the sale of food products that were not listed in the official Menu and there were substitutions of the ingredients of certain dishes. He also observed that some female employees in Jakarta restaurants and most of the female employees in the Medan restaurant wore unauthorized red headscarves called Hijab. Returning from the visit, Mr. Ji sent an to Dr. Budiamman to inform him of the violations and required that he stop those violations. If not, Mr. Ji and Mr. Wang would have to terminate the Franchise. Two weeks later, Mr. Ji hired an inspector to visit the Franchises and discovered that (i) Indonesian food was still being served at the Jakarta and Medan restaurants as The Special of the Day despite although not being listed on the Menu and (ii) female employees still wore unauthorized Hijab but of a different color. TERMINATING THE FRANCHISE The next day, Mr. Ji and Mr. Wang sent a letter to Dr. Budiamman terminating the Franchise; instructing him to close both restaurants; and to remove the signaged within 15 days. They also indicated that their plans of reopening the Jakarta restaurant within 30 days Under new Management. ARBITRATION When Dr. Budiamman refused to close his two restaurants, Wang and Ji submitted a Notice of Arbitration in conformity with Article 3 of the FTR seeking a restraining XIV

16 order against Dr. Budiamman pursuant to Article XII (B) of the FA and damages for breach of the FA, trademark infringement and damage to the reputation of the GWNS. Subsequently, Dr. Budiamman denied the allegations and filed a counterclaim for breach of the FA and damage to his reputation. The dispute is now brought before the KLRCA in Bali, Indonesia pursuant to Article XII (A) of the FA. XV

17 SUMMARY OF PLEADINGS I. Singaporean Law should be the proper law to apply in resolving this dispute because of the assent of both parties in the FA, the consistency with international laws and customary and; the conflict of laws analysis. II. The Arbitration agreement is valid and enforceable as it meets all requirements of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards in New York, July 6, 1958, 330 U.N.T.S 38 ( NYC ), the Law No. 30 of 1999 of the President of the Republic of Indonesia dated August 12, 1999 regarding Arbitration and Alternative Dispute Resolution ( AADR ) and the International Arbitration Act (Amendment) 2012 of Singapore (Law No. 12 of 2012) ( IAA ). III. The FA is valid under Indonesian Law. Since the FA satisfies four conditions of contracts validity provided in the Indonesian Civil Code ( ICC ), especially it was concluded in Bahasa Indonesian and English, which is provided in Article 31 of the Law No. 24 of 2009 of the Indonesian government regarding the National Flag and Language, State Symbols and the National Anthem ( Law No. 24 ). IV. Article XII of the FA Dispute Resolution is not invalid because of the assent of the parties in the FA. V. On the ground of Article XIII (B) of the FA, the Franchisor may terminate the Franchise for substantial violations of the FA. VI. Under Singaporean Law, the inherent warranty of good faith and fair dealing in interpreting and applying franchise agreements should not be applied to the FA. XVI

18 However, under Indonesian Law, the inherent warranty of good faith and fair dealing should be applied consistently with this FA. As a result, under Indonesian Law, the serving of a single Indonesian dish referred to as The Special of the Day, giving customers the option of substituting lamb for pork for items on the menu and; the wearing of the new (white) Hijab by the female Muslim employees justify the termination of the Franchise. These violations constitute the Franchisee s substantial breaches of obligation under the FA, which damage the uniformity and the value of the Franchise s trademark. Moreover, they can cause considerable harm to all the franchisees. In addition to that, the above violations of the Franchise Agreement reflect a continuing disregard of the franchisee s obligations under the FA to justify its termination. VII. The Notice of termination is proper and timely as it is issued in compliance with the FA. VIII. An employment regulation that prohibits female Muslim employees from wearing Hijab does not violate the Indonesian Constitution 1945 ( Constitution ) and the International Covenant on Civil and Political Rights 1966 ( ICCPR ) because of the limitations of the freedom of religion in the place of operation and time. XVII

19 PLEADINGS I. SINGAPOREAN LAW SHOULD BE THE PROPER LAW TO BE APPLIED IN RESOLVING THIS DISPUTE 1. The Tribunal should apply the law chosen by the parties in the FA pursuant to the Arbitration rule governing this case The Tribunal has to follow the Arbitration rule to decide which law should be applied to resolve the disputes. 1 According to Article XII of the FA, the Arbitration rule applied in this case is the FTR. 2 Pursuant to Article 6 (1) of the FTR, the Tribunal must decide the dispute in accordance with the rules of law chosen by the parties as applicable to the substance of the dispute. In fact, Article 6 (1) embodies the principle of party autonomy, giving the parties the freedom to select the applicable law in the contract, for which most arbitral tribunals display considerable respect. 3 One International Chamber of Commerce Tribunal noted that parties to a commercial agreement are free to choose the law governing their relationship. 4 Since arbitral tribunals have an overriding duty to base their decisions on the common intentions of the parties, which are reflected in the choice of law clause, the Tribunal must not derogate from the parties choice of law. 5 Furthermore, upholding 1 Gayaneh Melkom Melkomian, Choice of Non-State Law in International Commercial Contracts, International Business Law, CMPL 604, Research Essay, Winter 2010, (last visited on September 20, 2012). 2 FA, Art. XII. 3 GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2153 (Kluwer Law International, 2001). 4 Case No of 1995, 25 Y.B. Comm. Arb. 312 (ICC Int l Ct. Arb.). 5 Case No of 1992, 25 Y.B. Comm. Arb. 279 (ICC Int l Ct. Arb.). 1

20 party autonomy has significant practical consequences. The continued success of international arbitration hinges on the support of parties and the ability of the parties to tailor proceedings to suit their particular needs. 6 On another hand, in the world, most countries acknowledge and respect the freedom of the contracting parties to choose the applicable law in private contract, and this is reflected in the Convention 80/934/ECC on the Law Applicable to Contractual Obligations opened for signature in Rome on June 19, 1980 ( Rome convention ) and Article 42 (1) of the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature on March 18, 1965 ( ICSID Convention ). In conclusion, the Tribunal should respect the choice of law by the contracting parties in compliance with the FTR. 2. The Singaporean Law should be respected based on the assent of both parties In order for the choice of law to be enforced by the Tribunal, as other clauses in the contract, voluntary assent by the franchising parties is necessary. 7 Assent is determined by the relevant facts surrounding the negotiation and formation of a contract. Assent may be manifested in any manner sufficient to show agreement, including express words or conduct of the parties. 8 6 Chukwumerije & Okezie, CHOICE OF LAW ISSUES IN INTERNATIONAL COMMERCIAL ARBITRATION 1999 (Quorum Books 1994). 7 Lord Steyn, Contract Law: Fulfilling the Reasonable Expectations of Honest Men, 113 L.Q.REV., 433 (1997). 8 HENRY CHEESEMAN, BUSINESS LAW: LEGAL ENVIRONMENT, ONLINE COMMERCE, BUSINESS ETHISCS, AND INTERNATIONAL ISSUES 230, (7th ed. 2009). 2

21 Frequently, the law of the Franchisor s jurisdiction governs cross-border franchise agreements. Sometimes, the law of a neutral jurisdiction is chosen. 9 In our current case, the Claimant and the Respondent agreed that the Singapore Law would govern the parties rights and relationship. 10 In addition, the negotiations between parties of the FA are not the main factor for the Tribunal to decide if it is valid or not. Instead, the signing of the Respondent in the FA is the strongest evidence to indicate whether a party really wants to enter into the FA and is willing to accept all its terms. 11 Although the Claimant did not explain the applicable law clause to the Respondent, 12 he suggested that the Respondent take the FA home with him to review it before he signed it. However, the Respondent refused to do so; read it quickly, referred derisively to all the lawyer mumbo jumbo and signed it. 13 Moreover, the Claimant also offered to answer any queries, which the Respondent had regarding the FA but, the Respondent did not seek any further clarifications or explanations at that time. 14 Moreover, franchise agreements are standard contracts, which a franchisor prepares and offers to franchisees on a take-it-or-leave-it basis. 15 Consequently, the franchisee often has to accept all of the terms set forth in the franchise agreement by the franchisor. 9 John Sotos, Recent Trends In Franchise Relationship Laws given at Annual Conference of the International Bar Association in Dubai, October 2011, (last visited on September 20, FA, Art. XII. 11 MCC Marble Ceramic Center. Inc. v. Ceramica Nuova D'Agostino, 144 F.3d 1384, 1387 n.9 (11th Cir. 1998). 12 Clarification C-10, p Moot Problem, p Clarification C-10, p Postal Instant Press v. Sealy, 52 Cal. 2d 365, 373 (Cal. Ct. App. 1996). 3

22 In conclusion, the assent of both parties to the FA was genuine, which means that both parties really wanted to enter into this contract. As such, all of the clauses in the FA, including the choice of law clause are enforceable. Hence, the Tribunal should apply the Singaporean Law. 3. Alternatively, a conflict of laws analysis favors the application of the Singaporean Law In this case, a conflict of laws occurs as the choice of law in the FA is contrary to the mandatory law of Indonesia. Under Regulation 31/m-dag/per/8/2008 of the Minister of Trade of the Republic of Indonesia dated on August 21, 2008 regarding Franchising, 16 a franchise agreement shall be subject to the Indonesian Law while the contracting parties chose Singaporean Law to govern the FA which is both reasonable and acceptable. Firstly, food franchising has offered more variety to people and changed the way the food business operates 17 in the recent years. However, the Indonesian Law has not caught up with this growing change. Therefore, if the contracting parties had chosen the Indonesian Law as the governing law, disputes arising from the FA will be irresolvable if the choice of law is not prescribed. In this case, the franchising parties chose the Singaporean Law, where international franchising is very popular. 18 In addition, although there are no specific laws in Singapore governing franchising, 19 the fact that the country is a common law country will help its law system to deal with new and unprecedented legal disputes in general or disputes concerning franchise agreements effectively. 16 Regulation Trannette Ledford, Food Service Franchises: Owners are hungry for success, (last visited on July 8, 2012). 18 Franchising Licensing Association Singapore, Franchise Star Achiver, (last visited on July 8, 2012). 19 Id. 4

23 Secondly, in cases where Tribunal finds the choice of law contrary to the Indonesian regulation on franchising, there have been a number of arbitral awards which rejected the application of mandatory laws and public policies of a state other than the one the parties choose. 20 Besides, the Tribunal can refer for guidance to the general principles governing the conflicts of law the private international law. 21 It is not uncommon for tribunals to refer to general principles of private international law. 22 In this respect, since the parties agreed to submit their dispute to the international arbitration, 23 instead of the Indonesian Court, according to the Preamble of UNIDROIT Principles of International Commercial Contracts 2004, a particular domestic law does not necessarily bind the arbitrators. 24 In conclusion, if the Tribunal finds that the mandatory rules and the parties expectations are in conflict, for the two reasons above, a presumption arises that the mandatory law should not apply. Accordingly, the continued success of international arbitration favors giving party autonomy, including choice of law clauses, significant weight. Considering this case, the Claimant and the Respondent agreed on the designation of the choice of law to the substance of the dispute. Therefore, the arbitrators shall decide the dispute according to the Singaporean Law. 20 Case No 6379 of 1990, 17 Y.B Comm. Arb.212 (ICC Int l Ct. Arb.). 21 ad hoc Award Libyan American Oil Co. (LIAMCO) v. Government of the Libyan Arab Republic, 6 Y.B. Comm. Arb. 89 (ICC Int l Ct. Arb.). 22 Economy Forms Corp. v. Islamic Republic of Iran, Award No (14 June 1983), 3 Iran-US C.T.R. (1983); Texaco Overseas Petroleum Company & Californian Asiatic Oil Company v. The Government of the Libyan Arab Republic, Award on the Merits, 53 I.L.R. 420 (1977); ad hoc Award Libyan American Oil Co. (LIAMCO) v. Government of the Libyan Arab Republic, 6 Y.B. Comm. Arb. 89 (ICC Int l Ct. Arb.). 23 FA, Art. XII. 5

24 II. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE AS IT MEETS ALL REQUIREMENTS OF THE NYC, THE AADR AND THE IAA Both Singapore and Indonesia have ratified and are state parties to the NYC. According to the NYC, the AADR and the IAA, an arbitration agreement is valid when: (1) the parties validly agreed on arbitration; 25 (2) it is in writing; 26 (3) the dispute between the parties is in respect of a defined legal relationship; 27 (4) the subject matter is capable of being settled by arbitration; 28 (5) the agreement is not null and void, inoperable nor incapable of being performed The parties validly agreed on arbitration The parties agreement on arbitration is the primary source of the arbitral tribunal s jurisdiction. 30 By signing a contract containing an arbitration clause, the parties are considered to agree on arbitration 31 and are precluded from submitting their disputes to any state court. 32 In addition, an unequivocal decision of the parties in favor of arbitration has to be upheld under any circumstances NYC, Art. II; IAA, Art. 2A (1), AADR, Art NYC, Art. II; IAA, Art. 2A (3), AADR, Art NYC, Art II; IAA, Art. 2A (1); AADR, Art, Art NYC, Art. II; IAA, Art. 11 (1). 29 NYC, Art. II; IAA, Art 6 (2). 30 ALAN REDFERN & MARTIN HUNTER, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION para 1-13 (4th ed. 2004). 31 Solel Boneh v. Republic of Uganda, Award No of 1975, (ICC Int l Ct. Arb.). 32 NYC, Art. II; PIETER SANDERS, INTERNATIONAL ENCYCLOPAEDIA OF COMPARATIVE LAW 5, Volume XVI, Chapter 12 (Mohr 1996). 33 Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983); Laboratorios Grossman S.A. v. Forest Laboratories Inc., Supr. Ct. (N.Y.A.D.), Laboratorios. Grossman, S.A. v. Forest Laboratories, Inc., 295 N.Y.S.2d 756 (N.Y.A.D 1968) 6

25 In this case, both parties signed the FA which contains an arbitration clause. Section A Arbitration of Article XII Dispute Resolution mandates that any dispute, controversy or claim arising out of or relating to this FA, the operation of the franchise or its termination - except as otherwise provided for in this agreement shall be settled by arbitration. 34 This clause provides evidence that the parties intended any dispute arising out of or relating to the FA to be resolved by arbitration. Thus, by signing the FA containing aforementioned arbitration clause, the parties waived the right of having access to the courts and validly agreed on arbitration. Nevertheless, the Respondent may argue that he did not read or understand the arbitration clause at the time he signed the FA. Therefore, there was no agreement on arbitration. However, a signatory to a contract cannot avoid his obligation under the contract simply by showing he did not read what he signed. 35 Because one who signs a contract is presumed to know its contents 36, parties who sign contracts will be bound by them regardless of whether they have read them or understood them 37. Although the Respondent signed the FA containing Arbitration agreement without reading all contents, he signed it in the end. Therefore, the Respondent validly agreed on arbitration in the FA regardless of whether he read them or understood them. 34 FA, Article XIII. 35 Collins v. Countrywide Home Loans, Inc., 680 F. Supp. 2d 1287, 1294 (M.D. Fla. 2010) (citing Coleman v. Prudential Bache Sec. Inc., 802 F.2d 1350, 1352 (11th Cir. 1986)). 36 Addison v. Carballosa, 48 So. 3d 951, 954 (Fla. 3d Dist. Ct. App. 2010). 37 MCC Marble Ceramic Ctr. Inc. v. Ceramica Nuovad Agostino, supra note 11. 7

26 2. The arbitration agreement is in writing Article II (1) of NYC provides that an arbitration agreement shall be in writing. Article II (2) further provides the term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letter or telegrams. This means, an arbitration agreement in writing shall be either signed by the parties or contained in an exchange of letter or telegrams. The Arbitration clause between the Claimant and the Respondent satisfies Article II writing requirement because the clause included in the FA was in writing and signed by both parties. Hence, the Arbitration Agreement contained in the Franchise Agreement meets the formation requirement. 3. The dispute is in respect of a defined legal relationship A defined legal relationship arises when a contract contains an arbitration clause that applies to all disputes arising out of that contract. 38 In addition, an arbitration clause that referred to disputes arising out of or related to the contract 39 would still be enforceable under NYC because it is comprehensive enough to cover the legal relationships which are not only arisen out of the contract but also related to the contract. 40 Considering this case, the Claimant and the Respondent consummated a defined legal relationship by entering into the FA. Moreover, Section A Arbitration of Article 38 Albert Jan van den Berg, The New York Convention of 1958: An Overview 28 (2003) ICCA Yearbook 1, FA, Article XII (A). 40 MARGARET L. MOSES, THE PRINCIPLES AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 30 (2008). 8

27 XII Dispute Resolution provides that disputes concerning the FA shall be settled by arbitration. 41 Moreover, all disputes arisen in this instant case are arising out of and relating to the FA. Hence, the dispute is in respect of a defined legal relationship of the parties. 4. The subject matter is capable of being settled by arbitration Most disputes today are considered arbitrable, except for those that fall within defined areas such as criminal law, family law, and patent law. 42 Particularly, IAA provides that any dispute(s) the parties have agreed to submit to the arbitration under arbitration agreement is arbitrable, unless it is contrary to the public policy to do so. 43 Public policy are principles and standards regarded by legislature as a being of fundamental concerned to the state 44 and regulations written to address that legislation. 45 Besides, Article 5(1) of AADR stipulates that only disputes of a commercial nature, or those concerning rights which, under the laws and regulations, fall within the full legal authority of the disputing parties, may be settled through arbitration. Therefore, disputes which are of a commercial nature and are not contrary to the public policy are arbitrable. Franchising is an expanding commercial activity. 46 Thus, disputes arising or relating to the FA have a commercial nature. Moreover, it is not contrary to public policy to arbitrate such disputes because that neither violate the regulations written nor affect the society. 41 FA, Article XII. 42 MARGARET L. MOSES, supra note 40, at IAA, Art. 11(1). 44 Black s Law Dictionary 1351 (9th ed.2009). 45 CHARLENE HARRINGTON & CASSANDRA CRAWFORD, HEALTH POLICY: CRISIS AND REFORM IN THE U.S. HEALTH CARE DELIVERY SYSTEM 7 (Jones and Bartlett Publishers, Inc., 4th ed. 2004). 46 Choong Thung Cheong, Franchising Schemes in Singapore Legal Aspects of Public Offers, 26 MALAYA L. REV. 256, 256 (1984). 9

28 In conclusion, the subject matter of dispute is can be settled by arbitration. 5. The Arbitration Agreement is not null and void, inoperable nor incapable of being performed First, under NYC, the null and void language must be read narrowly since the signatory nations of the Convention have effectively declared a joint policy that presumes the enforceability of agreements to arbitrate. 47 [T]he Convention's null and void clause limits the bases upon which an international arbitration agreement may be challenged to standard breach-of-contract defenses. 48 Thus, an arbitration agreement is null and void if it lacks actual assent because of fraud, duress, misrepresentation, undue influence, or waiver. 49 Furthermore, a lack of capacity by a party could nullify the agreement. Otherwise, if the clause is too vague and ambiguous to make clear that the parties agree to resolve the disputes by arbitration, the agreement may also be considered a nullity. 50 In this case, there is no evidence showing that either the Claimant or the Respondent committed any acts of fraud, duress, and undue influence or indicated waiver during the performance of the contract. Moreover, GWNS was legally established under their governing laws as well as being properly presented by Mr. Wang. 51 Additionally, the Respondent was a competent person. Therefore, the parties had full capacities to enter into an arbitration agreement. Furthermore, the clause was drafted without any ambiguities that both parties agreed to resolve disputes by arbitration. Consequently, the arbitration clause is not null and void. 47 Rhone Mediterranee Compagnia v. Lauro, 712 F.2d 50, 53 (3d Cir. 1983). 48 DiMercurio v. Sphere Drake Ins. PLC, 202 F.3d 71, 79 (1st Cir.2000). 49 Azhar Ali Khan v. Parsons Global Services, 480 F.Supp. 2d 327, 340 (D.C Cir. 2007). 50 Teck Guan Sdn Bhd v. Beow Guan Enterprises Pte Ltd, [2003] SGHC 203, [2003] 4 SLR Clarification C-3, p.2. 10

29 Second, an arbitration agreement is inoperable when it is barred by res judicata, because the identical issues have previously been settled in another legal forum, 52 or a required time limit had expired. 53 In this case, the dispute has only been submitted to the KLRCA, the parties did not revoke the agreement and the Arbitration Agreement did not contain any time limit cause. 54 Thus, the Arbitration Agreement is operable. Third, an arbitration agreement cannot be performed when there is contradictory language in the main contract indicating the parties intended to litigate, or the parties had chosen a specific arbitrator who was deceased or unavailable at the time of the dispute in the arbitration agreement. If the place of arbitration is no longer available, the agreement cannot also be performed. 55 The agreement on disputes settlement mechanism was only contained in the Arbitration Agreement, hence there was no contradiction between it and the other parts of the contract. In addition, the parties did not choose any specific arbitrators in the Arbitration Agreement. Consequently, the Arbitration Agreement can be performed. In conclusion, all form requirements of an arbitration agreement as specified under Article II of NYC, AADR and IAA have been substantially fulfilled. Hence, the existence of a valid arbitration agreement cannot be challenged. 52 Black Law s Dictionary, supra note 44, at MARGARET L. MOSES, supra note 40, at FA, Article XII. 55 MARGARET L. MOSES, supra note 40, at

30 III. THE FA IS VALID UNDER INDONESIAN LAW SPECIFICALLY ARTICLE 31 OF LAW NO The FA is valid under the ICC In order to be valid under the ICC, the FA must satisfy four primary substantive requirements, which are (1) assent, (2) capacity, (3) a specific subject, (4) an admissible cause. 56 a) Parties assent to be bound by the FA Assent means given voluntarily by a competent person. 57 Accordingly, people concluding an agreement or a contract must be voluntarily agreeable to it. In case an agreement is made under duress, fraud or error etc, it is of no value. In this case, the agreed facts show parties both voluntarily concluded the FA. There are no error, duress and fraud in the contract. Hence, Mr. Wang and Dr. Budiamman both had assent when they concluded the FA. b) Parties have capacity to conclude the FA Capacity means the power to create or enter into a legal relation under the same circumstances in which a normal person would have the power to create or enter into such a relation. 58 Accordingly, when concluding a contract, an individual must satisfy some legal qualifications such as a legal age or soundness of mind, etc that determine his full ability to enter into the agreement. Each individual shall be authorized to conclude agreements, unless he has been declared incompetent by law. 59 Under the ICC, minors, individuals under guardianship and married women, in the events stipulated by law, and 56 ICC, Art Black s Law Dictionary, supra note 44, at Black s Law Dictionary, supra note 44, at ICC, Art

31 in general, individuals who are prohibited by law from concluding specific agreements 60 shall be incompetent to conclude a contract. Considering this case, parties are both authorized to conclude the FA, and there is no evidence showing that any of them has been declared incompetent by law. Moreover, none of them are the subject in Article 1330 of the ICC. Therefore, both parties can conclude the FA. c) The FA has a specific subject Only matters that can be traded can be the subject of agreements. 61 The term trade is seen as the act of buying and selling or bartering goods or services. 62 In this case, GWNS is selling a special kind of service that is the right to open franchises in Indonesia to the Respondent in exchange for an amount of money. In other words, the right to open franchises in Indonesia is the matter that was traded. Therefore, the FA has a specific subject. d) The FA has an admissible cause The phrase admissible cause in Article 1320 of the ICC is interpreted as the thing/action that has to be performed by either party is not contrary to the law, public policy or public morality when they conclude a contract. 63 The validity of the contracts under the ICC is not bound by the formalities ICC, Art ICC, Art Black s Law Dictionary, supra note 44, at Sunaryati Hartono, SH, Setiawan, SH, Taryana Sunandar, SH, The Indonesian Law on contracts 18, IDE Asian Law Series No. 10 (March 2001) (Japan). 64 Id, p

32 In this case, the thing/action that has to be performed by both parties is to franchise the GWNS. Franchise is a legal activity under Indonesian Law, specifically, the Law No. 42. Thus, the FA has an admissible cause. In conclusion, the FA satisfies four conditions of contracts validity, therefore it is valid under the ICC. 2. The FA is valid under Article 31 of the Law No. 24 The first paragraph of Article 31 of the Law No. 24 requires that the Indonesian language must be used in contracts or agreements involving state institutions, Indonesian government authorities, Indonesian private institutions or Indonesian individuals. The provision has triggered some legal problem in practice. It is not clear if the term Indonesian private institutions includes Indonesian companies or Indonesian branches of foreign companies. Moreover, it is also not stated in the provision whether the term memoranda of understanding and/or agreements includes private and commercial contracts. 65 Therefore, it is not stipulated whether agreements entered by such parties must be written in Indonesian. The second paragraph of Article 31 stipulates that if memoranda of understanding/ contracts involving foreign parties, the national language of that foreign parties and/or English shall also be used. The term also in the provision means that besides Indonesian version, contracts that involve foreign individuals shall also be concluded in their language and/or English, and those contracts are equally valid. Considering this case, the FA was concluded between the Respondent - an Indonesian individual and the Claimant - a Chinese company. Therefore, besides Bahasa 65 Law No. 24, Art

33 Indonesian, the FA shall be concluded in Chinese and/or English. In fact, a photocopy of both the original English and a Bahasa Indonesian copy were delivered to the Respondent. 66 Therefore, it satisfies Article 31 because the FA was concluded in Bahasa Indonesian and English. In conclusion, the FA is valid under the ICC in general and Article 31 of the Law No. 24. IV. ARTICLE XII OF THE FA IS NOT INVALID BECAUSE THERE IS AN ASSENT BETWEEN TWO PARTIES UPON THE GRANTING OF SPECIFIC PERFORMANCE The parties assent provides the underpinning for the power of the arbitrators to decide the dispute. Moreover, the parties assent also limits arbitrator s power because an arbitrator can only decide issues within the scope of the parties agreement. 67 In considering the scope of an arbitration panel s authority, the starting point is the arbitration agreement. 68 A specific stipulation or prohibition in the contract 69 agreed by both parties restricts the power of arbitrators. Besides limiting the scope of arbitration, both parties can agree to whatever provision they choose because the contract is the law between parties. 70 In this case, by signing the FA, both parties agreed in Article XII Dispute Resolution that the arbitrators may not under any circumstances enter an order restraining an alleged breach of the FA by the Claimant; or enter a decree of specific 66 Moot Problem, p.2 67 MARGARET L. MOSES, supra note 40, at ARIAS - U.S SPRING CONFERENCE: AVAILABLE RELIEF IN ARBITRATION, April 10-12, 2003, (last visited on September 20, 2012). 69 State Of Punjab vs N.C. Budharaj (Dead) By L.Rs., Supreme Court of India (on 10 January, 2001), (last visited on September 13, 2012). 70 Carriere v. Frank A. Occhipinti, Inc., 570 So.2d, 44 (La. App. 5 th Cir. 1990). 15

34 performance requiring the Claimant to perform any part of the FA. 71 In addition, in case the Respondent breaches or threatens to breach any term of the FA, the Claimant will forthwith be entitled to an order restraining such breach or to a decree of specific performance. 72 Hence, there is an assent between both parties that the Claimant may not be granted a specific performance and the Claimant has the right to order a specific performance when the Respondent breaches or threatens to breach any provision of the FA. In conclusion, Article XII is not invalid because there is an assent to limit the arbitrators power and give the Claimant the right to order a specific performance in case the Respondent breaches any term of the FA. Nevertheless, the Respondent may argue that the franchise agreement is a take-itor-leave-it contract or adhesion contract. 73 Therefore, the Respondent did not have the chance to negotiate the Franchise Agreement in general or Article XII in particular. This may lead to the invalidity of Article XII. However, contract of adhesion is not invalid in nature. Contract of adhesion is defined as one in which one of the parties, imposes a readymade form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party 71 Moot Problem, p Moot Problem, p Black Law s Dictionary, supra note 44, at

35 merely affixes his signature or his adhesion thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. 74 It must be borne in mind, however, that contracts of adhesion are not invalid themselves. Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely, if he adheres, he gives his assent. 75 Considering this case, the Franchisor admits that the franchise agreement is a contract of adhesion. In fact, the franchise agreement is prepared by the Franchisor. However, the Franchisor did suggest that the Franchisee take the Franchise Agreement home with him to review before he signed it. 76 This means that the Franchisee was given the opportunity to reject the franchise agreement but he did not, instead, he read through it quickly, referred derisively to all the lawyer mumbo jumbo and signed it. 77 Moreover, Mr. Wang also asked the Respondent let him know if he had any questions regarding of the provisions of the Franchise Agreement, and the Respondent did not seek any further clarifications or explanations at that time. 78 Therefore, based on these facts, the Respondent cannot make a case that the article XII is invalid on the ground of adhesion contract. 74 Radio Communications of the Philippines, Inc. v. Verchez, G. R. No , 481 S.C.R.A 384, 401 (January 31, 2006) (Phil.) (citing Philippines Commercial International Bank v. Court of Appeals, 325 PHIL. REP. 588, 597 (1996)). 75 Premiere Development Bank v. Central Surety & Insurance Company, Inc., G.R. No , S.C.R.A (February 13, 2009), (last visited on September 20, 2012). 76 Moot Problem, p Moot Problem, p Clarification C-10, p.4. 17

36 In conclusion, Article XII is not invalid because there is agreement to limit the arbitrators power and give the Franchisor the right to order a specific performance in the event that the Franchisee breaches any term of the Franchise Agreement. V. ACCORDING TO THE FA, IT MUST BE A SUBSTANTIAL VIOLATION OF THE FA FOR THE FRANCHISOR TO TERMINATE THE FRANCHISE Each party owes a duty to adhere to and perform under the term of the franchise agreement. 79 Specific clauses in the franchise agreement will stipulate grounds for termination and the legal process to be followed. 80 Article XIII (B) of the FA grants the power to the Claimant to terminate the Franchise for violations deemed substantial by the Respondent. Accordingly, on the ground of Article XIII (B) of the FA, the Claimant may terminate the Franchise for substantial violations of the FA. VI. THE INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING SHOULD NOT BE APPLIED TO THE FA UNDER SINGAPOREAN LAW. BESIDES, IT SHOULD BE APPLIED CONSISTENTLY WITH THE FA UNDER INDONESIAN LAW Pursuant to the implied covenant of good faith, the contract is terminable only for good cause. 81 Good cause is generally defined as the failure of the franchisee to 79 HENRY CHEESEMAN, supra note 8, at Clint Shaff, Primer on Franchising: Definition of Terms, (last visited 03/09/2012) 81 T. Mark McLaughlin and Caryn Jacobs, Termination of Franchises: Application of the Implied Covenant of Good Faith and Fair Dealing, 7 FRANCHISE L. J 1, 16 ( ). 18