LAWASIA MOOT COMPETITION 2012 THE GREAT WALL NOODLE SHOP...
Transcript of LAWASIA MOOT COMPETITION 2012 THE GREAT WALL NOODLE SHOP...
F1040-C
LAWASIA MOOT COMPETITION
2012
THE GREAT WALL NOODLE SHOP PROBLEM
IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION
BALI, INDONESIA
GREAT WALL NOODLE SHOP LLC
CLAIMANT
v
ADI BUDIAMMAN, M.D.
RESPONDENT
MEMORIAL FOR CLAIMANT
1
TABLE OF CONTENT
TABLE OF CONTENTS ------------------------------------------------------------------1
INDEX OF AUTHORITIES ---------------------------------------------------------------- 5
STATEMENT OF JURISDICTION------------------------------------------------------16
QUESTIONS PRESENTED ---------------------------------------------------------------17
STATEMENT OF FACTS -----------------------------------------------------------------19
SUMMARY OF PLEADINGS ------------------------------------------------------------22
CLAIMANT’S PLEADINGS -------------------------------------------------------------27
I. THE TRIBUNAL HAS JURISDICTION OVER THE PRESENT
DISPUTE. ----------------------------------------------------------------------------27
A. THE CHOICE-OF-LAW CLAUSE IS VALID AND BONA FIDE -27
(i) Singaporean law, being the law chosen by the parties to govern their
relationship, applies to the present dispute-------------------------------27
B. THE ARBITRATION AGREEMENT SHOULD BE GOVENRED BY
SINGPAOREAN LAW --------------------------------------------------------29
(i) Singaporean law, being the law chosen by the parties, governs the
validity of the arbitration agreement. ------------------------------------29
(ii) Alternatively, the law of Malaysia, being the place of arbitration,
should govern ----------------------------------------------------------------30
C. THERE IS VALID CONSENT TO ARBITRATE BETWEEN THE
PARTIES-------------------------------------------------------------------------30
(i) There is valid consent to arbitrate under Singaporean law even if
RESPONDENT was not aware of the agreement ---------------------- 31
2
(ii) The parties have validly consented to arbitration under Malaysian law,
or even if Indonesian law is applied ------------------------------------- 32
D. THE ARBITRATION AGREEMENT HAS COMPLIED WITH
FORMAL VALIDITY REQUIREMENTS -------------------------------33
(i) The arbitration clause has satisfied formal validity requirements under
Singaporean law and Malaysian law -------------------------------------33
(ii) The tribunal should not apply Indonesian law to formal validity of the
arbitration agreement even if there is no valid express indication of the
governing law ---------------------------------------------------------------34
(iii) The language requirement provided in the Indonesian Language Law,
if found applicable, has been complied with ---------------------------- 34
(iv) Even if there is non-compliance with the Indonesian Language Law,
the contract should not be rendered void --------------------------------35
E. THE MATTERS SUBMITTED TO ARBITRATION ARE
ARBITRABLE ------------------------------------------------------------------35
(i) Indonesian and Malaysian law are applicable laws on arbitrability of
matters submitted to arbitration--------------------------------------------36
(ii) The dispute, despite possibly involving the application of laws on
constitutional rights, is arbitrable ----------------------------------------37
(iii) Even if the dispute over the wearing of hijab is inarbitrable, the
arbitration agreement remains valid and enforceable in part ---------38
II. THE FRANCHISE AGREEMENT IS GOVERNED BY SINGAPOREAN
LAW ---------------------------------------------------------------------------------- 39
A. SINGAPOREAN LAW GOVERNS THE VALIDITY OF THE
FRANCHISE AGREEMENT ------------------------------------------------39
3
B. INDONESIAN LAW ON FRANCHISES SHOULD NOT BE
APPLIED AS MANDATORY RULES -------------------------------------39
III. THE FRANCHISE AGREEMENT IS VALID UNDER SINGAPOREAN
LAW AND INDONESIAN LAW ------------------------------------------------ 40
A. THE FRANCHISE AGREEMENT IS VALID UNDER
SINGAPOREAN LAW---------------------------------------------------------40
B. THE FRANCHISE AGREEMENT IS VALID UNDER
INDONESIAN LAW -----------------------------------------------------------40
(i) The requirement for use of Indonesian in the agreement is complied
with, or alternatively, does not invalidate the agreement --------------41
(ii) RESPONDENT has waived the requirement on advance provision of a
franchise prospectus and written agreement -----------------------------42
(iii) Non-registration of franchise prospectus does not invalidate the
Agreement ---------------------------------------------------------------------42
IV. The application of “inherent warranty of good faith and fair dealing” in
interpretation and performance of agreements -------------------------------43
A. THE SAID WARRANTY DOES NOT APPLY TO THE
AGREEMENT UNDER SINGAPOREAN LAW ------------------------43
B. THE SAID WARRANTY IS RESTRICTED BY ARTICLE X(2) OF
THE AGREEMENT UNDER INDONESIAN LAW---------------------45
V. THE TRIGGER OF PREMATURE DETERMINATION OF THE
AGREEMENT-----------------------------------------------------------------------46
A. CLAIMANT IS ENTITLED TO TERMINATE ON SUBSTANTIAL
BREACH OF TERMS WHICH CLAIMANT DEEMS
SUBSTANTIAL UNDER SINGAPOREAN LAW ----------------------46
4
B. CLAIMANT IS ENTITLED TO TERMINATE ON SUBSTANTIAL
BREACH OF TERMS WHICH CLAIMANT DEEMS
SUBSTANTIAL UNDER INDONESIAN LAW ------------------------48
VI. CLAIMANT WAS ENTITLED TO TERMINATE THE AGREEMENT -
-------------------------------------------------------------------------------------------49
A. SERVING CUSTOMERS A SINGLE INDONESIAN DISH
REFERRED TO AS “THE SPECIAL OF THE DAY” AND GIVING
CUSTOMERS THE OPTION OF SUBSTITUTING LAMB FOR
PORK BREACHED ARTICLE III(A) 1 UNDER SINGAPOREAN
AND INDONESIAN LAW -------------------------------------------------49
B. ALLOWING THE FEMALE MUSLIM EMPLOYEES TO WEAR
HIJAB BREACHED ARTICLE IV2 UNDER SINGAPOREAN AND
INDONESIAN LAW -----------------------------------------------------------52
C. PROHIBITING HIJAB AT WORK DOES NOT VIOLATE THE
LAW OR CONSTITUTION OF INDONESIA. --------------------------53
D. IF EVERY INDIVIDUAL BREACH WAS ESTABLISHED,
CLAIMANT WAS ENTITLED TO TERMINATE THE
AGREEMENT UNDER SINGAPOREAN LAW ----------------------54
E. IF EVERY INDIVIDUAL BREACH WAS ESTABLISHED,
CLAIMANT WAS ENTITLED TO TERMINATE THE
AGREEMENT UNDER INDONESIAN LAW --------------------------56
VII. ON THE ASSUMPTION THAT CLAIMANT WAS ENTITLED TO
TERMINATE, THE NOTICE OF TERMINATION WAS A PROPER
AND TIMELY NOTICE AND HENCE THE TERMINATION WAS
1 Moot Problem, 15-16 2 Moot Problem, 21
5
VALID ---------------------------------------------------------------------------------57
A. THE NOTICE OF TERMINATION WAS TIMELY AND PROPER
UNDER SINGAPOREAN LAW -------------------------------------------- 57
B. THE NOTICE OF TERMINATION WAS PROPER AND VALID
AND THE TERMINATION OF THE AGREEMENT WAS VALID
IN THE ABSENCE OF AN ORDER OF THE COURT OF
INDONESIA UNDER INDONESIAN LAW ----------------------------- 59
VIII. THE ARBITRATION CLAUSE, WITH RESPECT TO THE
STIPULATION OF REMEDIES AVAIALBLE, IS VALID ---------------60
A. THE CLAUSE EXCLUDING AVAILABILITY OF SPECIFIC
PERFORMANCE IS A VALID CONTRACTUAL TERM UNDER
SINGAPOREAN LAW -------------------------------------------------------61
(i) The clause is binding on the parties --------------------------------------61
(ii) The Singaporean Unfair Contract Term Act is inapplicable on the
circumstances---------------------------------------------------------------61
B. THE EXEMPTION CLAUSE IS NOT CONTRARY TO GOOD
FAITH OR REASONABLENESS UNDER INDONESIAN LAW -- 61
C. THE ARBITRATRAL TRIBUNAL CANNOT DEROGATE FROM
THE CLAUSE -------------------------------------------------------------------62
D. SPECIFIC PERFORMANCE IS AN INAPPROPRIATE REMEDY
FOR RESPONDENT EVEN IF THE CLAUSE IS INEFFECTIVE -63
CONCLUSION AND PRAYER FOR RELIEF ------------------------------------64
6
INDEX OF AUTHORITIES
Statutes and Treaties
Constitution of
Indonesia
Undang-Undang Dasar Republik Indonesia 1945
Constitution of
Malaysia
Constitution of Malaysia 1957
Constitution of
Singapore
Constitution of The Republic of Singapore 1965
ICC Civil Code For Indonesia (S.1847 No.23) Translated into
English from the Official Dutch text
Indonesian
Arbitration Act
Law No. 30 of 1999, Translated into English by Hadiputranto,
Hadinoto & Partners
Indonesian
Human Right law
Law No.39 of 1999, Indonesia
Language Law Law No. 24 of 2009, Indonesia
KLRCA Fast
Track Rules
KRLCA Fast Track Rules, 2nd Edition (2012)
Malaysian
Arbitration Act
Malaysian Arbitration Act 2005
New York
Convention
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards 1958
Regulation on
Franchise
The Government Regulation on Franchise No 42/2007
Singaporean International Arbitration Act (Chapter 143 A) , Singapore
7
Scholarly Works and Articles
Alfons Claudia Alfons, Recognition and Enforcement of Annulled Foreign
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Amerasinghe Chittharanjan F. Amerasinghe, International Arbitral Jurisdiction,
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Bermann Bermann, George A., “Mandatory rules of law in international
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Berger Klaus Peter Berger, “Re-examining the Arbitration Agreement:
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Blessing Marc Blessing, “Mandatory Rules of Law versus Party Autonomy
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Graves
Graves, Jack, Court Litigation over Arbitration Agreements: Is it
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Hadfield Hadfield GK, “Problematic Relations: Franchising and the Law of
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Law (No. 24/2009): Updates on the new law requiring contracts
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2009
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10
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Perspectives”, in Mistelis, L., Brekoulakis, S., (eds), Arbitrability:
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16
STATEMENT OF JURISDICTION
CLAIMANT and RESPONDENT have agreed to submit the present dispute to the
Kuala Lumpur Regional Arbitration Centre (“KLRCA”) in conformity with the
KLRCA Fast Track Rules. Each party will accept the decision of this Arbitral
Tribunal as final and binding.
QUESTONS PRESENTED
I. Whether the tribunal has jurisdiction over the present dispute, specifically,
whether the arbitration agreement is valid and enforceable.
II. Whether the Franchise Agreement is valid and enforceable, and in particular,
whether it has violated Indonesian law.
III. Whether the “inherent warranty of good faith and fair dealing” in interpreting
and applying franchise agreements applies to this Franchise Agreement under
Singaporean and Indonesian law.
IV. What kind of violation that would entitle CLAIMANT to terminate the
franchise under Singaporean and Indonesian law – should it be any violation
of the Franchise Agreement, substantial violation of the terms of the Franchise
Agreement which CLAIMANT deems substantial or substantial violation of
the Franchise Agreement or other else.
V. Whether the breach of the terms of the Franchise Agreement by
RESPONDENT, if any, justified the termination of the Franchise Agreement
17
under Singaporean and Indonesian law. In particular, the following issues will
be addressed:
(a) Whether the serving of a single Indonesian dish referred to as “The
Special of the Day” breached the terms of the Agreement.
(b) Whether giving customers the option of substituting lamb for pork
for menu items breached the terms of the Agreement.
(c) Whether allowing female Muslim employees to wear hijab breached
the terms of the Agreement.
(d) As an incidental issue to (c), whether an employment regulation
prohibiting the wearing of hijab by female Muslim employees
violates the Constitution and/or laws of Indonesia or any
international treaties to which it is a member.
(e) Whether each of the above breaches and/or a continuing disregard of
the franchisee’s obligations as reflected by the above breaches under
the Franchise Agreement entitled CLAIMANT to terminate.
VI. Whether a proper and timely Notice of Termination was given to
RESPONDENT so that the termination was effective under Singaporean law
and Indonesian law.
VII. Whether the clause excluding the availability of specific performance for
RESPONDENT is valid and enforceable.
18
19
STATEMENT OF FACTS
BACKGROUND
In 1983, the first Great Wall Noodle Shop Restaurant (“the Restaurant”) was opened
in China by Mr. Ji and Mr. Wang. It serves Chinese cuisine and has been very
successful.
CLAIMANT, Great Wall Noodle Shop LLC, was later founded for the operation of
the restaurant business. Mr. Ji and Mr. Wang are the co-managing directors of the
company. In the past 25 years the company has also franchised numerous Restaurants
in China, Singapore and Malaysia.
RESPONDENT, Adi Budiamman, M.D., is an Indonesian who has been working as a
surgeon. He spent 7 years studying in Singapore and knows English well.
EVENTS LEADING TO THE FRANCHISE
On 20 June 2011, Mr. Wang, the co-managing director of CLAIMANT, met
RESPONDENT in the airport of Singapore. RESPONDENT expressed his interest in
running franchised Restaurants in Indonesia. Mr. Wang agreed, and handed in a
Franchise Agreement (“the Agreement”), which was written in English, for
RESPONDENT to read over. Mr. Wang explained the fee arrangements in detail.
However, knowing that RESONDENT did not have enough time to go over the entire
Agreement, Mr. Wang suggested that RESPONDENT take the Agreement home and
20
review it before signature. RESPONDENT nevertheless read though the entire
Agreement quickly and thereafter signed it.
EVENTS LEADING TO THETERMINATION OF THE FRANCHISE
Two new franchised Restaurants opened in September 2011, one in Jarkata and one in
Medan.
In late October 2011, Mr. Ji made a visit to both franchised Restaurants in Indonesia
and discovered the following:
(a) There was sale of food products not on the official Menu being served.
(b) An option of substitution of lamb for pork was provided to customers.
(c) Some of the female employees in the Jakarta restaurant and almost all of the
female employees in the Medan restaurant wore a red hijab.
On 4 November 2011, Mr. Ji, acting on behalf of CLAIMANT, sent an e-mail to
RESPONDENT (“the Notice of Deficiency”) notifying him that he committed the
above violations of the Agreement. Mr. Ji explained to RESPONDENT the
importance of maintaining uniformity on the entire franchise system and asked him to
immediately discontinue with all the violations. Mr. Ji reserved the right to terminate
the Agreement if the violations persisted.
Two weeks later, CLAIMANT sent an inspector to visit both franchised Restaurants.
The inspector reported that:
21
(a) Indonesian food was not listed on the Menu, but a single Indonesian dish of “The
Special of the Day” was available to customers
(b) The option of substitution of lamb for pork still existed.
(c) Most of the female employees wore a white hijab.
On 19 November 2011, CLAIMANT sent a letter (“the Notice of Termination”) to
RESPONDENT terminating the franchise and directing him to close the two
franchised Restaurants and remove the signage within 15 days. RESPONDENT
refused to close the two Restaurants. CLAIMANT thereafter submitted a Notice of
Arbitration in conformity with the KLRCA Fast Track Rules seeking redress.
RESPONDENT asserted a counterclaim for breach of the Agreement.
22
SUMMARY OF PLEADINGS
I. The tribunal has jurisdiction over the dispute as there is a valid agreement to
arbitrate
First, Singaporean law, being the law chosen by the parties to govern the
entire contract, governs the validity of the arbitration agreement. There is valid
consent between the parties to arbitrate and the agreement has complied with
formal requirements for its validity. All of the matters submitted to arbitration
are arbitrable, even if the issue of applicability of constitutional rights arises.
II. The Franchise Agreement is valid and enforceable, even under the application
of Indonesian laws
First, Singaporean law, as the chosen applicable law, governs the validity of
the Franchise Agreement. Rules of Indonesian law, being neither the chosen
law nor that of the forum, should not be applied as mandatory rules. In any
event, the Agreement is valid under the language requirements and regulations
on franchises under Indonesian law.
III. The application of “inherent warranty of good faith and fair dealing” in
interpretation and performance of agreements:
Under Singaporean law, the doctrine of good faith and fair dealing has no
general application. No implied term can be implied in fact to restrict the
ambit of the discretion of CLAIMANT as well since Article X(2) of the
Agreement already delineates the ambit of the discretion exercisable by
CLAIMANT.
23
Under Indonesian law, the duty of good faith and the standard of the
reasonableness in interpretation and performance of contract are recognised by
legislation. However, its effect should be restricted by Article X(2) because of
the character of optional law of the ICC.
IV. The trigger of premature determination of the Agreement:
Under Singaporean law, CLAIMANT is entitled to terminate on objectively
substantial breach of terms which CLAIMANT deems substantial although the
discretionary power of classifying term as important must be subject to Article
X(2).
Under Indonesian law, the position is the same. CLAIMANT is titled to
terminate on objectively substantial breach of terms which CLAIMANT
deems substantial, subject to the restriction of discretion by Article X(2).
V. CLAIMANT was entitled to terminate the Agreement:
Under both Singaporean and Indonesian law, the serving of “The Special of
the Day” and the option of substituting lamb for pork breached Article III (A)
of the Agreement. Allowing the female employees to hijab breached Article
IV of the Agreement since prohibiting hijab at work does not violate the
Human Right Law or Constitution of Indonesia.
Under both Singaporean and Indonesian law, the breaches would justify the
termination of the Agreement by CLAIMANT as there was a substantial
24
failure of performance depriving of the benefit which it was intended from the
Agreement.
VI. On the assumption that CLAIMANT was entitled to terminate, the Notice of
Termination was proper and timely and hence the termination was valid:]
Under Singaporean law, the Notice of Termination was timely and proper and
no implied term can be implied in law or in fact to oblige CLAIMANT to give
a notice period to RESPONDENT prior to termination.
Under Indonesian, the Notice of Termination was timely and proper in the
absence of order of the court of Indonesia because the arbitration agreement
and the Indonesia Arbitration Law preclude the jurisdiction of Indonesian
court to order any dissolution of the Agreement.
VII. Specific performance should not be granted to RESPONDENT
First, the tribunal’s power with regard to remedies is limited by the Agreement,
which excludes the availability of the remedy for RESPONDENT.
RESPONDENT is bound for having signed the Agreement. Even if the clause
is ineffective, specific performance is not an appropriate remedy for
RESPONDENT in view of adequacy of damages and the deterioration of the
parties’ relationship.
25
CLAIMANT’S PLEADINGS
I. THE TRIBUNAL HAS JURISDICTION OVER THE PRESENT
DISPUTE.
1. Article XII (A) of the Franchise Agreement forms the basis of the tribunal’s
jurisdiction over the present case. 3 The arbitration is to be conducted in
accordance with the KLRCA Fast Track Rules, 4 which incorporate the Malaysian
Arbitration Act. 5 The tribunal is free to determine its own jurisdiction by virtue of
the doctrine of Kompetenz-Kompetenz. 6
A. THE CHOICE-OF-LAW CLAUSE IS VALID AND BONA FIDE
2. Before the tribunal considers the issues raised by the parties, it should first
ascertain laws applicable to each aspect of the dispute.
(i) Singaporean law, being the law chosen by the parties to govern their relationship,
applies to the present dispute
3. The parties expressly agreed in Article XII (B) of the Agreement that Singaporean
law governs “the entire contract”. 7 CLAIMANT submits that this clause should
be enforced, in recognition of party autonomy in choosing the governing law in
3 Amerasinghe, 55 4 Article XII (A) of the Agreement 5 Article 6(2), KLRCA Fast Track Rules 6 Section 18(1), Malaysian Arbitration Act 7 Supplement Clarifications, 2, SR#3
26
commercial relationship as a “cornerstone” in international law. 8 The Malaysian
Arbitration Act affirms that the tribunal should “decide in accordance with the
terms of the agreement”. 9
4. RESPONDENT must prove that the choice-of-law clause is not bona fide and not
legal, 10 or amounts to contravention of public policy, 11 to challenge its validity.
The test is whether the “sole” reason of the choice is to evade the mandatory rules
of the law with which the contract is most closely connected. 12 The absence of
connection between the designated law and the transaction is not conclusive. 13
5. From the circumstances, RESPONDENT’s argument must fail. Singaporean law
governs the franchise agreements between CLAIMANT and all the franchisees in
Indonesia, Malaysia and Singapore. 14 Further, the parties signed the Agreement in
Singapore. 15 The choice of Singaporean law is therefore for uniformity and
commercial convenience, made in good faith in furtherance of the parties’
business interests.
6. If RESPONDENT’s challenge on the express choice of law is accepted, the
tribunal should have regard to the widely recognized New York Convention in
determining the laws applicable to the arbitration agreement and the underlying
contract. The Convention, which has been signed by Singapore, Malaysia and
8 Frick, 45 9 Article 30(2), Malaysian Arbitration Act 10 Vita Food Products v Unus Shipping Co 11 Tzortzis v. Monark Line, 411 per Lord Denning, M.R 12 Golden Acres v. Queensland; Jaffey, at 144 13 BHP v. Oil Basins 14 First Clarifications, 3, Item C8 15 Moot Problem, 2
27
Indonesia, 16 governs the enforcement of arbitral awards in Member States.
Bearing in mind arbitrators’ “soft obligation” to render enforceable arbitral
awards, 17 the tribunal should not depart from provisions of the Convention except
with “serious reasons”. 18 The effect of the Convention is discussed below.
B. THE ARBITRATION AGREEMENT SHOULD BE GOVENRED BY
SINGPAOREAN LAW
7. The consent of the parties to arbitrate is embodied in the arbitration agreement, the
validity of which is independent from that of the substantive contract under the
doctrine of separability.19
8. The issue of validity encompasses two aspects. Substantive validity relates to the
existence of valid consent to arbitrate, while formal validity concerns the form of
the agreement. 20
9. CLAIMANT’s position is that the arbitration agreement is valid in both aspects
and should be enforced by the tribunal.
(i) Singaporean law, being the law chosen by the parties, governs the validity of the
arbitration agreement.
16 Status 1958 17 Berger, 16; Brekoulakis, 2-36 18 ICC Award No. 5730, 1033 19 David Joseph, 102 20 Berger, 2
28
10. CLAIMANT’s primary submission is that Singaporean law applies to both aspects
of validity of the arbitration agreement for governing the “entire contract”, 21 to
uphold party autonomy. 22 CLAIMANT would also address the alternative
position where the tribunal does not uphold the choice-of-law clause.
(ii) Alternatively, the law of Malaysia, being the place of arbitration, should govern
11. If the tribunal finds Singaporean law inapplicable, Malaysian law, being that of
the place of arbitration, should govern. 23 Malaysia is the country most closely
connected to the arbitration agreement for being the place where it is performed. 24
Further, this accords with the approach under Article V (1)(a) of the New York
Convention, whereby an arbitral award may be denied if the agreement is not
valid “under the law of the country where the award was made” in the absence of
indication on applicable law. By virtue of Article 6(2) of the Fast Track Rules, the
award is deemed to be made in Malaysia.
12. In any event, formal and substantive validity of the arbitration agreement are both
satisfied under the laws of Singapore, Malaysia and even Indonesia.
C. THERE IS VALID CONSENT TO ARBITRATE BETWEEN THE
PARTIES
21 Supplement Clarifications, 2, SR#3 22 Frick, 45 23 Lew, §6-23 24 Berger, 10
29
(i) There is valid consent to arbitrate under Singaporean law even if RESPONDENT
was not aware of the agreement
13. Both of the parties have signed the Agreement, which contains the dispute
resolution clause. 25 Signature is conclusive indication of consent under common
law. 26 This is illustrated in The St Raphael, in which the court found that the
defendant’s unawareness of the arbitration agreement embodied within a contract
incorporated by a telex referred to in the document signed was “irrelevant”.
14. Further, the parties’ compliance with Article II (2) of the New York Convention,
which requires reduction of the arbitration agreement into writing, leads to a
strong presumption that the parties have given consent. 27
15. In addition, CLAIMANT had unconditionally offered RESPONDENT the chance
to take the contract away for scrutiny before signing it. By declining the offer,
RESPONDENT is estopped from denying the validity of the clause. The principle
of waiver by election extends to condition precedents for conclusion of binding
contracts. 28 By singing the contract immediately, 29 RESPONDENT had elected
to act in a way that is mutually exclusive from conduct that would have indicated
his insistence to exercise his alternative right of refusing to enter into contract
until he had considered the entire agreement. This put CLAIMANT under the
assumption that RESPONDENT was not concerned with the terms and had
approved of the entire contract including the arbitration clause. 25 Moot Problem, 2 26 L’Estrange v. F Graucob; Lew, §7-35 27 Graves, 16 28 Oceanografia v. DSND Subsea 29 Moot Problem, 2
30
(ii) The parties have validly consented to arbitration under Malaysian law, or even if
Indonesian law is applied
16. RESPONDENT’s signature on the document is equally binding under Malaysian
law, which also applies common law to contracts. 30
17. RESPONDENT should not be able to invoke “non est factum”, as it cannot apply
if the signer is careless or negligent in signing the contract. 31 Having signed the
contract immediately without reviewing it even at CLAIMANT’s offer,
RESPONDENT cannot raise the defence.
18. Validity of consent should also be upheld under Indonesian law, unless
RESPONDENT can prove physical coercion, 32 or fraud, mistake or duress. 33
Mistake refers to “error” as to the substance of the agreement or identity of the
other contracting party. 34 Neither type of mistake is engaged in the present
dispute. RESPONDENT was at most unaware of the arbitration agreement instead
of having a “misapprehension” about its substance. 35
19. There is therefore valid consent to arbitrate under Singaporean, Malaysian and
Indonesian law, thereby indicating substantive validity of the agreement.
30 Article 3, Malaysian Civil Law Act 31 Chitty, 5-106 32Sudargo Gautama 33 ICC Articles 1321-1328 34 ICC Article 1322 35 Sudargo Gautama
31
D. THE ARBITRATION AGREEMENT HAS COMPLIED WITH FORMAL
VALIDITY REQUIREMENTS
(i) The arbitration clause has satisfied formal validity requirements under
Singaporean law and Malaysian law
20. As a supplement to the discussion on applicable law above, 36 lex loci arbitri may
have a greater influence than the law chosen by the parties with respect to formal
validity, to the extent that it must be applied. 37 In any event, the clause is valid
under both Singaporean and Malaysian law.
21. The arbitration agreement is in the form of a clause within the Agreement, and
mandates submission of disputes arising from the parties’ contractual relationship
to arbitration. 38 The Agreement was signed by the parties. 39
22. The arbitration clause therefore satisfies the requirement of being reduced into
writing, which is mandatory in Singaporean and Malaysian law, as well as the
New York Convention which significance is discussed above. 40 The clause also
satisfies the additional requirement of being signed by both parties provided under
Malaysian law and the New York Convention. 41 It is immaterial whether the
36 Supra, §10-11 37 Berger, 15 38 Article XII(A) of the Agreement 39 Moot Problem, 2 40 Supra, §6 41 Section 2A ,Singaporean Arbitration Act and Article 7, UNCITRAL Model Law incorporated therein; Article 9, Malaysian International Arbitration Act; Article II, New York Convention
32
arbitration agreement is “in the form of an arbitration clause…[or] a separate
agreement”. 42
(ii) The tribunal should not apply Indonesian law to formal validity of the arbitration
agreement even if there is no valid express indication of the governing law
23. Under the “favor negotil” principle, arbitrators should apply the law that would
uphold the validity of the arbitration agreement if conflict-of-laws issues
regarding formal validity arise. 43 Further, it is a general principle that Article II of
the New York Convention “sets a maximum standard” for requirements on this
aspect of validity. 44 Consequently, Indonesian law, which arguably imposes
arguments more stringent language requirements, should not apply.
(iii) The language requirement provided in the Indonesian Language Law, if found
applicable, has been complied with
24. CLAIMANT submits that the language requirement under Article 31(1) of the
Indonesian Language Law has been fulfilled. The provision requires that
Indonesian must be used in contracts involving Indonesian parties. There is no
stipulation on sanction for non-compliance nor time at which the translation must
be provided.
42 Article 9(2), Malaysian Arbitration Act 43 Berger, 9 44 Berger, 16
33
25. The Ministry of Law and Human Rights has suggested that the signing of the
contract without the Indonesian version does not contravene Article 31. 45 Instead,
it may be applied as a “condition subsequent” to be fulfilled within a reasonable
time after the signing of the contract. 46
26. CLAIMANT had originally intended to enter into the agreement with a
Singaporean party, 47 and had only concluded the contract on the day because
RESPONDENT volunteered to sign it immediately. 48 By providing the Bahasa
Indonesian translation of the contract the day after its conclusion, CLAIMANT
had not only satisfied Article 31, but had showed more than reasonable diligence
in trying to comply with Indonesian laws.
(iv) Even if there is non-compliance with the Indonesian Language Law, the contract
should not be rendered void
27. It has been indicated in a letter issued by the Director General that the requirement
is only a formal one, non- compliance with which is insufficient on its own to
vitiate the contract, at least until the issuance of implementing regulations. 49 In
the absence of such regulations, CLAIMANT submits that the contract should not
be void on the grounds of non-compliance with the Language Law.
E. THE MATTERS SUBMITTED TO ARBITRATION ARE ARBITRABLE
45 Letter of MOLHR 2009 46 Hogarth 47 Moot Problem, 2 48 Moot Problem, 2 49 Letter of DG 2009
34
(i) Indonesian and Malaysian law are applicable laws on arbitrability of matters
submitted to arbitration
28. The tribunal’s jurisdiction can only extend as far as the parties are capable of
granting authority to arbitrate. 50 This leads to the question of whether the issue
can be settled through arbitration. 51
29. In determining arbitrability, Indonesian law is applicable in accordance with
Article V(2) of the New York Convention, as Indonesia is likely to be the country
where the award is to be enforced, being the place of performance of the
Agreement. 52 Malaysian law, as the lex loci arbitri, is also relevant to avoid the
possibility of having the arbitral award set aside by local courts. 53
30. Under Indonesian law, only “disputes in the commercial sector concerning rights
which, according to the law and regulations, have the force of law and are fully
controlled by the parties in dispute”, are arbitrable. 54 Further, the awards must not
be contrary to public order. 55 Similarly, Article 4(1) of the Malaysian Arbitration
Act imposes the restriction that the arbitration agreement must not be contrary to
public policy.
50 Böckstiegel, 178. 51 Mistelis, 1-6 52 Brekoulakis, 6-31 53 Brekoulakis, 6-4; Mistelis, 1-34; Pietro, 5-23; Otto, 349 54 Article 5(1) , Indonesian Arbitration Law 55 Article 66(c), Indonesian Arbitration Law
35
31. CLAIMANT submits that all of the matters submitted to the tribunal are arbitrable.
In view of the worldwide pro-enforcement trend, 56 “arbitrability is the rule, non-
arbitrability is the exception”. 57 Party autonomy should only be restricted where
there is a violation of the “most basic notions of morality and justice”.58 Such is
not engaged in the present case.
32. In determining the scope of its jurisdiction, the tribunal should also consider the
subjective reasonable expectations of the parties to settle the dispute swiftly, as
evident in the selection of fast track arbitration for dispute resolution. 59
(ii) The dispute, despite possibly involving the application of laws on constitutional
rights, is arbitrable
33. In contending that an issue is not arbitrable, it must be shown that arbitration on it
is contrary to public policy. The present proceedings deal mainly with issues of
breach of contract, 60 most of which are purely commercia. It is under the issue of
RESPONDENT’s breach of the term relating to employees' uniform that the
arguments on the constitutionality of the restriction on the employees’ wearing of
hijab arise.
34. CLAIMANT’s position is that a matter is not inarbitrable merely for engaging
application of rules of public policy. 61 Constitutional rights, being analogous to
56 Alfons, 39-42 57 Hanotiau, 819 58 Alfons, 50 59 Second Look, 27-54 60 Moot problem, 6 61 Arbitrability, 11-17, citing Labinal v Mors
36
criminal law rules as universally binding codes within a jurisdiction, are “no more
and no less than [applicable] mandatory rule”. 62
35. The present dispute involves only the question of the extent of discretionary
power employers have over the uniform of employees. This question should be
within the full authority of the parties to determine for business efficacy, even if
they have to take into consideration applicable laws and treaties in doing so.
(iii) Even if the dispute over the wearing of hijab is inarbitrable, the arbitration
agreement remains valid and enforceable in part
36. CLAIMANT submits that arbitrability is relevant only in determining the limits to
the jurisdiction of arbitral tribunals, as long as the arbitration agreement is not
contrary to public policy per se. 63 This accords with the New York Convention,
under which inarbitrability is a defence to enforcement of an arbitral award, as
opposed to a requirement for validity of the arbitration agreement. 64
37. The arbitration agreement in the present case is of a general scope, the subject
matter of which is not by itself within the exclusive jurisdiction of national courts.
65 The tribunal should therefore proceed with arbitration over the remaining
issues on breach of other contractual terms even it accepts that the contention over
employment regulation is not arbitrable. 66
62 Mourre, 11-15 63 Brekoulakis, 2-64 64 Brekoulakis, 2-59 65Brekoulakis, 2-64 66 Kronke 413, Born, 769; J.J. Agro v Texuna International Ltd
37
II. THE FRANCHISE AGREEMENT IS GOVERNED BY SINGAPOREAN
LAW
A. SINGAPOREAN LAW GOVERNS THE VALIDITY OF THE FRANCHISE
AGREEMENT
38. The tribunal’s jurisdiction over the dispute is derived from the arbitration
agreement which terms should bind the tribunal. 67 Singaporean law, being the law
chosen by the parties to govern the “entire contract”, should apply to the
substantive issues of the dispute. CLAIMANT would also address the alternative
position where Indonesian law governs the substance of the dispute.
B. INDONESIAN LAW ON FRANCHISES SHOULD NOT BE APPLIED AS
MANDATORY RULES
39. CLAIMANT’s primary submission is that Indonesian law, being neither the
chosen law nor that of the forum, should not be applied in accordance with the
general common law approach as noted by the editors of Dicey and Morris
Conflict of Laws.
40. The principle of party autonomy is prized in international commerce. Unrestrained
application of rules derived from laws other than the chosen law would effectively
67 Amerasinghe, 55
38
defeat the purpose of expressly stipulating the governing law and result in
uncertainty over applicable laws. 68
41. Even if it is accepted that Indonesian laws may be applicable, provisions of its
franchise regulations should not be applicable as mandatory rules. 69 Franchise
regulations concern the internal operation of businesses as agreed upon by
independent capable parties. 70 Wide application of foreign mandatory rules would
effectively undermine party autonomy in international law.
III. THE FRANCHISE AGREEMENT IS VALID UNDER SINGAPOREAN
LAW AND INDONESIAN LAW
A. THE FRANCHISE AGREEMENT IS VALID UNDER SINGAPOREAN
LAW
42. As the parties are not members of the Singaporean Franchising and Licensing
Association,71 they are not governed by any rules specific to franchise agreements.
72 The contract is valid under the general contract laws and regulations of
Singapore.
B. THE FRANCHISE AGREEMENT IS VALID UNDER INDONESIAN LAW
68 Okezie, 185, 187; see also Moss, 342 69 Bermann, 328 70 David v TFAC, §61 71 Supplement Clarifications, 7, SR#24 72 Singapore, 161
39
43. If the tribunal accepts the challenge on the validity of the choice-of-law clause or
applicability of Indonesian legislations as mandatory rules, provisions relating to
franchises under Indonesian law may be relevant.
(i) The requirement for use of Indonesian in the agreement is complied with, or
alternatively, does not invalidate the agreement
44. It is provided under Article 4 of the Implementing Regulations that a franchise
“shall be executed on the basis of a written agreement…[which] shall be written
in English language and translated into Indonesian language”. 73
45. There is no stipulation as to when the Article 4 should be fulfilled. Express
language requirements in franchising regulations are often laid down for practical
purposes, such as to facilitate disclosure or government registration. 74
Consequently, the language requirement should not be taken as a condition
precedent for the conclusion of a valid contract as it does not relate to the essential
validity of the contract.
46. In any event, CLAIMANT had translated the contract into Indonesian language
and provided it to RESPONDENT within a day of the signing of the contract.
47. Article 31(1) of the Indonesian Language Law contains a similar provision on
language requirement, the effect of which has been discussed above. 75
CLAIMANT had sought to comply with the requirement expeditiously, and a 73 Regulation on Franchise 74 Sotos, 15 75 Supra, § 24-27
40
Bahasa Indonesian translation of the contract was provided shortly after the
conclusion of the contract. Alternatively, the requirement may only serve as a
procedural requirement, non-compliance with which would not invalidate the
contract. 76
(ii) RESPONDENT has waived the requirement on advance provision of a franchise
prospectus and written agreement
48. RESPONDENT has waived the requirement for the provision of a prospectus and
written agreement two weeks before the conclusion of contract under Article 18(1)
of the Regulation on Franchise. By declining CLAIMANT’s request for him to
scrutinize the entire contract beforehand, RESPONDENT represented that he was
willing to forego the protection offered by the requirement. 77
(iii) Non-registration of franchise prospectus does not invalidate the Agreement
49. Although the requirement on registration of a franchise prospectus under Article
18(1) of the Indonesian Law on Franchises has not been fulfilled, the certificate of
registration of the Agreement would only be revoked upon non-compliance with
the third written warning issued by the government. 78 Further, this requirement,
which solely relates to facilitation of the registration process, is not “application
worthy” as a mandatory rule. 79
76 Letter of DG 2009 77 The Kanchenjunga per Lord Goff of Chieveley, 398-399 78 Article 18(1), Regulation on Franchise 79 Blessing, 32
41
50. The Agreement is therefore valid under both Singaporean and Indonesian laws.
Having determined the validity of the Agreement, the contractual terms and
justifications for termination of contract should then be considered.
IV. THE APPLICATION OF “INHERENT WARRANTY OF GOOD
FAITH AND FAIR DEALING” IN INTERPRETATION AND
PERFORMANCE OF AGREEMENTS
51. The said warranty is a useful device of contract gap-filling or implying standard of
good faith and reasonableness in contractual performance. 80 The Agreement
confers discretionary power to CLAIMANT in making business decisions. The
question of whether the said warranty applies therefore has a great bearing on the
ambit of such discretionary power. The ambit of CLAIMANT’s discretion is
decisive to the substance of the dispute including the issues of breach and
termination.
A. THE SAID WARRANTY DOES NOT APPLY TO THE AGREEMENT
UNDER SINGAPOREAN LAW
52. In Singapore, the concept of “inherent warranty of good faith and fair dealing” is
not generally recognised.81 It is because of the heavy influence of English
common law and equity which forms the foundation of the Singapore law of
contract.82 In modern English contract law, there is no principle of good faith and
80 Dubroff 81 Joseph 82 Cheshire, Fifoot and Furmston, 5
42
fair dealing of general application83 where English judges have shown great
reluctance in recognising the doctrine.84
53. The lack of a general recognition of the doctrine of good faith in Singapore was
evidenced in the recent Singapore Court of Appeal decision of Ng Giap Hon, in
which the court rejected the possibility of implying a duty of good faith and fair
dealing in law into the contract in dispute.
54. In exceptional circumstances, the English courts have used the implication of a
term in fact to restrict the ambit of a unilateral discretionary power conferred by
the contract.85 The implied term imposed did not require any decision made to be
objectively justifiable,86 but it cannot be made in bad faith or in an “arbitrary”,
“capricious” or “wholly unreasonable” manner.87
55. Regardless of what the precise restriction should be under such implied term, it
cannot be implied into the Agreement. A term cannot be implied in fact if it
actually conflicts with the express term of the contract.88 Article X(2)89 of the
Agreement clearly delineates the ambit of the discretion exercisable by
CLAIMANT, which cannot be readily overridden by any implied terms in fact.
The question of whether a decision made by CLAIMANT was within the ambit of
the discretion shall be solely governed by the express language of Article X(2).
83 Chitty, 1-022-1-023; 84 Satterthwaite, 167; Lloyds Bank v Bundy, 339; Interfoto, 353; Walford v Miles, 181; Union Eagle Ltd v Golden Achievement Ltd, §218; James Spencer v Tame Valley Padding 85 Chitty, 1-033 86 MacNamara 87 Paragon Finance; Ludgate Insurance 88Treitel, 204; Guild, 700 89 Moot Problem, 27
43
B. THE SAID WARRANTY IS RESTRICTED BY ARTICLE X(2) OF THE
AGREEMENT UNDER INDONESIAN LAW
56. Although Indonesian law recognises the “inherent warranty of good faith and fair
dealing” in interpretation and performance of a contract, the effect of it is
restricted by Article X(2) of the Agreement.
57. Recognition of the doctrine stems from Article 133890 and Article 133991 of the
ICC, which provide that “… agreement shall be carried out in a bona fide
manner” and that “Agreements shall be …with regard to all that is required in line
with the nature of such agreements, or in terms of fairness, customs or law.”92
58. Meanwhile, it must be noted that as a consequence of the character of optional law
of Book III of the ICC, parties in Indonesia are free to make contract the terms of
which can deviate from those provisions laid down in the ICC.93Article 1338 of
ICC provides that all contracts which have been legally concluded shall be law to
the parties whereas Article 1339 provides that agreements shall be binding as to
the terms specifically stated thereof and standard of reasonableness is given
“regard” only.
59. It is therefore submitted that any restriction on the effect of Article 1338 and 1339
by an express agreement, if not made unreasonably or in bad faith, should be
90 ICC, 614 91 ICC, 615 92 See also Sudargo Gautama, 3-096 and 3-099 93 Sunaryati Hartono,10
44
honoured. Article X(2) of the Agreement interprets the good faith and
reasonableness requirement as embodying only subjective element on the part of
CLAIMANT to benefit the Restaurant system generally. 94 This is not an
unjustified restriction. A franchise relationship is frequently one where with
power imbalance, which is a reflection of the franchisee’s business inexperience
and the consequent need to rely on the franchisor relative superiority.95 A
franchisor always runs the risk that the action of an inexperienced franchisee may
significantly reduces the reputation capital of the franchisor by failing to maintain
quality controls.96 RESPONDENT was previously a surgeon without business
experience.97 It is not unreasonable to give deference to CLAIMANT’s judgment
in making business decisions for the purpose of smoothing the operation of this
franchise.
V. THE TRIGGER OF PREMATURE DETERMINATION OF THE
AGREEMENT
A. CLAIMANT IS ENTITLED TO TERMINATE ON SUBSTANTIAL
BREACH OF TERMS WHICH CLAIMANT DEEMS SUBSTANTIAL
UNDER SINGAPOREAN LAW
60. The approach of interpretation of terms is extensively discussed in Investor
Compensation Scheme. Irrationality must be avoided and the meaning of terms
should be read in light of the relevant background including the context of the
94 Moot Problem, 27 95 William M, 210 96 Hadfield, 928 97 1st Response, part A
45
whole agreement.98
61. On this approach, the word “default” in Article XIII(A) and the word “violation”
in XIII (B) 99 should mean the same concept of “breach”. CLAIMANT concedes
that Article XIII(A) must be departed from its literal meaning because it
essentially means “you are in breach if we determine you are in breach”. This is
completely irrational. The question of breach must be assessed objectively in
accordance with the terms of the Agreement. On the other hand, CLAIMANT
submits that the express language of Article XIII(B) should be upheld, under
which substantial default/violation of the terms which CLAIMANT reserves
discretion to deem as important would entitle CLAIMANT to bring the contract
into an end.
62. It has been held by the court that parties are open to agree that, as regards a
particular obligation, any breach shall entitle the innocent party to treat the
contract as terminated.100 In analogy, it is not objectionable for parties to agree
that, as regards a term the innocent party deems substantial, a substantial violation
of which shall entitle the innocent party to treat the contract as terminated.
63. The UK decision of Rice should be distinguished with the present factual matrix.
In Rice, the termination clause stipulated that “If [A] commits a breach of any of
its obligation…[B] may…terminate…”. It was held that since under the clause
“any breach, however small, of any obligation, however small” would justify
termination, the termination clause was “uncommercial” and its literal meaning 98 Investor Compensation Scheme, 912-913 99 Moot Problem, 31 100 Bunge v Tradax, 715E
46
should not be upheld.
64. Article XIII(B) of the Agreement is entirely different with the termination clause
in Rice. Magnitude of the breach and importance of the term are the two
intertwined components in deciding whether “the whole benefit intended from
the contract” was deprived off, the common law requirement of a breach
justifying termination.101 Under the termination clause in Rice, both components
are not qualified; whereas under Article XIII(B) of the Agreement, the
magnitude of the breach must be objectively “substantial” and the importance of
the term is subject to CLAIMANT’s determination, which must at least be
exercised with intent to benefit the Restaurant system generally.102 Given that
CLAIMANT was the one who prepared the Agreement and knew about the
importance of the terms thereof in relation the whole franchise business, giving
deference to the judgment of CLAIMANT in determining which terms are
substantial for the purpose of termination accords with business commonsense.
65. The decision in Rice has been heavily criticised as undermining certainty.103 It is
submitted that in the absence of saving words in the termination clause preserving
the common law rights, its certainty should be upheld.104
B. CLAIMANT IS ENTITLED TO TERMINATE ON SUBSTANTIAL
BREACH OF TERMS WHICH CLAIMANT DEEMS SUBSTANTIAL
UNDER INDONESIAN LAW
101 Hong Kong Fir Shipping, 77 102 Article X(2), Moot Problem, 27 103 Whittaker 104Rickwood
47
66. As regards Article XIII(A), CLAIMANT concedes that it should be departed from
its literal meaning and the question of default must be assessed objectively. This is
because Article 1343 of the ICC requires wordings of an agreement be considered
in light of what might have been the purpose of both parties concerned rather than
attaching too much significance to the literal wording. It is impossible for any
contracting parties in the world to agree that one of the parties have the sole
discretion to determine what amounts to a breach.
67. On the other hand, CLAIMANT submits that Article XIII(B) should be given full
effect having regard the freedom of contract guaranteed by Article 1338 of the
ICC. Since CLAIMANT was more familiar with the importance of the terms,
Article 1343 is not a barrier. It shall have been within the contemplation of the
parties to give deference to the judgment of CLAIMANT, provided that he at least
has the intent to benefit the Restaurant system generally105, in determining which
terms are substantial for the purpose of termination.
VI. CLAIMANT WAS ENTITLED TO TERMINATE THE AGREEMENT
A. SERVING CUSTOMERS A SINGLE INDONESIAN DISH REFERRED TO
AS “THE SPECIAL OF THE DAY” AND GIVING CUSTOMERS THE
OPTION OF SUBSTITUTING LAMB FOR PORK BREACHED ARTICLE
III(A)106 UNDER SINGAPOREAN AND INDONESIAN LAW
105 Article X(2), Moot Problem, 27 106 Moot Problem, 15-16
48
68. The questions of breach depends on whether the decisions to forbid the serving of
“The Special of the Day” and the option of substituting lamb for pork was within
the ambit of the discretion of CLAIMANT to designate Menu items under Article
III(A).
69. For the reasons given in paragraph 51 to 59, the only restriction to CLAIMANT’s
discretion should be Article X(2), under which CLAIMANT would be deemed to
have exercised business judgment reasonably and in good faith if the decision
made was intended to benefit the Restaurant system generally. Maintaining
uniformity is listed as one of the items that would benefit the Restaurant system.
70. As shown by the Notice of Deficiency,107 in exercising its discretion to approve
Menu items, the dominant purpose of CLAIMANT was to promote uniformity of
all franchise restaurants. Objection to the service of unauthorised Menu Items
should therefore be deemed to be within the ambit of the discretion of
CLAIMANT.
71. Even if the warranty of good faith and fair dealing applies in full without any
restriction, the decisions made was still bona fide and reasonable and hence within
the ambit of the discretion of CLAIMANT.
72. There was no bad faith or ulterior motive on the part of CLAIMANT. Mr. Ji and
Mr. Wang’s thought that the franchise shall be given to a friend or relative108
played no part in the decision of CLAIMANT of terminating the Agreement. The
107 Moot Problem, 3-4 108 Footnote 3, Moot Problem, 3
49
real cause of termination was clearly stated in the Notice of Deficiency, in which
CLAIMANT warned RESPONDENT that it would terminate the franchise unless
RESPONDENT immediately discontinued with all violations. 109 There was
nothing suspicious for Mr. Wang’s son becoming the manager under new
management after the two Restaurants were reopened110 in light of the fact that
out of the other 35 franchise restaurants in Asia 18 were franchised to relatives of
Mr. Ji or Mr. Wang.111
73. Moreover, the decisions made were objectively justifiable. In US jurisdiction
where the obligation of good faith and fair dealing is deeply rooted,112 American
courts favour an approach whereby there will be no breach of the obligation if the
franchisor has made a legitimate business decision or a decision that conforms
with good business practice even if the franchisee may suffer some detriment.113
Defence based on this type of approach can also be found in Australia.114 It is
submitted that this approach should similarly be adopted here.
74. The Restaurant is a Chinese restaurant serving Chinese food, so exclusion of
every single Indonesian dish conformed to its business practice. Substitution of
lamb for pork would destroy the original taste of the dishes and affect customers’
appraisal to the Restaurant. The decisions made by CLAIMANT were all for the
purpose of maintaining the uniformity of the entire franchise system115 and
preserving the value of the “Great Wall Noodle Shop” trademark and thus the
109 Moot Problem, 4 110 1st Response, 5, Item E7 111 1st Response, 4, Item D1 112 Dubroff 113 Burger King v Agad, 1222 114 Overlook v Foxtel 115 Moot Problem, 4
50
profits of the 35 franchisees other than the two run by RESPONDENT. It was
completely legitimate for a franchisor to counter the risk of “free-riding” by a
franchisee.116
75. Accordingly RESPONDENT breached Article III(A).
B. ALLOWING THE FEMALE MUSLIM EMPLOYEES TO WEAR HIJAB
BREACHED ARTICLE IV 117 UNDER SINGAPOREAN AND
INDONESIAN LAW
76. The dominant purpose of CLAIMANT was to promote uniformity of all its
restaurants and hence banning the wearing of hijab should be deemed to be within
the ambit of the discretion of CLAIMANT to approve uniforms under Article IV.
77. In case where it was found that the warranty of good faith and fair dealing applies
in full, for the reason set out in paragraph 72, the decision was bona fide.
Forbidding female employees to wear hijab with Chinese-style uniforms was also
perfectly justifiable because the uniform policy of the Restaurant does not permit
adornment which detracts from the uniform appearance of employees.118
78. Accordingly RESPONDENT breached Article IV.
79. In respect of any allegations that the decision procured RESPONDENT to violate
the law or Constitution of Indonesia and hence the presumption of Article X(2) is 116 Hadfield, 949-950 117 Moot Problem, 21 118 Article II(G)(ii), Moot Problem, 13
51
rebuttable and the decision was wholly unreasonable, it is submitted that
prohibiting hijab at work would not itself be a breach of the law or the
Constitution of Indonesia and such allegations cannot stand.
C. PROHIBITING HIJAB AT WORK DOES NOT VIOLATE THE LAW OR
CONSTITUTION OF INDONESIA.
80. Article 28(E) of the Constitution of Indonesia and Article 22(2) of the Indonesian
Human Right law guarantee the freedom to practise religion, but the religious
right under these provisions is not engaged at all in the present dispute.
81. It has been suggested in the UK and European human right jurisprudence that
what constitutes interference with the right of manifestation of religious belief
depends on all the circumstances of the case, including the extent to which in the
circumstances an individual can reasonably expect to be at liberty to manifest his
beliefs in practice.119 In the House of Lord’s decision of Denbigh High School
concerning the right of wearing hijab at school, it was said that the law does not
require that one should be allowed to manifest one's religion at any time and place
of one's own choosing120. In a number of Strasbourg decisions where an employee
found their duties inconsistent with their beliefs, it was held that the employee was
not prevented from manifesting religion as he was free to relinquish his post.121
82. The donning of hijab is seen as choice by Muslims in Indonesia.122 In choosing to
119 Williamson, 262 120 Denbigh High School, §50 121 Kontinnen ; Ahmad; Stedman 122 Brenner, 673
52
work in the Chinese Restaurant serving Chinese food, it shall be within the
reasonable expectation of the female employees at the time of being hired that
there would be strict standards and specifications as to uniforms and they
submitted to those standards on their free will. Moreover, the female employees
were free to leave their employment find other ways to manifest their beliefs. In
fact, some of the female employees at the Medan Restaurant quitted job before the
closure of restaurant because they preferred a red hijab rather than a white one.123
D. IF EVERY INDIVIDUAL BREACH WAS ESTABLISHED, CLAIMANT
WAS ENTITLED TO TERMINATE THE AGREEMENT UNDER
SINGAPOREAN LAW
83. If the literal meaning of Article XIII(B) was upheld, CLAIMANT would have the
discretion to deem Article III(A) and IV as substantial terms as long as it intended
the terms as essential in maintaining uniformity which can benefit the Restaurant
system. Such intention was solidly depicted in the Notice of Deficiency.124 The
only question is whether the magnitude of each breach was substantial.
84. If the literal meaning of Article XIII(B) was not upheld, then CLAIMANT would
at least be entitled to terminate if each individual breach or the accumulative
effect of all the breaches would substantially deprive CLAIMANT of the whole
benefit which it was intended from the Agreement.125
85. It is submitted the test for both cases can be satisfied. Adequacy of damages is one 123 1st Response, 6, Item F3 124 Moot Problem, 3-4 125 Hong Kong Fir Shipping
53
of factors of assessing whether the breach is substantial126. The Restaurant is a
Chinese restaurant intended for selling only Chinese cuisine.127 Inclusion of
Indonesian dishes was wholly inconsistent with the object of the business.
Allowing female employees to wear hijab was also wholly inconsistent with the
designated red Chinese-style uniform.128 It is submitted these breaches, viewed
individually or cumulatively, were capable of causing irreparable damages to the
trademark value and goodwill of the entire franchise system which cannot be
easily quantified and adequately compensated by damages.
86. The termination of franchise is more justified where there was a persistent course
of misconduct.129 The unauthorised conduct presumably began right after the
opening of the Restaurants. Although the Notice of Deficiency clearly required
RESPONDENT to cure all defects “immediately”, the deficiency persisted for
half months until the Agreement came to an end. RESPONDENT completely
disregarded his duty under Recitals(4)130 to maintain the quality of the entire
franchise system .as a whole. Those steps taken by RESPONDENT after receiving
the Notice of Deficiency were not remedial to the violations. They merely show
that RESPONDENT never respected the obligations of strict adherence he had
undertaken in the Agreement.
87. As such, the main benefit intended from the Agreement by CLAIMANT, namely
the profitability of the entire franchise system as a whole, was substantially
deprived of by RESPONDENT. 126 Treitel, 771; Vigers v Cook 127 Appendix 1, Moot Problem, 34-36 128 Moot Problem, 13 129 Automasters Australia, § 150 130 Moot Problem, 8-9
54
E. IF EVERY INDIVIDUAL BREACH WAS ESTABLISHED, CLAIMANT
WAS ENTITLED TO TERMINATE THE AGREEMENT UNDER
INDONESIAN LAW
88. Pursuant to Article XIII(B), substantial violations of terms CLAIMANT deems
substantial would justify termination by CLAIMANT. CLAIMANT was entitled
to deem Article III(A) and IV as substantial terms for the reasons set out in
paragraph 83-87.
89. Alternatively if good faith applies in full, the exercise of such discretion was
“legitimate business judgment” since these Articles are part of the “uniformity”
scheme which is crucial to the franchise business.
90. Neither provisions in the ICC nor other laws o in Indonesia prescribe under what
circumstances non-compliance of an obligation or obligations constitutes
substantial breach. It is safe to adopt the reasoning in paragraph 85-87 in showing
that the breaches were substantial violation of Article III(A) and Article IV.
VII. ON THE ASSUMPTION THAT CLAIMANT WAS ENTITLED TO
TERMINATE, THE NOTICE OF TERMINATION WAS A PROPER
AND TIMELY NOTICE AND HENCE THE TERMINATION WAS
VALID
A. THE NOTICE OF TERMINATION WAS TIMELY AND PROPER UNDER
55
SINGAPOREAN LAW
(i) Propriety
91. The validity of the Notice of Termination would not be defeated by not putting
any reasons of termination in it as long as CLAIMANT was legally entitled to
terminate. 131 In any event, RESPONDENT actually knew the reasons of
termination as he shall have noticed the last paragraph of the notice of
deficiency.132
(ii) Timeliness
92. First, CLAIMANT has no obligation under Article VIII133 of the Agreemen,t
which starts with the conditional phrase “in the event”, to give a Notice of
Deficiency before exercising its right to terminate. Moreover, CLAIMANT had no
obligation to give a second Notice of Deficiency on the same set of breaches given
that it expressely reserved its right to terminate if violations persisted in the first
Notice of Deficiency.
93. Secondly, the Notice of Termination was a timely one. As regards the express
terms, Article XIII(B) of the Agreement imposes no obligation on CLAIMANT to
give any notice before it terminates.
94. Implied term does not assist RESPONDENT’s case either. A term that requires 131 The Mihalis Angelos 132 Moot Problem, 4 133 Moot Problem, 26
56
CLAIMANT to give timely notice before termination cannot be implied in fact in
light of a contradicting provision indicating the lack of intentions of parties to
have a term as such.134 CLAIMANT and RESPONDENT explicitly agreed on a
termination mechanism, namely Article XIII, which does not prescribe a
requirement of notice period. The proper inference to be drawn is that that they
intended the innocent party having no obligation to offer a notice period prior to
termination.
95. Nor does Article XIV135 help in finding the requisite intentions of the parties for
a term to be implied in fact. Article XIV sets down the agreed mechanism of
winding up the matters which arise out of this franchise relationship when the
relationship comes to an end, whether by termination on expiration of the term
or by termination on exercise of parties’ contractual right. If these obligations
are not particularly onerous for RESPONDENT, it cannot be said that an
additional notice period pre-termination is necessary for winding up the business
and has any “business efficacy”, the practical test for determining intentions of
the parties. 136 Article XIV mainly requires RESPONDENT to close the
restaurant and remove all the signage “promptly”, which in this context must
mean “without unreasonable delay” if one applies the English approach of
construction to which considerations of reasonableness is generally relevant.137
This is not onerous.
96. As a matter of law, no authorities have ever suggested such a term is a “necessary
134 Treitel, 203 135 Moot Problem, 31-32 136 Moorock 137 Chitty, 1-031
57
incident” of a franchise agreement.138
97. Save for the above, CLAIMANT did give a fifteen days’ notice before it actually
terminated the Agreement. The Notice of Termination is somehow ambiguous as
to the effective date of termination. CLAIMANT’s position is that by directing
RESPONDENT to close the restaurant and remove the signage within fifteen
days,139 CLAIMANT intended the post-termination obligations came into the play
only after the said fifteen days. Sufficient time had therefore been given to
RESPONDENT to bring the Restaurant business into an end.
B. THE NOTICE OF TERMINATION WAS PROPER AND VALID AND
THE TERMINATION OF THE AGREEMENT WAS VALID IN THE
ABSENCE OF AN ORDER OF THE COURT OF INDONESIA UNDER
INDONESIAN LAW
98. Article 1266140 of the ICC provides that even where the contract specifically
provides for automatic termination, the actual dissolution must await an order of
the court.141
99. Be that as it may, it is submitted that the Notice of Termination was a proper one
in law and the termination remained effective. The arbitration agreement, i.e.
Article XII of the Agreement,142 provides that any controversy arising out of the
Agreement, the operation of the franchise or its termination shall be settled by 138 Malik, 45 139 Moot Problem, 5 140 ICC, 593-594 141 Surdago Gautama, 3-128 142 Moot Problem, 29
58
arbitration. Article 11 of the Indonesian Arbitration Law prescribes that the
existence of a written arbitration agreement shall eliminate the right of the parties
to seek resolution of the dispute contained in the agreement through the District
Court of Indonesia. In these circumstances, the Indonesian court has no
jurisdiction to order the dissolution of the Agreement on application by any of the
parties. The validity of the termination cannot be defeated by such.
VIII. THE ARBITRATION CLAUSE, WITH RESPECT TO THE
STIPULATION OF REMEDIES AVAIALBLE, IS VALID
100. With regard to remedies available to the parties, RESPONDENT is precluded
from seeking specific performance by virtue of Article XII of the Agreement
under which RESPONDENT has waived such right. Having derived authority to
arbitrate from the arbitration agreement, the tribunal is bound by the express terms
of the contract. 143
101. If the clause relating to specific performance is nullified, it would merely be
severed from the contract, the remainder of which would remain valid and
enforceable. 144
A. THE CLAUSE EXCLUDING AVAILABILITY OF SPECIFIC
PERFORMANCE IS A VALID CONTRACTUAL TERM UNDER
SINGAPOREAN LAW
143 Pro Futuro Orders, 99, 101 144 Treitel, 559
59
(i) The clause is binding on the parties
102. The clause, which has been signed by both parties, binds RESPONDENT,
even if he was not aware of it, 145 or if the agreement was unreasonable. 146
Further, RESPONDENT had waived by election his right to examine the whole
agreement before signing it, 147 thereby placing CLAIMANT under an assumption
that he approved of the entire contract no matter what the terms are. 148
(ii) The Singaporean Unfair Contract Term Act is inapplicable on the circumstances
103. The Singaporean Unfair Contract Terms Act should not avail RESPONDENT.
Section 27(1) of the SUCTA provides that the provision regulating exemption
clauses is inapplicable if Singaporean law only governs by the choice of the
parties. In the absence of parties’ express or implied choice on substantive law,
Singapore is unlikely to be applicable for being connected to the contract only as
the country where it was signed. 149
B. THE EXEMPTION CLAUSE IS NOT CONTRARY TO GOOD FAITH OR
REASONABLENESS UNDER INDONESIAN LAW
104. CLAIMANT submits that express terms of the contract should be upheld in
view of parties’ freedom to contract under Article 1338 of the Indonesian Civil
Code. 145 L’Estrange v. F Graucob 146 Mckendrick, 187 147 Moot problem, 2 148 The Kanchenjunga, 398/399 149 Air Transworld v Bombardier
60
105. If RESPONDENT seeks to challenge the validity of the term based on the
principle of good faith, which mandates the incorporation of fair terms, 150 it must
be shown that the exemption clause in the Agreement is unfair.
106. CLAIMANT, being the franchisor of more than 30 franchised restaurants in
Asia, 151 has the right and obligation to protect the interests of the business. In
restricting the availability of specific performance in favour of the franchisees,
CLAIMANT is merely acting in the best interests of the franchise by asserting
greater control over the management of the franchise. The term is therefore not
unfair. 152
107. Even if the clause is found invalid under Indonesian law, the remainder of
Article XII of the Agreement remains enforceable as the exemption clause
concerns a matter divisible in nature, 153 namely available remedies.
C. THE ARBITRATRAL TRIBUNAL CANNOT DEROGATE FROM THE
CLAUSE
108. The tribunal’s power with regard to remedies should be limited by the clause,
154 to avoid the possibility of setting aside the award under Article V(1)(c) of the
150 Tumbuan, 27; Article 1337 of ICC 151 First Clarifications, 4, Item D1 152 Article 2(1) of the Usury Act 153 Article 1297 of ICC 154 Pro future orders, 101
61
New York Convention by raising the defence of “extra petita”, which applies if
the arbitrator makes judgment without jurisdiction. 155
D. SPECIFIC PERFORMANCE IS AN INAPPROPRIATE REMEDY FOR
RESPONDENT EVEN IF THE CLAUSE IS INEFFECTIVE
109. The tribunal’s discretionary power to grant specific performance is governed
by the substantive law, 156 namely Singaporean law in the present case.
110. Specific performance is an exceptional equitable remedy under Singaporean
law, 157 and should only be granted when it is “just and equitable” to do so. 158
Loss of profits from operation of the restaurant of RESPONDENT , being
monetary in nature, can be quantified and damages should be adequate. 159
111. It would be unduly oppressive to compel CLAIMANT to perform the contract,
as the continual operation of RESPONDENT’s restaurant may harm the franchise
in the long run by damaging the uniformity of the franchise.
112. Further, mutual cooperation is required for the operation of the restaurant,
taking into account mechanisms on determining the menu, for example. 160 In
view of RESPONDENT’s unwillingness to cooperate with CLAIMANT on
155 Lew, 26-92 156 Pro futuro powers, 105-114 157 Chappuis, 62 158 Lee v Tan, § 53 159 Treitel, § 21-018 160 Article III, Moot Problem, 15
62
compliance with terms, 161 undue hardship would be caused to CLAIMANT if
specific performance is granted for RESPONDENT. 162
113. Even if Indonesian law applies as the substantive law, specific performance is
not available as performance is no longer possible. 163 A new franchise agreement
has been entered into with another party, 164 which disallows the franchisors from
locating another restaurant under the franchise in Jakarta and Medan. 165
114. It is therefore submitted that specific performance should not be granted to
RESPONDENT, even if the tribunal does not consider itself bound by the
exemption clause.
CONCLUSION AND PRAYER FOR RELIEF
WHEREFORE, CLAIMANT, Great Wall Noodle Shop LLC, prays this Tribunal to
adjudge and declare that: 161 Moot Problem, 3 162 Co-operative Insurance v Argyll 163 Sudargo Gautama, 3-122 164 First Clarifications, 5, Item E2 WRONG REFERENCE? 165 Article II(1)(B) of the Agreement
63
(a) The tribunal has jurisdiction over the present dispute.
(b) Singaporean law governs the substantive issues of the dispute.
(c) The Agreement is valid under Singaporean and Indonesian law.
(d) The “inherent warranty and good faith and fair dealing” does not apply under
Singaporean law and is restricted by Article X(2) under Indonesian law.
(e) A substantial violation of terms which CLAIMANT deems substantial would
entitle CLAIMANT to terminate under Singaporean and Indonesian law.
(f) Article III(A) and Article IV were breached by RESPONDENT and CLAIMANT
was entitled to terminate the Agreement under Singaporean and Indonesian law.
(g) The Notice of Termination was proper and timely and the termination was valid
and effective under Singaporean and Indonesian law.
(h) Article XII is valid and enforceable under Singaporean and Indonesian law.