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LAW ASIA International Moot 2012 F2010-C
AT KUALA LAMPUR REGIONAL CENTER FOR ARBITRATION
IN THE MATTER OF
GREAT WALL NOODLE SHOP LLC (REPRESENTED BY MR. JIANPING JI AND MR.
XEUFANG WANG)…………………………………………………….(CLAIMANT)
VERSUS
DR. ADI BUDIAMMAN……………………………………………….(RESPONDENT)
MEMORIAL FOR CLAIMANT
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TABLE OF CONTENTS
INDEX OF AUTHORITIES .................................................................................................................................................................................................... iivv
STATEMENT OF JURISDICTION .................................................................................................................................................................. vviiiiiiii
QUESTIONS PRESENTED .................................................................................................................................................................................................... iixx
STATEMENT OF FACTS ............................................................................................................................................................................................................ xx
SSUUMMMMAARRYY OOFF PPLLEEAADDIINNGGSS .................................................................................................................................................................................... xxiiiiiiii
PLEADINGS .......................................................................................................................................................................................................................................................... 11
Issue I: The Law applicable in resolving the Dispute is Singaporean Law .................... 1
Issue II: The Arbitration Agreement is Valid and Enforceable ...................................... 7
Issue III: Article 31 of Law 24 of 2004 of the Republic of Indonesia does not render
the Franchisee Agreement invalid .................................................................................... 12
Issue IV: A proper and timely notice of termination was given to the Respondent (Dr.
Budiamman) ....................................................................................................................... 14
Under Singapore Law ...................................................................................................... 14
Under Indonesian Law ..................................................................................................... 16
Issue V: The Franchisor can terminate the Agreement for a material breach of the
Agreement, which is a substantial violation of the Agreement. ..................................... 17
Under Singapore Law ...................................................................................................... 17
Under Indonesian Law ..................................................................................................... 18
Issue VI: The “inherent warranty of good faith and fair dealing” in interpreting and
applying franchise agreements does apply to this Franchise Agreement, but it is not a
duty to put the interests of the Franchisee over the Franchisor. ................................... 19
Under Singapore Law ...................................................................................................... 19
Under Indonesian Law ..................................................................................................... 19
Issue VI (A) :The serving of a single Indonesian dish referred to as “The Special of
the Day” justified the termination of the franchise. ....................................................... 21
Under Singapore Law ...................................................................................................... 21
Under Indonesian Law ..................................................................................................... 22
Issue VI (B): Giving customers the option of substituting lamb for pork for menu
items justified the termination of the franchise. ............................................................. 23
Under Singapore Law ...................................................................................................... 23
Under Indonesian Law ..................................................................................................... 24
Issue VI (C): The wearing of the “new (white) hijab” by the female Muslim employees
justified the termination of the franchise......................................................................... 25
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Under Singapore Law ...................................................................................................... 25
Under Indonesian Law ..................................................................................................... 26
Issue VI (D): The above violations of the Franchise Agreement do reflect a continuing
disregard of the franchisee’s obligations under the Franchise Agreement and justify
its termination. ................................................................................................................... 27
Under Singapore Law ...................................................................................................... 27
Under Indonesian Law ..................................................................................................... 28
Issue VII: An employment regulation prohibiting the wearing of a hijab by female
Muslim employees or restriction (or the colour type of the hijab) does not violate the
constitution and/or laws of Indonesia or any international treaties to which it is a
member. .............................................................................................................................. 29
PPRRAAYYEERR……………………......…………………………………………………………....……………………………………………………………………………………3311
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INDEX OF AUTHORITIES
Cases
AG Securities v. Vaughan [1990] 1 AC 417 ............................................................................ 23
Amerada Hess Corp. v. Quinn, 142 NJ. Super. 237, 252, 362 A.2d 1258, 1266 (NJ.
1976). ................................................................................................................................... 28
Article 18, International Covenant on Civil and Political Rights ............................................ 29
Brogden v. Metropolitan Rly. Co., (1877) 2 App Cas 666 ........................................................ 9
Cecrop Co. v. Kinetic Sciences Inc., [2001] BCSC 532 (CanLII) ............................................. 8
Cecrop Co. v. Kinetic Sciences Inc., 16 B.L.R.3d 15 (B.C S.Ct.. 2001) ................................... 8
Couchman v. Hill, [1947] 1 All ER 103................................................................................... 25
Dalkhia Utilities Services Plc v. Celtech International Ltd., [2004] All ER (D) 197 (Feb) ... 17
Decro - Wall International SA v. Practioners in Marketing Limited, [1971] 1 WLR 361 ...... 14
Ferris v. Plaister, 34 N.S.W.L.R 474( N.S.W. Court of Appeal 1994) .................................... 9
Final Award in ICC Case No. 8938, XXIVa Year Book of Commercial Arbitration 174,
176(1999) ............................................................................................................................... 2
Fisser v. International Bank, 282 F.2d 231, 233 (2d cir. 1960) .............................................. 12
Hamlyn & Co. v. Talisker Distillery [1894] A.C. 202, 209, 214 ............................................... 7
Heyman v. Darwins Ltd1942 AE 356 , at 374 ........................................................................... 8
Jack Niemman’s Schnitzel Baron Foods Ltd. v. Fuest, 9 CPR (3d) 561 ................................. 21
McNeese v. McNeese, (1923) 190 Cal. 402. ............................................................................ 15
Mitsubishi Motors Corp. v. Soler-Chrysler, Plymouth, Inc, 473 U.S. 614, 638-9(1985).......... 4
Mona Jabarin v. Minister of Education, PD 48 (5) 199 .......................................................... 29
Municipalite de Khoms El Mergeb v. Societe Dalico , 1994 Rev. arb. 116-117 ....................... 2
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Nat’l Thermal Power Corp. v. The Singer Co., XVIII Yearbook of Commercial Arbitration
403, 406-407 (Indian S.Ct. 1992) (1993) ............................................................................... 3
National Power Plc v. United Gas Co. Ltd., [1998] All ER (D) 321 ...................................... 17
NetSys Technology Group AB v. Open Text Corp., [1999] CanLII 14937(ON SC) ................. 8
Ontario Inc. c/o Harvey’s Restaurant v. Cara Operations Ltd., 2008 54 B.L.R. (4th
) 244 ..... 19
Paper Reclaim Ltd v. Aotearoa International Ltd, [2007] NZSC 26 ...................................... 14
Republic of Nicragua v. Standard Fruit Co., 937 F.2d 469, 478 (9th
Cir. 1991) .................... 12
Sahin v. Turkey [2004] ELR 73 (ECTHR); Karadumman v. Turkey, (1993) 74 DR 93 ......... 29
Smith v. Hughes, [1871] LR 6 QB 597 .................................................................................... 21
United States v. P&D Coal Mining Co. , 358 F.2d 619 (6th
Cir. 1996) ..................................... 7
Vee Networks Ltd. v. Econet Wireless International Ltd [2004] EWHC 2909 (Comm.) .......... 3
Zulla Steel Inc. v. A&M Gregos Inc., 174 N.J. Super. 124 (1980) .......................................... 27
Statutes
Constitution ............................................................................................................................... i
Rules
Article 27, SIAC Rules, SIAC Rules, 2010 ............................................................................. 19
Article 35, KLRCA Arbitration Rules, 2010 ........................................................................... 19
Articles
Ernest Gellhorn, Limitations on Contract Termination Rights: Franchise Cancellations, Duke
Law Journal , Vol. 1967, No. 3 (Jun., 1967), p. 482, 483................................................... 14
Hadfield K. Gillian, Problematic Relations: Franchising and the Law of Incomplete
Contracts, Stanford Law Review, Vol. 42, No. 4 (Apr., 1990), pp. 927-992 ...................... 23
Karrer & Kaelin-Nauer, Is There A Favor Iurisdictionis Arbitri?, 13(3) J. Int’l Arb. 21(1996)
................................................................................................................................................ 7
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Law, Mistelis and Kroll, Comparitive International Commercial Arbitration (Kluwer Law
(Int, 2003) Para 6-66 .............................................................................................................. 5
Pawel Moskwa, Interpretation of Commercial Contracts in the Future European Civil Code–
Objective or Subjective Method?, ELSA SPEL 2004 (1) .................................................... 23
Thomas M. Pitegoff, Franchise Relationship Laws: A Minefield for Claimants, 45 Bus.
LAW. 289 (1989) ................................................................................................................ 27
National Legislation
1965, Civil Code of Indonesia ................................................................................................. 20
Article 1267, Indonesian Civil Code ....................................................................................... 18
Article 1338, Indonesia Civil Code ......................................................................................... 20
Article 1342, Indonesian Civil Code ....................................................................................... 18
Article 29, Constitution of Indonesia ....................................................................................... 29
http://tetley.law.mcgill.ca/comparative/goodfaith.pdf, accessed on 13/9/2012. ...................... 20
International Instruments
Article 9, European Convention on Human Rights ................................................................. 29
UNIDROIT Articles
Article 1.10 (1), UNIDROIT Principles of International Commercial Contracts, 2010.......... 15
Awards
Alan Redfern & Martin Hunter (eds.), Law And Practice of International Commercial
Arbitration, pp. 1-03 et seq (4th
ed. 2004) ............................................................................. 1
Final Award in ICC Case No. 6162, XVII Year Book of Commercial Arbitration 153, 160-62
(1992) ..................................................................................................................................... 9
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CLOUT Cases
A/CN.9/264, Analytical commentary on draft text of a model law on international
commercial arbitration, under article 1, paras. 16-21, available at
http://www.uncitral.org/uncitral/en/commission/sessions/18th.html. ................................... 1
CLOUT case No. 101 [Private Company “Triple V” Inc. Ltd. v. Star (Universal) Co. Ltd.
and Sky Jade Enterprises Group Ltd.,High Court—Court of First Instance, Hong Kong, 27
January 1995] ......................................................................................................................... 1
CLOUT case No. 690 [Mayers v. Dlugash, High Court—Court of First Instance, Hong Kong,
10 June 1994]; CLOUT case No. 627[Sport Maska Inc. v. Zittrer and others, Supreme
Court, Canada, 24 March 1988] ............................................................................................. 1
Websites
Article 178(2) of Swiss Law on Private International Law ....................................................... 2
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STATEMENT OF JURISDICTION
The Claimant has approached the Kuala Lumpur Regional Centre for Arbitration (KLRCA)
pursuant to the arbitration agreement between the Claimant and The Respondent. The
Claimant maintains that the arbitration agreement is valid and the claim is admissible against
the Respondent. The same has been argued further in the pleadings.
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QUESTIONS PRESENTED
I. What is the proper law to apply in resolving this dispute: Singapore Law, Indonesian Law,
or some other law?
II. Is the Arbitration agreement valid and enforceable?
III. Is the Franchise Agreement invalid under Indonesian Law – specifically Article 31 of
Law 24 of 2009?
IV. Was a proper and timely Notice of Termination given to the Franchisee [Dr.
Budiamman]?
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:
VIA. Did the serving of a single Indonesian dish referred to as “The Special of the
Day” justify the termination of the franchise?
VIB. Did giving customers the option of substituting lamb for pork for menu items justify the
termination of the franchise?
VIC. Did the wearing of the “new (white) hijab” by the female Muslim employees justify the
termination of the franchise?
VID. Do the above violations of the Franchise Agreement reflect a continuing
disregard of the franchisee’s obligations under the Franchise Agreement to justify its
termination?
VII. Does an employment regulation prohibiting the wearing of a hijab by female Muslim
employees or restriction (or the colour type of the hijab) violate the constitution and/or laws
of Indonesia or any international treaties to which it is a member?
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STATEMENT OF FACTS
1. The Great Wall Noodle Shop LLC (hereinafter referred to as GWNS), (founded and co-
owned by Mr. Jianping Ji and Mr. Xeufang Wang) the Claimant and Franchisor, started
as a single restaurant, opened in Tianjin, China, on 20th
May, 1983 and expanded its
Franchise to various locations within China itself and to Singapore and Malaysia. The
Respondent is Dr. Budiamman, the Franchisee, is a prominent Jakarta surgeon, who
signed the Franchise Agreement on June 20th
, 2011, which is the subject matter of this
case.
2. Mr. Xeufang Wang came to Singapore in June, 2011 to meet Mr. Bao Shan, the
franchise owner of the Singapore restaurants, to see if he would be interested in
opening several restaurants in Indonesia as well. He was not interested.
3. On 20th
June, 2011, at Changi Airport, Mr. Wang met Dr. Budiamman. After Mr. Wang
explained the purpose of his visit to Singapore, Dr. Budiamman showed interest in
signing the Agreement intended for Mr. Bao Shan.
4. Dr. Budiamman’s name was substituted for Mr. Bao Shan’s name on the Agreement
and Dr. Budiamman signed the Agreement, after a quick review. As Dr. Budiamman
did not want to miss his flight, only the fee details were explained to Dr. Budiamman
by Mr. Wang. However, an English copy and a copy of the Agreement in Bahasa
Indonesia were sent to Dr. Budiamman the next day.
5. The two Franchises as agreed upon were opened in September, 2011. In late October
2011, Mr. Ji, as authorised by the Agreement, made an unannounced visit to both
Indonesian restaurants. He discovered several violations of the Agreement. There was a
second menu also being offered, apart from the authorised, official menu as stipulated
by the Agreement, for the sale of Indonesian food, which had not been sanctioned by
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the Claimant. The menu gave the option of a substitution of pork with lamb, which had
not been authorised by the Claimant.
6. Further, Dr. Budiamman had, on the request of a few of the waitresses, allowed them to
wear a hijab along with their official uniform, and the colour of this hijab was fixed at
red. Mr. Ji’s wife particularly noticed the hijab and commented on how attractive they
were.
7. After Mr. Ji’s returning home, on 4th
November, 2011, an e-mail was sent to Dr.
Budiamman, illustrating the need for discontinuity of these violations. All three of the
issues to which Mr. Ji had already objected during his visit were clearly explained here
as well. Dr. Budiamman was asked to conform his operations to those already of the
other restaurants, as required by the Franchise Agreement.
8. The e-mail clearly informed Dr. Budiamman that the serving of unauthorized menu
items cannot be allowed to continue. The franchise was a Chinese restaurant, and meant
to serve Chinese food only. No other food items could be sold without the express
consent of the Claimant, as required by the Agreement, and no such consent had been
granted by the Claimant in this case.
9. The Claimant has explicitly stated in this e-mail that the need for the correction of these
violations is that the uniformity of the restaurants must be maintained, i.e., the
restaurants must all operate in exactly the same manner, inside and outside.
10. The Claimant clarified that the question of not allowing the wearing of the hijabs with
the official uniform is not due to any religious bias, but rather, maintaining uniformity,
which the Claimant has clearly stressed is the key issue to any successful franchise
operation. If all the employees at all the restaurants did not dress exactly the same, the
factor of “common appearance” would be lost.
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11. The Claimant ended the e-mail with a caveat to Dr. Budiamman that if the violations
mentioned in the Agreement were not discontinued, the Claimant would be left with no
choice but to terminate the Agreement.
12. Two weeks after this, an inspector was hired by the Claimant to visit both restaurants.
He reported to Mr. Ji that Indonesian food, though not listed on the menu, was being
served as a single “Special of the Day”, written on a blackboard. The colour of the hijab
of the waitresses’ had been changed to white.
13. The next day, the Claimant sent a letter to Dr. Budiamman, terminating the Agreement,
ordering him to close both restaurants and remove the signage within fifteen days.
14. On Dr. Budiamman’s refusal to close the two restaurants, the Claimant submitted a
Notice of Arbitration.
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SUMMARY OF PLEADINGS
I
The Agreement between in question provided for international commercial arbitration. The
principle of Seperability of Arbitration Agreements dictates that different laws may govern
the arbitration agreement and the underlying contract. Further, when the parties have
expressly mentioned such a law, it must be given effect. Further, the principle of neutrality of
laws dictates that the parties to an arbitration agreement should opt for a law other than that
of the law of the countries.
II
The principle of ‘Presumptive Validity of the Arbitration Agreement’ supports the notion that
the parties’ agreement should be interpreted to give effect to them wherever possible.
Further, the principle of Seperability of Arbitration Agreement confers on the parties separate
obligations which cannot be avoided simply on the challenge or even nullification of the
original contract.
III
Article 31 of the Law 24 of 2009 of the Republic of Indonesia does not render the Franchise
Agreement invalid as the signature requirements are not absolute and the most minimal
indication of the parties’ intent must be given full effect. Also, Respondent’s consent to the
contract can be deemed from his conduct.
IV
Reasonable time of notice is time required to make alternate arrangements. Actual notice is a
proper notice. The Claimant has given sufficient time to the Respondent. The Respondent
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was a prominent surgeon and had continued his practice. The e-mail sent to the Respondent
was an actual notice.
V
For termination, a breach can be material. Claimant had expressed to the Respondent the
damage that would be caused because of the Respondent’s actions. Respondent’s breach was
material and substantial.
VI
Franchisor acts in good faith if he deals honestly and reasonably. The Claimant had followed
proper procedure and given a chance to cure, before terminating.
VIA
The Respondent is expected to follow the Agreement to the letter. Even a single “Special of
the Day” goes against the serving of only the authorised menu.
VIB
A contract is interpreted literally. The unauthorised use of lamb in place of pork is a violation
of the Agreement.
VIC
An express term in a contract must be followed exactly. A hijab is not a part of the official
uniform and is a distraction. Thus, there has been a violation.
VID
If a material breach is not cured, the contract can be terminated. The Respondent had not
made the changes as required. Therefore, termination was justified.
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VII
Islam is not so staunchly observed in Indonesia; there is more liberalism here. Where the
issue is one of uniformity, a rule prohibiting the wearing of headscarves does not violate right
to freedom of religion.
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PLEADINGS
ISSUE I: THE LAW APPLICABLE IN RESOLVING THE DISPUTE IS SINGAPOREAN LAW
1.1. The Contract provides for “International Commercial Arbitration”
1.1.1. Article 2 of the UNCITRAL (United Nations Commission on International Trade
Law) Model law defines arbitration “as the situation where disputes are referred to a
third party”.1Alternatively it can be defined as a situation where “two or more parties,
faced with a dispute which they cannot resolve for themselves, agreeing that some
private individual(s) will resolve it for them.”2
1.1.2. Further, Article 3 (a) of the UNICTRAL Model Law states that arbitration is
international if the parties have, at the time of conclusion of agreement, their places of
business in different States3. Also, the term “place of business” has been considered in
some courts to include any location from which a party participates in economic
activities in an independent manner.4 Additionally, the term “commercial” is given a
broad definition under footnote to Article 1(1) of the UNCITRAL Model Law.5
1.1.3. This provision is mirrored in the Kuala Lumpur Regional Centre for Commercial
Arbitration Rules (KLRCA), under Article 1 (1).
1.1.4. In the present matter, Mr. Wang, one of the partners of the Great Wall Noodle Shop
LLC, met Dr. Budiamman while waiting for his flight at the Changi airport. During
the course of the discussion, Mr. Wang divulged the purpose of his visit to Dr.
Budiamman and told him that he was looking to extend the sphere of his Franchise to
Indonesia.
1 CLOUT case No. 690 [Mayers v. Dlugash, High Court—Court of First Instance, Hong Kong, 10 June 1994];
CLOUT case No. 627[Sport Maska Inc. v. Zittrer and others, Supreme Court, Canada, 24 March 1988] 2 Alan Redfern & Martin Hunter (eds.), Law And Practice of International Commercial Arbitration, pp. 1-03 et
seq (4th
ed. 2004) 3 CLOUT case No. 101 [Private Company “Triple V” Inc. Ltd. v. Star (Universal) Co. Ltd. and Sky Jade
Enterprises Group Ltd.,High Court—Court of First Instance, Hong Kong, 27 January 1995] 4 CLOUT case No. 106 [Supreme Court, Austria, 2 Ob 547/93, 10 November 1994]
5 A/CN.9/264, Analytical commentary on draft text of a model law on international commercial arbitration,
under article 1, paras. 16-21, available at http://www.uncitral.org/uncitral/en/commission/sessions/18th.html.
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1.1.5. Dr. Budiamman was visibly interested in the proposal and agreed to sign the
Franchisee Agreement (hereinafter referred to as “Agreement” or “Contract”). Within
the said Franchisee agreement was an Arbitration Clause6 which stipulated that any
disputes arising out of the contract would be referred to The Kuala Lumpur Regional
Centre for Arbitration, which was a third party in accordance with the Agreement.
Further, at the time of signing the Agreement, Mr. Wang was operating in China
whereas Dr. Budiamman was working as a surgeon in Jakarta, Indonesia. Finally, as
the Agreement involved the running of a commercial entity i.e., restaurants, the
Agreement was “commercial” in nature.
1.1.6. As all the aforementioned requirements are fulfilled, the Agreement can be safely said
to mandate “International Commercial Arbitration”.
1.2. Application of the doctrine of Seperability
1.2.1. The law governing the agreement to arbitrate is mentioned in the arbitration clause
and this arises out of the principle of seperability.7
1.2.2. The principle of seperability states that the arbitration agreement mentioned in a
contract is completely separable from the rest of the underlying contract. In other
words, the arbitration clause and the rest of the contract form two separate entities.
Thus, the arbitration clause is autonomous and juridically independent from the main
contract in which it in contained.8
1.2.3. Thus is follows that the validity of the arbitration agreement is not necessarily
affected by the invalidity or avoidance of the main contract. 9
Further, Article V (1) (a) of the New York Convention and correspondingly Articles
6 Chapter XII(A) , Franchisee Agreement
7 Article 178(2) of Swiss Law on Private International Law; Municipalite de Khoms El Mergeb v. Societe
Dalico , 1994 Rev. arb. 116-117 8 Final Award in ICC Case No. 8938, XXIVa Year Book of Commercial Arbitration 174, 176(1999)
9 Vee Networks Ltd. v. Econet Wireless International Ltd [2004] EWHC 2909 (Comm.)
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34(2) (a) (I) and 36(1) (a) of the UNCITRAL Model Law provide that an arbitral
award can be refused if the agreement was invalid under the law to which the parties
have subjected it to.
1.2.4. These provisions are based on the basic premise that parties may expressly select a
particular law to govern only the arbitration agreement and expressly establish this to
be different from the law governing the rest of the underlying contract. 10
This derives
its origins from the aforementioned seperability principle.
1.2.5. The dispute in the present matter is the termination of the Agreement by the
Franchisor for breach of the Agreement.
1.2.6. The Agreement drawn between the two parties, namely Mr. Wang and Dr.
Budiamman, clearly mentions the laws to be applied in order to resolve the dispute.
Chapter XII (B) of the Agreement clearly laws down that “The agreement and the
parties' rights under it (The Agreement) and the relationship between the parties shall
be governed by, and will be interpreted in accordance with the laws of Singapore.”
1.2.7. In doing so, the parties have exercised their rights under the aforementioned
provisions to select Singaporean law to be applied to the arbitration agreement, as
removed from the rest of the agreement. As the arbitration clause mentioned in
Chapter XII (B) of the contract between the two parties is independent from the rest of
the contract, the contracting parties can allow different laws to pertain to the two
different entities i.e. Chapter XII (B) and the rest of the contract.
Hence the law to be applied to Substantive matters would be Singaporean Law.
1.3. Application of the doctrine of ‘Will of the Parties’
1.3.1 It is humbly submitted that the principle basis of Arbitration is the maxim of l’
autonomic de la volonte i.e. “will of the parties to be Supreme”, which was also
10
Nat’l Thermal Power Corp. v. The Singer Co., XVIII Yearbook of Commercial Arbitration 403, 406-407
(Indian S.Ct. 1992) (1993)
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recognized in Article V (1) (a) of the New York Convention.
The theory of Party Autonomy, also stipulates that any decision of the arbitration
must be based on the will of the parties.11
In other words, if any dispute arises, it has
to be solved by reference to the will of the parties.
1.3.2 Further, as arbitration is based upon the will of the parties, the parties can waive their
right to national judicial remedies through litigation. It is an exercise of their
individual autonomy and choice by which effect is given to their civil liberties. It is
freely and securely selected by parties to acquire the benefits of prompt, neutral and
effective dispute resolution.
1.3.3 It is also submitted that the will of the parties would be evident in the contract that
was drawn up between them. In the present case, the agreement was drawn between
the Great Wall Noodle Shop, LLC and Dr. Adi Budiamman. As the contract was duly
understood and signed by, both the contracting parties, the will of the parties can be
inferred from the terms and provisions mentioned in the said agreement as they have
consented to be bound by the terms of the contract.
Under Chapter XII (B), the said agreement expressly mentioned that the
determination of rights of the parties would be done in accordance to Singaporean
Law. This agreement was duly signed by Dr. Budiamman and Mr. Wang (on behalf of
the Great Wall Noodle Shop, LLC) and the right to select the law to be governing the
dispute in arbitration is an expression of the will of the parties.
1.3.4 As the will of the contracting parties in arbitration is supreme, the applicable law
would be that of Singapore as decided conclusively by the parties in the
aforementioned contract.
11
Mitsubishi Motors Corp. v. Soler-Chrysler, Plymouth, Inc, 473 U.S. 614, 638-9(1985)
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1.3.5 Further, the contract in the present matter was duly singed by both parties and the
same stipulated arbitration proceedings by barring national litigation. Since the
contract was based on the parties’ consent, the theory of the “Will of the Parties’”
will dictate that the parties have agreed to waive their right to national judicial
proceedings.
1.3.6 Thus, the contract or the arbitration clause cannot be said to be invalid on grounds
of barring national court proceedings, since the provision pertaining to the same
was based on the will and consent of the contracting parties’.
1.4. Application of the principle of Neutrality of Laws
1.4.1. The principle of Neutrality of Laws12
dictates that the parties to an arbitration
agreement should opt for a law other than that of the law of the countries.
This is done to ensure that the two contracting parties are on a level legal field and
neither of them can claim any advantage by applying a law that they would be well
versed with i.e. their own national law. At the same time this would be severely
disadvantageous to the opposite party, thereby defeating the concept of equality of the
contracting parties.
1.4.2 In the present matter, the two parties are GWNS LLC (represented by Mr. Wang and
Mr. Ji, who are of Chinese origin) and Dr. Budiamman, who is of Indonesian origin.
1.4.3 Chapter XII (B) of the Contract between the parties clearly mentions that Singaporean
law is to be applied to resolve any dispute that may arise between the two parties
during the course of discharge of the said contract. This was meant to distance the
contract between the two parties’ form their respective national laws i.e. Indonesian
and Chinese laws.
12
Law, Mistelis and Kroll, Comparitive International Commercial Arbitration (Kluwer Law (Int, 2003) Para 6-
66
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1.4.4 The principle behind selecting this law was to ensure that both Mr. Wang and Dr.
Budiamman are not burdened with the task of facing an opponent who has an
advantage of using his own national law in the present matter.
1.4.5 If the alternative to this situation is taken i.e. if Indonesian law is applied, it would be
unfairly disadvantageous and at the same time it would confer additional benefits to
Dr. Budiamman, which should not be permitted. Hence, the law to be applied should
be a neutral law i.e. Singaporean Law.
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ISSUE II: THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE
2.1 Application of the Principle of “Presumption of Validity of Arbitration Agreements”
2.1.1 The principle of favour validitatis13
dictates that there must be presumption of validity
in favor of the arbitration agreement. This is supported by the notion that the parties’
agreement should be interpreted to give effect to them wherever possible.14
2.1.2 In the celebrated case of Hamlyn & Co. v. Talisker Distillery,15
it was reasoned that
“it is more reasonable to hold that the parties contracted with the common intention of
giving the entire effect, including the arbitration clause, effect”.
2.1.3 On 20th June, 2011, Mr. Wang who is the part time owner of the Great Wall Noodle
Shop expressed his intention of opening an Indonesian franchisee to Dr. Budiamman.
The latter was extremely interested and agreed to enter into an agreement for the
running of the Indonesian restaurant. The said agreement / contract also contained a
dispute resolution clause, which called upon the parties to refer any subsisting
disputes to arbitration.
2.1.4 Dr. Budiamman’s signature on the said agreement clearly shows that he agreed to all
the terms of the agreement, including the dispute resolution clause.
2.1.5 In the present situation, the contention of Dr. Budiamman regarding the validity of the
arbitration agreement should not be taken into account as there is a presumption of
validity in favor of the arbitration agreement that Dr. Budiamman has voluntarily
entered into. Thus, the arbitration agreement should be presumed to be valid owing to
the free consent given by both the parties.
13
Karrer & Kaelin-Nauer, Is There A Favor Iurisdictionis Arbitri?, 13(3) J. Int’l Arb. 21(1996) 14
United States v. P&D Coal Mining Co. , 358 F.2d 619 (6th
Cir. 1996) 15
Hamlyn & Co. v. Talisker Distillery [1894] A.C. 202, 209, 214
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2.2 The Arbitration Agreement is independent of the underlying contract
2.2.1 As enshrined in Article 16(1) and Article 21(2) of The UNCITRAL Model Law, the
principle of Autonomy of the Arbitration Agreement or “pactonomic de la clause
compromission” stipulates that parties cannot unilaterally withdraw from arbitration
agreement even if the contract comes to an end as the said arbitration agreement is a
part which is separate from the rest of the contract.
Thus, it confers on the parties separate obligations which cannot be avoided simply on
the challenge or even nullification of the original contract.
The reasoning behind the same is that the arbitration agreement is a part separate from
the rest of the contract. Therefore, even if the contract comes to an end or its validity
is challenged, the arbitration clause is alive.16
2.2.2 It is established that the agreement to arbitrate is a particular characteristic of the
underlying contract with distinct procedure for dispute resolution and hence is a
separate part of the contract. If this concept did not exist, arbitration would be self-
defeating because if a breach of contract were to render the entire agreement invalid,
then there would be no point in arbitration17
2.2.3 Thus, a party cannot resist arbitration simply by relying on the fact that the main
contract was invalid because a condition precedent to the entry into force of that
contract had not been fulfilled.18
In other cases, the seperability principle was relied
upon by courts to dismiss objections to arbitral jurisdiction asserting that the main
contract was void because the parties were mistaken as to their respective rights and
obligations when they entered into it.19
16
Cecrop Co. v. Kinetic Sciences Inc., 16 B.L.R.3d 15 (B.C S.Ct.. 2001) 17
Heyman v. Darwins Ltd1942 AE 356 , at 374 18
Cecrop Co. v. Kinetic Sciences Inc., [2001] BCSC 532 (CanLII) 19
NetSys Technology Group AB v. Open Text Corp., [1999] CanLII 14937(ON SC)
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2.2.4 Further, Chapter XII (A) in the agreement between the parties mandates that “any
dispute, controversy or claim arising out of or relating to this franchise agreement,
the operation of the franchise or its termination contract shall be settled by
arbitration in accordance with the Kuala Lumpur Regional Centre for Arbitration
Fast Track Rules”. In the present matter, if the underlying contract between the
parties is challenged, the arbitration clause still stands valid and thus the parties must
still submit any dispute to the KLRCA as specified in the contract. In the present case,
the dispute resolution clause clearly stipulated Singapore law as the substantive law of
the contract.20
2.2.5 Historically, the validity of international arbitration agreements will be upheld
notwithstanding challenges to those agreements based on the law governing the
parties’ underlying contract.21
2.2.6 Hence, even if the validity of the original, underlying contract is challenged, the
validity of the arbitration agreement stands as, a claim that the underlying contract
was null and void does not impeach the arbitration clause.22
2.3 Dr. Budiamman provided his consent and assent to the Contract
2.3.1 In terms of arbitration, it is settled that a party’s consent to an arbitration agreement or
a written instrument containing arbitration a clause can be expressed as a substantive
matter by means other than a signature on the said agreement.
It is accepted that while entering into a contract, the consent of the contracting party
can be expressed through his/her conduct23
or acquiescence. Most legal systems
recognize consent derived from conduct.
20
Clause B, Chapter XII, Franchise Agreement 21
Final Award in ICC Case No. 6162, XVII Year Book of Commercial Arbitration 153, 160-62 (1992) 22
Ferris v. Plaister, 34 N.S.W.L.R 474( N.S.W. Court of Appeal 1994) 23
Brogden v. Metropolitan Rly. Co., (1877) 2 App Cas 666
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2.3.2 Thus, it is humbly submitted that if a party, does not provide his/her signature to the
contract but at the same time fulfills the terms and conditions mentioned in the
contract, it is deemed that he has given his consent for the said contract.
2.3.3 Further, if a contracting party does not expressly object to any provision of the
contract that he/she has entered into, it is to be believed that he has accepted the said
contract.
2.3.4 In the present matter, on 20th
June 2011, a contract was entered into by Dr.
Budiamman and Mr. Wang which included a provision to refer any dispute the two
parties to arbitration. For the benefit of Dr. Budiamman, the contract was drawn up in
both English and Bahasa Indonesian.
2.3.5 It is humbly accepted that Dr. Budiamman signed the English version of the contract
but did not do the same for the Bahasa Indonesian Copy.
2.3.6 However, this cannot be said to negate consent from the side of Dr. Budiamman. This
is because after the contract had been duly drawn up, a photocopy of the English and
Bahasa Indonesian version of the contract was provided to Dr. Budiamman the very
next day to review. Further, since Dr. Budiamman had pursued his studies in the
United States of America, it can be reasonably assumed that he was well-versed in the
English language.
2.3.7 It is further submitted that around four months after signing of the contract, Dr.
Budiamman began the operations for the Indonesian franchisee of the Great Wall
Noodle Shop.
2.3.8 After receiving the contracts for review, Dr. Budiamman never expressed any
objection to the terms and conditions of the contract.
2.3.9 In the present scenario it would be only reasonable to assume that in the span of four
months, Dr. Budiamman would have thoroughly gone over the contract and found out
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if he had any reservations to any term of the same. However, since no objection was
raised from his side and he duly began operations of the Indonesian restaurants, it can
be deemed through his conduct that has accepted the provisions of the contract and he
cannot arbitrarily withdraw from the same, when the time for discharge of obligations
has come.
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ISSUE III: ARTICLE 31 OF LAW 24 OF 2004 OF THE REPUBLIC OF INDONESIA DOES NOT
RENDER THE FRANCHISEE AGREEMENT INVALID
3.1 Signature requirement is not absolute
3.1.1 Article 31(1) of Law No.24/2009 of Indonesia stipulates that Indonesian must be used
in agreements that involve (inter alia) individuals who are the citizens of the Republic
of Indonesia.
3.1.2 However, it is submitted that it is an accepted principle in international Arbitration
that if an agreement is in writing, it need not be signed.24
The reasoning behind this
well-accepted principle is that the most minimal indication of the parties’ intent to
arbitrate must be given full effect.25
Forcing Indonesian parties to draft all of their
agreements in Indonesian language may cause unnecessary risk due to the ambiguity
arising from translations. In the present matter, the agreement between the Dr.
Budiamman and Mr. Wang was drawn up in both English and Bahasa Indonesian for
the benefit of the former party. It is duly accepted that Dr. Budiamman had failed to
sign the latter and only singed the English version.
3.1.3 However, the application of the aforementioned principle of “minimal indication”
theory completely negates the requirement of a signature on the Bahasa Indonesian
Copy of the Agreement. The fact that Dr. Budiamman provided his signature to the
English version of the contract signifies his intent to enter into the said contract and be
bound by all the terms and conditions of the same.
3.1.4 A perusal of the law requiring the signature of the parties in both English and Bahasa
Indonesia clearly shows that the intention of the legislature was to ensure that the
parties entering into the contract clearly understood the terms. In the present, Dr.
Budiamman was a surgeon who had studied in the US and therefore it can be
presumed that he understood the English language clearly and comprehended the
24
Fisser v. International Bank, 282 F.2d 231, 233 (2d cir. 1960) 25
Republic of Nicragua v. Standard Fruit Co., 937 F.2d 469, 478 (9th
Cir. 1991)
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exact terms of the contract drafted in English. Hence, the contract cannot be said to be
invalid due to the lack of signature of one of the contracting parties.
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ISSUE IV: A PROPER AND TIMELY NOTICE OF TERMINATION WAS GIVEN TO THE
RESPONDENT (DR. BUDIAMMAN)
Under Singapore Law
4.1 Reasonable Notice of Termination
4.1.1. A reasonable period for notice of termination is decided based on the point of view of
two reasonable businessmen and the nature of the relationship in question26
and what
is sufficient time for the terminated party to find alternate arrangements.27
When the
Agreement has been executed and the franchise has been operating for sometime, the
duration for period of notice can be quite short.28
4.1.2. In the e-mail sent to the Respondent on 4th
November, 2011, the Claimant clearly
notified the Respondent of their disapproval of these violations of the Agreement.
They provided time to the Respondent to correct these errors. Mr. Ji had informed the
Respondent about the violations during his visit, and it was after a period of five days
that the notice of termination was sent.
4.1.3. The Claimant gave clear reasons to the Respondent for their disapproval of these
variations from the Agreement, laying stress on the issue of uniformity. It is important
in a franchise business to ensure that all the restaurants under the franchise name
remain in perfect uniformity.
4.1.4. Another inspection was conducted two weeks later which showed that the Respondent
was aware of the various violations. Yet, steps were not taken by the Respondent to
ensure uniformity of the restaurant with the other restaurants under the same
franchise. This action of the Respondent of not making due amendments in time lead
to the termination of the Agreement by the Claimant.
26
Decro - Wall International SA v. Practioners in Marketing Limited, [1971] 1 WLR 361 27
Paper Reclaim Ltd v. Aotearoa International Ltd, [2007] NZSC 26 28
Ernest Gellhorn, Limitations on Contract Termination Rights: Franchise Cancellations, Duke Law Journal ,
Vol. 1967, No. 3 (Jun., 1967), p. 482, 483
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4.1.5. The Claimant has followed proper procedure in the termination of the Agreement. The
notice was sent to the Respondent on 4th
November, 2011. It was two weeks later that
the inspector arrived at the restaurants, and it was after that that the Agreement was
officially terminated by the franchisors. Thus, the termination period of fifteen days
were given to the Respondent. It was fifteen days after that, as per the termination
letter, that the restaurants were supposed to be shut down. The Claimant also provided
the Respondent with enough time to correct the violations, which would stall the
termination process. Therefore, it can be ascertained that the Respondent had been
properly informed of the violations and as the Respondent was still violating the
Agreement, the Claimant decided to follow their right pursuant to Article XIII B and
terminate the Agreement, giving the Respondent a reasonable notice.
4.1.6. In the present case, the Respondent is a prominent surgeon and has kept up his
practice even after signing the Agreement. The termination of the Agreement would
not be such a loss as to completely deprive him of a proper means of income as he
could still revert to his practice and it cannot be claimed that the said termination
deprived him of his livelihood.
4.2 Proper Notice of Termination
4.2.1 It is sufficient if the notice clearly represents the intention to rescind; it need not be
formal and explicit.29
A notice may be given by any means appropriate to the
circumstances.30
4.2.2 The Claimant expressly informed the Respondent via this e-mail that if the
Respondent failed to make the necessary corrections to his operation of the two
restaurants, the Claimant would terminate the Agreement, This clearly proves that the
intention to terminate the Agreement was duly communicated to the respondents
29
McNeese v. McNeese, (1923) 190 Cal. 402. 30
Article 1.10 (1), UNIDROIT Principles of International Commercial Contracts, 2010
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fulfilling the requisites of a valid notice. The notice sent to the Respondent was a
proper notice. The notice was duly received by the Respondent and thus, he was
aware of this intention of the Claimant.
4.2.3 Thus, the Claimant has followed proper procedure and served the Respondent with a
proper and timely notice of termination, including reasonable notice of termination
and time to correct the violations as per the Agreement.
Under Indonesian Law
4.3.1 Indonesian Civil Code provides that all contracts can only be terminated by a court of
law.31
However, it is common practice in Indonesia to waive this particular provision.
Had this Agreement been drafted directly under Indonesian Law, keeping in mind all
its legislations and provisions and the common practice prevailing in Indonesia, the
Agreement would have incorporated this waiver.
4.3.2 Upon such a waiver, the Claimant would have followed proper procedure and
terminated the Agreement correctly, as they have already done. Thus, even if such a
waiver has not been made, it can be ascertained that proper procedure to terminate the
Agreement has been followed.
31
Article 1266, Civil Code of Indonesia
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ISSUE V: THE FRANCHISOR CAN TERMINATE THE AGREEMENT FOR A MATERIAL BREACH
OF THE AGREEMENT, WHICH IS A SUBSTANTIAL VIOLATION OF THE AGREEMENT.
Under Singapore Law
5.1 Fundamental Breach
5.1.1. A contract does not have to be terminated only for a repudiatory breach; it can be
terminated for a material breach as well.32
A "material breach" is a breach that has a
serious effect on the benefit that the innocent party would have otherwise derived
from the contract.33
5.1.2. Article XIII B of the Agreement allows the franchisor to terminate the Agreement for
any substantial violation of the Franchise Agreement.
5.1.3. The reason for the termination of the Agreement by the Franchisor in this case is
three-fold; firstly, due to the serving of Indonesian food in the restaurant which is
unauthorized. Secondly, due to the substitution of pork with lamb by the Respondent,
this, again, was not authorized by the Claimant. Thirdly, the wearing of the Hijab by
the waitresses of both restaurants.
5.1.4. These clauses are all “express terms” of the Agreement, without which the Claimant
would never have entered into the Agreement in the first place. A literal interpretation
of the Agreement would then make it clear that the violation of these clauses would
be a substantial violation of the Agreement, as a material breach of the Agreement
would have occurred.
5.1.5. Therefore, the Claimant has correctly exercised the right to terminate the Agreement.
The violations of the Agreement on the part of the Respondent were of as substantial
nature as they were a material breach of the terms of the Agreement. Thus, the
Agreement can be validly terminated based on these clauses.
32
Dalkhia Utilities Services Plc v. Celtech International Ltd., [2004] All ER (D) 197 (Feb) 33
National Power Plc v. United Gas Co. Ltd., [1998] All ER (D) 321
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Under Indonesian Law
5.1.6 The Indonesian Civil Code states that the aggrieved party has the option of
demanding the other party to fulfill the Agreement or to terminate the Agreement,
with or without compensation.34
Further, the Civil Code also demands a literal
interpretation of the Agreement where the words are straightforward, with no
ambiguous meanings.35
5.1.7 A literal interpretation of the Agreement shows that the abovementioned clauses, the
violation of which has lead to termination of the Agreement, are terms that are
essential to the Agreement, and thus, their violation would be a substantial violation
of the Agreement.
5.1.8. Thus, the Claimant has rightly terminated the Agreement for substantial violation of
the Agreement and not just any breach of the Agreement.
34
Article 1267, Indonesian Civil Code 35
Article 1342, Indonesian Civil Code
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ISSUE VI: THE “INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING” IN
INTERPRETING AND APPLYING FRANCHISE AGREEMENTS DOES APPLY TO THIS FRANCHISE
AGREEMENT, BUT IT IS NOT A DUTY TO PUT THE INTERESTS OF THE FRANCHISEE OVER THE
FRANCHISOR.
Under Singapore Law
6.1 Good Faith
6.1.1. As long as the franchisor deals honestly and reasonably with the franchisee, the
franchisee’s interests are not paramount. Principles of good faith do not block use of
terms that actually appear in the contract.36
The KLRCA Rules37
and the Singapore
International Arbitration Centre Rules38
both provide that the Arbitration Agreement
will not be decided ex aequo et bono unless specifically provided for in the
Agreement itself.
6.1.2. The Agreement, as per Article XII A clearly provides that the Agreement will not be
decided ex aequo et bono.
6.1.3. The Claimant has followed the procedure under the Agreement. The Respondent was
given due notice and time for the cure of the breach. A proper and timely notice,
giving reasonable time for termination, was given to him. The Respondent was
explicitly told the Agreement will be terminated in case of a continued breach. The
Respondent did not take adequate steps to remedy the breach which lead to the
termination. Therefore, there has been no mala fide act on the part of the Claimant.
Under Indonesian Law
6.1.4 The Civil Code of Indonesia recognises a statutory duty to act in good faith.39
Civil
Law systems as a general rule recognise the principle of inherent good faith and fair
36
Ontario Inc. c/o Harvey’s Restaurant v. Cara Operations Ltd., 2008 54 B.L.R. (4th
) 244 37
Article 35, KLRCA Arbitration Rules, 2010 38
Article 27, SIAC Rules, SIAC Rules, 2010 39
Article 1338, Indonesia Civil Code
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dealing in the law of contracts.40
However, the Code states that it is upon the alleging
party to prove good faith; good faith will be presumed.41
6.1.5 It has been proved already that the Claimant took requisite steps to inform the
Respondent of the causes for the termination and so, mala fide intentions on the part
of the Claimant do not exist.
40
http://tetley.law.mcgill.ca/comparative/goodfaith.pdf, accessed on 13/9/2012. 41
1965, Civil Code of Indonesia
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ISSUE VI (A) :THE SERVING OF A SINGLE INDONESIAN DISH REFERRED TO AS “THE SPECIAL
OF THE DAY” JUSTIFIED THE TERMINATION OF THE FRANCHISE.
Under Singapore Law
6A.1.1. If a person’s conduct is such as to lead a reasonable man to believe that he has bound
himself to the contract, he must follow the other parties’ terms.42
Signboards and
menus must be operated only as according to the Agreement or directions of the
Franchisors.43
6A.1.2. The Agreement mandates that Respondent should not serve items that are not on the
official menu of the Agreement. The Claimant has even previously directed the
Respondent to stop the serving of all food items within the restaurant that are not of
the official menu. GWNS is a Chinese food restaurant and thus, must serve Chinese
food only.
6A.1.3. Therefore, the serving of a single Indonesian dish called “Special of the Day” goes
directly against the Agreement and the directions of the Claimant. It is imperative for
running of a Chinese food restaurant to sell only Chinese food, wherever it operates.
Therefore, this system of the “Special of the Day” is a continued breach of the
Agreement, giving the Claimant a just and reasonable cause for termination of the
Agreement.
6A.1.4. The Claimant has taken this decision based on their reasonable business judgment and
in good faith, as per Article X. 2. of the Agreement. They have been operating the
GWNS LLC for more than twenty-five years and would have precise judgment in all
matters relating to the functioning of all the GWNS restaurants.
42
Smith v. Hughes, [1871] LR 6 QB 597 43
Jack Niemman’s Schnitzel Baron Foods Ltd. v. Fuest, 9 CPR (3d) 561
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Under Indonesian Law
6A.1.5. Claimant has followed all needed procedure, and it is for the Respondent to prove that
there has been bad faith.44
6A.1.6. The Claimant took their decision based on their reasonable business judgment and
good faith as mandated by, Article X. 2., The fact that they are running the franchise
for more than twenty-five years elucidates their expertise and commercial acumen
while dealing with similar situations and it can be reasonably assumed that such good
faith and business judgment was relied upon while terminating the Agreement on the
abovementioned grounds.
44
Ibid. at 16
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ISSUE VI (B): GIVING CUSTOMERS THE OPTION OF SUBSTITUTING LAMB FOR PORK FOR
MENU ITEMS JUSTIFIED THE TERMINATION OF THE FRANCHISE.
Under Singapore Law
6B.1.1. It is not the intention of the parties, but their assent to the contract that will determine
the interpretation of the contract,45
as Common Law interprets Contracts literally.46
A
formula for a soft drink must be mixed correctly; a method of losing weight must be
taught correctly; a procedure for serving food quickly must be followed correctly.47
6B.1.2. The Respondent has committed a breach of the Franchise Agreement by allowing the
substitution of pork with lamb. The Respondent did not approach the Claimant for the
sanctioning of this substitution as stated in the Agreement.
6B.1.3. A perusal of the official menu reveals that almost 33% of the dishes have pork as an
ingredient to them. Substitution of lamb in place of pork alters 33% of the menu,
which is a substantial part of the menu.
6B.1.4. Such alteration clearly shows that the words of Article III B of the Agreement state
that the franchise will not have any right to use unauthorised ingredients.
6B.1.5. Indonesia is not a country ruled by Islamic Law. The situation would have been
looked at differently had Indonesia been a theocratic state. In absence of any express
law based on religious grounds, it is humbly requested to isolate religious sentiments
from the issue at hand.
6B.1.6. Chinese dishes use pork as a key ingredient; pork is popular in Chinese food and
gives it its distinct flavour. The purpose of the GWNS is to serve purely Chinese food.
It is to enjoy this Chinese food that people come to the GWNS. Substitution of pork
with lamb is a deviation from the literal terms of the Agreement. Serving of
45
AG Securities v. Vaughan [1990] 1 AC 417 46
Pawel Moskwa, Interpretation of Commercial Contracts in the Future European Civil Code– Objective or
Subjective Method?, ELSA SPEL 2004 (1) 47
Hadfield K. Gillian, Problematic Relations: Franchising and the Law of Incomplete Contracts, Stanford Law
Review, Vol. 42, No. 4 (Apr., 1990), pp. 927-992
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unauthentic Chinese food in a restaurant claiming to serve purely Chinese food would
deprive the restaurants of considerable business, as the customers would then be
dissatisfied, having expected to eat authentic Chinese food.
6B.1.7. This reason for termination of the Agreement is valid and there are no mala fide
intentions. It is a valid issue that the Claimant, with their reasonable business
judgment, exercised as per Article X. 2. of the Agreement, have rightly judged is a
material breach of the Agreement. In the twenty-five years that they have successfully
run GWNS restaurants in a number of countries, none have been allowed to change or
substitute the ingredients they serve.
Under Indonesian Law
6B.1.8. The Indonesian Civil Code puts the onus on the asserting party to prove that there has
been bad faith.48
6B.1.9. Chinese food uses pork as an essential ingredient in its dishes and lamb being
substituted in its place would ruin the authenticity of these dishes. The Claimant has
been operating for more than twenty-five years, with the purpose of serving Chinese
food. The decision of the Claimant in this regard was made in good faith, after
following proper procedure as laid down in the Agreement.
48
Ibid. at 15
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ISSUE VI (C): THE WEARING OF THE “NEW (WHITE) HIJAB” BY THE FEMALE MUSLIM
EMPLOYEES JUSTIFIED THE TERMINATION OF THE FRANCHISE.
Under Singapore Law
6C.1.1. Common Law recognises that what has been expressly stated in the contract must be
followed exactly as an “express” term.49
6C.1.2. In the present case, the Agreement, under Article II 1. G (ii) mandates a particular
uniform to be worn by all the waitresses. It also expressly prohibits any adornment
that would cause a distraction from the actual uniform.
6C.1.3. The Respondent is in breach of this clause of the Agreement. The Respondent had
allowed the wearing of the Hijab by the waitresses after a few of them from the
Medan restaurant asked him for permission to do so. Due to the bright red colour of
the Hijab, almost all the waitresses started wearing the hijab as well. However, after
the Respondent changed the colour of the hijab to white, many of the girls no longer
wanted to wear the hijab, including those who had first asked permission from the
Respondent to do so.
6C.1.4. This shows that the waitresses at the restaurants did not consider it a religious
obligation to wear the hijabs, but rather, chose to wear or not wear the hijab,
depending on how they looked.
6C.1.5. Therefore, the Respondent was under no obligation to allow the waitresses to wear the
hijab. The terms of the Agreement clearly mentioned a uniform for the waitresses,
which did not contain an exception on religious grounds or personal grounds. In case
such an exception was sought by the Respondents, the same should have first been
brought to light before the Claimant.
6C.1.6. The fact that the Respondent asked the waitresses to change the colour of the Hijab
after the first inspection, clearly shows that he understood the implications of such a
49
Couchman v. Hill, [1947] 1 All ER 103
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change and how it was distracting for the customers, if the waitresses wore such
adornments.
6C.1.7. This ground as a reason for termination of the Agreement is valid and is a substantial
violation of the Agreement, for the same reasons of uniformity.
6C.1.8. This decision of the Claimant is also not influenced by mala fide intentions, as the
Claimant were within their rights to take this decision on the basis of their reasonable
business judgment, as according to Article X 2. of the Agreement, and the Claimant,
having run the GWNS franchise for more than twenty-five years, were well aware of
the standards of customer satisfaction and how they should be maintained. Therefore,
this decision of the Claimant’s is not mala fide.
Under Indonesian Law
6C.1.9. It is the prerogative of the Respondent to discharge the burden of proof in case of
allegation of any mala fide intentions.50
This decision on the part of the Claimant is
justified and was made entirely in good faith. The Claimant had stressed even before
on the purpose of having exactly the same uniform in all its restaurants- to maintain
common appearance. It was only when the Respondent failed to incorporate the
necessary changes did the Claimant terminating the Agreement.
50
Ibid. at 15
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ISSUE VI (D): THE ABOVE VIOLATIONS OF THE FRANCHISE AGREEMENT DO REFLECT A
CONTINUING DISREGARD OF THE FRANCHISEE’S OBLIGATIONS UNDER THE FRANCHISE
AGREEMENT AND JUSTIFY ITS TERMINATION.
Under Singapore Law
6D.1.1. After the time given to correct the breach, if the party that has breached has not
corrected the breach, then the breach has not been cured and the aggrieved party can
treat the breach as a repudiatory breach and terminate the contract.51
6D.1.2. The Respondent had been given a notice with a reasonable amount of time, in which
to cure the violations of the Agreement by him. During Mr. Ji’s visit, he had informed
the Respondent of the violations of the Agreement as they were, and asked him to
correct them. It was more than five days later that the notice of termination was served
on him, and it was still two weeks after this when the assessment of the cure of breach
was done by the inspector hired by the Claimant to inspect the restaurants clearly
shows that the Respondent had enough time to cure the breach.
6D.1.3. Due to the failure of the Respondent to cure the breach and bring the operation of the
restaurants in conformity with the Agreement, the Claimant felt that they had no
choice but to terminate the Agreement. There was no question of bad faith on the part
of the Claimant. It was the continual disregard of the franchise’s obligations to the
Agreement that caused the Claimant to terminate the Agreement.
6D.1.4. The success of every business format franchise network depends on each franchised
unit presenting an image to the public of being but one of a large chain of identical
units, all offering the same quality goods or services and customer experience.52
The
substantiability of the franchisee’s non-compliance is considered upon its potential to
51
Zulla Steel Inc. v. A&M Gregos Inc., 174 N.J. Super. 124 (1980) 52
Thomas M. Pitegoff, Franchise Relationship Laws: A Minefield for Claimants, 45 Bus. LAW. 289 (1989)
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affect the Claimant's trade name, trademark, good will and image which is the heart
and substance of the franchising method of doing business.53
6D.1.5. The Respondent’s continued violations of the Agreement, especially the sale of
unauthorized food items and ingredients, effectively amount to a trademark
infringement. The Respondent is selling, without authorization, different products
from the ones associated with the GWNS name under the GWNS name and logo. The
authorized menu items and specified uniform are what are common to all the GWNS
restaurants everywhere, and any alterations to these affects the uniformity and
reputation of the franchise, which distinguish it from other Chinese restaurants.
Article III B of the Agreement specifically talks about the use of only proprietary
ingredients. Therefore, the Respondent’s continued violation of the Agreement also
amounts to a trademark infringement.
Under Indonesian Law
6D.1.6. It is upon the party alleging mala fide intentions to prove that such has been the case;
the other party will be presumed to be acting in good faith.54
6D.1.7. Claimant has given Respondent proper and express objections to the violations of the
Agreement and informed the Respondent of the reasons as well. Claimant also gave
Respondent proper time to cure the violations. It was only after following proper
procedure and failure of the Respondent to incorporate the proper changes that the
Agreement was terminated.
53
Amerada Hess Corp. v. Quinn, 142 NJ. Super. 237, 252, 362 A.2d 1258, 1266 (NJ. 1976). 54
Ibid. at 15
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ISSUE VII: AN EMPLOYMENT REGULATION PROHIBITING THE WEARING OF A HIJAB BY
FEMALE MUSLIM EMPLOYEES OR RESTRICTION (OR THE COLOUR TYPE OF THE HIJAB) DOES
NOT VIOLATE THE CONSTITUTION AND/OR LAWS OF INDONESIA OR ANY INTERNATIONAL
TREATIES TO WHICH IT IS A MEMBER.
7.1. The International Convention on Civil and Political Rights55
speaks about Religious
rights of people in language exactly the same as the European Convention on Human
Rights.56
Where the purpose of a rule in a university forbidding the wearing of
headscarves by the students is simply a matter of uniformity amongst the students,
such a rule does not violate any religious rights of such a person being affected,57
even in a private institution.58
7.2. In the present case, the Claimant has made it very clear that the only reason for the
insistence on their part for the restriction of Hijab was not because of any religious
reasons but purely a matter of uniformity.
7.3. Further, only a few waitresses from the Medan restaurant first approached the
Respondent to be allowed to wear the headscarf. The fact sheet implies that the head
scarf was worn more as an adornment than to fulfill any religious obligation. Once the
colour of the scarf was changed, it can be inferred that the religious obligations
seemed to have diminished as the waitresses no longer wished to wear the scarf.
7.4. Indonesia as a country can be differentiated from Saudi Arabia as a country in this
regard. Saudi Arabia is a country with Islam declared as the State religion and the
Qur’an and the Sunnah of Muhammad are its constitution. Here, religious dictates
must be followed as a rule of law. This is a complete contrast to Indonesia, which
does not recognize a state religion.59
Thus, though some of the people may choose to
wear hijab, it is not regarded as a compulsion by the general law and population of
55
Article 18, International Covenant on Civil and Political Rights 56
Article 9, European Convention on Human Rights 57
Sahin v. Turkey [2004] ELR 73 (ECTHR); Karadumman v. Turkey, (1993) 74 DR 93 58
Mona Jabarin v. Minister of Education, PD 48 (5) 199 59
Article 29, Constitution of Indonesia
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Indonesia. Therefore, a restriction in matter of uniformity, not due to any religious
bias, is not in violation of any human rights to religious freedom.
7.5. Thus, the waitresses in the present case did not feel religiously obligated to wear the
scarves, but rather, wore them as a matter of choice. Therefore, no rights based on
religious freedom were violated by the Claimant in the present case.
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PRAYER FOR RELIEF
In light of the above submissions, the Claimant respectfully requests that the Arbitral
Tribunal declare that:
• The proper law to apply in resolving this dispute is Singapore Law.
• The Arbitration Agreement is valid and enforceable.
• The Franchise Agreement is valid under Article 31, Indonesian Law 24 of 2009.
• Article XII of the Franchise Agreement is valid and enforceable.
• A proper and timely notice of termination was given to the Franchisee.
• The Franchisor can terminate the Agreement when there has been a material breach of
the Agreement, which is a substantial violation of the Agreement
• Though the inherent warranty of good faith and fair dealing does apply to this
Agreement, it is not a duty to put the Franchisee’s interests over the Franchisor’s and
serving a single “Special of the Day”, giving customers the option of substituting
lamb for pork and allowing the wearing of the new white hijab by the waitresses all
justify the termination of the Agreement.
• Prohibiting the wearing of hijab by the female Muslim employees is not a violation of
their right to religion as it was done for the purpose of uniformity.