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Team No.F2020-C
THE 7TH LAWASIA INTERNATIONAL MOOT
IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION
2012
Between
GREAT WALL NOODLE SHOP, LLC
(CLAIMANT)
AND
ADI BUDIAMMAN, M.D.
(RESPONDENT)
MEMORIAL FOR CLAIMANT
i
TABLE OF CONTENTS
INDEX OF AUTHORITIES ..................................................................................................... v
STATEMENT OF JURISDICTION ....................................................................................... xi
QUESTIONS PRESENTED ...................................................................................................xii
STATEMENT OF FACTS .................................................................................................... xiv
SUMMARY OF PLEADINGS ............................................................................................. xvii
CLAIMANT’S PLEADINGS ................................................................................................... 1
I. SINGAPORE LAW IS THE PROPER LAW TO BE APPLIED IN RESOLVING THE
PRESENT DISPUTE ...................................................................................................... 1
A. The principle of party autonomy applies in the present case ............................................. 1
B. Parties to the franchise agreement have made an express choice of substantive law ......... 1
C. Party autonomy as a conflict rule applies in the present case ............................................ 2
D. The proper law to apply in the present case is the Singapore law according to mandatory
rules of Singapore ............................................................................................................ 3
E. The proper law to apply in the present case is the Singapore law according to mandatory
rules of Indonesia ............................................................................................................ 4
i. Arbitration Law .............................................................................................. 4
ii. Contract Law .................................................................................................. 4
ii
II. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE ............................. 6
A. The arbitration agreement is valid and enforceable under Singapore Law ........................ 6
B. Alternatively, the arbitration agreement is valid and enforceable under Indonesian Law .. 6
C. The tribunal has jurisdiction over the present dispute ....................................................... 7
III. THE FRANCHISE AGREEMENT IS VALID UNDER INDONESIAN LAW
SPECIFICALLY ARTICLE 31 OF LAW NO. 24 OF 2009 ........................................................ 9
A. Indonesian Law no. 24 of 2009 regarding the National Flag, Language and Emblem and
the National Anthem ........................................................................................................ 9
i. Legality of franchise agreement under Law no. 24 of 2009 ........................................ 9
ii. Provisions of Law No. 24 of 2009 do not apply due to lack of implementing
regulations ............................................................................................................... 10
iii. Law No. 24 of 2009 does not carry any sanctions for violation ................................ 10
B. Alternatively, franchise agreement is valid under Singapore law .................................... 11
IV. ARTICLE XII OF THE FRANCHISE AGREEMENT (DISPUTE RESOLUTION) IS
VALID AND ENFORCEABLE ................................................................................................ 12
A. Article XII of the franchise agreement does not violate the Singapore law ..................... 12
B. Alternatively, article XII of the franchise agreement does not violate the Indonesian law
...................................................................................................................................... 12
V. A PROPER AND TIMELY NOTICE OF TERMINATION WAS GIVEN TO THE
FRANCHISEE [DR. BUDIAMMAN] ...................................................................................... 14
iii
A. The notice given by franchisor to the franchisee satisfies the conditions of notice under
Singapore laws .............................................................................................................. 14
i. Singapore FLA Code of Ethics................................................................................. 14
ii. Trade Practices (Industry Codes - Franchising) Regulations 1998 of Australia ......... 14
iii. A proper and timely notice was given under general principles of contract law ........ 15
B. The notice given by franchisor to the franchisee satisfies the conditions of notice under
Indonesian laws ............................................................................................................. 16
i. Indonesian Franchise regulations ............................................................................. 16
ii. Indonesian Civil Code (ICC) .................................................................................... 17
VI. THE FRANCHISOR MAY TERMINATE THE FRANCHISE FOR A SUBSTANTIAL
VIOLATION OF THE FRANCHISE AGREEMENT ............................................................... 18
A. A franchise can be terminated only for a substantial violation of the franchise agreement
under the Singapore laws ............................................................................................... 18
i. The franchise agreement provides for substantial violation as a condition for
termination .............................................................................................................. 18
ii. Singapore FLA Code of Ethics provide for termination only with a good cause ....... 18
B. Alternatively, a franchise can be terminated only for a substantial violation of the
franchise agreement under the Indonesian laws .............................................................. 19
VII. “INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING” IN
INTERPRETING AND APPLYING FRANCHISE AGREEMENTS DOES NOT APPLY TO
THIS FRANCHISE AGREEMENT .......................................................................................... 21
iv
A. The modern contract view strikes “good faith” irrelevant ............................................... 21
B. Common Law jurisdictions render “good faith” irrelevant ............................................. 21
C. Arguendo, even if “Good Faith” applies in the instance, the Sarong Arrest must apply .. 23
D. Bright line test- motive not important ............................................................................ 23
E. Since “good faith” is inapplicable, termination of the franchise agreement is perfectly
justified ......................................................................................................................... 24
i. Serving of the Indonesian dish referred as “Special of the day” justifies
termination ......................................................................................................... 24
ii. Substituting “lamb” for “pork” in the menu also justifies termination ................. 26
iii. Wearing of the new white hijab by the female Muslim employees justifies
termination ......................................................................................................... 26
iv. There was a continuing disregard of the franchise obligations by the franchisee . 27
VIII. NO EMPLOYMENT REGULATION PROHIBITING OR RESTRICTING THE
WEARING OF A HIJAB BY FEMALE MUSLIM EMPLOYEES VIOLATES THE
CONSTITUTION AND LAWS OF INDONESIA ................................................... 28
A. There is a margin of appreciation granted to bodies to infringe religious freedoms........ 28
B. The margin of discretion has been lawfully exercised in the form of the employment
regulation ...................................................................................................................... 31
PRAYER FOR RELIEF ......................................................................................................... 33
v
INDEX OF AUTHORITIES
Statutes and Treaties
Employment Equality (Religion or Belief) Regulations 2003 ......................................... 28
FLA (Singapore) Code of Ethics .................................................................................... 14
Indonesia Arbitration and Dispute Resolution Act Law No. 30 of 1999 ........................... 6
Indonesian Civil Code 1847 ........................................................................................... 10
Indonesian Law no. 24 of 2009 ...................................................................................... 11
International Arbitration (Amendment) Act) 2012 ........................................................... 6
KLRCA Fast Track Rules for Arbitration 2012 ................................................................ 7
The Constitution of the Republic of Indonesia ............................................................... 28
The Federal Trade Commission’s Trade Regulation Rule on franchising ...................... 19
Cases
Aircraft Systems International v Airservices Australia (1997) 146 ALR 1 ...................... 22
Atlantis Petroleum, LLC v. Getty Petroleum Marketing, Inc., 11 Civ. 2471 (TPG) ......... 23
Bank of America v. PT Starlight Prim Thermoplas ......................................................... 11
vi
Bethel Sch. Dist. v. Fraser, 478 U.S. 675, 682 (1986) ................................................... 22
Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506 at para 34, per
Thomas J ....................................................................................................................... 21
California Wine Ass’n v. Wisconsin Liquor Co., 20 Wis. 2d 110, 126 N.W. 2d 308, 317
(1963) ........................................................................................................................... 16
Carlock v. Pillsbury Co. 719 F. Supp 791 (D. Minn. 1989) ............................................ 1
Cheng Keng Hong v Government of the Federation of Malaysa [1966] 2 MLJ 33 ........... 7
Dahlab v Switzerland (2001) European Court of Human Rights 1 .................................. 22
Employment Division, Department of Human Resources of Oregon et al v Smith et al 494
US 872 (1990) .............................................................................................................. 21
Forefront Medical Technology (Pte) Ltd v Modern-Pak PteLtd [2006] 1 SLR 927 at para
29 .................................................................................................................................. 22
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903 .............. 22
Goldberg v Weinberger, Secretary of Defense 475 US 503 (1986) ................................ 25
Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 266 (1988) ...................................... 22
Interim Award in ICC Case No 7929 of 1995 XXV YB CommArb 312 (2000) .............. 8
J.C. Millett Co. v. Park &Tilford Distillers Corp., 123 F. Supp. 484, 493 (N.D. Cal.
1954) ............................................................................................................................ 16
Marubeni Corporation v. PT Indokaya Nissan Motors, Supreme Court Case No.
2820K/Pdt. 1984 ............................................................................................................ 10
Modern Computer Systems, Inc. v. Modern Banking Systems, Inc.871 F.2d 734 (8th Cir.
1989) .............................................................................................................................. 1
vii
Ng Giap Hon v Westcomb Securities Pte Ltd and Others [2009] SGCA 19 .................... 22
Panwah Steel Pte Ltd v Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd
[2006] 4 SLR 571 at para 8 ............................................................................................ 22
PehTeckQuee v BayerischeLandesbankGirozentrale [2000] 1 SLR 148 (CA) ................. 3
Pratt Contractors Ltd v Transit New Zealand [2004] BLR 143 ...................................... 22
R and Headteachers of Y School and the Governors of Y School [2006] EWHC 298...... 23
R v Headteacher and Governors of Denbigh High School [2006] UKHL 15 .................. 23
Sahin v Turkey (Application No44774/98), 10/11/2005 ................................................. 23
Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 117 ALR
393 ................................................................................................................................ 22
Sherbert v Verner 374 US 398 (1963 ............................................................................. 24
Siemens AG v Holdrich Investment Ltd [2010] SGCA 23 ................................................. 1
Tele-Save Merchandising v. Consumers Distributing Co. 814 F.2d 1120 (6th Cir. 1987) . 1
Tinker v. Des Moines Indep. Cmty. Sch. Dist., 393 U.S. 503, 507 (1969) ...................... 22
Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 ..................................... 3
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 ............................... 22
Webb v. City of Philadelphia, 562 F.3d 256 (3d Cir. 2009) ........................................... 22
viii
Books
Amerasinghe, C.F. Jurisdiction of Specific International Tribunals (MartinusNijhoff
Publishers 2009) 442 ....................................................................................................... 8
Black E. A., Bell G. F., “Law and Legal Institutions of Asia: Traditions, Adaptations and
Innovations: Cambridge University Press, 2011............................................................. 12
Bogdan, Michael, SvenskInternationellPrivat- ochProcessrätt, 6th Edition,
NordstedtsJuridik, Stockholm (2004) pg. 271-272 ........................................................... 1
Born, Garry B. International Commercial Arbitration (Kluwer Law Internatioanal, The
Hague, 2001), p. 853 ....................................................................................................... 8
Chitty on Contracts, 28th Ed, Vol 1 (London: Sweet & Maxwell, 1999), at 13, para1-019
...................................................................................................................................... 21
Chukwumerije, Okezie, Choice of Law in International Commercial Arbitration,
Quorum Books, Westport, CT (1994), pg. 105-106 .......................................................... 1
Cordero Moss, Giuditta, International Commercial Arbitration: Party Autonomy and
Mandatory Rules ,TanoAshehoug, (1999), pg. 46-47 ....................................................... 2
Filip De Ly, The Place of Arbitration, Mys and Breesch, Uitgever, (1992) at p.21 ........... 2
Hunter, Martin and Redfern, Alan, Law and Practice of International Commercial
Arbitration, 3rd Ed., Sweet and Maxwell, London (1999) pg. 94 ...................................... 1
J.H.C. Morris “The Conflict of Law ”, London 2000, at page 329 .................................... 1
Karen Mills: ‘Arbitration Procedures in Indonesia’, Arbitration Procedures in Asia,
Sweet & Maxwell, London, UK (2001) .......................................................................... 4
ix
Michael Pryles, ed., Chapter on Indonesia: ‘Dispute Resolution in Indonesia’,
Dispute Resolution in Asia, 2nd ed., Kluwer Law International, The Hague, London,
Boston (2002) ................................................................................................................. 7
Michael Moser, ed., Chapter on Indonesia: ‘Arbitration in Indonesia’, Arbitration in
Asia, a Compendium,. (Butterworths Asia, Hong Kong, January 2001) ....................... 5
Plender, Richard and Wilderspin, Michael, The European Contracts Convention: The
Rome Convention on the Choice of Law for Contrcats, 2nd Ed. Sweet and Maxwell,
London (2001) pg. 87 ...................................................................................................... 2
Redfern, Alan and Hunter, Martin Law and Practice of International Commercial
Arbitration (Sweet & Maxwell 2009) 5-39 ...................................................................... 1
Van den Berg, Albert Jan, Planning Efficient arbitration Proceedings, The law
Applicable in International Arbitration, International Council for Commercial Arbitration
Congress series no. 7, Vienna, 3-6 November 1994, Kluwer Law International, (1999) pg.
393 .................................................................................................................................. 2
Scholarly Work and Articles
Ann Blair ‘Case Commentary: R (SB) v Headteacher and Governors of Denbigh High
School – Human Rights and Religious Dress in Schools’ (2005) 17(3) Child and Family
Law Quarterly 8-9 ......................................................................................................... 21
Anthony Gray, Religious Freedom and Section 116 of the Australian Constitution: Would
a Banning of the Hijab or Burqa Be Constitutionally Valid? ......................................... 21
x
Benjamin Bleiberg ‘Unveiling the Real Issue: Evaluating the European Court of Human
Rights’ Decision to Enforce the Turkish Headscarf Ban in Sahin v Turkey’ (2006) 91
Cornell Law Review 129, 153 ........................................................................................ 23
Cecil, Abraham Arbitration In Asia (Michael Moser eds, LexisNexis 2001) [X]4 ............ 7
Charles C. Haynes, Dress Codes vs. Religious Practice: What Kind of Nation Are We?,
FIRST AMENDMENT CENTER.ORG (Oct. 19, 2003) ............................................... 22
Elisabeth Peden, “Incorporating Terms of Good Faith in Contract Law in Australia”
(2001) 23 Syd L Rev 222 ............................................................................................... 22
I.T. Plesner, Legal Limitations to Freedom of Religion or Belief in School Education, 19
Emory ILR (2006), 557–586 .......................................................................................... 24
Kathryn Boustead ‘The French Headscarf Law Before the European Court of Human
Rights’ (2007) 16 Journal of Transnational Law and Policy 167 ................................... 23
Min, Y.T., The Effective Reach of Choice of Law Agreements, (2008) 20 SAcLJ ........... 4
Stefanie Walterick ‘The Prohibition of Muslim Headscarves From French Public Schools
and Controversies Surrounding the Hijab in the Western World’ (2006) 20 Temple
International and Comparative Law Journal 251, 264 ................................................... 22
Tyrone M Carlin, “The Rise (and Fall?) of Implied Duties of Good Faith in Contractual
Performance in Australia” (2002) 25 UNSW LJ 99) ...................................................... 22
xi
STATEMENT OF JURISDICTION
Great Wall Noodle Shop, LLC (“Claimant”) and Dr. Adi Budiamman (“Respondent”) jointly
submit the present dispute to the Kuala Lumpur Regional Centre for Arbitration (“KLRCA”),
Malaysia, pursuant to Rule 6 of the KLRCA Fast Track Rules 2012.
Both parties shall accept the judgment of the Tribunal as final and binding and execute it in good
faith in its entirety.
xii
QUESTIONS PRESENTED
1. What is the proper law to apply in resolving this dispute: Singapore Law, Indonesian
Law, or some other law?
2. Is the arbitration agreement valid and enforceable?
3. Is the Franchise Agreement invalid under Indonesian Law – specifically Article 31 of
Law 24 of 2009?
4. Is Article XII of the Franchise Agreement (Dispute Resolution) invalid and/or
unenforceable as it authorizes the granting of specific performance should the Franchisee
be found to have violated a provision of the Franchise Agreement while prohibiting the
granting of specific performance should the Franchisor(s) be found to have violated a
provision of the Franchise Agreement?
5. Was a proper and timely Notice of Termination given to the Franchise [Dr. Budiamman]?
6. May the Franchisor terminate the franchise for any violation of the Franchise Agreement
or must it be a substantial violation of the Agreement?
7. Does the “inherent warranty of good faith and fair dealing” in interpreting and applying
franchise agreements apply to this Franchise Agreement and, if so:
i. Did the serving of a single Indonesian dish referred to as “The Special of the Day”
justify the termination of the franchise?
ii. Did giving customers the option of substituting lamb for pork for menu items justify
the termination of the franchise?
xiii
iii. Did the wearing of the “new (white) hijab” by the female Muslim employees justify
the termination of the franchise?
iv. 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?
8. Does an employment regulation prohibiting the wearing of a hijab by female Muslim
employees or restriction (or the color type of the hijab) violate the constitution and/or law
of Indonesia or any international treaties to which it is a member.
xiv
STATEMENT OF FACTS
The Great Wall Noodle Shop
The first Great Wall Noodle Shop opened in Tianjin, China on May 20, 1983. It was founded and
co-owned by JiapingJi and Xuefeng Wang. It was located near the Great Wall and served a
variety of noodle dishes and local dishes. In the past 25+ years, Ji and Wang have franchised
numerous other Great Wall Noodle Shops in China as well as in Singapore and Malaysia.
Indonesia Franchise
In early 2011, Ji and Wang decided to expand to Indonesia. In June, Wang travelled to Singapore
to meet Mr. Bao Shan, the franchise owner of the Singapore restaurants to seek his interest to
which he declined. On June 20, 2011, while waiting for his flight home at Changi Airport, Wang
met Dr. AdiBudiamman, a prominent Jakarta Surgeon and explained the purpose of his visit. Mr.
Budiamman became interested in operating the restaurant chain in Indonesia and signed the
Franchise Agreement with Wang in a hurry to catch his flight home. A photocopy of both the
original English and a Bahasa Indonesia copy were delivered to Dr. Budiamman the next day.
The two new franchises opened in September 201at Jakarta and Medan and ran successfully.
xv
Violation of the Franchise Agreement
In late October 2011, Mr. Ji made a visit to both the Indonesian restaurants and found several
violations of the Franchise Agreement involving the sale of food products not on the “official
menu” being served and substitutions for the ingredients of others. He also observed that some fo
the female employees wore unauthorized clothing, a hed scarf or hijab.
Notice
After returning home, Mr. Ji sent an email to Dr. Budiamman on November 2011 asking him to
take corrective steps to ensure compliance with the Franchise Agreement in order to protect the
uniformity of the Great Wall Noodle Shop restaurants across the world. The mail contained
directions to stop serving unauthorized menu items and use of head scarves by female
employees.
Inspection
Two weeks later, an inspector hired by Mr. Ji visited both Indonesian franchises and submitted a
report to Mr. Ji electronically which conveyed that the Indonesian restaurants still continued to
serve Indonesian food in form of “The Special of the Day” and white head scarves were worn by
female employees.
xvi
Termination of Franchise Agreement
The next day Mr. Ji and Mr. Wang sent a letter to Dr. Budiamman terminating the franchise and
directing him to close both restaurants and remove the signage within 15 days.
Dispute submitted to Arbitration
When Dr. Budiamman refused to close his two restaurants, Wang and Ji submitted a Notice of
Arbitration in conformity with Article 3 of the Kuala Lumpur Regional Arbitration Centre
(KLRCA) Fast Track Rules seeking a restraining order against Dr. Budiamman pursuant to
Article XII B of the Franchise Agreement, tradermark infringement and damage to the reputation
of the Great Wall Noodle Shops.
Dr. Budiamman filed a response denying the allegations and asserting a counterclaim for breach
of the franchise agreement and damage to his reputation.
A Case management Meeting was subsequently held y phone during which the parties agreed
that the questions presented above would be covered at the November hearing to be held on
November 18, 2012 in Bali, Indonesia.
xvii
SUMMARY OF PLEADINGS
I. SINGAPORE LAW IS THE PROPER LAW TO BE APPLIED IN RESOLVING
THE PRESENT DISPUTE
In the present case, the parties have made an explicit choice of governing law as the Singapore
law under the principle of party autonomy. Hence, it is the proper law to be applied.
II. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE
The arbitration agreement is valid and enforceable since it satisfies the conditions of validity
both under Singapore and Indonesian laws.
III. THE FRANCHISE AGREEMENT IS VALID UNDER INDONESIAN LAW
SPECIFICALLY ARTICLE 31 OF LAW NO. 24 OF 2009
The franchise agreement was executed in English language and translated in Indonesian
language to meet with the requirements of Law 24/2009. Arguendo, lack of execution in
Indonesian language does not make the agreement invalid as the provisions of Law No. 24 of
2009 do not have force of law due to lack of implementing regulations.
xviii
IV. ARTICLE XII OF THE FRANCHISE AGREEMENT (DISPUTE RESOLUTION) IS
VALID AND ENFORCEABLE
Article XII does not violate the laws of Singapore and Indonesia because parties are free to enter
into a contract and waive their rights and remedies under the principle of party autonomy.
V. A PROPER AND TIMELY NOTICE OF TERMINATION WAS GIVEN TO THE
FRANCHISEE [DR. BUDIAMMAN]
The notice given by franchisor to the franchisee satisfies the conditions of notice under
Singapore laws and Indonesian laws and cannot be said to be invalid on account of only 2 week
duration of time.
VI. THE FRANCHISOR MAY TERMINATE THE FRANCHISE FOR A
SUBSTANTIAL VIOLATION OF THE FRANCHISE AGREEMENT
A franchise can only be terminated for a substantial violation of its’ terms and conditions.
The same is provided for in the franchise agreement, Indonesian laws and Singapore laws.
VII. THE “INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING” IN
INTERPRETING AND APPLYING FRANCHISE AGREEMENTS DOESN’T
APPLY TO THIS FRANCHISE AGREEMENT AND THE FRACHISEE IS IN
BREACH OF HIS CONTRACTUAL OBLIGATIONS.
xix
The modern view of contracts, keeping in view the doctrine of freedom of contract and its
binding effect iterates the fact that “good faith and fair dealing” is irrelevant. In common law, as
opposed to civil law, albeit the concept of good faith plays an important role in many contexts in
the common law, there is no statutory duty to act in good faith. Furthermore, the franchisee has
breached his obligations under the franchise agreement despite notice of warning.
VIII. NO EMPLOYMENT REGULATION PROHIBITING THE WEARING OF A
HIJAB BY FEMALE MUSLIM EMPLOYEES OR RESTRICTION VIOLATES
THE CONSTITUTION AND/OR LAW OF INDONESIA OR ANY
INTERNATIONAL TREATIES TO WHICH IT IS A MEMBER.
Fundamental rights are not absolute, and the courts often engage in a balancing exercise. There is
a margin of appreciation granted to bodies to infringe religious freedoms. The opposition to
allow the employees to wear the Hijab is not even remotely connected to religion discrimination..
Disallowing the Hijab in the employee’s uniform at all restaurants will ensure uniform neutrality
amongst franchisee restaurants and avoided divisiveness.
1
CLAIMANT’S PLEADINGS
I. SINGAPORE LAW IS THE PROPER LAW TO BE APPLIED IN
RESOLVING THE PRESENT DISPUTE
“Proper law means the system of law which governs the interpretation and the validity of the
contract and the mode of performance and the consequences of breaches of the contract”.1 It is
argued that the proper law to apply in the present case is the Singapore law.
A. The principle of party autonomy applies in the present case.
The general principle is that the parties have the freedom to choose which law shall govern the
substance of their contract.2 Party autonomy has gained acceptance in international law and has
received recognition in almost all national jurisdictions.3 The principle provides a right for the
parties of an international commercial agreement to choose applicable substantive law.4
B. Parties to the franchise agreement have made an express choice of substantive law.
1 J.H.C. Morris “The Conflict of Law ”, London 2000, at page 329. 2Bogdan, Michael, SvenskInternationellPrivat- ochProcessrätt, 6th Edition, NordstedtsJuridik, Stockholm (2004) pg. 271-272; Hunter, Martin and Redfern, Alan, Law and Practice of International Commercial Arbitration, 3rd Ed., Sweet and Maxwell, London (1999) pg. 94. 3Chukwumerije, Okezie, Choice of Law in International Commercial Arbitration, Quorum Books, Westport, CT (1994), pg. 105-106. 4Tele-Save Merchandising v. Consumers Distributing Co. 814 F.2d 1120 (6th Cir. 1987), Modern Computer Systems, Inc. v. Modern Banking Systems, Inc.871 F.2d 734 (8th Cir. 1989), Carlock v. Pillsbury Co. 719 F. Supp 791 (D. Minn. 1989).
2
parties shall state in their arbitration agreement which law will govern the arbitration process.5
When the parties have made a choice of substantive law, this choice refers to the law governing
the parties’ contractual relationship.6 The modern view is that the parties have the freedom to
choose any substantive laws or rules of law even if these do not have any connection to the
parties or the specific dispute.7 In the present case, parties have chosen the Singapore Law to
govern their contractual relationship. It follows that the provision on choice of law contained in
Article XII of the Franchise Agreement is part of the arbitration agreement between the parties
which is binding upon the Tribunal.
C. Party autonomy as a conflict rule applies in the present case.
Conflict rules help in identifying an applicable law when a conflict of laws arises. In respect of
commercial contracts, party autonomy is the main conflict rule designating the applicable.8
However, even if the parties have agreed on an applicable law, a system of private international
law has to be used to determine the degree to which the arbitral tribunal must comply with the
choice made by the party, i.e. to determine the scope of party autonomy.9
5Filip De Ly, The Place of Arbitration, Mys and Breesch, Uitgever, (1992) at p.21. 6 Van den Berg, Albert Jan, Planning Efficient arbitration Proceedings, The law Applicable in International Arbitration, International Council for Commercial Arbitration Congress series no. 7, Vienna, 3-6 November 1994, Kluwer Law International, (1999) pg. 393. 7 Hunter, Martin and Redfern, Supra note 2, pg. 95; Article 33(1), UNCITRAL Arbitration Rules, (1976), Plender, Richard and Wilderspin, Michael, The European Contracts Convention: The Rome Convention on the Choice of Law for Contrcats, 2nd Ed. Sweet and Maxwell, London (2001) pg. 87; Van den Berg, Albert Jan, Supra note 4, pg. 384. 8 Cordero Moss, Giuditta, International Commercial Arbitration: Party Autonomy and Mandatory Rules ,TanoAshehoug, (1999), pg. 46-47. 9Ibid, pg. 246.
3
D. The proper law to apply in the present case is the Singapore law according to
mandatory rules of Singapore.
The Singapore courts will apply the common law. Under the common law, the choice of the
parties will be given effect to, unless the choice is not bona fide or legal or if the choice is
against public policy.10 There is no requirement for any connection between the parties or the
transaction and the country which law is chosen.11
The Singapore courts have taken a very narrow approach to the limitations to party autonomy in
choice of law.12 It has interpreted the last limitation as equivalent to the requirement that the
application of the law chosen by the parties should not be against the fundamental public policy
of the forum, which is a standard limitation to all choice of law rules in the common law.
Effectively, the only qualification to the parties’ choice of law is the principle that if the only
purpose of choosing the law was to evade the operation of the law of a country that would
otherwise apply to the contract in the absence of the choice of law, then the choice would not be
regarded as bona fide.
In Vita Food Products Inc v Unus Shipping Co Ltd13the Privy Council upheld a choice of English
law even though all the relevant factors were connected with Canada or the United States. It
resulted into the rule that if the parties have made an express choice, the will of the parties is
decisive (so long as the choice is bona fide, legal and not contrary to public policy).14The leading
10Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 (PC Nova Scotia). 11Ibid. 12PehTeckQuee v BayerischeLandesbankGirozentrale [2000] 1 SLR 148 (CA). 13[1939] AC 277. 14[1939] AC 277, 279.
4
Singapore case on this subject is PehTeckQuee v. BayerischeLandesbankGirozentrale15, where
the Court of Appeal affirmed the Vita Food principle that the express choice of law of the parties
will be virtually conclusive unless it is not bona fide or legal.16
In the case of Siemens AG v Holdrich Investment Ltd17, parties’ choice of governing law as
Singapore law was upheld. In the present case, the choice of Singapore law to be the governing
law was made in a bona fide and legal manner and does not violate the public policy of
Singapore.
E. The proper law to apply in the present case is the Singapore law according to
mandatory rules of Indonesia.
i. Arbitration Law
The Indonesian Arbitration Law concerns questions of procedural Law and not substantive Law.
There is no mention under the Arbitration Law that provides any guidance as to
applicable substantive laws. Parties are free to mutually designate the substantive law that will
govern the interpretation and performance of their contract.18
ii. Contract Law 15[2000] 1 SLR 148 (CA) at [12]. 16 Min, Y.T., The Effective Reach of Choice of Law Agreements, (2008) 20 SAcLJ. 17[2010] SGCA 23. 18 Karen Mills: ‘Arbitration Procedures in Indonesia’, Arbitration Procedures in Asia, Sweet & Maxwell, London, UK (2001).
5
If the parties to an agreement have elected a choice of Law, then that choice of Law will
generally be honoured by the Indonesian courts under the principle of freedom of contract,
embodied in Article 1338 of the Indonesian Civil Code. The choice of Law may be challenged if
it is in violation of statute or contrary to good morals or public order, as per Article 1337 of the
Indonesian Civil Code.19
Therefore, the proper law to be applied in solving the present dispute is the Singapore law since
the choice of the same as the substantive law of the franchise agreement is valid under
Indonesian law as well.
19 Michael Moser, ed., Chapter on Indonesia: ‘Arbitration in Indonesia’, Arbitration in Asia, a Compendium,. (Butterworths Asia, Hong Kong, January 2001).
6
II. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE.
A. The arbitration agreement is valid and enforceable under Singapore Law.
The principle source of the law of international arbitration in Singapore is International
Arbitration (Amendment) Act 2012 (“IAA”). The legal requirements of an arbitration agreement
under the Singapore Arbitration Law are as follows:20
a. An arbitration agreement may be in the form of an arbitration clause in a contract or in
the form of a separate agreement,
b. An arbitration agreement shall be in writing.
c. No specific words or form are required to give effect to an arbitration agreement but the
intention to arbitrate must be clear and unequivocal
It is submitted that the arbitration agreement contained in Article XII of the Franchise Agreement
satisfies all the requirements to be considered valid and enforceable under Singapore Law.
B. Alternatively, the arbitration agreement is valid and enforceable under Indonesian
Law.
The principle source of the law of arbitration in Indonesia is Law No. 30 of 1999 concerning
Arbitration and Alternative Dispute Resolution (August 12, 1999) (the “Indonesian Arbitration
20Section 2A, International Arbitration (Amendment) Act 2012.
7
Law”). The legal requirements of an arbitration agreement under the Indonesian Arbitration Law
are as follows21:
a. The agreement to arbitrate must be in writing and signed by the parties22
b. If the agreement is made prior to the dispute, the agreement (i.e., the arbitration clause)
must clearly state that all disputes arising out of a particular legal relationship between
the parties shall be settled through arbitration.23
It is submitted that the arbitration agreement contained in Article XII of the Franchise Agreement
satisfies all the requirements to be considered valid and enforceable under Indonesian Law.
C. The tribunal has jurisdiction over the present dispute.
An arbitral tribunal’s jurisdiction stems from the parties arbitration agreement.24 The Kuala
Lumpur Regional Centre for Arbitration (“KLRCA”) has authority to hear the present dispute as
both parties have conferred it with jurisdictional powers via a valid arbitration agreement. The
tribunal has jurisdiction by virtue of Article XII of the Franchise Agreement and Article 6 of the
KLRCA Fast Track Rules 2012.
21 Michael Pryles, ed., Chapter on Indonesia: ‘Dispute Resolution in Indonesia’, Dispute Resolution in Asia, 2nd ed., Kluwer Law International, The Hague, London, Boston (2002). 22Articles 4(2), 9(1) and 9(2) of the Indonesian Arbitration Law . 23 Article 2 of the Indonesian Arbitration Law 24 Cecil, Abraham Arbitration In Asia (Michael Moser eds, LexisNexis 2001) [X]4; Cheng Keng Hong v Government of the Federation of Malaysa [1966] 2 MLJ 33 (per Raja Azlan Shah J)
8
As a preliminary matter, the Tribunal is competent in determining its own jurisdiction, owing to
the well-established competence-competence doctrine.25 The competence - competence doctrine
provides that international courts and tribunals can rule upon their own jurisdiction. 26 This
principle is an accepted legal principle in international arbitration. 27
25Redfern, Alan and Hunter, Martin Law and Practice of International Commercial Arbitration (Sweet & Maxwell 2009) 5-39; Amerasinghe, C.F. Jurisdiction of Specific International Tribunals (MartinusNijhoff Publishers 2009) 442; Art. 16(1) Model Law, IAA.; Articles 3 and 11 of the Indonesian Arbitration Law. 26 Born, Garry B. International Commercial Arbitration (Kluwer Law Internatioanal, The Hague, 2001), p. 853. 27 Born, Garry B. Supra note, Interim Award in ICC Case No 7929 of 1995 XXV YB CommArb 312 (2000); Doshion Ltd v Sembawang Engineers and Constructors Pte Ltd (2011) 3 SLR 118.
9
III. THE FRANCHISE AGREEMENT IS VALID UNDER INDONESIAN LAW
SPECIFICALLY ARTICLE 31 OF LAW NO. 24 OF 2009.
A. Indonesian Law no. 24 of 2009 regarding the National Flag, Language and Emblem
and the National Anthem.
Article 31 of Law 24 states that Indonesian language (Bahasa Indonesia) must be used in any
memorandums of understanding or contractual agreements involving state institutions,
Indonesian government agencies, Indonesian private institutions or individual Indonesian
citizens. For agreements entered into between an Indonesian party and a foreign party, the parties
draw up commercial agreements in dual languages: the foreign language version and an
Indonesia language version. Accordingly, in the context of the franchise agreement and related
documents, Law 24 appears to provide that if the agreement is written in a foreign language, an
Indonesian translation has to be provided.
It is submitted that in the present case, the franchise agreement was executed in English language
and an Indonesian translation was provided.
B. Legality of franchise agreement under Law no. 24 of 2009.
It is submitted that failure to meet the requirement to use the Indonesian language in an
agreement entered into by an Indonesian party is more a failure to meet the formal aspects of the
agreement and therefore should not affect the validity of the agreement as long as the contract
10
satisfies the primary substantive requirements for contract validity (namely, consent, capacity,
specific subject matter and a legal cause) as provided in Article 1320 of the Indonesian Civil
Code (the “ICC”). It is submitted that the franchise agreement fulfills all the requirements of
Article 1320 of the ICC.
i. Law No. 24 of 2009 is not enforceable due to lack of implementing regulations.
It is submitted that Article 40 of Law 24/2009 stipulates that the use of Indonesian language will
be further stipulated in Presidential Regulations which have not come out yet. Even though, the
provisions of Law 24/2009 are still valid even without those Presidential Regulations, however,
it also indicates that the provisions of this Law is not yet complete, which in fact is true. As a
matter of Indonesian legal principle, when the text of the law is not clear, parties to a contract
should not interpret the law for the detriment of any of the parties.
ii. Law No. 24 of 2009 does not carry any sanctions for violation.
It is submitted that Law 24/2009 does not provide for any sanction for failure to comply with the
above requirements, and it is arguable under the general Indonesian legal principle that when a
law provision does not have any sanction, the failure of performing such provision cannot affect
the validity of a legal act, i.e. the contract. This has been made clear in a famous landmark case28
where the Indonesian Supreme Court decided that the failure of submitting a report on foreign
loan (which is an administrative requirement under Bank Indonesia regulations) cannot be used 28Marubeni Corporation v. PT Indokaya Nissan Motors, Supreme Court Case No. 2820K/Pdt. 1984.
11
as a valid reason to annul a credit agreement made between an Indonesian debtor and foreign
creditors. Therefore, the franchise agreement cannot be said to be invalid under Law No. 24 of
2009 for failure to be executed in Bahasa Indonesia.29
C. Alternatively, franchise agreement is valid under Singapore law.
It is submitted that the franchise agreement is to be governed by the Singapore law and would be
valid since contracts executed in English language are valid under the Singapore law.
29Bank of America v. PT Starlight Prim Thermoplas.
12
IV. ARTICLE XII OF THE FRANCHISE AGREEMENT (DISPUTE
RESOLUTION) IS VALID AND ENFORCEABLE.
A. Article XII of the franchise agreement does not violate the Singapore law.
The remedy of specific performance is governed under the general principles of contract law in
Singapore. Singapore follows the common law principle of granting specific performance as an
equitable relief and not as a matter of statutory right.30 Therefore, the limited enjoyment of the
right to specific performance by the Franchisor under the given Franchise Agreement31 is in
keeping with the principle of party autonomy and not in violation of the contract law of
Singapore.
B. Alternatively, article XII of the franchise agreement does not violate the Indonesian
law.
Indonesian franchise laws provide no remedy for the franchisee in event of breach of agreement
by the franchisor. Therefore, the remedies available to the franchisee should be provided in the
franchise agreement itself. Further, article 1338 of the ICC allows parties to a commercial
contract to contract freely as long as the contract is made in good faith and satisfies the
requirements of article 1320 of the ICC. Therefore, the parties can fashion their own remedies in
the contract, subject to limitations in the law.
30 Black E. A., Bell G. F., “Law and Legal Institutions of Asia: Traditions, Adaptations and Innovations: Cambridge University Press, 2011. 31 Article XII (Dispute Resolution) of the Franchise Agreement.
13
In the absence of contractual provisions to the contrary, general remedies available to a
contracting party in the event of a breach of contract can arise from claims based on article 1267
of the ICC which provides for remedies of specific performance and termination. However, in
the present case, the franchisee has given up his remedy of specific performance against the
franchisor as per article XII of the franchise agreement, therefore, remedy of specific
performance under article 1275 of the ICC cannot be availed by the franchisee.
It is submitted that the by restricting the remedy of specific performance only against the
franchise under the franchise agreement, article XII of the franchise agreement does not violate
article 1338, 1320 and 1275 of the ICC since there is no such limitation placed under these
provisions.
It is submitted that since Indonesian law does not explicitly prohibit the restriction of remedy of
specific performance only against one party to a contract, article XII of the franchise agreement
is valid and enforceable.
14
V. A PROPER AND TIMELY NOTICE OF TERMINATION WAS GIVEN TO
THE FRANCHISEE [DR. BUDIAMMAN].
A. The notice given by franchisor to the franchisee satisfies the conditions of notice
under Singapore laws.
It is submitted that a franchise agreement is governed by the FLA Code of Ethics and general
principles of contract law in Singapore. The requirements of a valid notice under these laws are
being met with in the present case.
i. Singapore FLA Code of Ethics.
It is submitted that in the FLA Code of Ethics, various provisions from franchise laws of
different jurisdictions have been compiled in the form of articles. Article 15 titled as “Notice for
breach and time for remedy” provides that –
To the extent reasonably appropriate under the circumstances, a franchisor shall give to
its franchisees notice of any contractual breach and grant reasonable time to remedy
default. (Aus).
Since, the source of this article of Australian law, we shall look into and analyze the provisions
of the relevant Australian law to find out the requirements of a valid notice.
15
ii. Trade Practices (Industry Codes - Franchising) Regulations 1998 of Australia.
The Franchise Code of Conduct of Australia (“AU Code of Conduct”) has the following
provision for a valid notice in cases of termination of franchise on breach by franchisee. Section
21 title as “Termination — breach by franchisee” contains the following provision:
(1) This clause applies if:
(a) a franchisee breaches a franchise agreement; and
(b) the franchisor proposes to terminate the franchise agreement; and
(2) The franchisor must:
(a) give to the franchisee reasonable notice that the franchisor proposes to terminate the
franchise agreement because of the breach; and
(b) tell the franchisee what the franchisor requires to be done to remedy the breach; and
(c) allow the franchisee a reasonable time to remedy the breach.
(3) For paragraph (2) (c), the franchisor does not have to allow more than 30 days.
It is submitted that the all requirements of a valid notice have been met with by franchisor in the
present case including the period of length of notice which was 15 days in the present case with
no mention of minimum period in the provision. Therefore, a proper and timely notice of
termination was given to the franchisee in the present case.
iii. A proper and timely notice was given under general principles of contract law.
The general principles of contact law in Singapore are derived from the common law contract
principles. In the present case, the franchise agreement is silent on whether a notice is to be given
16
on termination and the length of the notice. In the absence of an express term about notice on
termination, we have to rely on the common law precedents.
Where there is no specific provision for notice to terminate in a franchise agreement, the law
requires notice to be of reasonable length and sufficiently clear and unambiguous in its terms if it
is to constitute a valid notice. 32 As with the question of minimum duration, the minimum
advance notice time should be determined in light of the circumstances existing at the time of
termination, not at the time the agreement was executed.33
In the absence of precedents on notice period in cases of franchise termination without an
express provision, it is argued that the notice given to the franchisee was proper since it was in
electronic form capable of being received and read properly. Secondly, it is argued in light of the
prevailing circumstance at the time of termination that the actions of the franchisee constituted a
continued breach of the franchise agreement and put the reputation of the GWNS restaurants at
stake. Therefore, a short period notice was the need of the hour and 2 weeks’ time was sufficient
in the present case. Therefore, the franchisee had sufficient time to remedy his actions in breach
of the franchise agreement.
B. The notice given by franchisor to the franchisee satisfies the conditions of notice
under Indonesian laws.
i. Indonesian Franchise regulations.
32J.C. Millett Co. v. Park &Tilford Distillers Corp., 123 F. Supp. 484, 493 (N.D. Cal. 1954). 33California Wine Ass’n v. Wisconsin Liquor Co., 20 Wis. 2d 110, 126 N.W. 2d 308, 317 (1963).
17
It is submitted that there is nothing related to notice of termination in franchise agreements is
contained in the Indonesian franchise laws.
ii. Indonesian Civil Code (“ICC’).
The ICC provides that all agreements must be made in good faith. Article 1338 of the ICC allows
parties to a commercial contract to contract freely as long as the contract is made in good faith
and satisfies the requirements of article 1320 of the ICC.
It is submitted that the parties in the present case have freely entered into the franchise agreement
which contains no clause for a notice before termination of the agreement on a breach by
franchisee. It can be reasonably inferred that parties have agreed to termination without a notice
by the fact that explicit provisions for a notice have been provided for other matters such as
renewal of the agreement34, inspection35 and post-termination obligations36. It is argued that the
notice of 2 weeks in the present case is in keeping with the principle of good faith under article
1320 of the ICC. Hence, the notice given to the franchisee was a proper and timely notice.
34Moot Problem, page 7. 35Moot Problem, page 26. 36Moot Problem, page 32.
18
VI. THE FRANCHISOR MAY TERMINATE THE FRANCHISE FOR A
SUBSTANTIAL VIOLATION OF THE FRANCHISE AGREEMENT
A. A franchise can be terminated only for a substantial violation of the franchise
agreement under the Singapore laws.
i. The franchise agreement provides for substantial violation as a condition for
termination.
There are no specific franchise laws in Singapore to deal with franchise termination. It is
common practices that a franchise agreement would usually stipulate how and when the
agreement shall be terminated by parties. In the present case, the franchise agreement explicitly
provides that the franchisor has the right to terminate the franchise for any substantial violation
of the agreement that franchisor deems substantial. 37 However, it is submitted that the any
violation of the agreement cannot be deemed substantial by the franchisor and his exercise of
discretion shall be governed by the governing law, i.e. Singapore law in the present case.
ii. Singapore FLA Code of Ethics provide for termination only with a good cause.
It is submitted that the Singapore FLA Code of Ethics requires that a franchise can be terminated
only with a good cause which means termination for a substantial violation of the agreement. It
provides in article 16 titled as “Termination only with good cause”: 37Article XII, Franchise Agreement, Moot Problem, page 31.
19
A franchise agreement may only be terminated for good cause, which includes the failure
of a franchisee to comply with any lawful requirement of the franchise agreement.(USA).
The provision has been taken from the US Franchise law wherein good cause means that a
franchisee has failed to substantially comply with the requirements imposed by the franchisor
and can include damages to a franchisor’s reputation, the sale of competing products, a failure to
maintain standards, etc. 38 Therefore, good cause means where the franchisee has failed to
substantially comply with the franchise agreement.
It is therefore submitted that under the laws of Singapore, a franchisor can terminate a franchise
only for a substantial violation of the franchise agreement by the franchisee.
B. Alternatively, a franchise can be terminated only for a substantial violation of the
franchise agreement under the Indonesian laws.
The franchise laws of Indonesia do not provide any guidance on requirements for the termination
of a franchise agreement on default by the franchisee. Hence, guidance for the same shall be
sought from the Indonesian Civil Code (“ICC”) which contains the commercial principles of
Indonesia.
It is submitted in light of Article 1266 of ICC that a party may not unilaterally terminate an
agreement without the consent of the competent court. Consequently, the franchise agreement
should provide a clause allowing unilateral termination, by reason of breach, default or any other
reason. In the present case, the franchise agreement provides for a unilateral termination of 38 The Federal Trade Commission’s Trade Regulation Rule on franchising (the FTC Rule), available at: http://www.ftc.gov/opa/2007/01/franchiserule.shtm.
20
franchise by the franchisor on a default or violation of the agreement by the franchisor. 39
Therefore, the issue that needs determination is the nature of violation of agreement that could
justify the termination of the franchise.
To find an answer to the above issue, we move to Article 1338 of the ICC which provides that:
All legally executed agreements shall bind the individuals who have concluded them by
law. They cannot be revoked otherwise than by mutual agreement, or pursuant to reasons
which are legally declared to be sufficient. They shall be executed in good faith.
It is submitted that we can interpret the words “reasons which are legally declared to be
sufficient” as substantial reasons. Therefore, there must be a substantial reason or a substantial
violation of the franchise agreement by the franchisee that could justify the termination of the
franchise by the franchisor.
39Article XIII, Franchise Agreement, Moot Problem, page 31.
21
VII. “INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING” IN
INTERPRETING AND APPLYING FRANCHISE AGREEMENTS DOES
NOT APPLY TO THIS FRANCHISE AGREEMENT.
A. The modern contract view strikes “good faith” irrelevant.
The modern view is that, in keeping with the doctrines of freedom of contract and the binding
force of contracts, in contract law of most common law systems, good faith is in principle
irrelevant.40
As was observed by Thomas J in Bobux Marketing Ltd v Raynor Marketing Ltd41:
“The fundamental flaw of the classical conception of contract law was its empirical premise that
most contracts are discrete. That premise is false. Most commercial contracts are in fact
relational contracts. The great bulk of contracts either creates or reflects relationships. It is
discrete contracts that are unusual, not relational contracts.”
B. Common Law jurisdictions render “good faith” irrelevant
In common law, different from the civil law, there is no statutory duty to act in good faith. Albeit
the concept of good faith plays an important role in many contexts in the common law, there is
not a duty to act in good faith that is as general and extensive as the duty to act in good faith
40 Chitty on Contracts, 28th Ed, Vol 1 (London: Sweet & Maxwell, 1999), at 13, para1-019. 41Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506 at para 34, per Thomas J.
22
found in the civil law.42 Similarly, Singapore being a common law country, there is no general
legal obligation on parties to deal with each other in good faith.43
In Ng Giap Hon v Westcomb Securities Pte Ltd and Ors.44the Singapore Court of Appeal held
that reliance on implied terms in general is a refuge of last resort45 because the recourse to
implied terms could be deleterious to the notion of sanctity of contract and so they should be
recognised only in exceptional situations and only by reference to established legal rules and
principles.46
In Ng Giap Hon, it was held that because the doctrine of good faith continues to be fledgling47
and therefore in need of clarification, even on a theoretical level, it would be inadvisable to even
attempt to apply it in the practical sphere, it did not endorse an implied duty of good faith in the
Singapore context.48 The same reasoning was followed in the case of Keating v. Baskin Robbins
USA, Co.
42http://www.franchise.org/uploadedFiles/F2012Indonesia.pdf. 43 http://www.franchise.org/uploadedFiles/Franchise_Industry/International_Development/Resources/Singapore%20Laws.pdf. 44 [2009] SGCA 19 (Andrew Phang Boon Leong , Chao Hick Tin & V K Rajah JJA) (29 April 2009) [Ng Giap Hon]. 45Panwah Steel Pte Ltd v Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd [2006] 4 SLR 571 at para 8. 46Forefront Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [2006] 1 SLR 927 at para 29. 47 Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 117 ALR 393; Aircraft Systems International v Airservices Australia (1997) 146 ALR 1; Pratt Contractors Ltd v Transit New Zealand [2004] BLR 143; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903; Elisabeth Peden, “Incorporating Terms of Good Faith in Contract Law in Australia” (2001) 23 Syd L Rev 222 (“Peden’s 2001 article”) and Tyrone M Carlin, “The Rise (and Fall?) of Implied Duties of Good Faith in Contractual Performance in Australia” (2002) 25 UNSW LJ 99). 48 [2009] SGCA 19 (Andrew Phang Boon Leong , Chao Hick Tin & V K Rajah JJA) (29 April 2009) [Ng Giap Hon].
23
C. Arguendo, even if “Good Faith” applies in the instance, the Sarong Arrest must
apply
Article 1338 (3) ICC, besides having a supplemental function as is expressly provided in Article
1339 ICC, also has a derogating function. In a well-known decision commonly referred to as the
“Sarong arrest” the Dutch Supreme Court49 took the view that good faith could only supplement
contractual rights and obligations and could, therefore, not derogate from those rights and
obligations. The Dutch Supreme Court expressly acknowledged that good faith, besides having a
supplemental function, can also have a derogating effect, however, even before that year judicial
opinion has in a number of cases departed from the abovementioned strict grammatical
interpretation of article 1338 and 1339 Indonesian Civil Code as reflected in the above referred
Sarong arrest.50
D. Bright line test- motive not important
The Court, in Atlantis Petroleum, LLC v. Getty Petroleum Marketing, Inc.,51 while laying down
the bright line test held, “assertions as to motive [intent] or bad faith by the franchisor [are]
irrelevant in evaluating the propriety of termination or non-renewal where the termination or
non-renewal is based on conduct by the franchisee.” If a franchisor articulates and satisfies an
express right to terminate, courts should not “consider reasons for the decision to exercise that
right.”
49 HR 8 January 1926, NJ 1926, 203.) 50Asser - Hartkamp, op. cit., p. 300. 5111 Civ. 2471 (TPG).
24
This implies that no allegation as to bad faith on part of the franchisor arises and since the
agreement specifically provides for termination on violation of the agreement, the threshold to
prove justifiable termination remains on breach of any express covenant.
E. Since “good faith” is inapplicable, termination of the franchise agreement is
perfectly justified.
In general, the parties should provide in the franchise agreement the circumstances that may give
rise to termination of the franchise relationship. Consequently, the franchise agreement should
provide a clause allowing unilateral termination, by reason of breach, default or any other
reason.52 Also, Indonesian Contract Law provides that there is freedom given to the parties to
determine the terms of the contract. Agreements which are legally executed shall bind the
individuals who concluded them53 . This implies that there is an obligation on part of the
contracting parties to perform their duties as per the procedure agreed. Any failure to perform
such their duties would only result in termination of contract 54 . In the present case,
Dr.Budiamman failed to fulfil his obligation under the Agreement and hence Mr.Ji was justified
in terminating the agreement.
i. Serving of the Indonesian dish referred as “Special of the day” justifies
termination.
52http://www.franchise.org/uploadedFiles/F2012Indonesia.pdf. 53Article 1338 Indonesian Civil Code. 54http://www.aseanlawassociation.org/papers/BusinessLaw.pdf.
25
The franchise owners sought to create a distinctive “System” of franchises, for which franchises
were created in Indonesia. “System” means the Great Wall Noodle Soup System, which consists
of distinctive food and beverage products prepared according to special and confidential recipes
and formulas with unique storage, preparation, service and delivery procedures and techniques,
offered in a setting of distinctive exterior and interior layout, design and colour scheme, signage,
furnishings and materials, distinctive attire for all employees, and using certain distinctive types
of facilities, equipment, supplies, ingredients, business techniques, methods and procedures
together with sales promotion programs.55
Provision III of the Franchise agreement obliges the franchisee to abide by the items in the menu
strictly. Only those items which are on the menu are allowed permitted to be sold.56Even if an
item is to be sold as a “Promotional Item”, it is subject to the approval of the franchisor.57As
stated in Part XIII B, the franchisor can terminate the franchise in case of any substantial
violations of the agreement.58
Customarily, “Failure to begin or substantially complete any system construction or system
extension as set forth in a franchise”, amounts to a “substantial violation” to terminate. In the
instant case, whatever steps taken by a franchisee which distorts the uniformity in the “System”,
is enough to terminate the franchise as it may cause irreparable harm to the franchise owner.
55Provision 1D of the Franchise Agreement. 56Part IIIA of Franchise Agreement. 57Part III E of Franchise Agreement. 58Part XIII B of Franchise Agreement.
26
Thus, serving the “Special of the day” creates the impression of a unique item that is sold at the
Great Wall Noodle Soup System, making it look like a predominantly selling item. This clearly
distorts the uniformity that the owner wished to keep intact, thus justifying termination.
ii. Substituting “lamb” for “pork” in the menu also justifies termination.
For the same reasons afore stated, substituting “lamb” for pork also justifies termination. While
the agreement requires all the laws to be complied with, including religious laws, religion cannot
be a defence because, once the franchise was signed, the franchisee became liable to all the
covenants therein. In any case, there has been no approval taken. Termination on this ground is
justified also because no heed was paid by the franchisee to repetitive instructions by the
franchisor.
iii. Wearing of the new white hijab by the female Muslim employees justifies
termination.
Under Part II, Clause G, it is clearly stated that the employees who have any contact with the
customers are required to dress as provided in the picture 59 . Instead in Dr.Budiamman’s
restaurant, it was found that women employees were allowed to wear headscarves. Giving notice
to Dr.Budiamman to rectify this deviance otherwise it’ll lead to termination of agreement,
women were still allowed to wear scarves60. This shows that Dr.Budiamman did not carry out his
obligations which have been laid out in the Agreement clearly. Hence, Mr.Ji was justified in
terminating the agreement.
59Page 12, Moot Problem. 60Page 4, Moot Problem.
27
iv. There was a continuing disregard of the franchise obligations by the franchisee.
Owing to afore stated actions of the franchisee, there is clear continuing disregard to the
franchise agreement, showcasing justified need for termination.
28
VIII. NO EMPLOYMENT REGULATION PROHIBITING OR RESTRICTING
THE WEARING OF A HIJAB BY FEMALE MUSLIM EMPLOYEES
VIOLATES THE CONSTITUTION AND LAWS OF INDONESIA
A. There is a margin of appreciation granted to bodies to infringe religious freedoms:
Fundamental rights are not absolute, and the courts often engage in a balancing exercise,
comparing the infringement of human rights the legislation might create with legitimate
objectives to which it might be aimed.61 The extent to which an individual has or should have the
right to religious freedom, and to manifest that freedom by wearing particular items of clothing,
has become very contentious.62 As a general rule courts applying discrimination law principles
have been very willing to accept justifications for what would otherwise be indirect
discrimination.63 Article 9(2) of the International Convention on the Elimination of all Kinds of
Racial Discrimination provides that the right to freedom of religion is not absolute and is subject
to limits provided by (domestic) law; however it requires that these limits be necessary in a
democratic society in the interests of public safety, public order, health, morals and the rights of
others. Extensive exceptions to racial discrimination laws appear in the Race Relations Act 1976
(UK)64 and Equality Act 2006 (UK).
61 Dahlab v Switzerland (2001) European Court of Human Rights 1; Sahin v Turkey (Application No 44774/98), 10/11/2005; Employment Division, Department of Human Resources of Oregon et al v Smith et al 494 US 872 (1990); Goldberg v Weinberger, Secretary of Defense 475 US 503 (1986). 62 Anthony Gray, Religious Freedom and Section 116 of the Australian Constitution: Would a Banning of the Hijab or Burqa Be Constitutionally Valid?, available at forumonpublicpolicy.com/vol2011.no2/archivevol2011.no2/gray.pdf 63 Ann Blair ‘Case Commentary: R (SB) v Headteacher and Governors of Denbigh High School – Human Rights and Religious Dress in Schools’ (2005) 17(3) Child and Family Law Quarterly 8-9. 64 S 4A and s 5 allow for exceptions to the non-discrimination requirements of the Act where it is justified by genuine occupational requirements (as does cl 7 of the Employment Equality (Religion or Belief) Regulations 2003 (SI 2003/1660); see also s 19C, s 19D, s 19F, s 25 and s 35-39 of the Act.
29
In the United States, students do not have an unlimited right to freedom of expression in
schools,65 and they do not have the right to a religious exemption from a generally applicable
policy.66 Courts in the United States have been prepared to uphold legislation prohibiting public
school teachers from wearing religious clothing in the classroom.67
In Webb v. City of Philadelphia, 68 the police department denied a Muslim female officer’s
request to wear a khimar over her uniform. The department determined that doing so would
violate the department’s uniform regulation, which prohibited officers in uniform from wearing
religious dress or symbols, applied in all circumstances, permitted no medical or secular
exceptions. The court agreed, holding that the commissioner’s “reasons for refusing
accommodation i.e. to promote the image of a disciplined, identifiable and impartial police force
by maintaining . . . the department’s uniform as a symbol of neutral government authority, free
from expressions of personal religion, bent or bias”69 are sufficient to meet the more than de
minimis cost of establishing that the proposed accommodation would be an undue burden.”70
In Dahlab v Switzerland,71 the court considered a Swiss law restricting the wearing of religious
clothing, in this case applied against a teacher who wished to wear an Islamic headscarf. The
court found that although there was an interference with the right to freedom of religion espouses
65 Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 266 (1988); Bethel Sch. Dist. v. Fraser, 478 U.S. 675, 682 (1986); Tinker v. Des Moines Indep. Cmty. Sch. Dist., 393 U.S. 503, 507 (1969). 66 Charles C. Haynes, Dress Codes vs. Religious Practice: What Kind of Nation Are We?, FIRST AMENDMENT CENTER.ORG (Oct. 19, 2003), http://www.firstamendment center.org/commentary.aspx?id=12080 (quoting U.S. Dep’t. of Educ., Religious Expr-ession in Public Schools (May 1998), http://www.ed.gov/Speeches/08-1995/religion. html) 67 This legislation exists in Oregon, Pennsylvania and Nebraska; Stefanie Walterick ‘The Prohibition of Muslim Headscarves From French Public Schools and Controversies Surrounding the Hijab in the Western World’ (2006) 20 Temple International and Comparative Law Journal 251, 264. 68 2007 U.S. Dist. LEXIS 46872 (E.D.Pa. 2007), aff’d, 562 F.3d 256 (3d Cir. 2009). 69 562 F.3d at 261. 70 Id. at 262. 71 (2001) European Court of Human Rights 1.
30
in Article 9(1) of the International Convention on the Elimination of all Kinds of Racial
Discrimination , it was justified within the ‘margin of appreciation’ granted to member states.
And held that allowing a teacher to wear the scarf would violate the notion of institutional
neutrality associated with public schools.72
In Sahin v Turkey, the court considered a ban on the wearing of an Islamic headscarf at a Turkish
University. Sahin was excluded from the University because she refused to comply with the ban.
The European Court of Human Rights held that although there was an interference with Sahin’s
right to freedom of religion, the ban fell within the Turkish Government’s ‘margin of
appreciation’, necessary to combat the headscarf’s threat to secularism and gender equality,
important values in the Turkish Republic.73 The Court reiterated the value of secularism, to
protect equality and liberty.
R v Headteacher and Governors of Denbigh High School,74 the Court concluded that a girl, who
felt her Muslim beliefs would only be fulfilled by wearing a jilbab, her freedoms had been
infringed, but that such infringement was justified on the basis of the school’s desire for harmony
and collegiality within the school. The same was observed by the Court in R and Headteachers
of Y School and the Governors of Y School,75
B. The margin of discretion has been lawfully exercised in the form of the employment
regulation
72 Kathryn Boustead ‘The French Headscarf Law Before the European Court of Human Rights’ (2007) 16 Journal of Transnational Law and Policy 167. 73 Benjamin Bleiberg ‘Unveiling the Real Issue: Evaluating the European Court of Human Rights’ Decision to Enforce the Turkish Headscarf Ban in Sahin v Turkey’ (2006) 91 Cornell Law Review 129, 153. 74 [2006] UKHL 15. 75 [2006] EWHC 298.
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The freedom to “manifest” one’s religion or beliefs (by dress or otherwise) is not absolute and
may be subject only to such limitations as are “prescribed by law” and are “necessary” to protect
public safety, order, health or morals or the fundamental rights and freedoms of others.76 Some
States have undertaken measures to ban the wearing of religious clothing (or symbols) generally
in State primary and secondary schools, as well as in the universities.77
In the instant case, the opposition to allow the employees to wear the hijab is not even remotely
connected to religion discrimination. The sole purpose is maintaining uniformity for a successful
franchise operation.78 Furthermore the franchise agreement requires all restaurants to be the
same-in and out at all locations.79 It is submitted that if the employees don’t dress the same at all
restaurants, it will destroy the ‘common appearance’ which is very necessary for a successful
franchise.
In its interpretation of the free exercise of religion and anti-establishment provisions of the First
Amendment, the US Supreme Court has moved from a requirement that a law affecting religious
practice be justified by a ‘compelling governmental interest’80 to a more modest requirement that
the law not be directed at specific religious practices, or ban the performance of acts solely
because of their religious motivation. The United States Supreme Court while considering an air
force regulation prohibiting employees from wearing headgear while indoors, as part of the
76 ICCPR, Article 18(3); I.T. Plesner, Legal Limitations to Freedom of Religion or Belief in School Education, 19 Emory ILR (2006), 557–586. 77 Azerbaijan, Albania, Turkey and Uzbekistan regulate the wearing of the Islamic dress at the university level. 78 Moot Problem. 79 The Franchise agreement, Part III. 80 Sherbert v Verner 374 US 398 (1963). In Wisconsin v Yoder 406 US 205 (1972). .
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uniform policy in Goldberg v Weinberger, Secretary of Defense 81 noted that the regulation was
not aimed at a particular religion.82
Similarly the employer regulation is not aimed at any particular religion in the instant case.
Permitting the employees to wear the Hijab would violate the restaurant’s uniform regulation,
which prohibits employees in uniform from wearing religious dress or symbols, applied in all
circumstances, permitted no medical or secular exceptions. 83 Disallowing the hijab in the
employee’s uniform at all restaurants will ensure uniform neutrality amongst franchisee
restaurants and avoided divisiveness.
81 475 US 503 (1986). 82 475 US 512 (1986). 83 Webb v. City of Philadelphia, 562 F.3d 256 (3d Cir. 2009).
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PRAYER FOR RELIEF
In light of the above submissions, CLAIMANT requests this Tribunal to find that:
1. The proper law applicable is the Singapore Law.
2. The arbitration agreement is valid and enforceable.
3. The Franchise Agreement is valid under Law 24 of 2009 of Indonesia.
4. Article XII of the Franchise Agreement is valid.
5. A proper and timely notice of termination was given to the Franchise.
6. The Franchisor may terminate the Franchise Agreement only for a substantial
violation of the franchise agreement.
7. The “inherent warranty of good faith and fair dealing” in interpreting franchise
agreements doesn’t apply to this franchise agreement and RESPONDENT is in
breach of its’ contractual obligations.
8. No employment regulation prohibiting the wearing of a hijab by female Muslim
employees or restriction violates the constitution and/or law of Indonesia or any
international treaties to which it is a member.
