AT KUALA LAMPUR REGIONAL CENTER FOR …lawasiamoot.org/pdf/competition2012/F2010-R.pdf · Article 1266, Civil Code of Indonesia .....16 Article 1320(1), Civil Code of Indonesia .....1,

LAW ASIA International Moot 2012 F2010-R

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 RESPONDENT


ii

TABLE OF CONTENTS

INDEX OF AUTHORITIES .................................................................................................................................................................................................... iivv

SSTTAATTEEMMEENNTT OOFF JJUURRIISSDDIICCTTIIOONN………………………………………………………………………………………………………………....xx

QUESTIONS PRESENTED .................................................................................................................................................................................................... xxii

STATEMENT OF FACTS ...................................................................................................................................................................................................... xxiiiiii

SUMMARY OF ARGUMENTS ...................................................................................................................................................................................... xxvv

PPLLEEAADDIINNGGSS ............................................................................................................................ 1

ISSUE I: The Franchisee Agreement Dated 20th June, 2011 is Invalid ......................... 1

1 Lack of Acceptance on Part of the Respondents ......................................................... 1

1.1 Lack of unconditional and unqualified assent ..................................................... 1

1.2 Absence of ‘Consensus ad idem’. ........................................................................ 2

2 Article 31 of the Law 24 of 2009 of the Republic of Indonesia renders the

Franchisee Agreement invalid ........................................................................................... 3

ISSUE II: The Arbitration Agreement is invalid and unenforceable ............................. 6

1 Non-applicability of the Seperability Presumption ..................................................... 6

2 Arguendo: Notwithstanding, the tribunal accepts the separability presumption, the

arbitral clause is invalid due to lack of intention of the parties to enter into an arbitration

agreement. .......................................................................................................................... 7

3 The award passed by the Arbitral Tribunal pursuant to the Chapter XIIA is

unenforceable ..................................................................................................................... 8

ISSUE III: The Law to be applied in resolving the Dispute is Indonesian Law .......... 10

1 Choice of law rules of the Malaysian Arbitration Act, 2005 lead to the application of

the laws of Indonesia........................................................................................................ 10

3.1 KLRCA Fast Track Rules stipulate the seat of arbitration to be Malaysia........ 10

3.2 Malaysian Arbitration Act is the relevant arbitration legislation....................... 10

3.3. The Choice of law or rules of the Malaysia would apply in the instant case .... 11

2 The conflict-of- law rules of Malaysia lead to the application of the laws of

Indonesia .......................................................................................................................... 12

3.4 No express or implied choice............................................................................. 12

3.5 The ‘Closest Connection Test’ leads to the application of Indonesian Law ...... 12

ISSUE IV: Article XII of the Franchise Agreement is Invalid and Unenforceable ..... 14

ISSUE V: A proper and timely Notice of Termination was not given to the Franchisee

[Dr. Budiamman] ............................................................................................................... 16

Under Singapore Law ...................................................................................................... 16


iii

5.1 Reasonable Notice of Termination .................................................................... 16

5.2 Proper Notice of Termination ............................................................................ 17

Under Indonesian Law ..................................................................................................... 18

ISSUE VI: The Franchisor can terminate the Agreement only in case of a substantial

violation of the Agreement, i.e., when there has been a fundamental breach of the

Agreement........................................................................................................................... 18

6.1 Fundamental Breach and Substantial Performance ........................................... 18

ISSUE VII: The “inherent warranty of good faith and fair dealing” in interpreting

and applying franchise agreements does apply to this Franchise Agreement. ............ 21

7.1 Good Faith.......................................................................................................... 21

ISSUE VIIA: The serving of a single Indonesian dish referred to as “The Special of

the Day” does not justify the termination of the franchise. ........................................... 24

ISSUE VIIB: Giving customers the option of substituting lamb for pork for menu

items does not justify the termination of the franchise. ................................................. 26

ISSUE VIIC: The wearing of the “new (white) hijab” by the female Muslim

employees does not justify the termination of the franchise. ......................................... 27

ISSUE VIID: The above violations of the Franchise Agreement do not reflect a

continuing disregard of the franchisee’s obligations under the Franchise Agreement

and do not justify its termination. .................................................................................... 28

Issue VIII: An employment regulation prohibiting the wearing of a hijab by female

Muslim employees or restriction (or the colour type of the hijab) violates the

constitution and/or laws of Indonesia or any international treaties to which it is a

member. .............................................................................................................................. 30

8.1 Right to Religious Faith and Worship ............................................................... 30

8.2 Hijab as recognised in the Qur’an...................................................................... 30

PRAYER FOR RELIEF................................................................................................................................................................................................................ 3322


iv

INDEX OF AUTHORITIES

Books

Chitty on Contracts, Volume I (General Principles), Sweet and Maxwell............................ 1, 2

Articles

Alon Ilan, Mark Toncar, et al. (2002), American Franchising Competitiveness in China,

Journal of Global Competitiveness, Vol. 10 (1), 65-83. ...................................................... 25

Belden Premaraj, The Choices of Law – Better Safe Than Sorry,The Malaysian Arbitration

Perspective ........................................................................................................................... 11

Benjamin Klein, Transaction Cost Determinants of 'Unfair' Contractual Arrangements, 70

AM.ECON. REV., May 1980, at 356 (papers & proceedings). .................................... 19

Commercial Bank of Austsralia Ltd v. Amadio (1983) 151 CLR 447 ..................................... 13

Deraius, International Arb. Bulletin, Vol 6, No 110, at 16-17 .................................................. 5

G Petrochilos, Procedural Law in International Arbitration, 6 (2004)..................................... 9

Grigera Naon, Choice-of-law Problems in International Commercial Arbitration, 289 Recueil

des Cours 9, 285-86 (2001).................................................................................................. 10

Hirsch, The Place of Arbitration and the Lex Arbitri 34 Arb. J 43, 45 (1979).......................... 9

K.Zwegert & H. Kotz, An Introduction to Comparative Law , 343 (3d Ed. 1998) ................. 12

Kröll, “Recognition and Enforcement of Awards,” supra, n. 6, at s. 1061, para. 53 ................. 8

L J Priestley, 'Unconscionability as a Restriction on the Exercise of Contractual Rights' in

Carter, ed., Rights and Remedies for Breach of Contract , 1986, pp 80-81.; Ewan

McKendrick, “contract law”, 9th edition, palgrave macmillan law masters, (2011), on page

315, 316 [ case-National Westminster Bank v Morgan [1985] AC 686 at 708] ................. 13


v

Manisuli Ssenyonjo, The Islamic Veil and Freedom of Religion, the Rights to Education and

Work: a Survey of Recent International and National Cases, Chinese Journal of

International Law (2007), Vol. 6, No. 3, 657 ...................................................................... 26

Mann, Lex Facit Arbitrum, 2 Arb Int’l 241, 244-245, 248, (1986) ......................................... 10

Miller, Tracy, ed. (October 2009) , Mapping the Global Muslim Population: A Report on the

Size and Distribution of the World’s Muslim Population, Pew Research Center, retrieved

2009-10-08 ........................................................................................................................... 22

Pawel Moskwa, Interpretation of Commercial Contracts in the Future European Civil Code

– Objective or Subjective Method? ELSA SPEL 2004 (1) .................................................. 18

William Tetley, Good Faith in Contract Particularly in the Contracts of Arbitration and

Chartering, (2004) 35 JMLC 561-616................................................................................. 21

Zeller, Bruno (2003) Good Faith - Is it a Contractual Obligation?, Bond Law Review: Vol.

15: Iss. 2, Article 13 ............................................................................................................. 22

Cases

Aeolian Shipping SA v. ISS Machinery Services Ltd [2001] EWCA Civ. 1162, [2001] 2

Llyod’s Rep 641, [16] .......................................................................................................... 11

Australian Blue Metal Limited v. Hughes, [1963] AC 74 ....................................................... 14

Bank of Baroda v. Vysya Bank , [1994] 2 Lyod’s Rep. 87 ...................................................... 12

Blomley v Ryan (1956) 99 CLR 362 at 405 ............................................................................. 13

Bonython v. Commonwealth of Australia [1951] A.C. 201 (PC) ............................................ 11

Carvel Corporation v. Baker, 79 F. Supp. 2d 53 (D. Conn 1997) .......................................... 19

Credit Lyonnais v. New Insurance Co. [1997] 2 Lloyd‟s Rep 1; AIG Group Ltd. v. Ethinki

[1998] 4 All ER 301............................................................................................................. 12

Dwyer v Biddle, 274 App Div 903 .......................................................................................... 13

Empire Volkswagen v. World Wide Volkswagen Corp., 814 F.2d 90 (2d Cir. 1987).... 21


vi

Far Horizons v. McDonalds Australia Ltd., [2000] VSC 310................................................. 19

Fiona Trust& Holding Corp. v. Privalov, [2007]1 All E.R. (Comm.) 891 (English Court of

Appeal)................................................................................................................................... 5

GHL v Unitrack Building Construction (Civil Appeal No 20, 1999)...................................... 13

Home Ins. Co. v. Morse, 87 U.S 445, 451 (U.S S.Ct. 1874) ..................................................... 8

Jackson Distribution Limited v. Tum Yeto Inc., (2009) EWHC 982 (QB) .............................. 14

Jacob & Youngs v. Kent, 230 N.Y. 239 (1921) ....................................................................... 17

Judgment of 15 March , 1990, Sonatrach v. K.C.A Drilling Ltd., 1990 Rev. Arb. 921, 923 et

seq. ......................................................................................................................................... 8

Kirke La Shelle Company v. The Paul Armstrong Company et al., 263 N.Y. 79.................... 24

Lattimore v. Mott, [2005] All ER 415 ....................................................................................... 2

Machinale Glasfabriek De Maas v. Emaillerie Alsacienne [1985] 2 CMLR 281 ................... 12

Mariana Maritime S.A. v. Stella Jones Inc., Federal Court—Court of Appeal, Canada, 24

May 2002, [2002] FCA 215 (CanLII ..................................................................................... 7

Maxwell v. Fidelity Financial Services, Inc, 184 Ariz. 82 (1995) Supreme Court of Arizona,

En Banc. November 21, 1995 .............................................................................................. 13

Mike M. Johnson, Inc. v. County of Spokane, 150 Wash.2d 375, 78 P.3d 161 (2003)............ 16

Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772, 780 (9th Cir.1981) ............. 19

New York Central Iron Works Co. v. United States Radiator Co., 174 N.Y. 331 .................. 19

OLG Rostock, IPRax 2002, 401 (decided Nov. 22, 2001) = YCA XXIX (2004), 732 (Rostock

Court of Appeal, Germany). .................................................................................................. 8

Pacific Crown Engineering Ltd. v. Hyundai Engineering & Construction Co. Ltd., High

Court—Court of First Instance, Hong Kong Special Administrative Region of China, 23

April 2003, [2003] HKCFI 924 ............................................................................................. 7


vii

Pccw Global Ltd. v. Interactive Communications Service Ltd., High Court—Court of Appeal,

Hong Kong Special Administrative Region of China, 16 November 2006, [2006] HKCA

434.......................................................................................................................................... 6

Photo Productions Ltd. v. Securicor Transport Ltd., [1980] UKHL 2 ................................... 17

Pia Ltd. v. Cassia, 1990 Rev arb. 851 ( Paris Cour d’appeal) ................................................... 4

Québec Inc. v. Fafard, Court of Appeal of Quebec, Canada, 31 March 2004, [2004] QJ No.

4085, REJB 2004-60643 ........................................................................................................ 6

Raihon Hudoyberganova v. Uzbekistan, U.N. Doc. CCPR/C/82/D/931/2000 (2004) ............ 26

Re United Railways of Havana [1961] AC 1007..................................................................... 12

Re United Railways of Havana etc. Warehouse Ltd. [1960] Ch. 52, 91 (CA), affirmed [1961]

A.C. 1007 ............................................................................................................................. 11

Union of India v. McDonnell Douglas Corp. [1993] 2 Lloyd‟s Rep. 48, 50 (Q.B.) ................. 9

Vita Food Products Inc v. Unus Shipiing Co Ltd. [1939] A.C. 277, 298 (PC) ....................... 11

Y K Fung Securities Sdn Bhd v James Cape (Far East) Ltd, [1997] 2 MLJ 621 .................... 12

YK Fung Securities v. James Cape Ltd. (CA) [1997] 4 CLJ 300 ............................................ 11

Zulla Steel v. A&M Gregos, 174 N.J. Super. 124 .................................................................... 24

Rules

Article 1.7, UNIDROIT Principles of International Commercial Contracts, 2010 ................. 19

Article 6(2), Kuala Lumpur Regional Centre for Arbitration, 2nd Edition (2012)................... 10

Rule 204(1), Dicey and Morris, The Conflict of Laws, Volume 2, pp. 1580 ........................... 11

Sch 1, Art 16(1), International Arbitration Act.......................................................................... 5

International Instruments

Article 18, International Covenant on Civil and Political Rights ............................................ 26

Article V(1)(a) , New York Convention, 1958 .......................................................................... 8


viii

Article V(2), New York Convention, 1958 ............................................................................... 7

National Legislation

Article 10(f) and 10(h), Law No. 30 of 1999s ........................................................................... 5

Article 1266, Civil Code of Indonesia ..................................................................................... 16

Article 1320(1), Civil Code of Indonesia .............................................................................. 1, 2


Article 1343, Civil Code if Indonesia ...................................................................................... 23





Article 1874 and Article 1876, Indonesian Civil Code.............................................................. 3

Article 1878, Indonesian Civil Code. ........................................................................................ 3

Article 28E, Constitution of Indonesia .................................................................................... 26

Article 29, Constitution of Indonesia ....................................................................................... 26

Chapter 4, Section 2 , International and Domestic Arbitration in Singapore ........................... 6

Chapter 8, Section 2 (8.2.2 and 8.2.5), The Law of Contract, Singapore .................................. 1

S 21 (2), Singapore Arbitration Act ........................................................................................... 5

UNIDROIT Articles

UNIDROIT Principles of International Commercial Contracts, 2004 ...................................... 1

Awards

Award in Final ICC Case No. 7453, XXII Yearbook of Commercial Arbitration 107 (1997) . 3

Final Award in ICC Case No. 8938, XXIV Year Book of Commercial Arbitration 174,

176(1999) ............................................................................................................................... 5


ix

Other Authorities

Qur'an, Sura 2 (Al-Baqara), ayat 173....................................................................................... 22

Verse 24:31, Qur’an; Verse 33:59, Qur’an .............................................................................. 26


x

STATEMENT OF JURISDICTION

The Respondent challenges the authority of the Kuala Lumpur Regional Centre for

Arbitration to resolve the present dispute as the arbitration agreement is invalid. The

Respondent maintains that the claim is not admissible against it and this has been argued

further in the Pleadings.


xi

QUESTIONS PRESENTED

I. Whether the Franchise Agreement dated 20th June, 2011 is invalid?

II. Whether the Arbitration agreement is invalid and unenforceable?

III. What is the law to be applied in resolving the dispute?

IV. Whether Article XII of the Franchise Agreement is invalid and unenforceable?

V. Was a proper and timely Notice of Termination given to the Franchisee [Dr. Budiamman]?

VI. May the Franchisor terminate the franchise for any violation of the Franchise Agreement

or must it be a substantial violation of the Agreement?

VII. Does the “inherent warranty of good faith and fair dealing” in interpreting and applying

franchise agreements apply to this Franchise Agreement and, if so:

VIIA. Did the serving of a single Indonesian dish referred to as “The Special of the

Day” justify the termination of the franchise?

VIIB. Did giving customers the option of substituting lamb for pork for menu items justify

the termination of the franchise?

VIIC. Did the wearing of the “new (white) hijab” by the female Muslim employees justify the

termination of the franchise?

VIID. 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?

VIII. 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?


xii

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 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. After the Claimant decided to expand their franchise to Indonesia, Mr. Wang travelled

to Singapore to ask Mr. Bao Shan, the franchise owner in Singapore, if he’d like to

expand to Indonesia as well. He wasn’t interested.

3. While at Changi airport, Mr. Wang started talking to Dr. Budiamman, a surgeon from

Jakarta. Dr. Budiamman expressed interest in the GWNS franchise, and agreed to sign

the Franchise Agreement in place of Mr. Bao Shan. Dr. Budiamman had previously

worked at a Chinese restaurant and knew about Chinese food.

4. Dr. Budiamman’s name was substituted on the original contract, and as Dr.

Budiamman was getting late for his flight, he only managed to give a cursory glance

through the Agreement. Mr. Wang had time only to explain the fee structure to him,

and Dr. Budiamman signed the Agreement.

5. The two new franchises opened in September, 2011. The Jakarta restaurant was

successful from the beginning. An e-mail thread inadvertently forwarded to Dr.

Budiamman, but which was a private conversation between the two partners, relayed

Mr. Ji’s comment on the Jakarta restaurant being a “gold mine”, and how the

franchise should have been given to a close friend or relative.


xiii

6. Following this, Mr. Ji made an unannounced visit to both the Indonesian restaurants in

late October, 2011. Dr. Budiamman, keeping in mind that Indonesia was a country

dominated by a Muslim population, had offered on the menu itself to substitute pork

items on the menu with lamb. For the same reason, he had also allowed the waitresses

who had requested it of him, to wear a hijab on their uniform. His wife had picked the

red colour of the hijab to match the uniform. He had also offered a separate menu for

Indonesian food, which was available only when requested. Mr. Ji noted these

supposed violations of the Franchise Agreement. After his return, the partners sent an

e-mail to Dr. Budiamman on 4th November, 2011, regarding these.

7. Their first point was that Indonesian food items could not be served on the menu. The

Claimant had a particular issue with the separate menu. The second was the

opposition to allowing the waitresses to wear a hijab, as it was not a part of the

official uniform. The Claimant’ reasoning for this was that it would dissatisfy the

customers to experience a variation in the different restaurants, and a customer so

dissatisfied would not then return. Mr. Ji stressed that there should be uniformity and

that nothing should be done to ruin the effect of the official uniform and its “common

appearance” factor.

8. The e-mail ended with the intention of the partners’ to terminate the Agreement if the

violations were not discontinued.

9. Two weeks later, an inspector was hired to inspect the restaurants. The inspector

reported the changes Dr. Budiamman had made, after receiving the e-mail of the

partners. The separate menu had been removed and only one Indonesian item a day

was served- on a separate black chalkboard, under the title of “Special of the Day”.

10. Dr. Budiamman, to reduce the striking and noticeable effect of the red hijab, had

changed the colour of the hijab to white.


xiv

11. Immediately the next day after this report, the partners terminated the Agreement with

Dr. Budiamman. Dr. Budiamman was given 15 days to close both restaurants and

remove the signage. The partners also indicated that they intended to reopen the

Jakarta restaurant in 30 days, “Under new Management”. However, no mention was

made of the Medan restaurant.

12. On Dr. Budiamman’s refusal to close the two restaurants, the Claimant submitted a

Notice of Arbitration, as stipulated by the Agreement.


xv

SUMMARY OF ARGUMENTS

I

The invalidity of the underlying contract renders the arbitration agreement invalid as the

latter is has no autonomous character. As Dr. Budiamman was not informed of the arbitration

clause in the contract, he cannot have said to have given his unconditional assent to the same.

Further, the fact that the Bahasa Indonesian version of the agreement was not signed is in

contravention Article 31 of the Law 24 of 2009 of the Republic of Indonesia.

II

Assuming that the arbitration agreement is separable from the rest of the underlying contract,

it is still invalid and unenforceable since Dr. Budiamman had no intention to submit disputes

to arbitration and the arbitration agreement restricts Dr. Budiamman’s right to nationalized

legal proceedings.

III

The rules of private international law lead to the application of Indonesian law as it has the

closest and most real connection with the transaction. The most important factor to be taken

into consideration is the place of characteristic performance, which in the present case, was

Indonesia.

Further, the implied choice of the parties was also Indonesian law since the Franchisor’s

intended to let the Franchisee apply his national law to resolve the dispute.


xvi

IV

The principle of Unconscionablity states that a contract can be nullified if there has been

severe disparity in the obligations and rights contained in the agreement which has the effect

of oppressing one party.

V

Reasonable notice of termination is the time required by to make similar alternative

arrangements. Actual notice cannot replace proper notice. Claimant has not given enough

time to find alternate arrangements. Proper notice of termination was not given.

VI

A contract can only be terminated for a fundamental breach. A breach cannot be fundamental

if there has been substantial performance. Claimant is not derived of the essence of the

Agreement. Respondent has substantially performed the contract.

VII

Good faith and fair dealing is recognised in law as an implied covenant, and applies to this

Agreement.

VIIA

Termination for minor breach of contract is bad faith. The single Indonesian “Special of the

Day” written on a chalk blackboard is a minor breach of the Agreement.

VIIB

Pork is a taboo for the Islamic community. Only on request was lamb substituted for pork.

Pork was still served as per the original menu as well. Termination was done in bad faith.

VIIC


xvii

Good faith is universally applicable . Respondent changed the colour of the hijabs after the

objections of the Claimant. Termination was done in bad faith.

VIID

The Claimant gave a notice to cure only the first time they had objections. After they

continued having objections, no chance to cure was given before termination.

VIII

The Constitution of Indonesia and International Covenant on Civil and Political Rights both

grant individual right to freedom to practice religion. Not allowing wearing of the hijab is a

violation of these.


1

PLEADINGS

ISSUE I: THE FRANCHISEE AGREEMENT DATED 20TH JUNE, 2011 IS INVALID

1 Lack of Acceptance on Part of the Respondents

1.1 Lack of unconditional and unqualified assent

1.1.1. According to Chitty, an acceptance constitutes a final, and an unqualified expression

of assent to the terms of an offer.1It is stipulated in the Indonesian Civil Code that the

element of acceptance and consent of contracting parties is indispensable for the

determination of the birth of the contract. 2 Furthermore, even Singaporean law

dictates that an offer is accepted by the unconditional and unqualified assent of its

terms by the offeree.3

1.1.2. It is pertinent to note that even the Article 2.1.1 of the UNIDROIT Principles 4 that a

contract is concluded by the acceptance of an offer and this has been upheld in many

judicial decisions.

1.1.3. In the present matter, Mr. Xuefeng Wang (hereinafter, referred to as “Mr. Wang”) was

a part-owner of a Chinese restaurant called the Great Wall Noodle Shop (hereinafter,

referred to as “GWNS”). While waiting for his outgoing flight at the Changi Airport

in Singapore, Mr. Wang met an Indonesian doctor by the name of Dr. Adi

Budiamman (hereinafter, referred to as “Dr. Budiamman”). In the course of their

conversation, Mr. Wang mentioned briefly his purpose of visit to Singapore which

was to seek interested parties for setting up an Indonesian franchisee of the GWNS.

Having had previously worked in Chinese restaurants, Dr. Budiamman found the idea

1 Chitty on Contracts, Volume I (General Principles), Sweet and Maxwell, Pg. 158

2 Article 1320(1), Indonesian Civil Code

3 Chapter 8, Section 2 (8.2.2 and 8.2.5), The Law of Contract, Singapore

4 UNIDROIT Principles of International Commercial Contracts, 2004


2

of becoming a Franchisee for Mr. Wang’s restaurant very appealing. Seeing that the

latter was visibly interested, Mr. Wang attempted to convince Dr. Budiamman to help

him open the Indonesian franchisee by way of entering into a Franchisee Agreement

(hereinafter referred to as “contract” or “agreement”). However, as Mr. Wang did not

want to miss his flight, he only explained the fee structure of the franchisee

agreement,5 which was initially intended for a Singaporean party, 6 namely Mr. Bao

Shan.

With an aim to profit from the situation, Mr. Wang did not inform Dr. Budiamman

about the presence of an Arbitration Clause in the said Franchisee Agreement.

1.1.4. It is contended that though Dr. Budiamman was indeed significantly interested in

running the Indonesian Franchisee of the GWNS, if the presence of the said

Arbitration Clause was made known to him by Mr. Wang, he may not have signed the

contract.

1.2 Absence of ‘Consensus ad idem’.

1.2.1 An essential condition for the birth of any valid contract is the presence of consensus

ad idem i.e. the contracting parties must agree to the same condition in the same

sense. 7 This is described as “the first requirement” for the formation of a legally

binding contract.8

1.2.2 In the present matter, Mr. Wang met Dr. Adi Budiamman and mentioned his desire to

open an Indonesian franchisee of his restaurant.

5 Proposition, Pg. 2, Para 4

6 Proposition, Pg. 2, Para 2

7 Carlill v. Carbolic Smoke Ball Company, [1893] 1 QB 256; Lattimore v. Mott, [2005] All ER 415

8 Chitty on Contracts, Volume I (General Principles), Sweet and Maxwell, paragraph 2-001


3

1.2.3 During the process of signing of the Franchise Agreement, Mr. Wang failed to notify

Dr. Budiamman about the existence of an Arbitration Clause in the said Franchisee

Agreement.

1.2.4 Hence, an objective analysis of the situation brings us to the conclusion that since Dr.

Budiamman did not know of the arbitration clause, he could not have deemed to have

intended to enter into arbitration proceedings as stipulated in it. The contract was

without intention as both parties were not consenus ad idem and thus no agreement

was reached between the parties.

1.2.5 Thus it is submitted, that on account of the absence of knowledge of Mr. Budiamman

regarding the arbitral clause, the pre-requisite elements of a contract, being, consensus

ad idem, as well as, an unconditional and unqualified assent to the contract, were not

satisfied in the present matter.

2 Article 31 of the Law 24 of 2009 of the Republic of Indonesia renders the

Franchisee Agreement invalid

2.1.1 Law No.24/2009 was enacted with a view to regulate the agreements in which one of

the parties is a citizen of the Republic of Indonesia.

2.1.2 Article 31(1) of the said law stipulates that Bahasa Indonesian must be used in

agreements that involve (inter alia) individuals who are the citizens of the Republic of

Indonesia.

2.1.3 Further, it is established in the Indonesian Civil Code that an essential requirement for

private documents9 in general and agreements10 in particular, is the presence of the

parties’ signature.

9 Article 1874 and Article 1876, Indonesian Civil Code.

10 Article 1878, Indonesian Civil Code.


4

2.1.4 Thus, it is a generally accepted principle of contract law that an essential condition for

a valid contract must be the existence of consent of the parties which must be

unambiguously demonstrated.11

Also, there cannot be any deemed consent in the absence of signature. The reasoning

behind this is that the signature of a contracting party is taken to be a manifestation of

the said party’s consent to be bound by the contract.12

2.1.5 In the present matter, a contract was drawn between the owners of the GWNS and Dr.

Budiamman, who was a citizen of the Republic of Indonesia. Dr. Budiamman met Mr.

Wang and the latter convinced Dr. Budiamman to enter into a contract for running the

Indonesian Franchisee.

Though Mr. Wang had both, the English and Bahasa Indonesian copy of the

agreement, only the English version of the agreement was signed by the Franchisee

holder, Dr. Budiamman.

2.1.6 As a citizen of the Republic of Indonesia, Dr. Budiamman is bound by the laws of his

nation and according to Article 31(1) of Law 24 of 2009, any contract which was

concluded with him as one of the parties must be necessarily drawn up in Bahasa

Indonesian.

2.1.7 The application of Article 31(1) of Law No. 24/2009 and the signature requirements

present under the Indonesian Civil Cod establish that when one of the contracting

parties is Indonesian, the contract can be valid only when the contract is writte n in

Bahasa Indonesian and duly signed by the parties.

2.1.8 As Dr. Budiamman did not provide his signature to the Bahasa Indonesian version of

the agreement, the said contract is in violation of Article 31(1) of Law No. 24/2009.

Thus he cannot be said to be bound by the terms and provisions of the agreement as

11

Award in Final ICC Case No. 7453 , XXII Yearbook of Commercial Arbitration 107 (1997) 12

Pia Ltd. v. Cassia, 1990 Rev arb. 851 ( Paris Cour d’appeal)


5

the application of Article 31(1) of the aforementioned law renders the agreement

invalid.

2.1.9 Hence, the Franchise Agreement dated 20th June, 2011 is invalid on the grounds of

lack of assent, violation of Article 31(1) of Law 24/2009 and the absence of consensus

ad idem.


6

ISSUE II: THE ARBITRATION AGREEMENT IS INVALID AND UNENFORCEABLE

1 Non-applicability of the Seperability Presumption

2.1.1. The concept of separability and autonomy of the arbitration agreement seeks to

stipulate that the arbitration clause and obligations arising from the same form a

separable part of the underlying contract and cannot be said to be invalidated by the

nullification of the underlying contract.13 This doctrine is enshrined in Indonesian14 as

well as Singaporean law.15

2.1.2. However, it is humbly submitted that this rebuttable assumption does not stand as the

arbitration agreement is not completely separate and independent from the underlying

contract.

2.1.3. The reasoning behind this can be found in the fact that the acceptance of the

underlying contract entails acceptance of the arbitration clause without any further

formality.16

2.1.4. Also, it was held in the case of Fiona Trust& Holding Corp. v. Privalov,17 that if the

main agreement and arbitration agreement are contained in the same document and

one of the parties’ claim that he never agreed to the document, it will be an attack on

the validity of the arbitration agreement.

Hence, there is no autonomous character attached to the arbitration clause and it is an

integral and inseparable part of the underlying contract.

It follows that if the main contract is invalidated, then the arbitration clause present

within it is also extinguished as the said arbitration clause is not separable from the

underlying contract. As soon as the existence of the contract comes to an end, all the

13

Final Award in ICC Case No. 8938 , XXIV Year Book of Commercial Arbitration 174, 176(1999) 14

Article 10(f) and 10(h), Law No. 30 of 1999s 15

S 21 (2), Singapore Arbitration Act and Sch 1, Art 16(1), International Arbitration Act 16

Deraius, International Arb. Bulletin, Vol 6, No 110, at 16-17 17

Fiona Trust& Holding Corp. v. Privalov, [2007]1 All E.R. (Comm.) 891 (English Court of Appeal)


7

provisions provided within it, including the obligation to submit disputes to

arbitration, are invalidated.

2.1.5. In the present matter, there existed a contract between the Franchisor, the owners of

the GWNS and its Franchisee holder, Dr. Adi Budiamman which provided for dispute

resolution between the two parties through arbitration. 18

However, due to the reasons mentioned above in Issue I, the contract existing between

the two parties would come to an end. As the arbitration clause present in the contract

and obligation arising from the same are intrinsic parts of the underlying contract, the

invalidation of the contract would result in the extinguishing of all the obligations

provided for the in the contract, including the arbitration clause.

2 Arguendo: Notwithstanding, the tribunal accepts the separability presumption,

the arbitral clause is invalid due to lack of intention of the parties to enter into

an arbitration agreement.

2.2.1 Courts have considered that it is essential to the validity of any arbitration agreement,

that the parties’ intention,19 and obligation to resort to final and binding arbitration is

explicitly stated.20 Even Singaporean law mandates that the intention to arbitrate must

be clear and unequivocal.21

2.2.2 Under the auspices of Article 8(1) of the UNCITRAL Model Law, the courts have

allowed arbitration agreements to be challenged on the grounds that one contracting

party had never expressed the intention to enter into any arbitration agreement.22

18

Chapter XII(A), Franchise Agreement ( Proposition, Pg. 29) 19

Pccw Global Ltd. v. Interactive Communications Service Ltd., High Court—Court of Appeal, Hong Kong

Special Administrative Region of China, 16 November 2006, [2006] HKCA 434 20

Québec Inc. v. Fafard, Court of Appeal of Quebec, Canada, 31 March 2004, [2004] QJ No. 4085, REJB

2004-60643 21

Chapter 4, Section 2 , International and Domestic Arbitration in Singapore , available at :

http://www.singaporelaw.sg/content/%C2%ADarbitration1.html, last accessed on 1.09.2012 22

Mariana Maritime S.A. v. Stella Jones Inc., Federal Court—Court of Appeal, Canada, 24 May 2002, [2002]

FCA 215 (CanLII); Pacific Crown Engineering Ltd. v. Hyundai Engineering & Construction Co. Ltd ., High


8

In the present case, the Franchise Agreement existing between Mr. Wang and Dr.

Budiamman possessed an arbitration clause under Chapter XII (A). However, the

presence of the same was not brought to the knowledge of Dr. Budiamman by Mr.

Wang.

2.2.3 In such a scenario, it cannot be proposed that Dr. Budiamman had any intention of

submitting future disputes to arbitration because, at the time of signing the Franchise

Agreement, he was not aware of the very existence of the arbitration clause.

3 The award passed by the Arbitral Tribunal pursuant to the Chapter XIIA is

unenforceable

2.3.1 Article V (2) of the New York Convention allows for refusal of enforcement of award

on the ground that it would be contrary to public policy. 23Further, Article V (1) (a)

provides for refusal of enforcement of an arbitral award on the ground that the

arbitration agreement between the parties is invalid under the law to which the parties

have subjected it to.

2.3.2 It is contended that an arbitration agreement forces the parties to agree to accept

something less than their full entitlement, which is to have recourse to the established

law of the land.

2.3.3 In other words, a party cannot be deprived of its right to a judicial determination24

unless the party has consented to waive access to the courts through a valid arbitration

agreement. 25

Court—Court of First Instance, Hong Kong Special Administrative Region of China, 23 April 2003, [2003]

HKCFI 924 23

Article V(2), New York Convention, 1958 24

Home Ins. Co. v. Morse, 87 U.S 445, 451 (U.S S.Ct. 1874) ; Judgment of 15 March , 1990, Sonatrach v.

K.C.A Drilling Ltd., 1990 Rev. Arb. 921, 923 et seq. 25

Kröll, “Recognition and Enforcement of Awards,” supra, n. 6, at s. 1061, para. 53; OLG Rostock, IPRax

2002, 401 (decided Nov. 22, 2001) = YCA XXIX (2004), 732 (Rostock Court of Appeal, Germany).


9

2.3.4 Such a deprivation would be against public policy and the award would be liable to be

struck down by the application of Article V (2) of the New York Convention.26

2.3.5 In the present matter, Dr. Budiamman is an Indonesian citizen who has all the rights

to National judicial resource of his nation.

At a chance encounter at the Changi Airport in Singapore, Dr. Budiamman met the

part-owner of the GWNS, Mr. Wang.

2.3.6 Capitalizing on Dr. Budiamman’s interest in Mr. Wang’s business project, the latter

convinced Dr. Budiamman to enter into a contract for running an Indonesian

franchisee of the GWNS. However, Dr. Budiamman was uninformed about the

presence of an arbitration clause in the contract which stipulated that any dispute

arising out of the contract would be resolved by submitting it to international

arbitration.

2.3.7 As proven above, Dr. Budiamman had not consented to the arbitration clause and it

follows that he cannot be forced to waive his rights to judicial access in Indonesian

courts. Also, the law to be applicable to the arbitration agreement is the laws of

Indonesia and as proved above, the arbitration agreement is invalid under the said

law.

2.3.8 Thus, the arbitration clause is invalid and unenforceable on the ground that it is

opposed to public policy and that it is invalid under the law that the parties have

intended to subject it to.

26

Article V(1)(a) , New York Convention, 1958


10

ISSUE III: THE LAW TO BE APPLIED IN RESOLVING THE DISPUTE IS INDONESIAN LAW

1 Choice of law rules of the Malaysian Arbitration Act, 2005 lead to the

application of the laws of Indonesia

3.1 KLRCA Fast Track Rules stipulate the seat of arbitration to be Malaysia

3.1.1. Article 6(2) of the Kuala Lumpur Regional Centre for Arbitration Fast Track Rules,

2012 requires Malaysia to be the seat of arbitration.

3.1.2. In the present matter, Chapter XII of the Franchise Agreement concluded between Dr.

Budiamman and Mr. Wang stipulates that the dispute shall be settled by arbitration in

accordance with Kuala Lumpur Regional Centre for Arbitration Fast Track Rules.27

Thus, in the instant case, the seat of arbitration is Malaysia.

3.2 Malaysian Arbitration Act is the relevant arbitration legislation

3.2.1 It is generally understood and accepted that an international arbitration is , despite

having multiple nationalities involved, is based on or rooted in a singular national

legal system which has materially greater legal significance for and control over a

locally-seated arbitration than other legal systems. One of the primary rights of a party

to arbitration agreement is the right to choose a country in which to arbitrate. This is

established as the law of the seat of arbitration. By choosing a country in which to

arbitrate, the parties ex hypothesi, create a close connection between the arbitration

and the said country.28 Further, the national arbitration legislation of the arbitral seat

will govern the internal the relationship between the arbitration and national courts.29

27

Franchisee Agreement, Chapter XII(A)- Dispute Resolution ( Fact Sheet, Pg 29) 28

Union of India v. McDonnell Douglas Corp. [1993] 2 Lloyd‟s Rep. 48, 50 (Q.B.) ; Hirsch, The Place of

Arbitration and the Lex Arbitri 34 Arb. J 43, 45 (1979) 29

G Petrochilos, Procedural Law in International Arbitration, 6 (2004)


11

3.2.2 The combined reading of Article 1 with Article 6(2) of the aforementioned Rules

stipulate that where Malaysia is the seat of arbitration, the relevant national arbitration

legislation to be followed shall be the Malaysian Arbitration Act, 2005.30

3.3.The Choice of law or rules of the Malaysia would apply in the instant case

3.3.1 According to Professor Mann, “The law of the arbitral tribunal’s seat initially governs

the whole of the tribunal’s life and work. In particular it governs…the rules of the

conflict of laws to be followed by [the arbitrators].” 31 Properly understood, the

parties‟ agreement to arbitrate in a particular arbitral seat generally constitutes an

implied acceptance, in cases involving true conflicts, of application of the seat’s

choice-of- law rules. In most cases, this provides the simplest, most neutral, most

predictable and fairest choice-of- law rule, 32 especially since they are derived from a

place which the parties have impliedly regarded to be accepted. 33 Moreover, a few

tribunals have reasoned that it is inappropriate to apply the conflicts rules or

substantive law of either party on the theory that it would be one-sided. 34

In the light of the above principles, choice of law rules of Malaysia will apply as

Section 30(4) of the Malaysian Arbitration Act requires the tribunal to “apply the law

determined by the conflict of law rules.”

30

Article 6(2), Kuala Lumpur Regional Centre for Arbitration, 2nd

Edition (2012), available at:

http://www.klrca.org.my/userfiles/File/KLRCA_FastTrackRules_2ndEd_2012.pdf 31

Mann, Lex Facit Arbitrum, 2 Arb Int’l 241, 244-245, 248, (1986) 32

Born, at p.1045 33

Born, at page 2139 34

Grigera Naon, Choice-of-law Problems in International Commercial Arbitration , 289 Recueil des Cours 9,

285-86 (2001)


12

2 The conflict-of-law rules of Malaysia lead to the application of the laws of

Indonesia

3.4 No express or implied choice

3.4.1 According to Dicey and Morris, 35 in the absence of any express 36 or implied 37

indication of the contracting parties’ choice of law, a contract is to be governed by the

law of the country with which it is most closely related. 38

In the instant case, there was a Franchise Agreement drawn up between Mr. Wang and

Dr. Budiamman. However, as proven above, the said agreement was invalid on

grounds of lack of assent, non-conformity with signature requirements and the

absence of consensus ad idem. Hence, there cannot be said to be any express

stipulation of the choice of law governing the agreement.

3.4.2 Furthermore, there cannot be said to be any implied choice, since it was never

discussed that any dispute arising out of the Franchise Agreement would be submitted

to an arbitral forum.

3.5 The ‘Closest Connection Test’ leads to the application of Indonesian Law

3.5.1 The conflict-of-law rules applicable in Malaysia prescribes that the applicable

substantive law is to be the one with which “has the closest and most real connection

with the transaction.39

3.5.2 The most important of the factor which must be taken into consideration40 is the place

where the contract was to be performed i.e. lex loci solutionis, or the place of

characteristic performance.41

35

Rule 204(1), Dicey and Morris, The Conflict of Laws, Volume 2, pp. 1580 36

Vita Food Products Inc v. Unus Shipiing Co Ltd. [1939] A.C. 277, 298 (PC) 37

Aeolian Shipping SA v. ISS Machinery Services Ltd [2001] EWCA Civ. 1162, [2001] 2 Llyod’s Rep 641, [16] 38

Bonython v. Commonwealth of Australia [1951] A.C. 201 (PC) 39

Belden Premaraj, The Choices of Law – Better Safe Than Sorry,The Malaysian Arbitration Perspective; YK

Fung Securities v. James Cape Ltd. (CA) [1997] 4 CLJ 300


13

3.5.3 Place of characteristic performance : The characteristic performance,42 is usually the

performance for which the payment is due, for example, the delivery of goods, the

provision of a service.43 It is further contended that this is the very crux and essence of

the contract.

3.5.4 Thus, the principle presumption is that the law with which the contract has the closest

connection is the law of the country where the party who is to effect the performance

which is characteristic of the contract its central administration or the country where

such party has his principle place of business.44

3.5.5 In the case of Machinale Glasfabriek De Maas v. Emaillerie Alsacienne, 45 Dutch law

was applied on the basis that, in the absence of choice, the party who must perform

the characteristic act of performance was the plaintiff company as manufacturer and

seller, and the plaintiff had its place of establishment, in the Netherlands.

In the present matter, the contract between Dr. Budiamman and Mr. Wang was for the

purpose of the setting up and running of a Franchisee of the GWNS. Since the

franchisee was to be set up and run by Dr. Budiamman in Indonesia, the place of

characteristic performance of the contract is Indonesia.

40

Re United Railways of Havana etc. Warehouse Ltd. [1960] Ch. 52, 91 (CA), affirmed [1961] A.C. 1007 41

Y K Fung Securities Sdn Bhd v James Cape (Far East) Ltd, [1997] 2 MLJ 621 42

Bank of Baroda v. Vysya Bank , [1994] 2 Lyod’s Rep. 87 43

Credit Lyonnais v. New Insurance Co. [1997] 2 Lloyd‟s Rep 1; AIG Group Ltd. v. Ethinki [1998] 4 All ER

301 44

Re United Railways of Havana [1961] AC 1007 45

Machinale Glasfabriek De Maas v. Emaillerie Alsacienne [1985] 2 CMLR 281


14

ISSUE IV: ARTICLE XII OF THE FRANCHISE AGREEMENT IS INVALID AND UNENFORCEABLE

4.1.1. The principle of Unconscionablity states that a contract can be challenged if there has

been severe disparity in the parties bargaining power or if the obligations and rights

contained in the agreement are majorly one-sided. 46

4.1.2. The principle that unconscionable agreements are unenforceable is accepted in Art.

3.10 Of the ‘UNIDROIT Principles of International Commercial Contracts.’

Substantive Unconscionablity47 is an unjust or “one-sided” contract48 is one where the

contract terms are so one-sided as to oppress49 or unfairly surprise an innocent party,

and an overall imbalance in the obligations and rights imposed by the bargain. 50

Courts have invalidated agreements in which obligations between the two contracting

parties possessed substantial disparity.51

4.1.3. In the present matter, the terms of the contract were pre-written and only required the

signature of Dr. Budiamman. However, Chapter XII of the Franchise Agreement

stipulates the granting of specific performance if the Franchisee is found to violate a

provision of the Franchise Agreement, but at the same time, prohibits the granting of

specific performance, if the Franchisor(s) be found to violate any provision of the

same. Furthermore, it allows the Franchisor(s) to claim specific performance if a

certain contractual obligation is violated but it negates the Franchisee’s right to do the

same. Therefore, the aforementioned provision of Article XII restricts the right of the

46

K.Zwegert & H. Kotz, An Introduction to Comparative Law , 343 (3d Ed. 1998) 47

L J Priestley, 'Unconscionability as a Restriction on the Exercise of Contractual Rights' i n Carter, ed., Rights

and Remedies for Breach of Contract, 1986, pp 80-81.; Ewan McKendrick, “contract law”, 9th edition, palgrave

macmillan law masters, (2011), on page 315, 316 [ case-National Westminster Bank v Morgan [1985] AC 686

at 708] 48

Commercial Bank of Austsralia Ltd v. Amadio (1983) 151 CLR 447 49

Blomley v Ryan (1956) 99 CLR 362 at 405 per Fullagar J affirmed in Amadio Blomley v Ryan (1956) 99

CLR 362 at 405 per Fullagar J affirmed in Amadio; GHL v Unitrack Building Construction (Civil Appeal No

20, 1999) 50

Maxwell v. Fidelity Financial Services, Inc, 184 Ariz. 82 (1995) Supreme Court of Arizona, En Banc.

November 21, 1995; 51

Deutsch v Long Is. Carpet Cleaning Co., 5 Misc.2d 684 [App Term], affd no opn3 A.D.2d 1002; Dwyer v

Biddle, 274 App Div 903;


15

Respondent to seek a remedy in law in relation to specific performance, thereby

casting disproportionate obligations on the two contracting parties.

4.1.4. Thus, it is submitted that the Chapter XII of the Franchise Agreement is invalid and

unenforceable.


16

ISSUE V: A PROPER AND TIMELY NOTICE OF TERMINATION WAS NOT GIVEN TO THE

FRANCHISEE [DR. BUDIAMMAN]

Under Singapore Law

5.1 Reasonable Notice of Termination

5.1.1. A reasonable time for no tice of termination is the time it will take to “make alternate

arrangements of the sort similar to those which are being terminated”. 52 What

constitutes reasonable period of notice of termination is determined by the amount of

time and money spent, the monetary benefits arising out of the contract for the

terminated party and the amount of time for which the terminated party is barred by

the non-compete clause.53

5.1.2. A reasonable period of notice of termination was not given to the Respondent. The

Respondent, though he was a surgeon, spent most of his time in the restaurants. The

financial success of the restaurants proves that the monetary benefit of the restaurants

was of a significant value. The amount of time given to him was not enough to find an

alternative arrangement of the same kind.

5.1.3. The Respondent was required by Article III H of the Agreement to spend at least 12

hours a day on operation the restaurant. He spent merely 4 to 5 hours a day in his

office as a surgeon; most of his daily time went in the management and operation of

the restaurants. His investment in the restaurant was also significant. According to the

Agreement, he had to purchase or lease a building site for the restaurants to operate

within, $185,000 as an initial investment, expenses for participation in the official

website of the GWNS LLC, expenses for modifications, costs for employee uniforms,

$75,000 dollars as the initial Franchise Fee, at least a 5% Royalty Fee, at least a 3%

52

Australian Blue Metal Limited v. Hughes, [1963] AC 74 53

Jackson Distribution Limited v. Tum Yeto Inc., (2009) EWHC 982 (QB)


17

Advertising Fee, Interest Charges and Late Fees and insurance purchases. The

Respondent is bound by the non-compete clause of the Agreement to not operate in a

similar line of business for a period of 5 years.

5.1.4. The e-mail sent on 4th November, 2011, is not a proper notice sent to the Respondent.

It does not inform the Respondent of the exact date of termination, and does not

affirm termination; it only imposes a termination if certain conditions have not been

met; however, they were, indeed, met by the Respondent.

5.1.5. The Claimant has forsaken proper procedure to be followed as they were more

interested in finding a more suitable manager of the restaurants. The restaurants were

both ordered to be shut down but only the Jakarta restaurant, which the Claimant have

described as a “goldmine” was to be reopened “Under New Management”, with the

son of Mr. Wang as the new manager. This indicates bad faith on the part of the

Claimant.

5.2 Proper Notice of Termination

5.2.1 Actual notice is not an exception to compliance with mandatory contractual

procedures.54

5.2.2 The e-mail sent to the Respondent on 4th November, 2011, is not a proper notice of

termination. The e-mail simply informed the Respondent of the Claimant’s intentions

to terminate the Agreement in case their objections to the operation and management

of the restaurants had not been corrected. The Respondent had taken due note of the e-

mail and made the corrections. However, the Agreement was terminated, without any

prior notice or reasonable time being given. Despite having objections to the

corrections made by the Respondent, the Claimant had never informed the

Respondent of these objections, but simply terminated the Agreement.

54

Mik e M. Johnson , Inc. v . County o f Spokane , 150 Wash.2d 375, 78 P.3d 161 (2003)


18

5.2.3 Therefore, a proper, timely and reasonable notice of termination was not sent to the

Respondent by the Claimant.

Under Indonesian Law

5.3.1 Indonesian Civil Code requires that Agreements can only be terminated by the

courts,55 after taking into consideration all the facts and circumstances of the case.

5.3.2 Keeping in mind the facts and circumstances of the present case, as illustrated above,

the proper procedure has not been followed in the present case. The Agreement was

terminated by the Claimant itself, without approaching a court.

ISSUE VI: THE FRANCHISOR CAN TERMINATE THE AGREEMENT ONLY IN CAS E OF A

SUBSTANTIAL VIOLATION OF THE AGREEMENT, I.E., WHEN THERE HAS BEEN A

FUNDAMENTAL BREACH OF THE AGREEMENT.

Under Singapore Law

6.1 Fundamental Breach and Substantial Performance

6.1.1. A fundamental breach can only be brought about when the violation of the contract is

such that the very heart and essence of the contract is affected. 56 Claims of a

repudiatory breach can be countered when substantial performance of the contract is

shown to have been committed.57

6.1.2. The Claimant has terminated the Agreement, claiming that the Respondent did not

follow the precise letter of the Agreement in three areas- in the matter of the allowing

the single Indonesian dish called “Special of the Day”, written on a signboard, not

even in the menu, in the matter of allowing the waitresses to wear white hijabs instead

55

Article 1266, Civil Code of Indonesia 56

Photo Productions Ltd. v. Securicor Transport Ltd., [1980] UKHL 2 57

Jacob & Youngs v. Kent, 230 N.Y. 239 (1921)


19

of the red ones and in the matter of allowing the substitution of pork with lamb upon

customer request. The Claimant has regarded this as a substantial reason to terminate

the Agreement.

6.1.3. There was no breach on the Respondent’s part so substantial as to be a reupidatory

breach, enough to cause the termination of the Agreement. The sole reason for the

Agreement was the operation and management of the two restaurants, which was

being done with good business judgment. This is evidenced by the fact that the

restaurant in Jakarta was successful from the start.

6.1.4. The Respondent had not made a breach of the Agreement that was so fundamental to

the actual working and operating of the restaurant as would have caused the loss of

faith or goodwill to the restaurants. The Respondent had made the necessary changes

and tried to bring about uniformity in the workings of the restaurants. All the

waitresses, in both restaurants, were told to wear the same colour hijab and to

compulsorily wear it.

6.1.5. The Agreement has been substantially performed by the Respondent; all the

investment had been made by him, the buildings have been purchased, the staff hired,

etc. He has served the Official Menu as mentioned in the Agreement to the standards

required in the Agreement. No breach so great as to deprive the aggrieved party of the

substantial benefit of the Agreement had been committed by the Respondent.

Therefore, the Agreement had not been terminated on proper grounds, i.e., for a

substantial violation of the Agreement.


6.2.1. The intention of the parties is what is most important when interpreting a contract,58

rather than the literal words.59 Any word that may be open to more than one meaning,

58

Article 1350, Civil Code of Indonesia


20

it will be given that meaning that comes closest to the essence of the contract.60 It will

also be interpreted in favour of the party bound by the contract,61 as opposed to the

party that drafted it. Other countries also follow similar guidelines and provisions in

their Civil Codes, for eg: France.62

6.2.2. It is clear that the intention of the two parties was to enter into an Agreement for the

operation and management of the two franchise restaurants. Although the Respondent

may not have been in perfect conformity with the Agreement, the basic intention of

the parties was being carried out properly and to the maximum. The restaurants were

financially successful, right from the beginning.

6.2.3. The Respondent is the party that is bound by the Agreement. The Respondent has

already invested considerable time and money in the restaurants. Any variation of the

Respondent’s from the Agreement cannot be said to be a “substantial violation” as the

main clauses and purposes of the Agreement are being carried out perfectly and the

intentions of the parties are being fulfilled. Thus, the Agreement had not been

terminated on for a substantial violation of the Agreement.

59




Pawel Moskwa, Interpretation of Commercial Contracts in the Future European Civil Code – Objective or

Subjective Method? ELSA SPEL 2004 (1)


21

ISSUE VII: THE “INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING” IN

INTERPRETING AND APPLYING FRANCHIS E AGREEMENTS DOES APPLY TO THIS FRANCHISE

AGREEMENT.

Under Singapore Law

7.1 Good Faith

7.1.1. There is an imp lied duty to act in good fa ith in a F ranchise Agreement. 63 If

bad faith can be proven, then the imp lied duty to act in good fa ith will have

been breached.64 The UNIDROIT Princ ip les also recognise this duty to act in

good faith, and that this duty cannot be excluded or limited .65 Good faith in a

contract requires the parties to look beyond what has been expressly stated in

the contract and concentrate instead on the intentions and expectations of the

parties. 66 Franchise agreements remain incomplete no matter the skill of the

drafter 67 , and external factors should be taken into account during

interpretation68.

7.1.2. The Claimant has inadvertently forwarded an e-mail thread to the Respondent, which

was initially between the two partners, regarding the Jakarta restaurant. The Claimant

has discussed the financial success of the restaurant in Jakarta, claiming that it is a

“goldmine” and that the restaurant should have been managed by a close relative or

one of their families. Immediately after this e-mail exchange, Mr. Ji came to

Indonesia to inspect the two restaurants. Claimant’s objections were given to the

63

Carvel Corporation v. Baker, 79 F. Supp. 2d 53 (D. Conn 1997) 64

Far Horizons v . McDonalds Austra lia Ltd ., [2000] VSC 310 65

Article 1.7, UNIDROIT Principles of International Commercial Contracts, 2010 66

New York Central Iron Works Co. v. United States Radiator Co., 174 N.Y. 331 67

Benjamin Klein, Transaction Cost Determinants of 'Unfair' Contractual Arrangements, 70 AM.ECON.

REV., May 1980, at 356 (papers & proceedings). 68

Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772, 780 (9th Cir.1981)


22

Respondent via an e-mail sent on 4th November, 2011. The Respondent immediately

made the necessary changes to the operation of the restaurants.

7.1.3. However, even though the changes had been made, the Claimant, without a proper

notice or a chance to cure what they still deemed to be violations of the Agreement,

terminated the Agreement without even providing the Respondent with enough notice

of termination.

7.1.4. The Claimant also directed the closing of the two restaurants in a matter of a mere 15

days and declared that the restaurant in Jakarta would be opened again, “under new

management”. However, no decision had been reached about the Medan restaurant,

which was less financially successful than the Jakarta restaurant.

7.1.5. These actions of the Claimant show quite clearly that the decisions taken by them

have not been taken in good faith but rather, maliciously. The Claimant were quick to

come and inspect the restaurants, just one month after they had been operating, and

only after they decided that the Jakarta restaurant is very lucrative. They were quick

to point out minor variations from the Agreement. The Claimant terminated the

Agreement without proper procedure being followed. Only the restaurant in Jakarta

was planned to be opened, under Mr. Wang’s son. This proves the malicious

intentions of the Claimant and their disregard of the duty to act in good faith. Proper

procedure as mandated by the Agreement had not been followed by the Claimant. The

reasons given by them for the termination of the Agreement are not justified.



23

7.2.1. It is a statutory requirement of Civil Law countries that good faith shall govern the

contract. 69 All agreements are to be executed in good faith under the law of

Indonesia.70

7.2.2. As good faith is given equal importance as per the laws of Indonesia, the Claimant is

bound to act in good faith, as explained above.

69

William Tetley, Good Faith in Contract Particularly in the Contracts of Arbitration and Chartering , (2004)

35 JMLC 561-616 70

Article 1338, Civil Code of Indonesia


24

ISSUE VIIA: THE SERVING OF A SINGLE INDONESIAN DISH REFERRED TO AS “THE SPECIAL

OF THE DAY” DOES NOT JUSTIFY THE TERMINATION OF THE FRANCHISE.

Under Singapore Law

7A.1.1.Minor breaches of contracts do not give rise to just cause for termination of contracts.

It would then be construed as an act of bad faith. 71 In a case where a franchisor

terminated a franchisee for selling a second, unrelated line of automobiles,

although the franchisor rationalized it as going against established standards, there

was nothing to indicate that the business of the showroom had been detrimentally

affected.72

7A.1.2.The serving of an Indonesian dish called the “Special of the Day” was just a minor

variation of the Respondent’s from the overall Agreement. It is not a substantial

reason for the termination of the Agreement by the Claimant. The Claimant’ clear

objection to the Indonesian menu was that unauthorized food items could not be sold

on the official menu. Taking note of this, the Respondent did not serve such items on

the official menu any longer, but on a separate board, and only one such dish.

The Indonesian items served in this manner were reported by the inspector sent by the

Claimant to be excellent. It was a decision on the part of the Respondent keeping in

mind the business interests of the restaurants. The Claimant has no justified reason for

holding this slight variation of the Respondent from the Agreement as enough of a

cause for termination of the Agreement. It is a mala fide act on their part.


71

Ibid. 72

Empire Volkswagen v. World Wide Volkswagen Corp ., 814 F.2d 90 (2d Cir. 1987).


25

7A.1.3. In Civil Law countries, the intention of the parties is assessed not just from the strict

interpretation of the contractual terms, but more from the actual state of mind of the

two parties.73

7A.1.4. The Respondent’s serving a single Indonesian dish called “Special of the Day” is not

violating the official menu of the Agreement. All the items on the official menu are

being served and this dish is no longer on the official menu. It has been reported to be

a very well cooked dish by the Claimant’ own inspector. It was a good business

decision taken by the Respondent keeping the circumstances of his business in mind.

Therefore, termination on such basis is not justified.

73

Zeller, Bruno (2003) Good Faith - Is it a Contractual Obligation?, Bond Law Review: Vol. 15: Iss. 2, Article

13


26

ISSUE VIIB: GIVING CUSTOMERS THE OPTION OF S UBSTITUTING LAMB FOR PORK FOR

MENU ITEMS DOES NOT JUSTIFY THE TERMINATION OF THE FRANCHISE.

Under Singapore Law

7B.1.1.Pork is recognised in Islam as a taboo, and devout Muslims as a rule will forsake

pork.74 Indonesia has a very considerable Muslim population.75

The Respondent allowed the substitution of pork with lamb on request in the

restaurants. This was a good business decision of the Respondent’s. The Respondent

had not stopped the making of the original recipes with pork, but rather, offered the

substitution with lamb as an alternative. There have been frequent requests for the

substitution of pork with lamb, and the business in the restaurants is successful.

7B.1.2.This as a reason for termination of the Agreement by the Claimant is not justified. The

Respondent would only have increased the business of the restaurants by allowing this

substitution; almost 33% of the menu cannot be ordered by devout Muslims. Had the

Claimant acted in good faith, this was no justifiable reason for the termination of the

Agreement.


7B.1.3.Indonesian Law follows a more subjective interpretation of contracts, by looking at

the intention of the parties, rather than the literal interpretation of the contract.76 There

is also an implied covenant to act in good faith and fair dealing.77

As explained above, the Respondent had made a good business decision and

termination by

The Claimants was not justified.

74

Qur'an, Sura 2 (Al-Baqara), ayat 173 75

Miller, Tracy, ed. (October 2009) , Mapping the Global Muslim Population: A Report on the Size and

Distribution of the World’s Muslim Population, Pew Research Center, retrieved 2009-10-08 76

Article 1343, Civil Code if Indonesia 77

William Tetley, Good Faith in Contract Particularly in the Contracts of Arbitration and Chartering , (2004)

35 JMLC 561-616


27

ISSUE VIIC: THE WEARING OF THE “NEW (WHITE) HIJAB” BY THE FEMALE M USLIM

EMPLOYEES DOES NOT JUSTIFY THE TERMINATION OF THE FRANCHISE.

Under Singaporean Law

7C.1.1.The concept of good faith and fair dealing is a duty to not do anything that deprives

the other party of their share of the benefits of the Agreement.78

The Respondent allowed the wearing of the hijab by the waitresses on their request,

keeping in mind their religious sentiments.

7C.1.2.When the Claimant objected to the wearing of the hijab by the waitresses, they did so

on the grounds that the red headscarves served as a distraction from the official

uniform of the waitresses. The Respondent changed the colour to white, to make the

headscarves less noticeable, and even mandated that all waitresses in both restaurants

wear them, keeping in mind the Claimant’s need for uniformity throughout the

GWNS restaurants. Yet, the Agreement was terminated abruptly and without giving

the Respondent a proper chance and knowledge of the supposed breach committed by

him. This is a clear mala fide action on the part of the Claimant. The Respondent felt a

duty to comply with the requests of the waitresses that had a religious reason behind

it. The Claimant cannot deny the Respondent the right to the benefits of the

Agreement, large as they were, simply on this basis.


7C.1.3.All agreements, as per the Civil Code, must be executed in good faith.79

The colour of the hijab was changed to white, to make it less noticeable. Termination

even after this was not done in good faith.

78

Kirke La Shelle Company v. The Paul Armstrong Company et al., 263 N.Y. 79 79

Id. at 70


28

ISSUE VIID: THE ABOVE VIOLATIONS OF THE FRANCHISE AGREEMENT DO NOT REFLECT

A CONTINUING DISREGARD OF THE FRANCHISEE’S OBLIGATIONS UNDER THE FRANCHISE

AGREEMENT AND DO NOT JUSTIFY ITS TERMINATION.

Under Singaporean Law

7D.1.1 Common Law recognises that a party be given a chance to be notified of and cure the

breach before the breach of contract is held to be a fundamental breach.80

7D.1.2 As a formality, after the first inspection, the Claimant informed the Respondent of

their objections to the current way the restaurants were being operated and managed.

However, after the second inspection, the Respondent was not informed that

according to the Claimant, he was still in violation of the Agreement, nor given a

chance to rectify this.

7D.1.3 The Respondent had made immediate changes as per the directions of the Claimant.

He had changed the colour of the headscarves from red to white, to make them less

noticeable, as per Mr. Ji’s statements. He had ordered all waitresses in both

restaurants to wear the same colour headscarves, and mandatorily. The Respondent

had stopped the Indonesian Menu and only offered a single Indonesian dish called the

“Special of the Day”, written on a separate board. He was following the authorised

menu.

7D.1.4 The Respondent had no cause to think that he was still in violation of the Agreement.

It was a mala fide decision on the part of the Claimant to not inform him of his

continued violations, nor to give him an opportunity to cure them. Therefore, the

termination of the Agreement was not justified not only on grounds of unjust cause,

but also because the Respondent was not given an opportunity to cure.

80

Zulla Steel v. A&M Gregos, 174 N.J. Super. 124


29

7D.1.5 Modifications of the products are often necessary to adapt to local cultural tastes and

to maximize sales.81

7D.1.6 The Respondent had made reasonable variations to the products and services of the

restaurants. It was a decision taken with good business acumen, to increase sales and

maximise the profits. The Respondent was not attempting to cause confusion in any

manner about the Claimant’s trademarks, but rather, to better the goodwill and

reputation of the Claimant by making certain adaptations to the local environment.

Therefore, the Respondent has not infringed any of the Claimant’s trademarks.


7D.2.1 The Claimant has a duty to act in good faith.82

Claimant should have offered the Respondent an opportunity to cure his violations

and given him an explanation of the same. However, this was not done.

81

Alon Ilan, Mark Toncar, et al. (2002), American Franchising Competitiveness in China , Journal of Global

Competitiveness, Vol. 10 (1), 65-83. 82

Ibid., at 22


30

ISSUE VIII: AN EMPLOYMENT REGULATION PROHIBITING THE WEARING OF A HIJAB BY

FEMALE MUSLIM EMPLOYEES OR RESTRICTION (OR THE COLOUR TYPE OF THE HIJAB)

VIOLATES THE CONSTITUTION AND/OR LAWS OF INDONESIA OR ANY INTERNATIONAL

TREATIES TO WHICH IT IS A MEMBER.

8.1 Right to Religious Faith and Worship

8.1.1. The International Covenant on Civil and Political Rights declares that all persons have

the right to follow the religion of their choice, whether in a community or

individually. 83 The Constitution of Indonesia grants individuals the right to choose

whatever religion they please,84 and practice it how they like.85

8.2 Hijab as recognised in the Qur’an

8.2.1 The Qur’an recognises the importance of the hijab in the daily life of a woman; each

woman must wear it at all times.86 Wearing of distinctive clothing or head coverings

constitutes a part of practice of religion,87 even in a private institution.88

8.2.2 The Respondent, feeling obliged to do so, has allowed the wearing of hijab by the

waitresses in his restaurant. To match the official uniform, a red headscarf was

chosen. However, taking note of the Claimant’ objections to the same, he dutifully

changed the colour of the hijab to white, a less prominent colour, continuing to allow

the waitresses to wear the hijab.

8.2.3 The insistence of the Claimant that the hijab not be worn at all is a clear violation of

the right to freedom of religious worship and practice of the employees at the two

83

Article 18, International Covenant on Civil and Political Rights 84

Article 29, Constitution of Indonesia 85

Article 28E, Constitution of Indonesia 86

Verse 24:31, Qur’an; Verse 33:59, Qur’an 87

Manisuli Ssenyonjo, The Islamic Veil and Freedom of Religion, the Rights to Education and Work: a Survey

of Recent International and National Cases, Chinese Journal of International Law (2007), Vol. 6, No. 3, 657 88

Raihon Hudoyberganova v. Uzbekistan, U.N. Doc. CCPR/C/82/D/931/2000 (2004)


31

restaurants. This is an unreasonable request on the part of the Claimant, and there is

no error on the Respondent’s part in allowing the continued wearing of the hijab. The

Respondent had complied with the direction of the Claimant and made the hijab less

noticeable. He is not obligated to disregard religious practices of his employees.


32

PRAYER FOR RELIEF

In light of the above submissions, the Respondent respectfully requests that the Arbitral

Tribunal to declare that

• The proper law to apply in resolving this dispute is Indonesian Law.

• The Arbitration Agreement is invalid and not enforceable.

• The Franchise Agreement is invalid under Article 31, Indonesian Law 24 of 2009.

• Article XII of the Franchise Agreement is invalid and unenforceable.

• A proper and timely notice of termination was not given to the Franchisee.

• The Franchisor can terminate the Agreement only when there has been a substantial

violation of the Agreement, i.e., there has been a fundamental breach

• The inherent warranty of good faith and fair dealing does apply to this Agreement 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 does

not justify the termination of the Agreement.

• Prohibiting the wearing of hijab by the female Muslim employees violates their right

to freedom of religion.

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