F1010-R
THE 7TH LAWASIA INTERNATIONAL MOOT
IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION
KUALA LUMPUR, MALAYSIA
2012
BETWEEN
GREAT WALL NOODLE SHOP, LLC
(CLAIMANT)
AND
ADI BUDIAMMAN, M.D.
(RESPONDENT)
MEMORIAL FOR RESPONDENT
TABLE OF CONTENTS
STATEMENT OF JURISDICTION ..................................................................................... iv QUESTIONS PRESENTED.................................................................................................... v INDEX OF AUTHORITIES ................................................................................................. vii STATEMENT OF FACTS ...................................................................................................... 1 SUMMARY OF PLEADINGS ................................................................................................ 3 RESPONDENT’S PLEADINGS ............................................................................................. 5 I. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE ................................... 5 II. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE ....................................... 7 A. THE TRIBUNAL SHOULD APPLY INDONESIAN LAW TO THE FRANCHISE AGREEMENT 7 B. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE UNDER THE
SUBSTANTIVE AND FORMALITY REQUIREMENTS UNDER INDONESIAN LAW ............... 8 1. The Franchise Agreement satisfies the substantive requirements .................... 9 2. The Franchise Agreement satisfies the formality requirements ....................... 9 3. The Franchise Agreement remains valid and enforceable even if the
formality requirements are not fully satisfied ................................................ 10 C. THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE UNDER THE
SUBSTANTIVE AND FORMALITY REQUIREMENTS UNDER SINGAPOREAN LAW .......... 11 III. ARTICLE XII(B) OF THE FRANCHISE AGREEMENT IS INVALID AND UNENFORCEABLE11 A. ARTICLE XII(B) IS INVALID AND UNENFORCEABLE UNDER INDONESIAN LAW ....... 12 B. ARTICLE XII CONSTITUTES AN UNFAIR TERM UNDER SINGAPOREAN LAW ............. 12 C. RESPONDENT’S WAIVER IN ARTICLE XII(B) HAS NO EFFECT HERE ......................... 14 IV. CLAIMANT DID NOT GIVE PROPER NOTICE OF TERMINATION TO RESPONDENT ........ 15 A. CLAIMANT DID NOT GIVE PROPER NOTICE OF TERMINATION TO RESPONDENT
UNDER INDONESIAN LAW........................................................................................ 15 B. CLAIMANT DID NOT GIVE PROPER NOTICE OF TERMINATION TO RESPONDENT
UNDER SINGAPOREAN LAW..................................................................................... 16 ii
V.
THE PRINCIPLE OF “INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING”
APPLIES TO THE CURRENT FRANCHISE AGREEMENT ................................................. 17 VI. CLAIMANT CAN TERMINATE THE FRANCHISE ONLY FOR SUBSTANTIAL VIOLATIONS18 VII. ALL OF RESPONDENT’S VIOLATIONS ARE NOT SUBSTANTIAL .................................... 18 A. RESPONDENT’S SERVICE OF A SINGLE INDONESIAN DISH UPON CUSTOMERS’
REQUESTS DOES NOT CONSTITUTE A SUBSTANTIAL VIOLATION ............................... 19 1. The service of a single Indonesian dish upon customers’ requests is not a
substantial violation as it benefits Claimant’s franchise system .................... 19 2. Claimant’s termination of the Franchise Agreement is not proportionate to
the alleged violation ....................................................................................... 21 B. RESPONDENT’S SUBSTITUTION OF LAMB FOR PORK IN DISHES IN ADHERENCE TO
RELIGIOUS RULES DOES NOT CONSTITUTE A SUBSTANTIAL VIOLATION ................... 21 1. Respondent’s substitution of lamb for pork in dishes benefits the franchise
system ............................................................................................................. 22 2. Claimant never took issue with Respondent’s substitution of lamb for pork
in dishes .......................................................................................................... 23 C. THE ADDITION OF A HIJAB TO EMPLOYEE’S UNIFORMS IN ADHERENCE TO RELIGIOUS
RULES DOES NOT CONSTITUTE A SUBSTANTIAL VIOLATION ..................................... 23 1. Prohibiting female Muslim employees from wearing hijabs violates their
right to express their religion.......................................................................... 24 2. Prohibiting female Muslim employees from wearing hijabs constitutes
gender discrimination ..................................................................................... 26 D. RESPONDENT’S VIOLATIONS CUMULATIVELY DO NOT CONSTITUTE A CONTINUING
DISREGARD FOR THE FRANCHISE AGREEMENT ....................................................... 27 E. CLAIMANT S TERMINATION OF THE FRANCHISE IS NOT IN GOOD FAITH ................... 28 CONCLUSION AND PRAYER OF RELIEF ..................................................................... 30 iii
STATEMENT OF JURISDICTION
Great Wall Noodle Shop, LLC (“Claimant”) and Adi Budiamman, M.D. (“Respondent”)
jointly submit the present dispute to the Kuala Lumpur Regional Centre for Arbitration
(“KLRCA”), Malaysia, according to the KLRCA Fast Track Rules (“KLRCA Rules”).
This dispute includes issues on the Tribunal’s jurisdiction. The Tribunal may elect to rule on
its jurisdiction as a preliminary question or in an award on its merits pursuant to Article 6 of
the KLRCA Rules.
Both parties shall accept the judgment of the Tribunal as final and binding and execute it in
good faith in its entirety.
iv
QUESTIONS PRESENTED
A.
What is the proper law to apply in resolving this dispute: Singapore Law, Indonesian
Law, or some other law?
B.
In order to minimize additional delay in resolving this dispute, the parties are directed
to address each of the following questions in the alternative: i.e. under both
Indonesian and Singaporean law if they are different.
1.
Is the Arbitration agreement valid and enforceable?
2.
Is the Franchise Agreement invalid under Indonesian Law – specifically Article
31 of Law 24 of 2009?
3.
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.
4.
Was a proper and timely Notice of Termination given to the Franchisee [Dr.
Budiamman]?
5.
May the Franchisor terminate the franchise for any violation of the Franchise
Agreement or must it be a substantial violation of the Agreement?
6.
Does the “inherent warranty of good faith and fair dealing” in interpreting and
applying franchise agreements apply to this Franchise Agreement and, if so:
v
a.
Did the serving of a single Indonesian dish referred to as “The Special of
the Day” justify the termination of the franchise?
b.
Did giving customers the option of substituting lamb for pork for menu
items justify the termination of the franchise?
c.
Did the wearing of the “new (white) hijab” by the female Muslim
employees justify the termination of the franchise?
d.
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?
7.
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.
vi
INDEX OF AUTHORITIES
Statutes and Treaties
Discrimination (Employment and Occupation) Convention,
International Labour Organization
Indonesian Civil Code
43
8, 28
Indonesian Law No. 12 of 2005 Concerning the Ratification of the
international Covenant on Civil and Political Rights
42
Indonesian Law No. 21 of 1999 Concerning Discrimination in
Respect of Employment and Occupation
43
Indonesian Law No. 24 of 2009 Regarding the State Flag, the
National Language, the National Emblem and the National Anthem
Indonesian Law No. 39 of 1999 on Human Rights
Indonesian Law No. 42 of 2007 on Franchising
9, 10, 11, 14
40, 42
6, 9, 14, 16, 23
Regulation No. 12 of 1997 Indonesian Ministerial Order
Implementing the Medium-small Retail Business Act
18
Indonesian Regulation of the Minister Trade No. 31/MDAG/PER/8/2008
6, 14, 18, 23, 24
International Covenant on Civil and Political Rights
41, 42
President of Republic of Indonesia, Act Number 13 Year 2003
Concerning Manpower
44
Singaporean Unfair Contract Terms Act (Cap 396)
17
The 1945 Constitution of the Republic of Indonesia
Universal Declaration of Human Rights
40, 42
42
vii
Arbitral Awards
ICC Award No. 2626 (1977)
1
India Cases
Sumitomo Heavy Industries Ltd v ONGC Ltd (India) (1999) XXIVa
Ybk Comm Arbn 678
1
Singapore Cases
Golden Village Multiplex Pte Ltd v Marina Centre Holdings Pte Ltd
[2002] 1 SLR 333
17
Guha Majumder v Donough [1974] 2 M.L.J. 114
13
Lemon Grass Pte Ltd v Peranakan Place Complex Pte Ltd [2002] 4
SLR 439
2
Pasuma Pharmacal Corporation v McAlister & Co. Ltd [1965] 1 MLJ
221
26
Rahmatullah s/o Oli Mohamed v Rohayaton bte Rohani (Suit
600/2001)
17
UK Cases
Bahamas Oil Refining Co v Kristiansands Tankrederei A/S (The
Polyduke) [1978] 1 Lloyd’s Rep. 211
13
Bremer Vulkan Schiffbau and Maschinenfabrik v. South India
Shipping Corp. Ltd [1981] A.C. 909
2
Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993]
AC 334
1
Edwards v Skyways Ltd [1964] 1 W.L.R. 349, 355
13
R (Begum) v Governors of Denbigh High School [2005] 2 WLR 3372
35
viii
Tonicstar Ltd v American Home Assurance Co [2004] EWHC 1234
(Comm)
1
Westacre Inv. Inc. v. Jugoimport-SDPR Holdings Co. Ltd [1998] 4 All
E.R. 570
2
USA Cases
Armendariz v. Found. Health Psych Care Serv., Inc. (Cal. Ct. App.
1998) 80 Cal.Rptr.2d 255
20
Graham Oil Co. v. ARCO Products Co. (9th Cir. 1994) 43 F.3d 1244
1247-48
20
Stirlen v. Supercuts, Inc.,(Cal. Ct. App. 1997) 60 Cal.Rptr.2d 138,
150-51
20
Wright-Moore Corporation v Ricoh Corporation, United States Court
of Appeals, Seventh Circuit, 28 Aug 1990, 908 F.2d 128
6
Scholarly Work and Articles
Alex S. Konigsberg, Q.C., International Franchising (3rd ed) (Juris
Publishing, Inc. 2008)
31, 35
Andrew Tweeddale, Keren Tweeddale, Arbitration of Commercial
Disputes, International and English Law and Practice (Oxford
University Press 2005)
1
Christian Tonuschat, Human Rights: Between Idealism and Realism
(Oxford University Press 2003)
43
CIA World Fact Book : Indonesia. Accessible on
https://www.cia.gov/library/publications/the-worldfactbook/geos/id.html, last updated July 31 2012
38
David Wotherspoon, Danielle Westgeest, The Arbitration Tribunal
and equitable relief: An Update from the British Columbia Court of
Appeal, The Advocate May 2009, Vancouver Bar Association
21
ix
E. Allan Farnsworth, “Duties of Good Faith and Fair Dealing” 3 Tul.
J. Int'l & Comp. L. (1995) 47
27
Elizabeth A. Martin and Jonathan Law (eds), Oxford Dictionary of
Law (6th ed) (Oxford University Press 2006)
26
Elizabeth Crawford Spencer The Regulation of Franchising in the
New Global Economy (Edward Elgar Publishing Ltd. 2010)
19
Gary B. Born, International Commercial Arbitration (Kluwer Law
International 2009)
H.G. Beale (ed), Chitty on Contracts, (Thomason Reuters 2008)
2, 6, 20
19, 28
Hassan El-Najjar, ‘Food: Islamic Rules and Teachings’ (10 Dhul
Qa’ada, 1424, 1/2/2004). Available at:
http://www.aljazeerah.info/Islamic%20Editorials/20022004%20Islamic%20Editorials/
Food%20Islamic%20Rules%20and%20Teachings
%20By%20Hassan%20El-Najjar.htm
35
John Felemegas, “Comparative Editorial Remarks on the concept of
Good Faith in the CISG and PECL”, 13 Pace International Law
Review 2
27
John J. Knox, “Horizontal Human Rights Law”, 102 The American
Journal of International Law 1 (2008)
43
Julian M. Lew, Loukas A. Mistelis, et al., Comparative International
Arbitration (Kluwer Law International 2003)
Leks & Co, Law on Flaw, Language, State Symbol and National
Anthem- Indonesia, 16 April 2010 Global Legal Resources
<http://www.hg.org/article.asp?id=18653>
Galinar R Kartakusuma, Indonesia: Law No. 24 of 2009 on the
National Flag, Language, Embelm and Anthem, 18 January 2012, <
http://www.mondaq.com
/x/160944/Constitutional+Administrative+Law/Law+No+24+of+200
9+on+the+National+Flag+Language+Emblem+and+Anthem >
x
1
10
18, 26
Guidelines on Sexual Harassment Prevention at the Workplace,
Circular Note of the Minister of Manpower and Transmigration No.
SE.03/MEN/IV/2011, Indonesia, April 2011
43
Redfern, Alan and Hunter, Martin, Law and Practice of International
Commercial Arbitration (Sweet & Maxwell 2009), pp.5-29
4
Simon Greenberg, Christopher Kee, J. Romesh Weeramantry,
International Commercial Arbitration An Asia-Pacific Perspective
(Cambridge University Press 2011)
6
Visu Sinnadurai, The law of contract in Malaysia and Singapore:
cases and commentary (Oxford University Press 1979)
13
International Organizations Documents
NGO Law Monitor: Indonesia, The International Center for Not-forProft Law, available at
<www.icnl.org/research/monitor/indonesia.pdf>
xi
42
STATEMENT OF FACTS
CLAIMANT
Claimant is a chain of Chinese restaurants founded and co-owned by Mr. Ji Jianping (“Mr.
Ji”) and Mr. Wang Xuefeng (“Mr. Wang”) with an extensive menu. Mr. Ji and Mr. Wang are
international businessmen who have expanded their restaurant business into Malaysia and
Singapore in the last 25 years. In June 2011, Mr. Ji and Mr. Wang decided to expand their
restaurants into Indonesia.
RESPONDENT
Respondent is a prominent surgeon based in Jakarta, Indonesia. Respondent met Mr. Wang
in Changi Airport, Singapore. Mr. Wang discussed plans to franchise his restaurant business
into Indonesia. Respondent was excited and jumped at the opportunity. He was particularly
keen because he has fond memories of working in a Chinese restaurant when in school and
loves Chinese food.
THE FRANCHISE AGREEMENT
The Franchise Agreement was signed between Claimant and Respondent at Changji Airport,
Singapore. Respondent’s attention was drawn only to the fee arrangements. Ultimately,
Respondent signed the original English version of the Franchise Agreement at Changi
Airport.
THE FRANCHISED RESTAURANTS AND DEFICIENCIES
The franchised restaurants opened in September 2011. It was an immense success at both
locations, in Jakarta and Medan. Mr. Ji and Mr. Wang felt that the franchised restaurants are
1
a “gold mine”. They also felt that they should have given the franchise to a friend or relative,
not to a “perfect stranger” such as Respondent. Subsequently, Mr. Ji made an unannounced
visit to the franchised restaurants in October 2011. He claimed there to be various deviations
from the Franchise Agreement which he termed “deficiencies”.
Mr. Ji articulated the deficiencies to Respondent in an email dated 4 November 2011.
Specifically, Mr. Ji took issue with Respondent’s service of Indonesian dishes and the
augmentation of female employee’s uniforms because they wore hijabs for religious
purposes. Respondent acted immediately in accordance with the email’s instructions and
removed service of Indonesian dishes from its menu altogether. Respondent also instructed
female employees to stop wearing red hijabs. However, Respondent respected the female
employees’ right to manifest and express their religious beliefs. He allowed them to wear
white hijabs that were less noticeable. Claimant was not satisfied with those changes and
sent a letter to Respondent to terminate the franchise.
THE ARBITRATION CLAUSE
Article XII of the Franchise Agreement is an Arbitration Clause. It stipulates that any dispute
arising out of the Franchise Agreement, its operation and its termination shall be settled by
arbitration in accordance with the KLRCA Rules.
2
SUMMARY OF PLEADINGS
I.
THE AGREEMENT TO ARBITRATE AT THE KLRCA IS VALID AND
ENFORCEABLE. First, Singaporean law is the applicable law in determining the
validity and enforceability of the Arbitration Agreement. Second, the Arbitration
Agreement satisfies the requirements of formation of a collateral contract under
Singaporean Law.
The Arbitration Agreement confers jurisdiction powers on the
Tribunal.
II.
THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE.
First,
Indonesian law governs the Franchise Agreement. Second, the Franchise Agreement
meets the substantive and formality requirements for constituting a valid and
enforceable agreement. Third, this is so even if Singaporean law applies.
III.
ARTICLE XII(B) IS INVALID AND UNENFORCEABLE. This is because Article
XII(B) is prohibited under Indonesian law and Singaporean law.
IV. CLAIMANT DID NOT GIVE PROPER NOTICE OF TERMINATION TO
RESPONDENT. While the notice may be timely, the notice is improper under either
Indonesian or Singaporean law.
V.
THE PRINCIPLE OF “INHERENT WARRANTY OF GOOD FAITH AND FAIR
DEALING” APPLIES TO THE CURRENT FRANCHISE AGREEMENT. “Good
faith” and “fair dealing” are equivalent concepts and both are applicable to the
Franchise Agreement.
3
VI. CLAIMANT CAN TERMINATE THE FRANCHISE ONLY FOR SUBSTANTIAL
VIOLATIONS. Whether a violation is substantial is interpreted according to the
natural meaning of the word under either Indonesian or Singaporean law.
VII. ALL OF RESPONDENT’S VIOLATIONS ARE NOT SUBSTANTIAL AND THE
FRANCHISE AGREEMENT WAS NOT TERMINATED IN GOOD FAITH.
Respondent’s violations are not substantial as they do not undermine the Franchise
Agreement’s fundamental purpose of making profits. Further, it is disproportionate to
terminate the Franchise Agreement based on Respondent’s minimal deficiencies.
Respondent could not prohibit his employees’ from wearing hijabs as it violates their
right to express their religion and amounts to gender discrimination. In addition,
Claimant did not terminate the franchise in good faith.
4
RESPONDENT’S PLEADINGS
I.
THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE
1.
Singaporean law is the applicable law in determining the validity and enforceability of
the Arbitration Agreement. Parties’ choice of law clause is a significant consideration
to decide the proper applicable law in resolving a dispute in arbitration.1 Specifically,
Article 6 of the KLRCA Rules recognises party autonomy on choice of law.2 Here, the
parties have chosen Singaporean law as the applicable law.3 The appropriate law to
govern the arbitration agreement should be the parties’ choice of law in the absence of
a provision stating otherwise.4 The Tribunal has ruled that the parties’ choice of law
governs the entire Franchise Agreement.5 As the Arbitration Agreement is part of the
Franchise Agreement, Singaporean law applies to the Arbitration Agreement.
2.
The Arbitration Agreement is valid as it is a valid collateral contract under
Singaporean law. Based on the separability doctrine, the Arbitration Agreement is
collateral to the Franchise Agreement.6 This is because the Arbitration Agreement
provides a mechanism to resolve dispute even when the principal contract fails.7 A
1
Julian M. Lew, Loukas A. Mistelis, Stefan M. Kroll, Comparative International Arbitration (Kluwer Law
International 2003), 17-8
2
KLRCA Rules, Article 6.1
3
Moot problem p.30
4
ICC Award No. 2626 (1977); Tonicstar Ltd v American Home Assurance Co [2004] EWHC 1234 (Comm);
Sumitomo Heavy Industries Ltd v ONGC Ltd (India) (1999) XXIVa Ybk Comm Arbn 678; Channel Tunnel
Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, 357-8; Andrew Tweeddale, Keren Tweeddale,
Arbitration of Commercial Disputes, International and English Law and Practice (Oxford University Press
2005), p.222
5
Second Clarifications, SR#3
6
Bremer Vulkan Schiffbau and Maschinenfabrik v. South India Shipping Corp. Ltd [1981] A.C. 909; Westacre
Inv. Inc. v. Jugoimport-SDPR Holdings Co. Ltd [1998] 4 All E.R. 570 (Q.B.); Gary B. Born, International
Commercial Arbitration Volume 1 (Kluwer Law International 2009), p.337
7
Westacre Inv.Inc v Jugoimport-SDPR Holdings Co. Ltd [1998] 4 All ER 570QB; Gary B. Born, International
Commercial Arbitration Volume 1 (Kluwer Law International 2009), p.337
5
collateral contract consists of two main factors. First, the terms must be certain.
Second, consideration must exist. 8 Here, the arbitration clause is sufficiently certain
because it mirrors the KLRCA Fast Track Model Arbitration Clause. Additionally, the
arbitration clause clearly submits the dispute to KLRCA, as required by the KLRCA
Rules.9 For a collateral contract, consideration is established when the promisee enters
or promises to enter into the principal contract with the promisor. 10
Here,
consideration is established as Respondent as promisee has entered into a principal
contract in the form of a Franchise Agreement with Claimant as promisor.
The
Franchise Agreement is valid as it meets all the requirements for constituting a valid
agreement.11 Accordingly, the Arbitration Agreement is also valid.
3.
The requirements for a valid arbitration agreement are also satisfied under the KLRCA
Rules. The KLRCA Rules state that a valid arbitration agreement must follow the
format set out in the Malaysian Arbitration Act 2005 (Act 646) (“MAA”). 12 Under the
MAA, arbitration agreements must have an arbitration clause, be in writing, and be
contained in a document signed by both parties.13 Here, the Arbitration Agreement is
an arbitration clause, is in writing, and signed by both parties by virtue of the Franchise
Agreement.14 The Arbitration Agreement is valid.
8
Lemon Grass Pte Ltd v Peranakan Place Complex Pte Ltd [2002] 4 SLR 439
9
KLRCA Rules, Article 1.2
10
Lemon Grass Pte Ltd v Peranakan Place Complex Pte Ltd [2002] 4 SLR 439
11
Below Submission II.B
12
KLRCA Rules, Article 6.2
13
MAA, ss.9.2-9.4(a)
14
Franchise Agreement, Article XII(A)
6
4.
The Arbitration Agreement is enforceable. By submitting a dispute to the KLRCA, the
parties have granted the Tribunal jurisdiction over the proceedings.15 Based on the
well-established competence-competence doctrine, a tribunal can determine the scope
of its jurisdiction. 16 Here, the Tribunal has the authority to determine its own
jurisdiction as the proceedings have been properly commenced.17 As there are no
further procedural issues in this arbitration, the Tribunal can enforce the Arbitration
Agreement.18
II.
THE FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE
5.
The Tribunal should apply Indonesian law to the Franchise Agreement [A]. The
Franchise Agreement is valid and enforceable because it meets the substantive and
formality requirements under Indonesian law [B]. This is so even if Singaporean law
applies [C].
A. THE TRIBUNAL
AGREEMENT
6.
SHOULD
APPLY
INDONESIAN
LAW
TO
THE
FRANCHISE
The parties’ choice of Singaporean law is not absolute because mandatory rules of law
that reflect public policy objectives limits the application of the chosen law.19 In
Wright-Moore v Ricoh, 20 the Indiana court disregarded the parties’ choice to apply
New York law in their franchise agreement. This was to uphold Indiana’s public
15
I bid
16
Redfern, Alan and Hunter, Martin, Law and Practice of International Commercial Arbitration (Sweet &
Maxwell 2009), pp.5-29
17
KLRCA Rules, Art. 3; Moot Problem p.5; Second Clarifications SR#10
18
Second Clarifications SR#10
19
Gary B. Born, International Commercial Arbitration Volume 1 (Kluwer Law International 2009), p.2190;
Simon Greenberg, Christopher Kee, J. Romesh Weeramantry, International Commercial Arbitration An AsiaPacific Perspective (Cambridge University Press 2011), 3.99
20
Wright-Moore Corporation v Ricoh Corporation, United States Court of Appeals, Seventh Circuit, 28 Aug
1990, 908 F.2d 128
7
policy against allowing parties to contract out of the protections of its franchise law. It
also sought to redress the imbalance between the bargaining positions of the franchisee
and the franchisor. Indiana franchise law was ultimately applied as the franchise was
based in Indiana. Similarly here, the Indonesian Franchising regulations, specifically
Government Regulation No. 42 of 2007 (“Regulation No. 42”) 21 and its implementing
regulation, Regulation No. 31 (“Regulation No. 31”) 22 are mandatory rules of law that
reflect public policy. The purpose of these Regulations is to regulate and enhance
franchising business in Indonesia.23 Regulation No. 31 protects franchising parties by
ensuring an equal legal position between them. It states that Indonesian law applies to
franchise agreements. 24
Accordingly, these principles limit the application of
Singaporean law in the present case. Under the separability doctrine, Indonesian law
can govern the Franchise Agreement while Singaporean law still governs the
Arbitration Agreement.25
B. THE FRANCHISE AGREEMENT
IS VALID AND ENFORCEABLE UNDER THE
SUBSTANTIVE AND FORMALITY REQUIREMENTS UNDER INDONESIAN LAW
7.
The Franchise Agreement satisfies the substantive [1] and formality [2] requirements
under Indonesian law. Alternatively, the Franchise Agreement remains valid and
enforceable even if it does not fully comply with Indonesian formality requirements
[3].
21
Law No. 42 of 2007 dated 23 July 2007 on Franchising
22
Regulation of the Minister Trade No. 31/M-DAG/PER/8/2008 dated 21 August 2008 on Implementation of
Franchising
23
Regulation No. 42, Introduction
24
Regulation No. 31, Art. 5
25
Above Submission I
8
1.
8.
The Franchise Agreement satisfies the substantive requirements
A valid agreement in Indonesia must satisfy 4 conditions listed in Article 1320 of the
Indonesian Civil Code. These relate to consent, capacity to conclude an agreement, a
specific subject and a lawful cause.26 Here, there was consent between the parties and
they had the capacity to conclude the Franchise Agreement.27 The specific subject was
the franchise of the Great Wall Noodle Shop and the franchise was lawful in Indonesia.
It follows that the Franchise Agreement is valid.
2.
9.
The Franchise Agreement satisfies the formality requirements
A franchise agreement must be in writing and translated into Bahasa if drafted
originally in English under Article 4 of Regulation No. 42. Article 31(1) of Law No.
24 of 2009 (“Law 24”) 28 requires agreements that involve Indonesian citizens to be
written in Bahasa. Article 31(2) of Law 24 allows parties to draft an agreement in an
additional foreign language when foreign entities are involved. Here, the Franchise
Agreement is in writing. The copy of the Franchise Agreement in Bahasa was sent to
Respondent the next day after the parties signed the copy in English.29 Respondent
accepted the Bahasa copy of the Franchise Agreement.
10.
The fact that only the English copy was signed does not invalidate the Franchise
Agreement. Elucidation of Law 24 on Article 31(2) states that each language shall be
treated as the original version.30 There is no express requirement for both copies to be
26
Indonesian Civil Code, Art.1320
27
Indonesian Civil Code, Art.1329
28
Law No. 24 of 2009 regarding the State Flag, the National Language, the National Emblem and the National
Anthem
29
Moot problem, p.2, para.4
30
Leks & Co, Law on Flaw, Language, State Symbol and National Anthem- Indonesia, 16 April 2010 Global
Legal Resources <http://www.hg.org/article.asp?id=18653>
9
signed, or to be shown to the parties at the same time. Therefore, the English copy is
regarded as the original version of the Franchise Agreement. The absence of a
signature in the version in Bahasa does not breach any formality requirement. It is
evident that the Franchise Agreement is valid and enforceable under Indonesian law.
3.
11.
The Franchise Agreement remains valid and enforceable even if the
formality requirements are not fully satisfied
The Tribunal has no legal basis to invalidate the Franchise Agreement even if the
Franchise Agreement does not comply with Law 24. Agreements written in English
remain valid until implementing regulations on Law 24 are made. This is evidenced by
the letter issued by the Indonesian Ministry of Law and Human Rights in December
2009.31 The Indonesian government has yet to give any implementing regulations on
Law 24. Accordingly, there are no sanctions available in the event of non-compliance
with Law 24 and the Tribunal has no legal basis to rule otherwise.
12.
The failure to meet the language requirements does not invalidate the Franchise
Agreement.
An error shall not render a contract invalid unless it relates to the
substance of the subject matter.32 Even if the Franchise Agreement has failed to
comply with the language requirements, there is still compliance with the substantive
requirements of the Franchise Agreement such as those discussed above. 33
Accordingly, non-compliance with the language requirements does not invalidate the
Franchise Agreement.
31
Makarim & Taira S., Indonesia: Law No. 24 of 2009 on the National Flag, Language, Embelm and Anthem,
18 January 2012, < http://www.mondaq.com/x/160944/Constitutional+Administrative+Law/Law+No+24+
of+2009+on+the+National+Flag+Language+Emblem+and+Anthem >
32
Indonesian Civil Code, Art.1322
33
Above Submission II.B.1
10
C. THE
FRANCHISE AGREEMENT IS VALID AND ENFORCEABLE UNDER THE
SUBSTANTIVE AND FORMALITY REQUIREMENTS UNDER SINGAPOREAN LAW
13.
The Franchise Agreement meets the substantive requirements for constituting a valid
contract under Singaporean law. Specifically, there must be an offer, acceptance,
consideration, intention to create legal relations and certainty of terms for there to be a
valid agreement. 34 Claimant offered a Franchise Agreement to Respondent and
Respondent accepted it by signing and paying various fees as consideration.35 Both
parties’ intention to create legal relations is presumed in such a commercial agreement
and nothing here suggests anything otherwise.36 The terms are clear and certain.
Accordingly, the Franchise Agreement is valid in substance according to Singaporean
law.
14.
The Franchise Agreement also satisfies the formality requirements for constituting a
valid agreement under Singaporean law. Regulation No. 42 and Law 24 still operate
here even though Singaporean law applies because Regulation No. 31 states that
Indonesian law governs franchise agreements in Indonesia.37 The analysis would be as
above.38 It is evident that the Franchise Agreement is valid and enforceable under
Singaporean law.
III. ARTICLE XII(B) OF THE FRANCHISE AGREEMENT IS INVALID AND UNENFORCEABLE
15.
Article XII(B) of the Franchise Agreement is invalid and unenforceable under both
Indonesian Law [A] and Singaporean Law [B] as it prohibits the granting of specific
34
Guha Majumder v Donough [1974] 2 M.L.J. 114; Visu Sinnadurai, The law of contract in Malaysia and
Singapore: cases and commentary, Oxford University press, 1979, Part II
35
Moot problem, p. 21
36
Edwards v Skyways Ltd [1964] 1 W.L.R. 349, 355; Bahamas Oil Refining Co v Kristiansands Tankrederei
A/S (The Polyduke) [1978] 1 Lloyd’s Rep. 211
37
Regulation No. 31 Art. 4(1), Submission II.B.1
38
Above Submission II.B.1
11
performance should the Claimant violate the Franchise Agreement. Respondent’s
waiver in Article XII(B) has no effect here [C].
A. ARTICLE XII(B) IS INVALID AND UNENFORCEABLE UNDER INDONESIAN LAW
16.
Article XII(B) is invalid as it breaches Indonesian law.
Specific performance is
remedy that is available in Indonesia.39 A franchisor has certain mandatory obligations
to perform as set out in Article 3 and Articles 7 to 11 under Regulation No. 42. For
instance, Claimant must continuously provide support to Respondent under Article 8
of Regulation No. 42. If Claimant does not do so, a grant of specific performance is a
remedy to ensure that Claimant complies with Indonesian law to sustain the franchise.
Accordingly, Article XII(B) is unenforceable as it is contrary to this right.
B. ARTICLE XII CONSTITUTES AN UNFAIR TERM UNDER SINGAPOREAN LAW
17.
Alternatively, Article XII is invalid and unenforceable because it violates Singaporean
law. Specific performance is recognized as an equitable remedy in Singapore.40 It
cannot be limited by the parties’ contract but only by circumstances where it would be
inequitable to grant such a remedy. Under the Singapore Unfair Contract Terms Act
(“Unfair Contract Terms Act”), Article XII(B) must satisfy the reasonableness test in
order to be valid and enforceable. As the party relying on Article XII(B), Claimant
must prove that it is a reasonable term. 41 The “reasonableness” test involves
39
Indonesian Civil Code, Art. 1267
40
Rahmatullah s/o Oli Mohamed v Rohayaton bte Rohani (Suit 600/2001); Golden Village Multiplex Pte Ltd v
Marina Centre Holdings Pte Ltd [2002] 1 SLR 333
41
Unfair Contract Terms Act, Art. 11.5
12
considering what is fair and reasonable in the circumstances known or ought to be
contemplated by both parties at the time the contract was made.42
18.
Article XII(B) is unreasonable because specific performance is a necessary remedy to
compensate Respondent’s future business opportunities in the franchise. A franchise is
a long-term investment. This is evident from the statutory requirement of a minimum
10-year contract term under Regulation No. 12 of 1997.43 Although Regulation No. 31
now overrides Regulation No. 12, the minimum requirement still applies according to
the Indonesian Ministry of Trade.44 Restricting the remedy of specific performance
will enable Claimant to buy out of the Franchise Agreement at anytime. This deprives
Respondent of the mandatory statutory protection.
19.
Article XII(B) does not satisfy the reasonableness test because of the imbalanced
bargaining positions between the parties. The bargaining position of the parties is a
significant factor to consider when assessing the reasonableness of a term.45 By the
very nature of a franchise, the franchisee functions as a consumer of the franchisor’s
intellectual property, products and services to the standard terms rather than as an
equal party to the negotiation of terms.46 Claimant may argue that Respondent is an
equal party to the terms because Claimant had given Respondent opportunity to review
the agreement whilst Respondent refused.47 However, an opportunity to review the
42
43
Unfair Contract Terms Act, Art. 11.1
Regulation No. 12 of 1997 on Franchising, Art. 8
44
Galinar R Karatakusuma, “Indonesia” in Phillip F Zeldman (ed) Franchise in 30 Jurisdictions Worldwide
(Law Business Research 2012), p.88
45
Unfair Contract Terms Act, Second Schedule (a)
46
H.G. Beale (ed), Chitty on Contracts, (Thomason Reuters 2008); Elizabeth Crawford Spencer, The
Regulation of Franchising in the New Global Economy (Edward Elgar Publishing Limited 2010), p.266
47
Moot Problem, p.2
13
agreement did not amount to have giving Respondent the power to renegotiate any
terms of the Franchise Agreement. Claimant ought to have known that Article XII(B)
indirectly restricts Claimant’s liability on any provision of the contract. Moreover, the
Franchise Agreement granting specific performance against Respondent but not
Claimant further reinforces the parties’ unequal bargaining position. Therefore,
Respondent is at a weaker bargaining position than the Claimant.
20.
Alternatively, even if Article XII(B) satisfies the reasonableness test, it is well
established in common law that the restriction of remedies in arbitration agreements is
unfair.48 As specific performance is an equitable remedy, it should be at the discretion
of the Tribunal to grant it. To deny the Tribunal its discretion in granting equitable
remedies will not only be against the common law, but also deny Respondent of a fair
and just relief. Therefore, Article XII(B) is invalid and unenforceable under
Singaporean law.
C. RESPONDENT’S WAIVER IN ARTICLE XII(B) HAS NO EFFECT HERE
21.
The waiver under Article XII(B) does not apply here. First, the Tribunal retains final
discretion in the granting of specific performance under the KLRCA Rules.49 The
KLRCA Rules provides that the Tribunal has the power to ensure the just, expeditious,
economical and final determination of this dispute.50 Claimant is attempting to limit
its contractual liability by unjustly restricting Respondent’s right to specific
performance.
If the Tribunal is unable to grant equitable relief such as specific
48
Graham Oil Co. v. ARCO Products Co., 43 F.3d 1244, 1247-48 (9th Cir. 1994); Armendariz v. Found. Health
PsychCare Serv., Inc., 80 Cal.Rptr.2d 255 (Cal. Ct. App. 1998); Stirlen v. Supercuts, Inc., 60 Cal.Rptr.2d 138,
150-51 (Cal. Ct. App. 1997); Gary B. Born, International Commercial Arbitration Volume 1 (Kluwer Law
International 2009), p.729
49
KLRCA Rules, Art. 6.5
50
KLRCA Rules, Art. 6.5
14
performance, it becomes necessary to turn to the courts for such relief. This may lead
to parallel proceedings and undermine the benefits of arbitration. 51
Second,
Respondent cannot waive protections granted under Indonesian law as they are
mandatory laws. 52 Therefore, Article XII(B) is invalid and unenforceable.
IV.
CLAIMANT DID NOT GIVE PROPER NOTICE OF TERMINATION TO RESPONDENT
22.
Respondent does not contend that Claimant’s notice of termination was untimely.
However, Claimant did not give proper notice of termination to Respondent under
Indonesian law [A] or Singaporean law [B].
A. CLAIMANT DID NOT GIVE
UNDER INDONESIAN LAW
23.
PROPER NOTICE OF TERMINATION TO
RESPONDENT
The current Indonesian Franchise law to apply is Regulations No. 42 and No. 31.
Article 20 of Regulation No. 42 provides that Regulation No. 16 of 1997 regarding
Franchise be revoked and declared invalid.53 Regulations No. 42 and 31 were in effect
when the Franchise Agreement was signed on 20 June 2011. It follows that
Regulations No. 42 and 31 is the applicable law here. Both Regulations are silent as to
the legal process of terminating a franchise agreement. Further, the Franchise
Agreement is silent on a procedure with which to terminate the franchise. However,
this does not indicate that Claimant’s letter of 19 November 2011 amounted to proper
notice of termination.
24.
Claimant’s notice is improper in two ways. First, Claimant’s notice contravenes Article
6 of Regulation No. 31. Article 6 states that a franchisor cannot appoint a new
51
David Wotherspoon, Danielle Westgeest, The Arbitration Tribunal and equitable relief: An Update from the
British Columbia Court of Appeal, The Advocate, Vancouver Bar Association May 2009
52
Above Submission II.A
53
Regulation No. 42, Art. 20
15
franchisee within 6 months of termination or before dispute resolution is concluded
between franchisor and franchisee. Claimant’s notice expressly stated that it will
appoint Mr. Wang’s son within 30 days of termination with Respondent.54 This clearly
contravenes Article 6. Further, the current dispute resolution is ongoing such that
Claimant is barred from appointing a new franchisee before this dispute can be
resolved. Second, Claimant’s notice gave Respondent only 15 days to comply with
post-termination duties. The Franchise Agreement clearly stipulated that Respondent
would have 30 days to comply.55 Claimant may argue that it is only a maximum of 30
days that will be provided for post-termination duties, but it remains the case that
Respondent is contractually entitled to at least 15 more days. The notice is improper as
it contravenes the Franchise Agreement.
B. CLAIMANT DID NOT GIVE PROPER
UNDER SINGAPOREAN LAW
25.
NOTICE OF TERMINATION TO
RESPONDENT
The rules of mandatory law designate Indonesian Franchise law as the law most
closely connected to the Franchise Agreement.56 The application of Indonesian law
would be as above.57 It follows that whether under Indonesian or Singaporean law,
Claimant did not give proper notice of termination to Respondent.
54
Moot Problem, p.5; First Clarifications D7
55
Franchise Agreement, Art. XIV
56
Above Submission II(A)
57
Above Submission IV(A)
16
V.
THE
PRINCIPLE OF “INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING”
APPLIES TO THE CURRENT FRANCHISE AGREEMENT
26.
The applicability of good faith to franchise agreements is well established.58 “Good
faith and fair dealing” is a phrase referring to an implicit but fundamental promise
between two parties that each will act honestly in exercising their contractual
obligations.59 In Indonesia, there is a general legal obligation on parties to deal with
each other in good faith.60 In Singapore, there is a corresponding common law duty to
deal in good faith.61 The principle is equally applicable to franchise agreements.
27.
Claimant may argue that “good faith” and “fair dealing” are separate concepts such
that only “good faith” applies here. It may rely on Article XII(A) of the Franchise
Agreement which states that the Tribunal must decide this dispute ex aequo et bono.
However, Article XII(A) allows the Tribunal to consider fair dealing. International
instruments, authors and scholars use both term interchangeably, incorporating the
concept of “fair dealing” into “good faith”.62 Good faith expressly applies to the
current Franchise Agreement. It follows that fair dealing impliedly applies as well.
58
Galinar R Kartakusuma, “Indonesia” in Phillip F Zeldman (ed) Franchise in 30 Jurisdictions Worldwide
(Law Business Research 2012), p.87;
59
Elizabeth A. Martin and Jonathan Law (eds), Oxford Dictionary of Law (6th ed) (Oxford University Press
2006), 242
60
Indonesian Civil Code, Art, 1338
61
Pasuma Pharmacal Corporation v McAlister & Co. Ltd [1965] 1 MLJ 221 (Federal Court, Singapore) where
it was stated that “[It is] an implied condition that in relation to their business as covered by the contract the
parties should be reasonably honest and truthful to each other.”
62
John Felemegas, “Comparative Editorial Remarks on the concept of Good Faith in the CISG and PECL”, 13
Pace International Law Review 2, 399; Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310; E. Allan
Farnsworth, “Duties of Good Faith and Fair Dealing” 3 Tul. J. Int'l & Comp. L. (1995) 47, 59
17
VI.
CLAIMANT CAN TERMINATE THE FRANCHISE ONLY FOR SUBSTANTIAL VIOLATIONS
28.
Claimant can only terminate for substantial violation a term of the Franchise
Agreement. 63 The word “substantial” in the phrase “substantial violation” carries
similar meaning whether under Indonesian or Singaporean law. Under Indonesian law,
the Indonesian Civil Code provides that “If the wording of an agreement is clear one
shall not deviate from it by way of interpretation.”64 This indicates that “substantial”
must be interpreted according to its natural meaning, such as “material” or “real”.
Under Singaporean law, “substantial” will be decided according to common law
principles, which would mean a material breach so significant that it “affects the very
substance of the contract” or “goes to the root of the contract”.65
It is evident that
“substantial” is similar under both streams of law.
VII. ALL OF RESPONDENT’S VIOLATIONS ARE NOT SUBSTANTIAL
29.
Respondent’s violations of the Franchise Agreement are not so substantial as to justify
termination. Respondent’s service of a single Indonesian dish upon customer’s request
[A], substitution of lamb for pork in dishes in adherence to religious rules [B] and
additions to employee’s uniforms in adherence to religious rules [C] all separately and
cumulatively do not constitute substantial and continuing disregard for the Franchise
Agreement [D]. Claimant did not terminate the franchise in good faith [E]. Claimant’s
termination of the franchise is unjustified.
63
Franchise Agreement, Art. XIII(B) at p. 31
64
Indonesian Civil Code, Art. 1342
65
H.G. Beale (ed), Chitty on Contracts, (Thomason Reuters 2008), 24-040
18
A. RESPONDENT’S
SERVICE OF A SINGLE INDONESIAN DISH UPON CUSTOMERS’
REQUESTS DOES NOT CONSTITUTE A SUBSTANTIAL VIOLATION
30.
The service of a single Indonesian dish upon customers’ requests is not a substantial
violation as it benefits Claimant’s franchise system [1]. Termination due to this
violation is a not a proportionate measure [2].
1.
31.
The service of a single Indonesian dish upon customers’ requests is not a
substantial violation as it benefits Claimant’s franchise system
The service of a single Indonesian dish upon customers’ requests is beneficial rather
than a substantial violation to Claimant’s franchise. The Franchise Agreement is an
agreement premised on profit.66 This is particularly so when this is an instance of
direct franchising, which is a franchise model that maximizes quick profits for
franchisors. 67 In fact, Article III(I) of the Franchise Agreement states that the
Respondent “must use [his] best efforts to promote and increase the sales and
service…to effect the widest and best possible distribution.”68 Respondent served an
Indonesian dish to maximize business profits. This is implicit because the single
Indonesian dish is served only at the request of the customer should they wish to have
Indonesian food.69 This single Indonesian dish is not available on the menu.70 Instead,
it is written on a chalk blackboard in Bahasa in order to attract more local customers.71
Respondent is providing the dish merely as an option for customers who “preferred
Indonesian food in order to increase business.” 72 Respondent firmly believed that
66
Martin Mendelsohn, Franchising Law , (Richmond Law & Tax Ltd 2nd Ed, 2004), 31
67
Alex S. Konigsberg, Q.C. ‘International Franchising’ (3rd ed, Juris Publishing, Inc. 2008), p.89
68
Franchise Agreement, Art.I,II(I)
69
Moot Problem, p.5
70
Ibid
71
Ibid
72
Second Clarifications, SR#12
19
providing both types of cuisine would increase business73, and in fact it has contributed
to the success of both restaurants.74 The Indonesian dish is on par with the franchise’s
standards, being described as “very good”.75 The Indonesian flavour in Respondent’s
menu was so successful that once removed, total profits dropped by 15%.76 The service
of a single Indonesian dish is in keeping with Claimant’s profit-making objective. It
benefits rather than undermines Claimant’s franchise system. Therefore, it is not a
substantial violation.
32.
The service of a “Special of the Day” is a business transition from one menu to
another. Respondent had been serving Indonesian dishes before Claimant’s notice of
deviation, which caused Respondent to remove all Indonesian dishes from its menu.77
The service of an Indonesian dish is a business maneuver to transition from this
previous menu with Indonesian dishes to the current menu without Indonesian dishes.
In this sense, the Indonesian dish is a buffer to appease customers’ demands, to ensure
profit sustainability. The service of a single Indonesian dish is in fact beneficial to the
franchise system as it continues to generate profits for Claimant. The service of a
single dish is therefore not a substantial violation.
73
Second Clarifications, SR#14
74
First Clarifications, E1
75
Moot Problem, p.5
76
Second Clarifications, SR#15
77
Moot Problem, p.3
20
2.
33.
Claimant’s termination of the Franchise Agreement is not proportionate
to the alleged violation
There are a total of 74 items on the official menu.78 The Indonesian dish is 1 optional
dish that is not listed amongst 74 dishes as “[it is] a single Indonesian dish written in
Bahasa Indonesia on a chalk blackboard.”79 Even if considered as such, it is one dish
out of 74 dishes, taking up less than 2% of the total menu items. Claimant may argue
that even if it is only one out of 74, the central issue is that the dish is unauthorised.
However, to terminate the Franchise Agreement on such a technicality is not in
keeping with the principle of “good faith and fair dealing”. Respondent has been
running his restaurants well in accordance with the Franchise Agreement’s principal
purpose of making profit. Claimant’s termination of the franchise based on a single
Indonesian dish undermines Respondent’s hard work and considerable investment in
running the franchised restaurants. Claimant is not applying business sense in good
faith as its actions are not proportionate to the alleged violation.
B. RESPONDENT’S SUBSTITUTION OF LAMB FOR PORK IN DISHES IN ADHERENCE TO
RELIGIOUS RULES DOES NOT CONSTITUTE A SUBSTANTIAL VIOLATION
34.
Respondent’s substitution of lamb for pork in dishes benefits the franchise system [1].
Alternatively, Claimant never viewed the substitution of lamb for pork as a substantial
violation [2].
78
Franchise Agreement, Appendix I
79
Moot Question, p.5
21
1.
35.
Respondent’s substitution of lamb for pork in dishes benefits the
franchise system
Respondent’s key responsibility as franchisee and Claimant’s key interest as
franchisors is in profit. 80 Article III(I) of the Franchise Agreement also requires
Respondent to “use best efforts to promote and increase sales”.81 Respondent is a
Sunni Muslim who understands the requirements of a diet in conformity with Muslim
rules.82 Muslim customers make up the vast majority of the clientele that visits both
franchised restaurants. 83 Claimant does not dispute this reality. 84 Claimant, as
experienced franchisors, is also aware that cultural customs vary from one locality to
another.85 Muslims cannot eat pork according to religious rules of the Islamic faith86
and adhere to religious restrictions in varying degrees.87 Respondent has to maximise
profit by catering to the preferences of as many customers possible. It is necessary for
Respondent to substitute lamb for pork in his franchised restaurants.
36.
Claimant may argue that the option to substitute lamb for pork was utilised very rarely
and therefore cannot benefit the franchise system.88 This is not true as the number of
times this option is exercised is irrelevant.
The focus is that there is an option
available should customers choose to exercise it. It remains a benefit to the franchise
80
Alex S. Konigsberg, Q.C. ‘International Franchising’ (3rd ed, Juris Publishing, Inc. 2008), p.89
81
Franchise Agreement, Art. III(I)
82
Second Clarifications SR#19
83
First Clarifications, E5
84
First Clarifications, E5
85
Franchise Agreement, Art. XI
86
Hassan El-Najjar, ‘Food: Islamic Rules and Teachings’ (10 Dhul Qa’ada, 1424, 1/2/2004). Available at:
http://www.aljazeerah.info/Islamic%20Editorials/2002-2004%20Islamic%20Editorials/
Food%20Islamic%20Rules%20and%20Teachings%20By%20Hassan%20El-Najjar.htm
87
R v Governors of Denbigh High School [2005] EWCA Civ 199 at para.31
88
Second Clarifications, SR#11
22
system as it contributes to the profits made in the franchise. Alternatively, even if the
substitution is so minimal as to have negligible benefits to the system, Claimant would
be admitting that the violation was not substantial. The termination of the franchise in
any case is not justified.
2.
37.
Claimant never took issue with Respondent’s substitution of lamb for
pork in dishes
Alternatively, Claimant never viewed the substitution of lamb for pork as a substantial
violation. In his notice of deficiency, Mr. Wang never expressed discomfort with the
substitution. He drew attention only to the “…unauthorised menu items and the head
scarves worn by female employees.”89 Respondent continued to substitute lamb for
pork after the notice of deviation.90 Yet after the second inspection, Claimant again
omitted Respondent’s substitution of lamb for pork in the report.91 Accordingly,
Claimant did not consider the substitution to be a substantial violation.
C. THE
ADDITION OF A HIJAB TO EMPLOYEE’S UNIFORMS IN ADHERENCE TO
RELIGIOUS RULES DOES NOT CONSTITUTE A SUBSTANTIAL VIOLATION
38.
The hijab does not undermine Claimant’s franchise system. Claimant may contend
here that the employees’ hijab-wearing undermines the franchise system’s uniformity
and distinctiveness. However, it is important that the franchise operate in a manner that
is sensitive to local customs. Indonesia is the world's most populous Muslim-majority
nation, with 86.1% of Indonesians being Muslim.92 The vast majority of restaurant
89
Moot Problem p.3
90
First Clarifications, G3
91
Moot Problem, p.5
92
CIA World Fact Book: Indonesia. Accessible on https://www.cia.gov/library/publications/the-worldfactbook/geos/id.html, last updated July 31 2012
23
customers are Muslim.93 The vast majority of employees are likely Muslim.94 The
Islamic faith is of the view that adult women must dress modestly, cover all her body
with the exception of her face and hands in public, and should not dress in tight or
revealing clothing.95 The hijab is already the “bare minimum” required dress that is in
accordance with Islamic guidelines.96 It is vital to dress the franchise business in a way
that is not offensive to those within a Muslim-majority community. In addition, the
white hijab does not distract from the brand as they are less noticeable.97 The addition
of the hijab maintains the competitiveness of the franchised restaurants in Indonesia.
There is no substantial violation as the addition of hijabs contributes to the success of
the franchised restaurants.
39.
Furthermore, most of the workers in the franchised workers were women.98 Prohibiting
female Muslim employees from wearing hijabs not only violates their right to express
their religion [1] but also constitutes gender discrimination [2].
1.
40.
Prohibiting female Muslim employees from wearing hijabs violates their
right to express their religion
Under Article 28E of the Indonesian Constitution, everyone has the right to choose and
practice the religion of their choice and express their religion. Indonesia also
guarantees the freedom to practice religious beliefs through Presidential Regulation
93
First Clarifications, E3, E4, E5
94
First Clarifications, E3, E4, E5
95
R v Governors of Denbigh High School [2005] EWCA Civ 199 at para.28
96
R v Governors of Denbigh High School [2005] EWCA Civ 199 at para. 35 citing Dr. Ahmed Belouafi of the
Centre for Islamic Studies (Birmingham, UK)
97
98
Moot Question, p.5
Second Clarifications, SR#17b
24
No. 25 on 2008 and the Presidential Regulation No. 43 of 2009. Similarly, Article 22
of Law No. 39 of 1999 also guarantees the right to choose and practice religion.
41.
Limitations on the right to freedom may only be justified based on considerations of
morality, religious values, security, and public order. 99 Claimant may argue that the
hijabs are prohibited on grounds of commercial necessity. This is not one of the
grounds to justify derogation from the right to practice religion. The wearing of hijab
is an obligation part and parcel of the Islamic religion for Muslim women.100 It has
been accepted in the International Convention Covenant on Civil and Political Rights
(“ICCPR”) that “the wearing of distinctive clothing or head-coverings” can form a
part of the manifestation of religious belief.101 Accordingly, the prohibition of the
wearing of hijabs is a violation of the employees’ human rights.
42.
Respondent is obliged to allow the employees to wear hijabs because of the obligations
set out in the international treaties that Indonesia ratified. These include the ICCPR
ratified by Law No.12 of 2005102 and the Universal Declaration of Human Rights
(“UDHR”) ratified by the Preamble of Law No. 39 of 1999. 103 Similar to the
Indonesian constitution, both treaties have provisions providing the right to work, the
right to freely choose and practice one’s religion, and the right to freedom of
99
Indonesian Constitution, Art. 28J(2)
100
Singapore Islamic Scholars and Religious Teachers Association (PERGAS), Sheikh Al-Azhar About Hijab
Ban in Singapore, Straits Times, 15 February 2004; Ali Jum’ah, Hijab: Religious Symbol or Obligation?, 12
January 2004
101
Human Rights Commission, General Comment 22, Article 18 (48th session, 1993), UN Doc
HRI\GEN\1\Rev.1 at 35 (1994); 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 Oxford University Press) p.6571
102
NGO Law Monitor: Indonesia, The International Center for Not-for-Proft Law, available at
<www.icnl.org/research/monitor/indonesia.pdf>
103
Law No. 39 of 1999 Concerning Human Rights
25
expression.104 Accordingly, prohibiting Respondent to allow employees to wear hijabs
also violates these international treaties in addition to the Indonesian Constitution.
2.
43.
Prohibiting female Muslim employees from wearing hijabs constitutes
gender discrimination
Claimant may argue that human rights violations can only be committed by states or
the individuals acting on behalf of the state.105 However, Respondent has a private
duty to comply with the human rights provisions. Article 3(a) of the Discrimination
(Employment and Occupation) Convention (“Discrimination Convention”), ratified by
Law No. 21 of 1999,106 requires state members to seek employers’ cooperation to
promote the policy objectives.
This includes ensuring employees are not being
discriminated based on their religious beliefs. 107 Here, Respondent has to cooperate
with Indonesia, a state member to the Discrimination Convention.108 Accordingly,
Respondent has the responsibility to ensure that its female Muslim employees’ right to
religious beliefs is protected at work.
44.
The prohibition of wearing hijabs constitutes religious and gender discrimination. The
scope of “discrimination” at work encompasses the prohibition of wearing hijabs. Act
No. 13 of 2003 (“Manpower Act”) of Indonesia109 states that every worker has the
right to receive equal treatment without discrimination from their employer. 110
104
ICCPR Art.18-19; UDHR Art. 2, 18-19
105
Christian Tonuschat, Human Rights: Between Idealism and Realism (Oxford University Press 2003), p.309
106
Guidelines on Sexual Harassment Prevention at the Workplace, Circular Note of the Minister of Manpower
and Transmigration No. SE.03/MEN/IV/2011, Indonesia, April 2011
107
Discrimination Convention, Art. 1(1)(a), 3(a)
108
John H. Knox, “Horizontal Human Rights Law”, 102 The American Journal of International Law 1 (2008),
p.24
109
Act No. 13 of 2003 Concerning Manpower; Yu Chang and Thorson, A Legal Guide to Doing Business in the
Asia-Pacific (2010 American Bar Association), p.163
110
Manpower Act, Art. 6
26
Similarly, Discrimination Convention defines discrimination as “any distinction,
exclusion…made on basis of…religion...which has the effect of nullifying…equality of
opportunity…in employment”. 111 Here, Claimant has forced Respondent to treat
Muslim employees differently because of their religion. This includes restricting their
way of expressing their religion. The prohibition also deters Respondent from hiring
Muslim women in particular, as they are required by religious custom to wear hijabs.112
This in turn not only nullifies equality of opportunity for employment for Muslims, but
also constitutes gender discrimination against Muslim women.
45.
Respondent’s addition of hijabs to female employees’ uniforms is therefore not only
beneficial to the franchise, but necessary in terms of human rights. It does not amount
to a substantial violation of the Franchise Agreement.
D. RESPONDENT’S
VIOLATIONS CUMULATIVELY DO NOT
CONTINUING DISREGARD FOR THE FRANCHISE AGREEMENT
46.
CONSTITUTE
A
Claimant may argue that Respondent acted in continual disregard as Respondent did
not correct the deficiencies after Claimant’s notice of 4 November 2011.113 However,
Respondent had already removed all six Indonesian dishes from his menu,114 and
replaced the red hijab that “augmented” the official uniform with a white “less
noticeable” hijab.115 Respondent could not have anticipated that Claimant would still
be unsatisfied with the way he had corrected the deficiencies. Respondent at no point
could be said to be acting in continuing disregard of the Franchise Agreement.
111
Discrimination Convention, Art. 1(1)(a)
112
R v Governors of Denbigh High School [2005] EWCA Civ 199 at para.28
113
Moot Problem p.3
114
Moot Problem p.3, at footnote 4
115
Moot Problem p.3, at footnote 5, Moot Problem p.5
27
47.
Alternatively, Claimant may argue that the dispute centres on Respondent’s disregard
of Claimant’s authority to approve and control the way the franchise is run. It is not
disputed that a franchise business is premised on the franchisor’s authority to
control.116 However, Respondent’s violation of this authority is merely procedural and
not substantive. Had Respondent requested approval from the Claimant for the
addition of Indonesian dishes and hijabs, Claimant would have granted it as the
adjustments are designed to adapt the franchise into Indonesia and maximise business
profits.117 In fact, Respondent was of the view that the adjustments are so natural and
Claimant must be in agreement to them that he never thought it was necessary to
request for Claimant’s approval.118 All that Respondent is guilty of is transgression of
Claimant’s technical procedures in approving adjustments in the franchise business.
E. CLAIMANT S TERMINATION OF THE FRANCHISE IS NOT IN GOOD FAITH
48.
‘Good faith’ refers to an implicit but fundamental promise between two parties that
each will act honestly in exercising their contractual obligations.119 However, Claimant
did not terminate the Franchise Agreement in good faith. In fact, Claimant is exploiting
Respondent’s violation of Claimant’s approval process in order to give the franchise to
Mr. Wang’s son. 120 Claimant had revealed that it knew Respondent’s franchised
business to be a “gold mine”.121 Mr. Ji and Mr. Wang wished they had given the
116
Odile Streed and Gerard Cliquet, “Concept Uniformity: Control Versus Freedom in Business Format
Franchising” in Strategy and Governance of Networks: Cooperatives, Franchising and Strategic Alliances
(Physica-Verlag 2008), p.206
117
Above Submission VII.A,B,C
118
First Clarifications, Part F1
119
Above Submission V; Elizabeth A. Martin and Jonathan Law (eds), Oxford Dictionary of Law (6th ed)
(Oxford University Press 2006), 242
120
First Clarifications, Part E7
121
Moot Problem, p.3, at footnote 3
28
franchise to “a friend or relative” rather than “a perfect stranger” such as
Respondent.122 Mr. Ji and Mr. Wang consistently franchised restaurants to family and
relatives.123 Claimant deliberately cherry-picked at Respondent’s minor deficiencies
and labelled them “substantial violations” after Respondent had already corrected
them in order to terminate the franchise and hand the business to Mr. Wang’s son.124
49.
Claimant’s termination of the franchise is unreasonable. Claimant as the franchise
owner of internationally franchised restaurants must be aware that there are minor
deficiencies or differences from one franchised restaurant to the next. This depends on
the localities in which the restaurants are opened. It is known that Claimant’s
franchised restaurants serve local dishes that are not on the authorized menu.125 The
Franchise Agreement provides for such local and cultural variations.126 Such variations
are also common and well known to Claimant where there are minor changes in menus
and where some dishes are not available in other franchised restaurants.127 Claimant’s
termination of the franchise is not in good faith and unjustified.
122
Ibid
123
First Clarifications, Part D1
124
First Clarifications, Part E7
125
Second Clarifications, SR#16
126
Franchise Agreement, Art. XI
127
First Clarifications, Part G4
29
CONCLUSION AND PRAYER OF RELIEF
Based on the above submissions, Respondent respectfully requests this Tribunal to arbitrate
and declare as follows on the Questions Presented:
A.
That Singaporean law applies to the Arbitration Agreement and Indonesian law applies
to the Franchise Agreement.
B.
That under Indonesian or Singaporean law,
1.
the Arbitration Agreement is valid and enforceable ;
2.
the Franchise Agreement is valid and enforceable, specifically under Article
31 of Law 24 of Indonesian law;
3.
Article XII of the Franchise Agreement is invalid and unenforceable;
4.
Claimant has not given proper notice of termination to Respondent;
5.
Claimant may only terminate the Franchise for substantial violation;
6.
the principle of good faith applies to this dispute, and Respondent has not
substantially violated the Franchise Agreement;
7.
restricting employees from wearing hijabs violate their right to manifest their
religion and also constitutes gender discrimination.
30