kuala lumpur regional centre for arbitration (klrca)...
Post on 05-Feb-2018
233 Views
Preview:
TRANSCRIPT
F1050-C
Kuala Lumpur Regional Centre for Arbitration (KLRCA)
2012
Great Wall Noodle Shop LLC
v.
Adi Budiamman, M.D.
Memorial for Claimant
F1050-C
Table of Contents
Index of Authorities I
Statement of Jurisdiction V
Questions Presented VI
Statement of Facts VII
Summary of Pleadings X
Pleadings
A. THE PROPER LAW TO APPLY IN RESOLVING THIS DISPUTE IS THE
SUBSTANTIVE LAW OF SINGAPORE
1
I. The Parties have authorized the laws of Singapore to be the applicable law
of the Franchise and the Arbitration Agreement
1
II. The Applicable law that governs the contract is the proper law of the
contract
2
III. Choice of Forum shall not be taken as choice of Law 4
IV. The right to resort to national law has been specifically waived by the
Respondent
6
V. Unilateral Change to the Proper Law is unacceptable 7
VI. Public Policy Exception is not allowed by the laws of Singapore 7
B. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE 8
1. The Applicable law governing the Contract also governs the dispute settlement
clause
8
10
F1050-C
2. Indonesia has ratified the Geneva Convention
3. The International Standard of Public Policy Exception Provides a Restrictive
Approach
11
4. Indonesian Law does not distinguish between international and domestic
arbitration regimes
13
II. THE FRANCHISE AGREEMENT IS NOT INVALID UNDER ANY
INDONESIAN LAW.
13
1. Formal validity of the Contract under the laws of Singapore 14
III. ARTICLE XII OF THE FRANCHISE AGREEMENT IS VALID AND
ENFORCEABLE
15
IV. A PROPER NOTICE OF TERMINATION WAS GIVEN TO THE
FRANCHISEE
15
V. THE FRANCHISOR MAY TERMINATE THE FRANCHISE FOR ANY
VIOLATION OF THE FRANCHISE AGREEMENT
15
VI. THE INHERENT WARRANTY OF GOOD FAITH AND FAIR DEALING
CANNOT BE APPLIED IN INTERPRETING AND APPLYING THE
FRANCHISING AGREEMENTS
16
a. The serving of a single Indonesian dish increased the risk factor of the
Franchise and thus satisfied the termination of the franchise.
16
b. Substituting lamb for port for menu items disregarded the „uniformity‟ of the
Franchise and allowed the Franchisor to terminate the franchise agreement.
16
c. The wearing of the “new (white) hijab” by the female Muslim employees
F1050-C
justified the termination of the franchise as it violated the „common
appearance‟ element of the franchise.
16
d. All the above violations reflect a continuing disregard to the franchisee‟s
obligations under the Franchise Agreement to justify its termination.
VII. THE EMPLOYMENT REGULATION PROHIBITING THE WEARING OF A
HIJAB BY FEMALE MUSLIM EMPLOYEES OR RESTRICTION DOES NOT
VIOLATE THE CONSTITUTION OR ANY OTHER LAWS OF INDONESIA
16
Prayer for Relief 18
F1050-C
I
INDEX OF AUTHORITIES
MULTILATERAL TREATIES AND CONVENTIONS
New York Convention 1958…………………………………………………………… 13
Rome Convention……………………………………………………………………… 8
TABLE OF CASES
Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50, 65…………….. 1
Armar Shipping Co Ltd v Caisse Algégrienne d’Assurance [1981] 1 WLR 207 (CA).. 1
Compagnie d’Armement Maritime SA v Compagnie Tunisienne de Navigation SA
[1971] A.C. …………………………………………………………………………
1
Guépratte v Young (1851) 4 De G & Sm 217……………………………………… 14
Forslind v Becheley Crundall 1922 SC (HL) 173
Mersey Steel and Iron Co v Naylor, Benzon & Co (1884) 9 App Cas…………….. 16
Nottingham Building Society v Eurodynamics plc [1995] FSR 605, 611………….. 16
Pacific Electric Wire & Cable Co Ltd & Anor v Neptune Orient Lines Ltd [1993] 3
SLR 60………………………………………………………………………………
2
Peh Teck Quee v Bayerische Landesbank Girozentrale [2000] 1 SLR 148 (CA);
PT Jaya Putra Kundur Indah v Guthrie Overseas Investments Pte Ltd (7 December
1996) ……………………………………………………………………………….
15
Sapphire International Petroleum v The National Iranian Oil Company (1964) 94
I.C.L…………………………………………………………………………………
6
Union of India v McDonnell Douglas Corp [1993] 2 Lloyd‟s Rep. 48,…………… 10
F1050-C
II
Universal Cargo Carriers Corp v Citati [1957] 2 QB 401, 436……………………. 16
Van Gruten v Digby (1862) 31 Beav 51……………………………………………… 14
Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277……………………. 2,3
Ward v Coffin (1972) 27 DLR (3d) 58, 71-72……………………………………….. 15
TREATISES, DIGESTS AND BOOKS
Alan Redfern, Martin Hunter, Nigel Blackby and Constantine Partasides, Law and
Practice of International Commercial Arbitration (Fourth Edn, Ashford Colour Press
2007)…………………………………………………………………………………..
2,5
Goldman, “La lex mercatoria dans les contrats et l‟arbitrage internationaux: realite et
perspectives” [1979] Journal du Droit International………………………………….
6
Ho, “Enforcement of Foreign Arbitral Award” [1996] SJLS 241…………………….. 7
J. Beatson, A. Burrows J. Cartwright, Anson’s Law of Contract (29th
Edn, 2010,
Oxford University Press), p. 512………………………………………………………
16
Louis Tuegeh Longdong, Asas Ketertiban Umum dan Konvensi New York 1958,
Sebuah Tinjauan atas Pelaksanaan Konvensi New York 1958 pada Putusan-Putusan
Mahkamah Agung RI dan Pengadilan Asing, Citra Aditya Bakti, Bandung, 1998……
14
Peter North, J.J. Fawcett, Cheshire and North’s Private International Law, (at 479)… 15
Yeo, “Are Loans for International Gambling Against Public Policy?” [1997] SJICL… 6
Yeo, “Restitution, Foreign Illegality and Foreign Moneylenders” (1996) SAcLJ 228.. 7
ARTICLES
F1050-C
III
Lew, “The Law Applicable to the Form and Substance of the Arbitration Clause”,
ICCA Congress Series No. 14, 1998, Paris, para.136. ………………………………...
9
Derains, The ICC International Court of Arbitration Bulletin, Vol.6, No.1, p.10, at pp.
16-17……………………………………………………………………………………
7
Kohler Gabrielle K, Enforcement Awards – A Few Introductory Thoughts, in New
Horizon in International Commercial Arbitration and Beyond, ICCA International
Arbitration Congress, Albert Jan Van den Berg (ed), Kluwer Law International, The
Netherlands, 2005, p. 288……………………………………………………………..
5
MISCELLANEOUS
Faiz Mohamad, P, Kemungkinan Diajukannya Perkara dengan Klausula Arbitrase ke
Muka Pengadilan, available at:
<http://www.jurnalhukum.blogspot.com/2006/09/klausul-arbitrasedan-
pengadilan_18.html>, Viewed on 24 April 2008, p. 9.
Berkowitz D, Moenius J & Pistor K, Legal Institutions and International Trade Flows,
Michigan Journal of International Law, Vol. 26, 2004, available at: <http://
www.pitt.edu/~dmberk/Berkowitz%20Moenius%20Pistor.pdf>.......................................
8
International Law Association, Resolution of the ILA on Public Policy as Bar to
Enforcement of International Arbitral Awards, 2002, available
at:<http://www.epublications.bond.edu.au/context/theses/article/1023/index/2/type/nativ
e/viewcontent>, viewed on 8 May 2008…………………………………………………..
11
Wong K, Public Policy – The Ride of the Unruly Steed on the Highways of International
Arbitration, available at: < http://www.lawgazette.com.sg/2003-12/Dec03-col2.htm>,
F1050-C
IV
viewed on 13 May 2008, p. 1……………………………………………………………... 8
Yeo Tiong Min, “Private International Law: Law Reform in Miscellaneous Matters”, A
Paper presented for the consideration of the Law Reform Division, Attorney-General’s
Chambers,………………………………………………………………………………..
7
F1050-C
V
STATEMENT OF JURISDICTION
The Great Wall Noodle Shop LLC and Adi Budiamman have submitted this present dispute to
this Tribunal in accordance with Article XII A of the Arbitration Agreement signed by the
parties, pursuant to Article 2 of the Kuala Lumpur Regional Centre for Arbitration, Fast Track
Rules. Both parties shall accept the award of the tribunal as final and binding and execute it in
good faith in its entirety.
F1050-C
VI
QUESTIONS PRESENTED
The Great Wall Noodle Shop LLC asks this tribunal:
I. Whether the law of Singapore or Indonesia or any other country is the proper law to
apply in resolving this dispute;
II. Whether the Arbitration Agreement is invalid under Indonesian Law;
III. Whether Article XII of the Franchise Agreement (Dispute Resolution) is invalid
and/or unenforceable;
IV. Whether a proper and timely Notice of Termination was given to the Respondent;
V. Whether the Franchisor may terminate the franchise for any violation of the Franchise
Agreement or must it be a substantial violation of the Agreement;
VI. Whether the inherent warranty of good faith and fair dealing in interpreting and
applying the franchise agreements apply to this Franchise Agreement;
VII. Whether an employment regulation prohibiting the wearing of a hijab by female
Muslim employees or restriction violate the constitution and/or laws of Indonesia or
any international treaties to which it is a member.
F1050-C
VII
STATEMENT OF FACTS
The first Great Wall Noodle Shop opened in Tianjin, China on May 20, 1983 was founded and
co-owned by Jianping Ji and Xuefeng Wang.
Ji and Wang have franchised numerous other Great Wall Noodle Shops in China as well as in
Singapore and Malaysia and have expanded the menu to include a wide variety of Chinese
dishes.
In early 2011, they decided to expand to Indonesia. In June Wang travelled to Singapore to meet
with Mr. Bao Shan, the franchise owner of the Singapore restaurants, to see if he would be
interested in opening several restaurants in Indonesia. He wasn‟t.
On June 20, 2011, while waiting for his flight home in the Singapore Airlines Lounge in Changi
Airport, Wang met Dr. Adi Budiamman, a prominent Jakarta surgeon. As Wang explained the
purpose of his visit to Singapore, Dr. Budiamman became highly interested. As his flight was
being called for boarding, he announced excitedly: “I‟ll do it… Where do I sign?”
Wang retrieved the Franchise agreement intended for Mr. Bao from his briefcase; substituted Dr.
Budiamman‟s name on the contract; and explained the fee arrangements in detail. Dr.
Budiamman read through it quickly and signed it. A photocopy of both the original English and a
Bahasa Indonesia copy were delivered to Dr. Budiamman the next day.
The two new franchises opened in Jakarta and Medan in September 2011 were successful from
the beginning. In late October 2011 Mr. Ji made an unannounced visit to both Indonesian
restaurants as authorized by Article III G and/or Article VIII of the Franchise Agreement and
found several violations of the Franchise Agreement involving the sale of food products not on
the “official menu” being served and substitutions for the ingredients of others. He also observed
that some of the female employees wore unauthorized clothing, a head scarf or Hijab.
F1050-C
VIII
After returning home, Mr. Ji sent the following email (November 4, 2011) to Dr. Budiamman:
As I explained during my recent visit, you must take immediate steps to conform your operations
to those of our other restaurants as required by our Franchise Agreement. I am referring to the
unauthorized menu items and the head scarves worn by many of your female employees. The
Franchise agreement you signed is quite clear: no food items not of the Great Wall Noodle Shop
Standard Menu can be sold at any franchise without our permission.
Our franchise agreement requires that the restaurant – inside and out – be the same at all
locations. It is essential that all of our employees in every country where we operate dress the
same. Even the slightest difference can cause a customer to doubt that a particulate restaurant is
affiliated with all of the other Great Wall Noodle Shops. And if we allowed your employees to
augment the “official uniform,” It might encourage employees at other locations to believe they
need not follow our uniform regulations.
If you do not immediately discontinue the above mentioned violations of the Franchise
Agreement, we will have no choice but to terminate your Franchise.
Two weeks later, an “inspector” hired by Mr. Ji visited both Indonesian franchises and submitted
the following reported to Mr. Ji electronically that they were still serving Indonesian food at both
locations but without listing on the menu and no longer served Indonesian food except for “The
Special of The Day” – a single Indonesian dish written in Bahasa Indonesia on a chalk
blackboard; and many of the girls were wearing white scarves.
The next day Mr. Ji and Mr. Wang sent a letter to Dr. Budiamman terminating the franchise and
directing him to close both restaurants and remove the signage within 15 days. They indicated
that they planned to reopen the Jakarta restaurant within 30 days “Under new Management”.
F1050-C
IX
When Dr. Budiamman refused to close his two restaurants, Wang and Ji submitted a Notice of
Arbitration in conformity with Article 3 of the Kuala Lumpur Regional Arbitration Center
(KLRCA) Fast Track Rules seeking a restraining order against Dr. Budiamman pursuant to
Article XII B of the Franchise Agreement and damages for breach of the Franchise Agreement,
trademark infringement and damage to the reputation of the Great Wall Noodle Shops.
Dr. Budiamman filed a response denying the allegations and asserting a counterclaim for breach
of the franchise agreement and damage to his reputation.
A “Case Management Meeting” was subsequently held by phone during which the parties agreed
on issues to be covered at the November Hearing being held on 18 November 2012 in Bali,
Indonesia.
F1050-C
X
SUMMARY OF PLEADINGS
1. The proper law to apply in resolving this dispute is the substantive law of Singapore.
The Parties have authorized the laws of Singapore to be the applicable law of the Franchise
and the Arbitration Agreement.
The Applicable law that governs the contract is the proper law of the contract.
Choice of Forum shall not be taken as choice of Law.
The right to resort to national law has been specifically waived by the Respondent.
Unilateral Change to the Proper Law is unacceptable.
Public Policy Exception is not allowed by the laws of Singapore.
2. The arbitration agreement is valid and enforceable.
The Applicable law governing the Contract also governs the dispute settlement clause
Indonesia has ratified the Geneva Convention.
The International Standard of Public Policy Exception Provides a Restrictive Approach.
Indonesian Law does not distinguish between international and domestic arbitration regimes.
3. The franchise agreement is not invalid under any Indonesian law.
Formal validity of the Contract under the laws of Singapore is there.
4. Article XII of the franchise agreement is valid and enforceable
5. A proper notice of termination was given to the franchisee.
6. The franchisor may terminate the franchise for any violation of the franchise agreement.
7. The inherent warranty of good faith and fair dealing cannot be applied in interpreting and
applying the franchising agreements.
The serving of a single Indonesian dish increased the risk factor of the Franchise and thus
F1050-C
XI
satisfied the termination of the franchise.
Substituting lamb for port for menu items disregarded the „uniformity‟ of the Franchise and
allowed the Franchisor to terminate the franchise agreement.
The wearing of the “new (white) hijab” by the female Muslim employees justified the
termination of the franchise as it violated the „common appearance‟ element of the franchise.
All the above violations reflect a continuing disregard to the franchisee‟s obligations under the
Franchise Agreement to justify its termination.
8. The employment regulation prohibiting the wearing of a hijab by female muslim employees
or restriction does not violate the constitution or any other laws of Indonesia.
F1050-C
1
PLEADINGS
A. THE PROPER LAW TO APPLY IN RESOLVING THIS DISPUTE IS THE
SUBSTANTIVE LAW OF SINGAPORE
It is an axiomatic principle of law that a contract cannot exist in a legal vacuum and has meaning
only with reference to a system of law, so a contract must have a proper law from its inception.1
It is supported by a system of law which is generally known as “the substantive law”, “applicable
law” or “the governing law” of the contract.2 These terms denote the particular system of law
and govern the interpretation and validity of the contract, the rights and obligations of the parties,
the mode of performance and the consequences of breaches of the contract.3
It is also an undoubted principle of law that, in determining the proper law of a contract, the
court cannot take into account events subsequent to the contract which were uncertain at the time
of the contract.4
I. The Parties have authorized the laws of Singapore to be the applicable law of the
Franchise and the Arbitration Agreement
The Arbitral Tribunal shall apply the law designated by the parties as applicable to the substance
of this dispute.5 Article XII B of the Franchise Agreement, in the dispute settlement clause has
prescribed the applicable law to be the law of Singapore. It has further provided the provision
that the franchisee specifically waive any rights and protections that might be provided through
1 Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50, 65 (Lord Diplock).
2 In private international law, it is also known as the “proper law” of the contract.
3 Compagnie d’Armement Maritime SA v Compagnie Tunisienne de Navigation SA [1971] A.C. 572 at 603, per Lord
Diplock. 4 Armar Shipping Co Ltd v Caisse Algégrienne d’Assurance [1981] 1 WLR 207 (CA).
5 Kuala Lumpur Regional Centre for Arbitration (Hereinafter KLRCA) Fast Track Rules. Art.6.
F1050-C
2
the laws of any other country including the place where the franchise is operated.6 Thus, the
choice of law clause in the Agreement has specifically authorized the laws of Singapore to be the
applicable law should any dispute arise.
Many contracts incorporate the choice of a particular country‟s law, although they have no
connection with that country. For insurance often contain a choice of English law, because the
commercial law of England is considered to reflect and to be responsive to the needs of modern
international commerce. For similar reasons, many major reinsurance contracts contain a choice
of the law of New York.7 Similarly, the laws of contract and arbitration of Singapore have been
widely accepted by the world community in matters related to commercial agreements. Thus, the
parties agreed to abide by the laws of Singapore as the substantive law of the dispute in hand.
The applicable law does not just cover the Franchise Agreement but also the Arbitration
Agreement.8
II. The Applicable law that governs the contract is the proper law of the contract
In general, the law that governs most contractual issues is the proper law of the contract, and that
proper law is determined in three stages.9
If the parties have made an express choice of law,10
6 Franchise Agreement, Art. XII B.
7 Alan Redfern, Martin Hunter, Nigel Blackby and Constantine Partasides, Law and Practice of International
Commercial Arbitration (Fourth Edn, Ashford Colour Press 2007) 116. 8 Response to SR#3 of the Moot Problem.
9 The Komninos S, note 216 above.
10 Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277; Peh Teck Quee v Bayerische Landesbank
Girozentrale [2000] 1 SLR 148 (CA); Pacific Electric Wire & Cable Co Ltd & Anor v Neptune Orient Lines Ltd
[1993] 3 SLR 60.
F1050-C
3
even if the law chosen has no connection with the contract,11
that choice will be given effect to
unless the choice is not bona fide or legal or is against public policy.
The issue of limitation to choice was considered by the Singapore Court of Appeal in Peh Teck
Quee v Bayerische Landesbank Girozentrale.12
A contract of loan between a branch of a German
bank operating in Singapore and its customer, a Malaysian resident, was expressly governed by
Singapore law. The loan was disbursed in Malaysian currency and used to purchase Malaysian
shares which were held as security for the loan by the bank in a custodian account in a Malaysian
bank. In an action by the bank against the customer for repayment, the customer argued that the
choice of law should not be given to, and that the contract was illegal and unenforceable under
Malaysian law. The High Court allowed the bank‟s claim, and the appeal was dismissed by the
Court of Appeal. Four important points can be noted from the Court of Appeal‟s decision.
First, the Court of Appeal recast the public policy limitation on the parties‟ choice of law.
Ignoring the formulation in the Vita Food case itself that the choice of law should not be against
public policy, the court took that aspect of the limitation to mean that “the application of foreign
law should not be contrary to public policy”.13
As this is a given in choice of law analysis, this
aspect of the judgment as effectively excised the public policy limitation to choice of law. But
this is not an unwelcome development, since it is very difficult to see how the parties‟ expression
of choice of law itself can be against public policy.
11
Vita Food, same reference, at 290. Observations to the contrary in Boissevain v Weil [1949] 1 KB 482, 491 and
Re Helbert Wagg & Co Ltd ‘s Claim [1956] Ch 323, 341 have not gained significant support. 12
[2000] 1 SLR 148. 13
Same reference, at [12].
F1050-C
4
Secondly, the Court of Appeal held that the only effective limitation on the choice of the party is
that the choice should be made bona fide.14
After observing that the general principle was to give
effect to the parties‟ autonomy in their choice of governing law, even if the effect was to avoid
the application of the laws of another legal system, the Court stated:
The only rider to this is the principle that if the only purpose for choosing Singapore law was to
evade the operation of Malaysian law, the court would be likely to hold that the choice of law
was not bona fide on the basis of the evidence before it; Golden Acres Ltd v Queensland Estates
Pty Ltd [1969] QD R 378. (Emphasis added).15
The limitations on choice of law based on the legality of the choice and the choice of law not
being against public policy thus appear to be marginalised. This is a development in the right
direction. Issues of legality and public policy should be considered from the perspective of the
law applicable to the contract, not the choice of law itself.16
Thirdly, the Court of Appeal made a significant point on the operation of the bona fide
limitation. It took a large step forward from the Golden Acres case in stating that the evasion of
foreign law could be grounds for holding the choice to have been not bona fide.17
Fourthly, Court of Appeal further observed that a choice would not be bona fide only if the only
purpose of the choice was the evade the laws of another legal system.18
III. Choice of Forum shall not be taken as choice of Law
14
Yeo Tiong Min, “Private International Law: Law Reform in Miscellaneous Matters”, A Paper presented for the
consideration of the Law Reform Division, Attorney-General’s Chambers, p. 39. 15
Same reference at [17]. 16
Min (n 18), 40. 17
Ibid. 18
Ibid.
F1050-C
5
The rule of choice of forum as choice of law makes sense when the reference is to a court of law.
The assumption is less compelling, however, when the dispute resolution clause provides for
arbitration in a particular country. A place of arbitration may be chosen for many reasons,
unconnected with the law of that place, it may be chosen because of its geographical
convenience to the parties; or because it is a suitably neutral venue; or because if the high
reputation of the arbitration services to be found there; or for some equally valid reason.19
In one case before the Arbitration Institute of the Stockholm Chamber of Commerce, the tribunal
highlighted the fallacy of the principle that a choice of forum is a choice of law in the context of
arbitration in the following terms:
“[I]t is highly debatable whether a preferred choice of the situs of the arbitration is
sufficient to indicate a choice of governing law. There has for several years been a
distinct tendency in international arbitration to disregard this element, chiefly on
the ground that the choice of the place of arbitration may be influenced by a
number of practical considerations that have no bearing on the issue of applicable
law.”20
This has led to the formulation of a doctrine that has found support both in the rules of arbitral
institutions and in the practice of international arbitration, namely that, unlike the judge of a
national court, an international arbitral tribunal is not bound to follow the conflict of law rules of
the country in which it has its seat.21
19
Redfern, n(5) 143. 20
See Stockhold Arbitration Report 2002, p.59, with commentary by Fernandez-Armesto. 21
Redfern n(5), 145.
F1050-C
6
A leading commentator has spoken of “the almost total abandonment of the application of the
rules of conflict of the so-called arbitral forum”22
; and the point is emphasized by the comment
that, unlike the judge of a national court, an international arbitral tribunal has no lex fori:
“Contrary to a State judge, who is bound to conform to the conflict law rules of
the State in whose names he metes out justice, the arbitrator is not bound by such
rules, He must look for the common intention of the parties, and use the
connecting factors generally used in doctrine and in case law and must disregard
national peculiarities.”23
Thus, even though, the forum has been selected by the parties to be Indonesia, the proper law to
be applied for the arbitration is in accordance with the applicable law mentioned in the Franchise
Agreement.
IV. The right to resort to national law has been specifically waived by the
Respondent
The problem of protecting a party from changes in the local law was considered in the Sapphire
arbitration:
“Under the present agreement, the foreign company was bringing financial and technical
assistance to Iran, which involved it in investments, responsibilities and considerable risks. It
therefore seems normal that they should be protected against any legislative changes which
might alter the character of the contract and that they should be assured of some legal security.
22
Goldman, “La lex mercatoria dans les contrats et l‟arbitrage internationaux: realite et perspectives” [1979] Journal
du Droit International 475 at 491. 23
Sapphire International Petroleum v The National Iranian Oil Company (1964) 94 I.C.L.
F1050-C
7
This would not be guaranteed to them by the outright application of Iranian law, which it is
within the power of the Iranian state to change.”24
Evasion of the laws of Singapore to apply the laws of Indonesia would mean a malafide intention
of the parties to avoid the liabilities of the Agreement citing the public policy exceptions. This
right has specifically been waived in accordance with Article XII B of the Franchise Agreement.
V. Unilateral Change to the Proper Law is unacceptable
The English case of The Iran Vojdan25
prohibits the parties from agreeing to allow one party to
nominate a governing law to apply to the contract retrospectively.
On one hand, the reasoning of the case proceeded on the basis that the contract could not exist
without a proper law, and therefore the court appeared to treating the case as one of retrospective
application of a proper law to a contract which did not have a proper law to begin with. On the
other hand, in striking out the clause, the result was not that there was no contract, but the
contract did not contain that clause empowering one party to nominate a law to govern the
contract, so the underlying assumption was that there was an objective proper law that governed
the contract from its inception.26
Secondly, it is more consistent with international comity to allow the proper law of the contract
to deal with issues relating to illegality by the place of contractual performance. Indeed, the
proper law of the contract may, as in the case of the common law, take into consideration the law
of the contractual place of performance. Public policy can play, if at all, its usual secondary role
24
Ibid, 14. 25
See The Iran Vojdan, note 318 above, where the court struck down the relevant clause on the basis that German
law governed the contract before the exercise of the power in the clause, and under German law the clause had not
been incorporated into the contract because it was in fine print. However, the alternative reference to Iranian law as
the objective proper law of the contract to determine whether the proper law can be determined or changed
retrospectively appears to be a erroneous step. 26
This is consistent with the court‟s references to the objective proper law of the contract in an attempt to resolve
the issue of the validity of the choice/change of law clause.
F1050-C
8
in choice of law analysis. In English law, although the rule has sometimes been argued to be a
fundamental rule of public policy or an international mandatory rule that would apply
notwithstanding that the Rome Convention has no such choice of law rule,27
the better view is
that it is unlikely that such an interpretation will be taken of the Rome Convention.28
VI. Public Policy Exception is not allowed by the laws of Singapore
Re an Arbitration Between Hainan machinery Import and Export Corporation and Donald &
McArthy Pte Ltd29
appears to be the first reported Singapore decision on the enforcement of a
foreign arbitration award under the New York Convention. A challenge against the award on the
basis of contravention of Singapore public policy was dismissed by Judith Prakash J. The case
has been noted by another commentator elsewhere.30
Las Vegas Hilton Corporation t/a Las Vegas Hilton v Khoo Teng Hock Sunny92 was the first civil
trial in Singapore conducted with foreign expert testimony given through video-conferencing in
the Technology Court. In this case, Chao Hick Tin J held that a contract made in Nevada and
governed by Nevada law, between an American casino and a Malaysian resident, for the loan of
money of purposes of gambling in Nevada, where the gambling was legal, was valid and
enforceable in Singapore. The contract was valid by Nevada law, and it was not against the
fundamental public policy of Singapore.31
Although gambling had not been accepted in
Singapore to be a purely legal act but was on a gradual process of acceptance, this judgement
was recognized in Singapore. Thus, the laws of Singapore is flexible with regard to public policy
exception.
27
See Rome Convention, Art 7(2), 16. 28
Dicey and Morris: The Conflict of Laws (13th ed, 2000) at [32-148]. See also note 339 above. 29
[1996] 1 SLR 34. 30
Ho, “Enforcement of Foreign Arbitral Award” [1996] SJLS 241. 31
Yeo, “Are Loans for International Gambling Against Public Policy?” [1997] SJICL ???.
F1050-C
9
In Brooks Exim Pte Ltd v Bhagwandas,32
the Singapore Court of Appeal considered the effect of
foreign illegality on contracts, as well as the applicability of the Moneylenders‟ Act33
to
foreigners. This case has been noted elsewhere.34
In James Capel (Far East) Ltd v YK Fung Securities Sdn Bhd (Tan Koon Swan, Third Party),35
the Malaysian High Court considered the possible effect of an illegality committed in Singapore
on a contract governed by Malaysian law. The plaintiffs in Singapore entered into a contract with
the defendants in Malaysia to sell shares to be delivered to the defendants Malaysia. The
defendants failed to take delivery, and the plaintiffs were claiming for the balance of the
purchase price. The defendants argued that the contract was unenforceable because the plaintiffs
were not licenced brokers in Singapore, or had breached the conditions of their licence. Peh
Swee Chin FCJ dismissed the defence, on the basis that even if there was a Singapore illegality,
the contract was governed by Malaysian law and therefore was not affected by the Singapore
illegality. The evidence on Singapore law was therefore ignored.
B. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE
1. The Applicable law governing the Contract also governs the dispute settlement
clause
The standard arbitration clauses recommended by arbitral institutions, such as the ICC, are
usually followed by a note pointing out that in addition to incorporating the arbitration clause in
their agreement, the parties should also add a “choice of law” clause. In this agreement too the
choice of law clause has been kept which is the law of Singapore.
32
[1995] 2 SLR 13, affirming [1994] 2 SLR 431. 33
Cap 188, 1985 Ed. 34
Yeo, “Restitution, Foreign Illegality and Foreign Moneylenders” (1996) SAcLJ 228. 35
[1996] 2 MLJ 97.
F1050-C
10
An arbitration clause is only one of many clauses in a contract so the law chosen by the parties to
govern the contract will also govern the arbitration clause.36
Professor Lew has said:
“There is a very strong presumption in favour of the law governing the
substantive agreement which contains the arbitration clause also governing the
arbitration agreement. This principle has been followed in many cases. This
could even be implied as an agreement of the parties as to the law applicable to
the arbitration clause”.37
The presumption that the arbitration clause is governed by the same law as the underlying
contract was reaffirmed by the English court in Sonatrach Petroleum Corporation (BVI) v
Ferrell International Ltd38
:
“Where the substantive contract contains an express choice of law, but the
agreement contains no separate choice of law, the latter agreement will normally
be governed by the body of law expressly chosen to govern the substantive
contract.”
36
e.g. in Union of India v McDonnell Douglas Corp [1993] 2 Lloyd‟s Rep. 48, the court stated: “An arbitration
clause in a commercial contract like the present one is an agreement inside an agreement… The parties may make an
express choice of law to govern their commercial bargains and that choice may also be made of the law to govern
the agreement to arbitrate. In the present case it is my view that by Art. 11 the parties have chosen the law of India
not only to govern the rights and obligations arising out of their commercial bargain but also the rights and
obligations arising out of their agreement to arbitrate.” 37
Lew, “The Law Applicable to the Form and Substance of the Arbitration Clause”, ICCA Congress Series No. 14,
1998, Paris, para.136. It could also be seen as an express choice, if the arbitration clause is considered as simply one
of the rights and obligations assumed by the parties in their contract, to be governed by the law which governs that
contract. 38
[2002] 1 All E.R. (Comm) 627.
F1050-C
11
The autonomy of the arbitration clause and of the principal contract does not mean that they are
totally independent one from the other, as evidenced by the fact that acceptance of the contract
entails acceptance of the clause, without any other formality.39
2. Indonesia has ratified the Geneva Convention
The ratification of the Geneva Convention by Indonesia was fundamentally based on the Dutch
Gazette (Staatblad Hindia Belanda) No. 13 jo No. 133 of 1933.40
Theoretically, based on the
Indonesia‟s accession to the Geneva Convention, the enforcement of foreign arbitral awards
should be possible.
Finally, based on article 81 of the Act No. 30 of 1999, the Code of Civil Procedure was no longer
applied after the enactment of new arbitration law.
The principle of party autonomy and the freedom of contract are enshrined in article 1338 of the
Civil Code (Burgerlijk Wetboek)41
and article 11 of the 1999 Act. Since the ratification of the
Convention was based on the Presidential decree – not based on act or legislation product - there
is no need of implementing legislation.42
Article 3 and 11 of the Act No. 30 of 1999 embody a
“limited court involvement values”43
and expressly states that domestic courts have no authority
or competency to litigate the case of the contracting parties.
39
Derains, The ICC International Court of Arbitration Bulletin, Vol.6, No.1, p.10, at pp. 16-17. 40
Longdong , above no. 18, at. 187. 41
This article provides that that every valid contract shall be applied as a mandatory rules of the contracting parties.
This is also known as pacta sunt servanda principle (sanctity of contract).
42
The ratification of the New York Convention, however, was solely based on the presidential decree. Thus, it
disregard the involvement of parliament (Dewan Perwakilan Rakyat – DPR). Thus, this had led to the controversy
issue of whether this ratification should be followed by the implementing regulation or not. This inconsistent legal
framework, of course, gave a negative impact on the enforceability and finality of the foreign awards.
43
Faiz Mohamad, P, Kemungkinan Diajukannya Perkara dengan Klausula Arbitrase ke Muka Pengadilan, available
at: <http://www.jurnalhukum.blogspot.com/2006/09/klausul-arbitrasedan-pengadilan_18.html>, Viewed on 24 April
2008, p. 9.
F1050-C
12
However, the absence of clear restriction of what can be called as mandatory rules has caused
potential sources of inconsistency of the application of public policy exception.44
3. The International Standard of Public Policy Exception Provides a Restrictive Approach
The international standard of public policy exception which has been drafted by the International
Law Association (ILA) aimed to provide a restrictive approach to public policy defense through
the formulation of international public policy.45
Article 35 of the UNCITRAL Model Law on International Commercial Arbitration, by contrast,
provides that „an arbitral award should be enforced upon application in writing to the competent
court.‟ It means that no complicated procedure or exhaustive municipal court intervention should
be applied in respect of the enforcement mechanism.
The „pro enforcement policy‟ of the New York Convention (to which Indonesia has ratified)
implicitly emphasizes on foreign arbitral awards rather than domestic awards. In other words, the
enforcement of international arbitral awards should not be restricted by excessive conditions. It
specifically can be noted from the provision of article III of the New York Convention:
“…there shall not be imposed substantially more onerous conditions or higher
fees of charges on the recognition and enforcement of arbitral awards to which the
conventions applies than are imposed on the recognition or enforcement of
domestic arbitral awards.”
From this provision, it can be seen that the Convention implicitly distinguish the enforcement of
foreign arbitral awards and domestic arbitral awards. This so called “pro enforcement bias” of
44
Berkowitz D, Moenius J & Pistor K, above no. 17, at. 25. 45
International Law Association, Resolution of the ILA on Public Policy as Bar to Enforcement of International
Arbitral Awards, 2002, available
at:<http://www.epublications.bond.edu.au/context/theses/article/1023/index/2/type/native/viewcontent>, viewed on
8 May 2008.
F1050-C
13
the New York Convention consequently need a narrow approach to public policy exception.
Thus, it refers to international public policy rather than domestic public policy. Accordingly, the
phrase of public policy in the context of public policy exception should be restricted to basic
notion of justice and morality.46
Article III of the New York Convention, has restricted the discretionary power of the states‟
courts in respect of the enforcement of international arbitral awards.47
This provision implies that
public policy exception should be construed narrowly and it should confine to international
public policy rather than domestic public policy.
4. Indonesian Law does not distinguish between international and domestic arbitration
regimes
Actually, the Indonesian arbitration law does not distinguish between international and domestic
arbitration regimes.48
The article 66 (c) of the Act No. 30 of 1999 does not specifically refer to
the Indonesian public order (ketertiban umum). It just expressly states that the enforcement of
foreign arbitral awards in Indonesia should not be contrary to public order (ketertiban umum)
with no corresponding reference to Indonesia.49
The Explanation of the Act 1999 does not
mention any specific scope and definition of what can be characterized as public order
46
Kohler Gabrielle K, Enforcement Awards – A Few Introductory Thoughts, in New Horizon in International
Commercial Arbitration and Beyond, ICCA International Arbitration Congress, Albert Jan Van den Berg (ed),
Kluwer Law International, The Netherlands, 2005, p. 288. 47
See article III of the New York Convention 1958. 48
It should be noted that Indonesia do distinguishes in terms of the awards, namely domestic and international
arbitration awards. In respect of this issue, Indonesian Arbitration Act mainly adopts the article II of the New York
Convention. The UNCITRAL Model Law, however, does recognize the differentiation between international and
domestic arbitration regimes. See Article 59 and 65 of the Act No. 30 of 1999 regarding the Arbitration and
Alternative Dispute Resolution (ADR), article III of the New York Convention on the Recognition and Enforcement
of Foreign Arbitral Awards, and article 1 of the UNCITRAL Model Law on International Commercial Arbitration. 49
This, of course, slightly different with the provision of the article 31 (4) (b) of the Singapore Arbitration Law
(IAA) which expressly refer to the public policy of Singapore. See Wong K, Public Policy – The Ride of the Unruly
Steed on the Highways of International Arbitration, available at: < http://www.lawgazette.com.sg/2003-12/Dec03-
col2.htm>, viewed on 13 May 2008, p. 1.
F1050-C
14
(ketertiban umum).50
However, since the Indonesian Arbitration Act is intended to regulate both
domestic and international arbitral awards, a reference to public policy must necessarily refer to
the public policy of Indonesia.51
II. THE FRANCHISE AGREEMENT IS NOT INVALID UNDER INDONESIAN LAW
Compared to the New Dutch Contract Law (Niew Burgerlijk Weboek/NBW) and the UPICC
(UNCITRAL Principles of International Commercial Contract), the prerequisite of „causa’ in
civil law system has been removed since it can create legal uncertainty and vagueness.
However, it has to be noted that such situation is primarily inconsistent with the provision of
article 1338 of the Civil Code providing that all valid agreements (including agreement to
arbitrate) have a binding effect on the contracting parties.52
The Indonesian copy has been sent to the Respondent a day later and there has been no
complaints regarding it. All the other formalities have also been fulfilled by the parties to the
contract. Thus, there are no laws that can say that the Agreement in invalid and unenforceable.
1. Formal validity of the Contract under the laws of Singapore
Leading textbooks53
have taken the position that, at least where the contract does not relate to
title to immovable property, formal validity is to be tested by either the proper law of the
contract54
or the law of the place where the contract is made.55
Where the contract involves
immovable property, a distinction is drawn between the contract and conveyance. The former is
subject to contract rules,56
while the latter is an issue of property subject to the law of the place
50
See the explanatory of the Act No. 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (ADR). 51
Ibid. 52
See article 1338 of the Civil Code (Burgerlijk Wetboek). See also Hornick RN, Indonesian Arbitration in Theory
and Practice, The American Journal of Comparative Law, Vol. 39, No. 3, 1991, p. 559. 53
Cheshire and North, at 479. Dicey and Morris (11th ed, 1987), Rule 183. 54
Van Gruten v Digby (1862) 31 Beav 51. 55
Guépratte v Young (1851) 4 De G & Sm 217. 56
Ward v Coffin (1972) 27 DLR (3d) 58, 71-72.
F1050-C
15
where the immovable is sited. In Singapore, there is obiter support for the common law rule of
alternative reference.57
This approach appears to be generally satisfactory, as it would meet the
reasonable expectations of contracting parties.
In PT Jaya Putra Kundur Indah v Ang & Sons Investments Pte Ltd & Ors,58
Lai Siu Chiu J had
to consider the issue of the choice of law applicable to the formal validity of contracts. The
learned judge did not find it necessary to repeat the authorities cited by counsel, but accepted that
a contract is formally valid if it satisfies either the requirements of the place in which it was
made or its proper law.
III. ARTICLE XII OF THE FRANCHISE AGREEMENT IS VALID AND
ENFORCEABLE
The Franchisor has reserved some rights for its own protection. No laws of either Indonesia or
Singapore can be found that restricts specific performance of one party and allows for another
party. Thus, no laws have been violated in this regard.
IV. A PROPER NOTICE OF TERMINATION WAS GIVEN TO THE FRANCHISEE
On November 4, 2011 an email was sent to the Respondent prescribing the conditions to be
followed or else the Agreement would be terminated. The email was clear regarding the notice of
termination. As those provisions were not complied by the Respondent, the Agreement was
subsequently terminated. The respondent was provided with the time to perform the contractual
obligations which they failed to do so.
V. THE FRANCHISOR MAY TERMINATE THE FRANCHISE FOR ANY VIOLATION
OF THE FRANCHISE AGREEMENT IT DEEMS SUBSTANTIAL
57
PT Jaya Putra Kundur Indah v Guthrie Overseas Investments Pte Ltd (7 December 1996) at [39]. 58
Supra, note 41.
F1050-C
16
By means of renunciation where one of the parties evinces an intention not to go on with the
contract, the discharge of the contract can be justified.59
If there is an express and unqualified
refusal to perform, this intention will, of course, be clear and obvious.
By Conduct:
The test of whether an intention to renounce a contract is evinced by conduct is „whether the
party renunciating has acted in such a way as to lead a reasonable person to the conclusion that
he does not intend to fulfil his part of the contract.‟60
Acts or omissions from which renunciation
can be inferred may also entitle the injured party to be treated as discharged on one or both of the
two other grounds previously mentioned.61
Even after the first email was sent to the Respondent, the Respondent failed to make the
necessary changes and still violated the provisions of the Franchise Agreement. This clearly
showed on the part of the respondents not to abide by the terms of the contract. Thus, the
termination is justified.
As the UNIDROIT Principles are not applicable in this present dispute in hand, it cannot be said
the inherent warranty of good faith and fair dealing can be applied.
Furthermore, in the alternative if they are to be applied, the Claimant has dealt with the
Respondent in good faith. The agreement was terminated as the Respondent breached the
obligations of the Contract.
59
J. Beatson, A. Burrows J. Cartwright, Anson’s Law of Contract (29th
Edn, 2010, Oxford University Press), p. 512. 60
Universal Cargo Carriers Corp v Citati [1957] 2 QB 401, 436. See also Forslind v Becheley Crundall 1922 SC
(HL) 173; The Hermosa [1982] 1 Lloyd‟s Rep 570; Nottingham Building Society v Eurodynamics plc [1995] FSR
605, 611-12. 61
Mersey Steel and Iron Co v Naylor, Benzon & Co (1884) 9 App Cas 434, 441 (renunciation) and 444 (failure of
performance)
F1050-C
17
By serving local Indonesian dishes, the Franchisee violated the „uniformity‟ of a Franchise
business which is so important to regulate franchises. This increases the risk factor of the
Franchisor.
By allowing to wear unauthorized by „hijab‟ the female employees, the Respondent violated the
„common appearance‟ element of the Franchise business.
Thus, the contract was terminated after giving due notice and in good faith after its violation.
VII. THE EMPLOYMENT REGULATION PROHIBITING THE WEARING OF A
HIJAB BY FEMALE MUSLIM EMPLOYEES OR RESTRICTION DOES NOT
VIOLATE THE CONSTITUTION OR ANY OTHER LAWS OF INDONESIA
The constitution of Indonesia does not specifically mention anything regarding wearing of
„hijab‟. Freedom to exercise religion does not mean the wearing of „hijab‟. Shari‟ah law cannot
be said to be the applicable law in this dispute so such employment regulation is not against
public policy.
F1050-C
18
PRAYER FOR RELIEF
In light of the arguments advanced and the authorities cited, the Claimant requests the Arbitral
Tribunal to hold the Respondent liable for damages for breach of the Franchise Agreement,
trademark infringement and damage to the reputation of the Claimant.
top related