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Kuala Lumpur Regional Centre for Arbitration (KLRCA)

2012

Great Wall Noodle Shop LLC

v.

Adi Budiamman, M.D.

Memorial for Claimant

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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

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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

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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

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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

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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

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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>,

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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

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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.

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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.

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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.

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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”.

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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.

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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

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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.

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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.

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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.

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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].

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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.

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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.

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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.

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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.

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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 ???.

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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.

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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.

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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.

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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.

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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.

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(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.

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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.

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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)

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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.

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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.