INDUCTION MOOT 2015 MOOT COURT SOCIETY, CAMPUS LAW CENTRE
IN THE HON’BLE TRIAL COURT ORDINARY ORIGINAL JURISDICTION J URISDICTION CIVI CIVIL L SUIT SUIT NO. NO. __ OF OF 2015 2015
Medha …………….……………...….…..………………………... Plaintiff
V. JustFalafs JustFalafs India India Inc. Inc. ……………...…… ......……...... ..................... ..................... Defendant Defenda nt
MEMO MEMORA RAND NDUM UM ON BE BEHA HALF LF OF TH THE E PLAI PLAINT NTIF IFF F
I
TABLE OF CONTENTS
INDEX OF AUTHORITIES....................................................................................................... III Statement of Jurisdiction.............................................................................................................IV Statement of Facts........................................................................................................................ V Statement of Issues .....................................................................................................................VI Summary of Arguments........................................................................................................... - 7 Arguments Advanced............................................................................................................... - 8 Prayer ..................................................................................................................................... - 13 -
II
INDEX OF AUTHORITIES Cases 1. Tata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade
Agreemen (1977) 3 SCC 227 2. Nordenfelt v. Maxim Nordenfelt Guns and Ammunitions Co Ltd (1894) A.C. 535 3. Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company, (1995 )5 SCC 545 4. American Honda Motor Company, Inc. v. Richard Lundgren, Inc. 45 Mass. App. Ct. 410, 415, 699 N.E. 2d 11 (1998) 5. Haviv Holdings Pty Limited v Howards Storage World Pty Ltd (2009) FCA 242 6. Agribrands Purina Canada Inc. v. Kasamekas (2011) ONCA 460 7. John M. Lee et al. v. Flintkote Company 593 F.2d 1275 (D.C. Cir. 1979) 8. Himachal Joint Venture vs Panilpina World Transport FAO (OS) 123/2008 9. Channel Home Centers, Division of Grace Retail Corp. v. Grossman 795 F.2d 291, 1986 U.S. App. 26657
Books th
1. R.K. Bangia, Indian Contracts Act, 14 Edition th
2. Chitty on Contracts, 28 Edition Others 1. OECD, Competition Policy and Vertical Restraints: Franchising Agreements
Statutes
1. Indian Contract Act, 1872 2. Code of Civil Procdure, 1908
III
STATEMENT OF JURISDICTION
The Plaintiff humbly submits this memorandum before this Honourable Court, invoking its civil jurisdiction under Section 9 of Civil Procedure Code. The Plaintiff also invokes Order 39, Rule 2 of Civil Procedure Code empowering the honourable court to grant an injunction in civil matters.
IV
STATEMENT OF FACTS
JustFalafs India Inc. (from here on, referred to as ‘JFIC’) is a company which licenses “JustFalafs”, a chain of fast food restaurants, which primarily sells Falafels, a fast food of Middle Eastern origin.
Medha Kumar started negotiating with JustFalafs India Inc. two years earlier, to own a “JustFalafs” restaurant franchise in Delhi. During this period, JustFalafs India Inc. wrote a letter to Medha, expressly stating “If you sign a franchise agreement with us, we will give you a right of first refusal on any new franchises within 10 kilometres of your store”.
Later, Medha signed the agreement to own a “JustFalafs” franchise. One part of this agreement required JFIC to not license a “JustFalafs” franchise within 5 Km of the “JustFalafs” restaurant that Medha owned. Now, after 2 years, after becoming a popular and established brand, JFIC awarded a franchise to a Shalini, in the vicinity of Medha’s restaurant, and without first offering it to Medha.
This new restaurant is at a distance of 4 Km from Medha’s restaurant if one is to consider direct distance between these two restaurants, as if they were two points joined by a straight line. Whereas if one were to drive form one restaurant to another, the distance comes to 5.2 Km. There is a straight road connecting both the restaurants, but due to this road being oneway, one has to travel more, bringing the distance to 5.2 Km just mentioned. This had become a point of contention between Medha and JFIC. Medha wrote to JFIC stating that as per the agreement, JFIC cannot grant a license for another “JustFalafs” restaurant within direct radius of 5 Km. JFIC replied to this letter insisting that the 5 Km area means 5 Km by driving distance and not by radius. JFIC pointed to a franchise brochure which it had sent to Medha during negotiations, and specifically invoked this text from the brochure “Every franchise is protected by our ‘5 Km guarantee’. A customer would have to drive at least 5 Km away from your restaurant before they can find another JustFalafs”.
Medha has knocked the door of this Hon’ble Court, pleading that it enjoin JFIC from granting the franchise to Shalini and to get a declaratory judgement that she has a 10 Km right of fi rst refusal on future franchises.
STATEMENT OF ISSUES The following issues are presented before the court in the instant matter-
1. WHETHER
THE PLAINTIFF ENTERED INTO A VALID CONTRACT
2. WHETHER THE DEFENDANT WAS IN BREACH OF THE CONTRACT 2.1. WHETHER THE TERRITORIAL EXCLUSIVITY GRANTED TO THE PLAINTIFF WAS IN TERMS OF RADIUS, OR DRIVING DISTANCE
2.2. WHETHER THE LETTER SENT BY THE DEFENDANT PROMISING RIGHT OF REFUSAL WAS A LETTER OF INTENT, AND IF SO, WAS IT BINDING
3. WHETHER THE PLAINTIFF SHOULD BE GRANTED INJUNCTION AGAINST THE AWARDING OF NEW FRANCHISE
VI
SUMMARY OF ARGUMENTS 1. THE PLAINTIFF ENTERED INTO A VALID CONTRACT:
The Plaintiff submits that the agreement between the Plaintiff and the Defendant was not an agreement in restraint of trade and falls very well within the limits of Section 27 of the
Indian Contract Act, 1872, as the Plaintiff who was selling Falafels, had paid for the franchise license and expected certain assistance from the Defendant, and the exclusivity guaranteed to Medha was reasonable in reference to the interests of the parties concerned and also to the interests of the public. Thus, the franchise agreement between the two parties was a valid contract.
2. THE DEFENDANT WAS IN BREACH OF CONTRACT:
It is humbly submitted that the Defendant is in breach of the contract through awarding of franchise to Shalini. This submission is twofold: Firstly, The Defendant acted on its own whim by interpreting the territorial exclusivity meant to be as per driving distance, which is arbitrary and illogical at best. Secondly, the letter sent by the Defendant to the Plaintiff promising right of first refusal had all the elements of a letter of intent. Thus, by acting against the said intent, the Defendant violated the terms of the contract. Accordingly, the Hon’ble Court should give a declaratory judgement granting the Petitioner the right of first refusal around 10 Km, in the future.
3. THE PLAINTIFF SHOULD BE GRANTED INJUNCTION AGAINST T HE AWARDING OF FRANCHISE TO SHALINI:
It is submitted to the Hon’ble Court that the Petitioner’s circumstances and Defendant’s actions are enough to satisfy the court to grant the Petitioner a temporary injunction under Order 39 Rule 2 of the Civil Procedure Code , against awarding of the franchise to Shalini
by the Defendant. This assertion is true considering the fact that the Petitioner’s restaurant is in danger of being alienated by a new competitor in the vicinity.
ARGUMENTS ADVANCED 1. THE PLAINTIFF ENTERED INTO A VALID CONTRACT:
The Plaintiff submits that the agreement signed between the Plaintiff and the Defendant was valid. One issue that comes forth is the one, requiring the Defendant to not grant a license to anyone, within 5 Km of the Petitioner’s restaurant. Franchise owners paying generous sums to own a franchise receive certain considerations from Franchisors, which would protect their interest, in terms of profitability and value. The clauses which restrict competition by giving the franchisee territorial exclusivity, can be considered, in the circumstances, to be indispensable in that prospective franchisees would probably be unwilling to undertake the necessary investment and to pay a substantial initial fee to enter the franchise system if they were not provided with some protection against competition from other franchisees and from the franchisor in the allotted territory
1
Restraint was reasonable:-
The Section 27 of the Indian Contract Act states that “every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void”2. This statement has to be taken in the light of landmark SC Judgement on the case 3
Tata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade Agreement ,
the Supreme Court observed that exclusive dealership agreements did not restrict distribution in any area or prevent competition – and in this regard, there was no evidence that the Agreement had restricted, distorted or prevented competition. It has been held that when the restraint is reasonable in reference to the interests of the parties concerned and also to the interests of the public, the agreement will not be void 4.
----------------------------------1
OECD, Competition Policy and Vertical Restraints: Franchising Agreements
2
R.K. Bangia, Indian Contracts Act, 14 edition
3
Tata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade Agreemen (1977) 3 SCC 227
4
Nordenfelt v. Maxim Nordenfelt Guns and Ammunitions Co Ltd (1894) A.C. 535
th
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5
Further, In Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company , negative restriction on trade has been pacified. The Hon’ble Supreme Court observed that since the negative restriction is operative only during the period of franchise, it is not hit by section 27 of the Indian Contract Act so as to be termed in restraint of trade.
2. THE DEFENDANT WAS IN BREACH OF CONTRACT:
It has been submitted before the Court that the Plaintiff and the Defendant entered into a valid contract.
2.1 THE TERRITORIAL EXCLUSIVITY GRANTED WAS IN TERMS OF RADIUS:
The Defendant has, after gaining foothold in the market in two years, presumed that the exclusive territory guaranteed to the plaintiff was 5 Kms driving distance. This presumption on part of the Defendant is illogical and arbitrary. The fact that a direct road from the Plaintiff’s restaurant to the new restaurant being one way for the time being, stretched the driving distance beyond 5 Km is preposterous and mocks the spirit of the contract.
Moreover, the brochure presented by the Defendant where it is written that “Every franchise is protected by our ‘5 Km guarantee’. A customer would have to drive at least 5 Kms away from your restaurant before they can find another JustFalafs”, is shady and unclear at best. Nowhere does it express what ‘would have to drive at least 5 Kms’ means. This is a general informative statement just to give an indication to the franchise owners that territorial protection is part of the agreement. The same agreement that the Defendant has so clearly violated.
6
American Honda Motor Company, Inc. v. Richard Lundgren, Inc. is a case where the Court of Appeals for the First Circuit, in Massachussets, USA gave due consideration to the issue between selection of radius or drive time. The Hon’ble Court observed that in the
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Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company, (1995 )5 SCC 545
6
American Honda Motor Company, Inc. v. Richard Lundgren, Inc. 45 Mass. App. Ct. 410, 415, 699 N.E. 2d 11
(1998)
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absence of any clear criteria for calculating the RMA (Relevant Market Area), “…the best driving route, and even more so the driving time, may vary with weather, season and commuter patterns; and each customer becomes a separate, debatable calculation.”.
Further, it added that the same drive time may translate to different geographic distances, depending on topography, before finding radius a more reasonable option.
Having established the violation of territorial exclusivity by the Defendant, the petitioner would plead the Court to note several foreign judgements where the party violating the territorial exclusivity clause in the franchise agreement, were found li able. Haviv 7
Holdings Pty Limited v Howards Storage World Pty Ltd , Agribrands Purina Canada 8
Inc. v. Kasamekas . The Court of Appeals for the District of Columbia Circuit, in John 9
M. Lee et al. v. Flintkote Company held that “extra-contractual evidence proffered by
appellants in an effort to support their position was either irrelevant or barred by the parol evidence rule” . This negates the relevance of brochure sent to the Plaintiff by the
Defendant, if for the sake of argument, we believe it specified driving distance as a measure of territorial exclusivity.
2.2 THE LETTER SENT BY THE DEFENDANT PROMISING RIGHT OF REFUSAL WAS A LETTER OF INTENT AND WAS BINDING:
There are a number of elements that must be in place in order for a letter of intent to be legally binding. These include: •
certainty as to key terms;
•
consideration (the 'price' paid under the contract in return for performance by the other party of its obligations); and
•
a mutual intention to enter into a binding legal contract.
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Haviv Holdings Pty Limited v Howards Storage World Pty Ltd (2009) FCA 242
8
Agribrands Purina Canada Inc. v. Kasamekas (2011) ONCA 460
9
John M. Lee et al. v. Flintkote Company 593 F.2d 1275 (D.C. Cir. 1979)
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The Defendant, in its letter, clearly specified what it was offering (Right of First Refusal around 10 Kms of Plaintiff’s restaurant). The Plaintiff had paid the consideration in way of franchise fee for the contract to take effect. The wording of the Defendant’s letter clearly expressed intention to enter into a contract.
10
Further, in the case of Himachal Joint Venture vs Panilpina World Transport , Hon’ble Justice G. S. Sistani adjudged that “ Execution commences when claimant took steps which ultimately led to signing of the contract. Letter of intent was prior to the signing of the contract. Hence, contract would relate back to the date of letter of intent”. Even if
we assume for a second that the Defendant never intended to give the Plaintiff, the Right of First Refusal, the fact that it let the matter sit idle for 2 years, and let the Plaintiff believe she was holding the Right of First Refusal, throws the Defendant in a very bad light, even amounting to fraud. Anyway, the jurisdictions that have considered the issue have held that an agreement to negotiate in good faith, if otherwise meeting the requisites of a contract, is an 11
enforceable contract .
Chitty
12
on Contracts
exchanged letters of intent,
observes the
that terms
where of
parties
to
such letters may,
a
transaction of
course,
negative contractual intention; but, on the other hand, where the language does not negative contractual intention, it is open to the courts to hold that the parties are bound by the document; and the courts will, in particular, be inclined to do so where the parties have acted on the document for a long period of time or have expended considerable sums of money in reliance on it. Be that as it may." As in this case, there was no negative contractual intention, the letter of intention has a binding force.
Thus, the Plaintiff should get a declaratory judgement that she has a 10 Kms Right of First Refusal on future franchises.
-----------------------10
Himachal Joint Venture vs Panilpina World Transport FAO (OS) 123/2008
11
Channel Home Centers, Division of Grace Retail Corp. v. Grossman 795 F.2d 291, 1986 U.S. App. 26657
12
Chitty on Contracts (para 2.115 in Vol. 1, 28th Edn.)
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3. THE PLAINTIFF
SHOULD BE GRANTED INJUNCTION AGAINST THE AWARDING OF
FRANCHISE TO SHALINI:
It is well within the power of the Hon’ble Court to grant the Petitioner a temporary injunction under Order 39 Rule 2 of the Civil Procedure Code , against awarding of the
franchise to Shalini by the Defendant. This assertion is true considering the fact that the Petitioner’s restaurant is in danger of being alienated by a new competitor in the vicinity. The assertion is threefold: Firstly, the Petitioner has established earlier that the Defendant is in breach of contract, and liable to damages for encroaching territorial exclusivity as is generally held. Secondly, the impending loss of revenue that the Petitioner is likely to suffer as a result of the Defendant’s conduct is going to be c onsiderable. Thirdly, as the new, franchise has been awarded in close vicinity of Medha’s, Shalini is also not in a great position. In light of these assertions, it is the petitioner’s humble request to the Hon’ble Court, that temporary injunction be granted to the Plaintiff, against the new franchise.
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PRAYER In the light of arguments advanced and authorities cited, the Plaintiff humbly submits that the Hon’ble Court may be pleased to adjudge and declare that:
1. The Defendant was in breach of contract by violating territorial exclusivity
of Medha’s restaurant, and not giving her the Right of First Refusal 2. The Defendant should rescind the awarding of franchise to Shalini 3. The Petitioner should be given a 10 Km Right of First Refusal from here on till expiry of franchise agreement
Any other order as it deems fit in the interest of equity, justice and good conscience.
For This Act of Kindness, the Petitioner Shall Duty Bound Forever Pray.
Sd/(Counsel for the Plaintiff)
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