IINDUCTION MOOT 2015MOOT COURT SOCIETY, CAMPUS LAW CENTRE

IN THE HONBLE TRIAL COURTORDINARY ORIGINAL JURISDICTION

CIVIL SUIT NO. __ OF 2015

Medha .......... PlaintiffV.

JustFalafs India Inc. .................................... Defendant

MEMORANDUM ON BEHALF OF THE PLAINTIFF

II

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 -

III

INDEX OF AUTHORITIES

Cases1. Tata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade

Agreemen (1977) 3 SCC 2272. Nordenfelt v. Maxim Nordenfelt Guns and Ammunitions Co Ltd (1894) A.C. 5353. Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company, (1995 )5 SCC 5454. 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 2426. Agribrands Purina Canada Inc. v. Kasamekas (2011) ONCA 4607. 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) 123/20089. Channel Home Centers, Division of Grace Retail Corp. v. Grossman 795 F.2d 291,

1986 U.S. App. 26657

Books

1. R.K. Bangia, Indian Contracts Act, 14th Edition2. Chitty on Contracts, 28th Edition

Others1. OECD, Competition Policy and Vertical Restraints: Franchising Agreements

Statutes1. Indian Contract Act, 18722. Code of Civil Procdure, 1908

IV

STATEMENT OF JURISDICTION

The Plaintiff humbly submits this memorandum before this Honourable Court, invokingits civil jurisdiction under Section 9 of Civil Procedure Code. The Plaintiff also invokesOrder 39, Rule 2 of Civil Procedure Code empowering the honourable court to grant aninjunction in civil matters.

STATEMENT OF FACTS

JustFalafs India Inc. (from here on, referred to as JFIC) is a company which licensesJustFalafs, a chain of fast food restaurants, which primarily sells Falafels, a fast food ofMiddle Eastern origin.

Medha Kumar started negotiating with JustFalafs India Inc. two years earlier, to own aJustFalafs 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 theJustFalafs 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 Medhasrestaurant, and without first offering it to Medha.

This new restaurant is at a distance of 4 Km from Medhas restaurant if one is to consider

direct distance between these two restaurants, as if they were two points joined by a straightline. Whereas if one were to drive form one restaurant to another, the distance comes to 5.2Km. There is a straight road connecting both the restaurants, but due to this road being one-way, one has to travel more, bringing the distance to 5.2 Km just mentioned. This hadbecome a point of contention between Medha and JFIC. Medha wrote to JFIC stating that asper 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 bydriving distance and not by radius. JFIC pointed to a franchise brochure which it had sent toMedha 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 Honble Court, pleading that it enjoin JFIC from grantingthe franchise to Shalini and to get a declaratory judgement that she has a 10 Km right of firstrefusal on future franchises.

VI

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 CONTRACT2.1. 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 AWARDINGOF NEW FRANCHISE

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 anagreement in restraint of trade and falls very well within the limits of Section 27 of theIndian Contract Act, 1872, as the Plaintiff who was selling Falafels, had paid for the franchiselicense and expected certain assistance from the Defendant, and the exclusivity guaranteed toMedha was reasonable in reference to the interests of the parties concerned and also to theinterests of the public. Thus, the franchise agreement between the two parties was a validcontract.

2. THE DEFENDANT WAS IN BREACH OF CONTRACT:

It is humbly submitted that the Defendant is in breach of the contract through awarding offranchise to Shalini. This submission is twofold: Firstly, The Defendant acted on its ownwhim by interpreting the territorial exclusivity meant to be as per driving distance, which isarbitrary and illogical at best. Secondly, the letter sent by the Defendant to the Plaintiffpromising right of first refusal had all the elements of a letter of intent. Thus, by actingagainst the said intent, the Defendant violated the terms of the contract. Accordingly, theHonble Court should give a declaratory judgement granting the Petitioner the right of firstrefusal around 10 Km, in the future.

3. THE PLAINTIFF SHOULD BE GRANTED INJUNCTION AGAINST THE AWARDING OFFRANCHISE TO SHALINI:

It is submitted to the Honble Court that the Petitioners circumstances and Defendantsactions are enough to satisfy the court to grant the Petitioner a temporary injunction underOrder 39 Rule 2 of the Civil Procedure Code, against awarding of the franchise to Shaliniby the Defendant. This assertion is true considering the fact that the Petitioners restaurant isin danger of being alienated by a new competitor in the vicinity.

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ARGUMENTS ADVANCED

1. THE PLAINTIFF ENTERED INTO A VALID CONTRACT:

The Plaintiff submits that the agreement signed between the Plaintiff and the Defendant wasvalid. One issue that comes forth is the one, requiring the Defendant to not grant a license toanyone, within 5 Km of the Petitioners restaurant. Franchise owners paying generous sums

to own a franchise receive certain considerations from Franchisors, which would protect theirinterest, in terms of profitability and value. The clauses which restrict competition by givingthe franchisee territorial exclusivity, can be considered, in the circumstances, to beindispensable in that prospective franchisees would probably be unwilling to undertake thenecessary investment and to pay a substantial initial fee to enter the franchise system if theywere not provided with some protection against competition from other franchisees and fromthe franchisor in the allotted territory1

Restraint was reasonable:-

The Section 27 of the Indian Contract Act states that every agreement by which anyone isrestrained from exercising a lawful profession, trade or business of any kind, is to that extentvoid2. This statement has to be taken in the light of landmark SC Judgement on the caseTata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade Agreement3,the Supreme Court observed that exclusive dealership agreements did not restrict distributionin any area or prevent competition and in this regard, there was no evidence that theAgreement 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 tothe interests of the public, the agreement will not be void4.

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1 OECD, Competition Policy and Vertical Restraints: Franchising Agreements2 R.K. Bangia, Indian Contracts Act, 14th edition3 Tata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade Agreemen (1977) 3 SCC 2274 Nordenfelt v. Maxim Nordenfelt Guns and Ammunitions Co Ltd (1894) A.C. 535

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Further, In Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company5, negative restriction ontrade has been pacified. The Honble Supreme Court observed that since the negative

restriction is operative only during the period of franchise, it is not hit by section 27 of theIndian 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 validcontract.

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 theexclusive territory guaranteed to the plaintiff was 5 Kms driving distance. This presumptionon part of the Defendant is illogical and arbitrary. The fact that a direct road from thePlaintiffs 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 territorialprotection is part of the agreement. The same agreement that the Defendant has so clearlyviolated.

American Honda Motor Company, Inc. v. Richard Lundgren, Inc.6 is a case where theCourt of Appeals for the First Circuit, in Massachussets, USA gave due consideration to theissue between selection of radius or drive time. The Honble Court observed that in the

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5Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company, (1995 )5 SCC 5456American 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 bestdriving route, and even more so the driving time, may vary with weather, season andcommuter 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 petitionerwould plead the Court to note several foreign judgements where the party violating theterritorial exclusivity clause in the franchise agreement, were found liable. HavivHoldings Pty Limited v Howards Storage World Pty Ltd7, Agribrands Purina CanadaInc. v. Kasamekas8. The Court of Appeals for the District of Columbia Circuit, in JohnM. Lee et al. v. Flintkote Company9 held that extra-contractual evidence proffered by

appellants in an effort to support their position was either irrelevant or barred by theparol evidence rule. This negates the relevance of brochure sent to the Plaintiff by theDefendant, if for the sake of argument, we believe it specified driving distance as a measureof territorial exclusivity.

2.2 THE LETTER SENT BY THE DEFENDANT PROMISING RIGHT OF REFUSAL WAS A LETTER OFINTENT AND WAS BINDING:

There are a number of elements that must be in place in order for a letter of intent to belegally binding. These include:

certainty as to key terms;

consideration (the 'price' paid under the contract in return for performance by theother party of its obligations); and

a mutual intention to enter into a binding legal contract.

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7Haviv Holdings Pty Limited v Howards Storage World Pty Ltd (2009) FCA 2428 Agribrands Purina Canada Inc. v. Kasamekas (2011) ONCA 4609John 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 Refusalaround 10 Kms of Plaintiffs restaurant). The Plaintiff had paid the consideration in way of

franchise fee for the contract to take effect. The wording of the Defendants letter clearly

expressed intention to enter into a contract.

Further, in the case of Himachal Joint Venture vs Panilpina World Transport10, HonbleJustice 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 ofthe 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 ofFirst Refusal, the fact that it let the matter sit idle for 2 years, and let the Plaintiff believe shewas holding the Right of First Refusal, throws the Defendant in a very bad light, evenamounting to fraud. Anyway, the jurisdictions that have considered the issue have held thatan agreement to negotiate in good faith, if otherwise meeting the requisites of a contract, is anenforceable contract11.

Chitty on Contracts12 observes that where parties to a transactionexchanged letters of intent, the terms of such letters may, of course,negative contractual intention; but, on the other hand, where the language does notnegative contractual intention, it is open to the courts to hold that the parties are bound by thedocument; and the courts will, in particular, be inclined to do so where the parties have actedon the document for a long period of time or have expended considerable sums of money inreliance 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 FirstRefusal on future franchises.

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10 Himachal Joint Venture vs Panilpina World Transport FAO (OS) 123/200811 Channel Home Centers, Division of Grace Retail Corp. v. Grossman 795 F.2d 291, 1986 U.S. App. 2665712 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 OFFRANCHISE TO SHALINI:

It is well within the power of the Honble Court to grant the Petitioner a temporary

injunction under Order 39 Rule 2 of the Civil Procedure Code, against awarding of thefranchise to Shalini by the Defendant. This assertion is true considering the fact that thePetitioners restaurant is in danger of being alienated by a new competitor in the vicinity. Theassertion is threefold: Firstly, the Petitioner has established earlier that the Defendant is inbreach of contract, and liable to damages for encroaching territorial exclusivity as is generallyheld. Secondly, the impending loss of revenue that the Petitioner is likely to suffer as a resultof the Defendants conduct is going to be considerable. Thirdly, as the new, franchise hasbeen awarded in close vicinity of Medhas, Shalini is also not in a great position. In light of

these assertions, it is the petitioners humble request to the Honble 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 thatthe Honble Court may be pleased to adjudge and declare that:

1. The Defendant was in breach of contract by violating territorial exclusivityof Medhas restaurant, and not giving her the Right of First Refusal

2. The Defendant should rescind the awarding of franchise to Shalini3. 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 goodconscience.

For This Act of Kindness, the Petitioner Shall Duty Bound Forever Pray.

Sd/-

(Counsel for the Plaintiff)