Party A, a Chinese company, and party B, a Samoan company, entered into an agreement called the City Agency Authorisation Covenant, in which party B agreed to license party A to use the trademark, system, technical information and know-how in a food brand owned by party B. The term for the licence was from 1 August 2015 to 31 July 2019.
The licence fees for the whole term were RMB3,150,000 (US$487,000). In return, party B agreed to provide party A with a trademark licence, educational training, equipment, tools, decoration, advertising, sales planning, supply of products and operation protocols, etc. After the covenant was signed, party A transferred to party B RMB3,150,000.
However, in the application for arbitration to Shanghai International Arbitration Centre (SHIAC), party A alleged that party B did not possess the qualification or condition for providing commercial franchise, and had been using an immature business model to illegally conduct commercial franchise. Party A also alleged that party B had failed to fulfill its legal obligations, which resulted in successive shutdowns of individual shops owned by party A, thus depriving party A of the possibility of realising the contractual purpose.