Impact of International Business Law - Assignment Example

Name: Tutor: Subject: Date: INTERNATIONAL BUSINESS LAW Introduction Business laws are rules and ways to regulate the actions undertaken by businesses to prevent them from committing crimes. The business laws are prescribed and formally appreciated by almost all business institutions worldwide. They are meant to protect the business participants, both the customer and the business. This laws have general impact in the society and its applications are felt by all races of business men and women. Business laws are mandatory for the peaceful business environment. The laws help reduce fraud and unfair treatment in business contracts and transactions. Business laws are enforced through the judicial system. Rules that are binding are enforced in a legal proceeding where the defendant and the plaintiff are given the chance to convince the court over the ruling applied to that particular case1. 1. What are possible legal issues raised in the above scenario from the perspective of International Business Transactions? Identify and examine briefly statutory and judicial authorities in Australia that could be relevant to adequately dealing with those issues. (Marks 10) In the provided case it falls under international laws governing franchising and agencies in contractual agreement between clients from various nations. SMART electronics, a company that has its offices in United States of America. The company enters into contract with in June 2014 with a company in Australia, SOMA. The company is based in Sydney Australia, they agreed based on a licence deed that stated that SOMA was to exclude SMART electronics from liabilities faced during the running of the company. The contract was to help SOMA to use the electronic device HT, which had a distinctive brand with the copyrights belonging to SMART electronics. The device is used in the construction of equipment used in the dairy farming. After six months into the contract. SMART electronics terminated the contract due to the huge losses that were caused by another franchise in United Kingdom called Elite2. From the above there are two possible scenarios with which the Smart electronics can be sued in reference to the international business law. According to this case SOMA is in a position to file a case against Smart electronics for breaching the contract that they signed with them and be in apposition to claim for compensation. In the above scenario, according to the international business law on commercial contracts chapter 2 article 2.1 a contract is considered to have been formed when two parties when there is acceptance by both parties or sufficient action that indicate that both parties are in a contract. Smart electronics is legally in contract with SOMA in Australia. Since both parties are in a contract, any party that breaches the contract is subject to the breaching of international business law. We can now consider that Smart electronics can be sued due to the termination of the contract. The defendant in this case will be Smart electronics and the plaintiff will be SOMA. This is because the defendant never took necessary legal steps of terminating the contract. Since the contract had been agreed upon by the two parties, the contract can only be revoked when there t agreed time ends or when both parties agree to terminate the contract. According to Wild, et al, an international business contract can be either terminated by both parties in the contract or by a business tribunal administering international business law. This are the outlines which are normally stated in business laws dealing with international transactions, an example is the Lex Mercatoria which gives guidelines on the business transactions performed by various companies worldwide and are classified as trans-border contracts. Australia – United States Free Trade Agreement (AUSFTA) consist of terms which are binding to business franchise between the two countries. This is used as a reference in the formation of contracts among corporations that are based either in the United States of America or Australia. When this policy is applied in the above case, Smart electronics will be liable for terminating a contract without the consent of SOMA. This is against the Australian law on external international contracts. SOMA will be able to launch a court claim to ensure that they are compensated for the loss due to the termination of the contract. The Australian laws protect the companies in the country from exploitation and in this case SOMA has been exploited by Smart electronics. In the second scenario, Smart electronics entered into a contract with NOVA, an Indian based company. The government approved the contract and Smart electronics began its operations after agreeing with NOVA to use the HT electronic device to help NOVA in the development of all dairy farms in India. This is a bilateral contract since it involves the government of India and Smart electronics which is based in the United States. Since it is a legal contract both parties are expected to adhere to the regulations that are stated in the international business law. This contract is tampered with when a change in the government of India occurs in November 2014. This cause the contract to be terminated due to the claim that the government was considering public interest in the project that Smart electronics had started. Smart electronics had already used up to $50 million in the development of the project. The termination of the contract will mean that Smart electronics should be compensation for the losses that will incur in the process of termination of the contract. According to the international laws on business contracts. Smart electronics can sue NOVA for the termination of the contract and seek compensation for the losses caused by the termination of the contract. A case can be filed in a business tribunal to hold NOVA responsible for the breach of contract and seek compensation. 2. Advise SOMA and SE as to: 2.1. Whether SE has breached any statutory or common law duty in dealing with the deed with SOMA. What particular legal provisions do you think SOMA should invoke to successfully challenge the SE’s decision (termination of the agreement). What are other issues that may also arise in determining the ‘nature’ of the deed and the obligations of SE towards SOMA? Support your argument by relying on relevant laws and judicial decisions. (Marks 7.5) From professional point of view, the advice that should be given to SOMA concerning the breach of contract by Smart electronics. A deed is a binding promise or commitment to offer certain terms in a contract. This binds together both parties in the agreement to be able to confer legal interest or some other rights3. A deed is a special type of binding promise or commitment to do something. The substantial requirement of a deed is that it be intended by the executing party to be the most serious indication to the community that she or he really means to do what has been agreed between the parties. A deed existed in the contractual agreement between Smart electronics and SOMA. HE was supposed to be used by SOMA and give Smart electronics some amount of shares from the results obtain by the use of HE. According to common law of Australia, an agreement can only be terminated legally by4. i. Agreement This is when termination of a contract is done when the time of fulfilling the requirements by both parties has been reached and both parties have delivered what they had promised. ii. Performance A contract is automatically terminated when all the parties have completed their part in any given time iii. Frustration One party in the contract maybe frustrated with the kind of operation in business. iv. Breaching A party may decide to breach the contract due to unavoidable circumstances. When one company in agreement breaches the contract, it should have a clear reason as to why the breaching was done. According to Reuer, et al, in the above case there is a breach of contract by NOVA since it did not follow the required procedure of breaching the contract. This will be referred to as termination of contract without legal entitlement as stated in section 2 article 2.15 of the international and is subject to legal battle. SOMA should invoke two suites in order to ensure that Smart electronics is held responsible for the termination of the contract. The first case SOMA should raise is the fact that Smart electronics terminated a contract without the consent of both parties. This is considered to be a serious breach in the contract and should be held responsible following a compensation for the losses incurred by Soma in the process of executing the contract. The business laws states clearly that someone or a party which terminates an agreement or a deed for this case is subject to be responsible for the damages and are liable to the other party. Smart electronics did not consider the issues that could have been raised by SOMA in the process of terminating the contract. Although they were under losses caused by other franchising, SOMA was not included in the other businesses of Smart electronics and hence were not subject to the termination of the contract. However, Smart electronics should have informed SOMA about the existence of Elite in order to make them aware of the challenges that might arise when more than two firms are liable for a loss arising from one of the parties in the contract. SOMA should challenge that Smart electronics did not mention the existence of Elite in the contract. This will allow them to hold the defendant responsible for the termination of contract without legal capacity. It is clear that the defendant did not mention anything to do with the termination of the contract in the initial stages of the formation of the contract. This will make Smart electronics liable and hence they will be compensated5. The nature of the deed will also play a major role in this case if SOMA considers filing a legal challenge in the tribunal. The terms of agreement might be challenged by Smart electronics. The defendant might challenge that according to the business law that states that the defendant can terminate the contract “If (the plaintiff in a breach of contract case) can minimize his loss by a reasonable course of conduct, he should do so, though the onus is on the defaulting defendant to show that it could be, or could have been, done and is not being, and has not been done.” This gives room for Smart electronics to say that they forced to terminate the contract due to the substantial losses that could have occurred in the process of executing the contract. The deed possibly did not mention the procedures of terminating the contract. This will give another chance for the defendant to claim that the termination is not illegal since it was not clearly determined in the deed. This problem can be traced to a case between a local aboriginal land council which entered into a joint venture with a property developer, Sanpine Pty Ltd. This was for the development of a large area of land. The land council had agreed to contribute a piece of land and Sanpine was to manage the project. Sanpine caused a liability of $2 million and decided terminate the contract. The High Court were satisfied with the obligation of basic importance of the case. They upheld the decision of the trial judge who had ruled that Sanpine had breached the contract since the breaching was not essential obligation for the termination of the contract. For the case of NOVA and Smart electronics, there is evidence of breaching contract with insufficient reasons to terminate the contract. Smart electronics should file a petition in order to be compensated for their losses. The basis of their argument should be based on the fact that there is a breach of contract when NOVA decides to terminate the contract due to the public interest. This was not considered in the deed and the action to terminate the contract by considering the terms that were not in the initial agreement. This allows the plaintiff to claim that the contract was breached according to the regulations governing the international business standards. According section 2 article 2.13, a contract can only be breached when it is agreed by both parties and was included in the initial negotiation6. A contract or a deed can also be terminated only when the time stated in the contract runs out. When the terms of agreement allows termination of a contract when the time limit has not been reached. Also when the contract contained a clause which give an opportunity for both parties to consider the decision of termination the contract7. 2.2 Whether SE should proceed on to a legal battle against NOVA. If it should, what specific legal issues should SE endorse in its claims and how should it make effective use of international standards to achieve a favourable remedy? How strong is the public interest claim of the Indian government? (Marks 7.5) Smart electronics should file a suite to demand for the compensation of the money they had use in the development of the project. Under section 2 of the international business law, there is no room for termination of contract due to the interest of a third party. For this case NOVA seem to be breaching the contract without sufficient claims. The issues of public interest are supposed to be dealt with by the government of India without necessarily affecting the contract between Smart electronics and NOVA. The defendant, in this case NOVA, has no jurisdiction allowing it to terminate the contract due to the fact that the public had interest in the technology used in the dairy farming. The public interest is allowed in a case of international business laws to a smaller extend. Public interest is only allowed to and extend that it would not affect the original agreement between a company in that country and another external firm8. Smart electronics should proceed and seek compensation through a judicial ruling since their claim is valid. According to the previous ruling on case similar to this one the plaintiff is supposed to be compensated for the losses or their contract should be reinstated. The strengths of the public interests in the project may be high but the laws concerning international business does not consider much of the interest from third parties. This is to prevent the good relationship, that countries which are aligned in various fields, from being exploited by those that want to create conflicts among the countries. Although sovereign laws are respected by the companies and other international bodies that are in charge of the stability of the world at large. 3. What policy and legal consideration should be taken into account in expanding business abroad through agency and distributorship? Would you advise SE to negotiate separate agreements with those foreign companies for manufacturing and distributing HT? Why or why not? (5 Marks) Smart electronics will have to be in a position to accept and act as per the following policies if it wants to expand its business across borders through the use of agencies and distributorship. Forum shopping This is a directive that was implemented by the commercial agent’s regulation in 1993 and was active as from January 1994. This regulation applies to the activities that are undertaken by agents and distributors in foreign country. However, the agency contracts can be managed by the other country which is a member when undertaking international business9. Exclusions The regulation expressly exclude from protection of companies, agencies and distributors from liquidity. This affects those commercial agents who operate on commodity exchange. Form of contracts There is no need for the agent and the firm to have a written agreement according to the regulation 13 which provides for non-derivable right to both distributor and the company receiving their services. However, the regulation are set for an individual but it is commonly applied to limited companies. Authority to negotiate For the international business laws to apply the agent or the distributor must have an authority to negotiate in place of the company. Compensation on termination When termination of the agent’s services is done the agent must be compensated for all the services as long as the agent or the distributor was active all the time. This occurs when the contract is breached by either parties in the agreement. In conclusion, international business are laws are applied to companies that are doing business across more than two countries. This are laws that protect firm from other countries when they invest in another country. This laws regulate the businesses done by companies from various countries. In the above cases it indicates the need for an existing business laws. Those companies are going against the international business laws. There is evidence of breach of contracts in this case. NOVA breaches the contract by trying to consider the interest of the public which affect significantly the existence of the agreement between them and Smart electronics. SOMA in the other case is offended by Smart electronics by termination of agreement between the two companies without enough reasons to terminate the contract10. According to Wild, et al, although this case appear to be similar, there is a major difference since Smart electronics was a company which also entered contract with Elite from United Kingdom. This brings another dimension of this cases. The influence of Elite on both agreements is much essential since its failure lead to the termination of the contract between the Smart electronics and SOMA due to the liability it had caused. Smart electronics out of ignorance of the existence of new international business laws decided to terminate the contract to safe themselves of more losses, this is subject to breach of contract according to the international business laws and is subject to a challenge in court11. Work Cited Bassiouni, M. C. (2014). International extradition: United States law and practice. Oxford University Press. Casson, M. (Ed.). (2013). The Growth of International Business (RLE International Business). Routledge. Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. 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