UK Commercial Law - Iffy Imports Ltd - Essay Example

UK Commercial law case study: "Iffy Imports Ltd Iffy want to import cars from China, but they have no experience of, or contacts in, the Chinese automotive industry. They know that Victor has, in the past, helped UK companies acquire Chinese cars and consider using him. However, they are not sure how best to structure their relationship with him. The cars that Iffy want to import are modeled to look like cross-country cars, but in China, they are clearly targeted at city markets. Iffy plan to resell the cars to dealers in the UK who specialise in utility vehicles, targeting the country and out-door market. Advise Iffy as to the two ways in which they could organise their relationship with Victor and the legal consequences thereof, and as to their legal obligations toward the car dealers." This essay will primarily cover the niceties of agency law governing the relationship between Iffy and Victor. It will also touch upon the sales law, both international and domestic, relating to the relationship between Iffy and the Chinese automotive seller and also with the UK car dealers. As counsel I would advise Iffy as follows: Because of the handicap of Iffy, having neither experience of dealing with the Chinese automotive industry nor any contacts therein, it will be necessary for them to hire the services of Victor by appointing him as their agent to deal with the Chinese in their stead for the delivery of a certain number of utility vehicles, spare parts and accessories. Indeed, this is so because a limited company can only act through its human agents,1 whether through its own directors, employees or through independent agents. I would prepare for Iffy the agency2 agreement, through which Victor will deal with the Chinese automotive executives, empowering him to negotiate and constitute a contract or contracts between Iffy and chosen Chinese auto manufacturing or dealer company or companies, as agent3 in the name of Iffy, together with the necessary instructions and document forms needed for the transactions. In the present case, I will be preparing the necessary documents to be signed by the proper company officers with the agent's conformity. The provisions of the agency agreement shall task Victor with negotiating and executing the necessary contracts for the importation of the chosen automobiles and effecting the proper secure means of delivery of the same vehicles to UK for distribution to sellers. In the present case, the agency agreement would oblige Victor to expressly name his principal, considering that there are no facts in the case that would tend to obstruct the consummation of the contract or contracts should the Chinese know of Iffy's identity. The agreement would also contain provisions on the required methods of shipping the vehicles and the means of payment. It is very crucial considering that the business transaction will be made outside of UK that the terms and conditions of the agency be expressly laid out in black and white. It is necessary for Iffy as principal to lay down the terms and conditions of the employment or to employ the agent in a specific position in the company in order for the tasks to be deducible from the very position itself. I would advise Iffy that the agency agreement between them and Victor binds both of them to the following consequences, in terms of rights and duties expressly imposed by law, jurisprudence and regulations: Iffy must remember that Victor has the following rights against them, which rights Victor can enforce in the proper judicial forum. 1. Right to remuneration4 - Victor will be entitled to the consideration based on the contract or in quantum meruit according to the extent of his performance of its terms. Furthermore, Victor as agent will be entitled to retainer or commission or royalty from Iffy for every vehicle imported even after the termination of the agency pursuant to common law rules and the Reg. 8, 1993 Commercial Agents (Council Directive).5 2. Right to indemnity - He will also be entitled to indemnity or restitution and refund of expenses incurred on behalf of the principal in the performance of his duties when acting within the scope of his authority or outside the scope thereof when ratified by the principal. 3. Right to relief from liability; 4. Right to lien - The agent will be entitled to lien, general or particular depending on the nature of the agency, over the property and papers of the principal in his possession to secure payment of remuneration or indemnity due to him. Victor owes Iffy the duties under common law and the same ECC directive which will affect the agency relationship. The above-said rights constitute the correspond duties which Iffy as principal owes Victor as agent. The fact of agency is impinged upon not only by common law rules but also by other regulations modifying or adding to the legal consequences of its constitution among the parties. Because aside from the internal and regional laws affecting agency, international conventions such as the Convention on the Law applicable to Agency6 and Convention on Agency in the International Sale of Goods7 shall also apply to the present case and affect or modify the contract between Iffy and Victor. Most significant among the statutes and conventions that must be read into the present agency agreement is the European Community Directive on Commercial Agents. Because from the facts of the problem it is safe to conclude that Victor is a commercial agent as defined in AMB Iballaggi Plastici8 case, Iffy must be careful to treat and compensate Victor as such commercial agents and he is entitled to the privileges and rights stated in the said Directive. On the other hand, Victor as an agent, owing to its fiduciary relationship with the principal, is also subject to the duties imposed by general law as may modified by EEC related regulations, the contractual or gratuitous nature of the agency and the rules of self-regulatory bodies policing the industry. To be protected by European Community Regulations9, the 'agent' must be acting as an agent in law, negotiating and/or concluding contracts on behalf of his principal."10 The provisions of the contract may modify or define the scope of the said duties. Under common law: to obey principal's lawful instructions; to exercise reasonable skill and care; to perform personally;11 12 to avoid conflicts of interest; not to make secret profit from his position; not to accept bribe;13 to account. The standard of care is lower where the agency is gratuitous.14 Where the agency is contractual, there will be concurrent duties of care in contract and tort.15 Under council directive regulations:16 to look after the interests of the principal and act dutifully and in good faith; to make proper efforts to negotiate and where appropriate, conclude transactions principal instructs him to carry out; to communicate to principal all necessary and available information; and to comply with all reasonable instructions given by principal. Because agency is an exception to privity of contracts, the personal presence of Iffy in China is not necessary for the constitution of intended sales contracts but the same contracts bind Iffy. This is so because from agency results "a fiduciary relationship which exists between two persons, one whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly consents so to act or so acts,"17 each of the parties must comport themselves according to the terms of the contract of agency constituted between them. The kind of authority given by the principal to the agent would determine the corresponding structure of relationships and legal consequences of obligations and duties binding the principal and the agent. The kind of authority will not make much difference in the corresponding obligations and duties but will make marks in the resulting liabilities to each other and to third persons. As lawyer, I would apprise Iffy of the possible different ways for arranging their relationship with Victor and the consequences: The authority which Iffy gives to Victor may be actual, express18 and/or implied,19 or apparent or ostensible. The actual, express authority will be found in the instrument constituting the agency relationship. The actual authority of the agent, where the specifics are not stated in the contract, can be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade or the course of the business between the parties.20 The mere fact that Victor is appointed to the position as agent involves a grant of implied actual authority to "do all such things as fall within the usual scope of that office."21 The handicap which prevents Iffy from conducting business with the Chinese is dependent on its resources and the authority that could be given to Victor must address that handicap. I will apprise Iffy of the great risk of handling the business themselves, even after they are introduced to the key people by Victor. The agreement should also contain restrictions on the activities of the agent after its termination that are "reasonably required to protect legitimate interests of the principal"22 because it is impossible for Victor to do the same kind of work for other UK dealers interested in the similar kinds of dealership, still in line with the fiduciary relationship between the two parties. Victor should be appointed to transact the business expressly declaring himself as agent for Iffy, naming his principal. If Victor transacts business in China declaring himself expressly and naming his principal, he becomes the medium through which a contract is created between Iffy and the third party. While he is the intermediary, he is not a party to the contract and should not incur any liability to the third party, unless he undertakes personal liability or incurs liability by custom of trade or has personal interest in the contract or when the principal in without capacity; not a legal person. "Where A contracts B on behalf of a disclosed principal C, the question of whether A and C are liable on the contract or only C depends on the intention of the parties. The intention is to be gathered from (1) the nature of the contract, (2) its terms and (3) the surrounding circumstances. Where it is stated in the contract that a person makes it "as agent for", or "on account of", or "on behalf of", or simply "for", a principal, or where words of that kind are added after such person's signature, he is not personally liable."23 Iffy also needs to be apprised of the consequences where the agent should contract with the Chinese outside of the terms of the agency appointment. Where Victor contracts intra vires with the Chinese in the name of Iffy, Iffy is bound by the terms thereof, unless he undertakes personal liability or incurs liability by custom of trade or has personal interest in the contract or when the principal in without capacity; not a legal person. Victor as agent will be liable to third parties only in excess of his duties as such unless he undertakes personal liability or incurs liability by custom of trade or has personal interest in the contract or when the principal in without capacity; not a legal person and for tort and personal injury caused. Nevertheless, he has the obligations to reveal his principal where the contract created with third party was based on disclosed agency but unnamed principal. He also has to conduct his affairs as a reasonable man would do. Iffy also has the obligation, which is a matter of precaution, to give due and timely notice to third parties upon the termination of the agency agreement in order to prevent confusion and misrepresentation based on apparent authority. The legal aspects of the subject international sales transaction will be govern by the UN Convention on International Sales of Goods, of which China is a party. United Kingdom is also bound, notwithstanding the fact that it is not signatory to the convention pursuant to Article 1 (1) (b) thereof if the forum choice of law rule led to the application of Chinese law. The necessary instructions to the agent on the structure of relationship with the Chinese and the manner of delivery and payment schemes should therefore be found in agency agreement. This crucial set of agency instructions will take into consideration the existing risks, including physical, commercial and political as well as foreseeable and force majeure. Among the more important risk considered in import-export transaction will be that of loss or damage to goods during their physical movement from the Chinese automotive sellers to the buyer. Full protection from the risk can be provided through special transportation insurance, such as marine insurance. The protection must be such that provides cover to all transport risks from the time the cars leave the factory or warehouse until they reach the final destination stipulated and should pay out the full value of the loss. The problem does not state any financial limitations on the part of Iffy so the best arrangement would be to impose upon the Chinese company the obligation to deliver the cars to the UK in the best condition possible. Victor will be negotiating for CIF24 or DDP25 delivery arrangements. Iffy will pay through letter of credits to ensure the delivery of the proper goods to the proper destination. FOB26 contracts is the lesser choice considering the fact that the seller by such arrangement does not commit the safe arrival of the cars in good condition. Considering the distance from China to UK, especially where the ship is not chartered solely for the purpose of delivering the cars bought, the CIF contract is preferable in which case the seller undertakes to ship the cars, procure a contract of carriage, arrange insurance, make an invoice for the buyer which will debit and credit him for the costs involve and tender the documents concerned in a manner agreed between the parties. The Chinese seller will be entitled to retain ownership until satisfactorily paid and will also bear the risk of loss of the goods in transitu, subject to insurance compensation if so arranged. In addition to the basic terms already discussed, the distance sales transaction negotiations to be pursued by Victor shall also cover the issued of venue in case of litigation and arbitration as well as further arrangements for availability of spare parts, accessories and further orders of newer models. On the alternative, it is possible for Iffy and Victor to go into a joint venture of importing the said utility vehicles, other than the agency relationship. The domestic sales transactions between Iffy and the UK car dealers are subject to nearly similar situations, risk and obligations as in international sales contracts. Considering that Victor has experience in the same transactions before, it is ideal for Iffy to extend the duties of Victor to include the selling of the same vehicles in the UK to utility vehicle dealers. Considering the different description used by Iffy in selling the cars in the UK market, there will be some complications under the implied terms of Articles 13-15 of the Sales of Goods Act 1979 and European Directive on Unfair Terms in Consumer Contracts27. The implied conditions require goods supplied to correspond with any description by which they wer sold, to be of merchantable quality and reasonably fit for any purpose made known by the buyer to the seller. In the present case, the subject vehicles are made for city use in China while Iffy has the intention of selling them for country or outdoor use in the UK. The significant stress on the vehicle through use in the country roads and country work application would lead to questions or issues on their quality and functionality. The UK dealers, as buyers of the goods, have rights under the implied terms of Article 14 (2) of the Sales of Goods Act 1979 for the subject cars to reflect the ordinary, natural, legitimate expectations of sellers and buyers,28 including the right to reject the goods and demand refunds, and/or to claim damages. They are also entitled to the remedies of repair or replacement. Iffy as a limited liability company has the duty to protect the investment of its shareholders. It is the reality of modern times that agents have to be employed to do the purposes of incorporation. BIBLIOGRAPHY Commercial Agents (Council Directive) SI 1993, No. 3053 as amended by SI 1993m No. 3173 and SI 1998, No. 2868 implementing European Directive 86/653. Convention on Agency in the International Sale of Goods, Geneva, 17 February 1983. Convention on the Law applicable to Agency, The Hague, 14 March 1978. Directive on Unfair Terms in Consumer Contracts, Dir 93/13/EEC; OJ 1993 L95/29. FM Reynolds, Bowstead & Reynolds on Agency, 17th ed, Sweet & Maxwell, 2001. Prevention of Corruption Act 1916. USA, Restatement of the Law of Agency: Second [1958] para 1(1) AMB Imballaggi Plastici SRL v Pacflex [1999] 2 All ER (Comm) 249, CA. Boardman v Phipps [1967] 2 AC 46. Chaudry v Prabhakar [1988] 3 All ER 718. De Bussche v Alt [1878] 8 Ch D 286. Freeman & Lockyear v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. Garmac Grain Co. Inc. v HMF Faure & Fairclough Ltd [1968] AC 1130 Gardinaer v Gray (1815) 4 Camp 144. Hely-HutchinsonPlastici Ltd [1968] 1 QB 549. Henderson v Merett Syndicates Ltd [1995] 2 AC 145. Kimber Coal Co Ltd v Stone & Rolfe Ltd [1926] AC 414. Marshall v NM Financial Management Ltd [1995] 4 All ER 785. Shogun Finance Ltd v Hudson [2004] AC 919. Universal Steam Navigation Co Ltd v James McKelvie & Co [1923] AC 492 Read More