Problem Question 30 Marks
Assume SMART Electronics (SE), a US based company, manufactures an electronic device HT with a distinctive brand and provides commercial advice on the construction of equipment used in dairy farming.SE decided to expand its businessas itgained significant transborder reputation but it did not have previous experience in doing business abroad. SE entered into two business contracts in June 2014: a ‘license deed’ with SOMA, a Sydney based Australian Company and; a joint venture with NOVA, an Indian company, engaged in dairy farming.
SE while granting the power to manufacture and use HT for a period of two years accepted an undertaking from SOMA that ‘SE enters into a licence deed and not a franchise relationship and receives a general relieffrom liability.’ The terms and conditions of the deed also required SOMA to ‘comply with the quality control condition and specific system of marketing plan approved by SE based on its financial and operational support.’ In December 2014, just after six months, SE realised that it could not afford any operational support due to its huge financial loss incurred from several businesses with Elite, a UK based company, of which SOMA was not informed. Consequently, SE terminated the agreement. SOMA wishes to go for a legal battle. SE argued, inter alia, that it maintained an excellent record of legal compliance at home and did not intend to breach; it was not aware of the foreign law, that is, Australian relevant law and its recent amendments.
The agreement with NOVA required SE to provide advice on the construction and development of all dairy farms of NOVA in India. The Indian government approved this giant project and promised future tax breaks if certain conditions were met such as ‘employing 65 percent local workers, exporting at least 75 percent of the farmed products and using 50 percent Indian-made content in the construction of the farms.’ In exchange, SE was given 35 percent stake in Nova. Recent changes in the government in India in November 2014, however, led to the expropriation of all NOVA’s farms which were in the advanced stage of construction. Public interest was cited as the reason for the intended expropriation. SE is planning to go for a legal battle as it hadalready invested US$50 million in this project.
Frustrated and in despair, SE would like to proceed now with other modes of operating business overseassuch as agency and distributorship but is worried about the start-up and operating cost and risk factors involved in those modes.
Answer the following: (10+ 7.5+ 7.5+5)
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)
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)
2.2. Whether SE should proceed on to a legal battle against NOVA. If it should, what specific legal issues shouldSE 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)
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)
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