International Business Law: The Case of Metorex and Chin Wah and Possible Legal Actions
Possible legal actions of Chin Wah
The contract signed between Metorex (the shipper) and Chin Wah (the receiver of consignee) contains a clause that practically enables Metorex to disclaim responsibility for failure to provide the specified amount of aluminum scrap to their business partner. In particular, according to one of the contact clauses, “The quantity of metal supplied shall be within 10% of the specified amount without penalty or cause for claim”. Judging from this clause, Chin Wah cannot take any legal action against Metorex.
However, there are several circumstances which can invalidate this clause. First of all, according to Hague-Visby Rules, set for international carriage of goods by the sea, a shipper is obliged to specify the number, weight, and quantity of goods that are provided to the consignee (The Hague Rules as Amended by the Brussels Protocol 1968, par. 19). Moreover, the bill of lading, which is “a document evidencing the receipt of goods for shipment” (American Law Institute 2010, par. 1-201) as well as an evidence to overcome some problems that may appear if the goods are not delivered or received damaged (Zeller 1999, p. 111), has to correspond to the description provided in the contract.
It has to be admitted that Hague-Visby Rules are more applicable when we are speaking about the seller’s obligations to the carrier but not to the buyer. In this case, the management of Chin Wah has to refer to another law regulating international sales, namely the UN Convention on Contracts for the International Sale of Goods (CISG). This treaty contains several important provisions that describe obligations of the seller. Firstly, this party “must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention” (United Nations Commission on International Trade Law 2010, p. 9). Furthermore, according to Article 74, the damages which result from the breach of contract include the loss of profit.
It should be noted that Chin Wah had obligations to another Korean steel manufacturer. They had to supply them with aluminum scrap of certain quality, Taldom; due to this breach of contract, they could not deliver it on time and had to pay penalties to their business partner. Judging from the provisions of CISG, we can argue that Meterox is obliged to compensate Chin Wah for these losses. CISG convention also postulates that this provision is valid only if the party, which breached the contract, had been warned about the possible risks of the buyer or could reasonably predict them.
If Chin Wah failed to inform Metorex about the possible losses beforehand, this enterprise would find it difficult to demand indemnity. “Negotiation is one of the most common approaches used to make decisions and manage disputes.” (Moore, n.d., 1). But if the parties cannot resolve this conflict through negotiation, the exact amount of compensation will be determined by the arbitrage court. When speaking about compensation for possible losses, we should also mention the differences in prices set for aluminum scrap. We need to remember that the price of “Taldon” aluminum scrap had risen by 25 percent since the time when the contract was breached.
The Article 76 of CIGG convention states that the party that sustained losses due to the breach of contract can recover this price difference (United Nations Commission on International Trade Law 2010, p. 23). However, this scenario will not be possible if Chin Wah resells the goods acquired from Metorex. Thus, it is necessary to say that the contract, which was previously signed between the two sides, does not allow Meterox to disclaim liability, so the Korean company can take legal actions. But at the same time, we can say that many circumstances of the case remain unknown to us, especially the terms of the contract related to the risks of both parties. This information would have allowed us to make more specific recommendation to Chin Wah.
The Korean Development Bank
As it has been identified in the case, Chin Wah intends to take legal action against the Korean Development Bank in effort to return the payment which was submitted. However, one should remember that in this case, banking institutions act according to UCP (Uniform Custom and Practice for Documentary Credits) 600 regulations. Their key responsibility is to make financial transactions from the buyer (Chin Wah) to the seller (Merorex). Banks are not concerned with the terms of sales contract or the degree to which parties comply with them.
According to the article 34 of UCP 600, a bank does not assume any liability for weight, quantity, description, packing or delivery of the goods or services to consignee (International Chamber of Commerce 2006, p. 19; Burnett 2004). The main obligation of the bank is to make sure the documents comply with the legislative norms. The Korean Development is not obliged to assess the reliability of the buyer or investigate the circumstances of the case. In other words, if the sales contract is breached and the company does not receive the goods in specified quantity and quality, the bank will not be compelled to return money to the buyer. Thus, the existing regulations indicate that Chin Wah will not be able to file a lawsuit against the Korean Development Bank.
There are several reasons why International Chamber of Commerce adopts such an attitude toward sales contract. First of all, banks cannot possibly be involved into every legal conflict which arises out of sales contract. This would have greatly slowed down their work. Apart from that, prior to returning money to the buyer, the organization has to determine whether the contract was actually breached. Thus, they would have to conduct an in-depth investigation of the case. Obviously, this is not a liability of the bank. Hence, we can argue that Chin Wah will not be able to take any legal action against the Korean Development Bank. This company will be able to receive indemnity only from Metorex but not from the bank. Thus, our major recommendation to Chin Wah is to focus on the negotiations with Metorex instead of claiming reimbursement from the bank. This manufacturing company has to collect evidence, proving that the other party did breach the contract and that it eventually resulted in financial losses. This will be the most optimal solution for this enterprise.
Carriage contract and possible legal actions of Chin Wah
The carrier ALABMA
According to this case study, the second shipment received by Chin Wah was not delivered on time. Moreover, it has been identified that some of the containers became rusted and loosened. The carrier, an Australian company ALAMBA, does not want to accept responsibility for these damages and argues that the bale count provided by Metorex was inaccurate. Under these circumstances, Chin Wah will be quite capable of taking legal actions against the carrier and demand indemnity from them. First of all, we need to note that the carrier accepted the bill of lading on the departure; consequently, this organization assumed full responsibility for the cargo. The duties of a carrier are regulated by the Hague-Visby Rules, Hamburg Rules and Rotterdam Rules. According to these international norms, the carrier is responsible for loading, transportation, handling, and unloading of goods (Berlingieri 2009). ALABMA had to ensure the goods were delivered in the same weight, size, quality and quantity.
This company could be exempted from liabilities only if the damage occurred because of Acts of God, wars and hostilities or piracy, quarantine restrictions, etc. There are a great number of provisions which may enable ALABMA to disclaim responsibility. In each scenario, ALABMA has to prove that they made all reasonable efforts prevent the damage of the goods. Overall, we can say that Chin Wah will be in more advantageous position if the two parties are unable to resolve this conflict through negotiation. One should bear in mind that the lawsuit against the carrier will be possible if the shipper provided him with full and accurate descriptions of the goods that were to be delivered. This is one of the provisions in so-called Hague-Visby Rules (The Hague Rules as Amended by the Brussels Protocol 1968). Most likely, this issue will be investigated by independent experts in order to determine whether the bill of lading was accurate or not.
Another aspect that we need to discuss is the delay of delivery. According to the case, the ship had to take a detour due to rough sea. In addition to that, prior to the departure, ALAMBA had dispute with the stevedoring company. Taking these facts into consideration, we can say that the carrier can be partially exempt from liability for the delay. Rough sea can be regarded as force majéur circumstance or Act of God; apart from that detour was essential for ensuring the safety of the crew and cargo (Berlingieri 2009, p. 9). If the detour was the only possible way of avoiding peril, the Australian carrier will not be compelled to pay indemnity for the late delivery.
At this point, we need to mention that such legal terms as Acts of God or force majéur circumstances can be interpreted as any event which could not be predicted or avoided by a party of the contract. If a company could reasonably expect or find an alternative solution, they would still be liable for the damages. The same principle can be applied to this case: if ALABMA had information about weather conditions and could choose a different route, this carrier would be responsible for the delay.
The second important issue is the stevedoring dispute. If loading was performed by ALABMA or its subcontractor, this organization will be fully liable for the delay and potential losses of Chin Wah, the consignee. In turn, if the stevedoring was performed by the shipper, the arbitrage tribunal will need to determine whether this dispute can be avoided and which party (the carrier or the shipper) is responsible for it. On the whole, it is possible for us to say that Chin Wah will be able to defend their rights in the court. However, a definitive answer can be given only when in-depth examination of the case is carried out by independent experts. The responsible parties will be either the carrier or the shipper. From legal standpoint, the position of Chin Wah is much more advantageous. In this case, their key task is to provide sufficient evidence that the goods were damaged prior to the unloading of the ship. This will enable them to dictate their terms during negotiations or better protect their rights if the negotiations do not yield any results.
Our key recommendation for Chin Wah is to settle this dispute through negotiation. There are several reasons for it. First of all, the Korean company probably has to meet several commitments to other local steel-manufacturers. They may need to supply aluminum scrap to them, and do not want the goods to be kept in the port for a long time. This will be the case if the dispute is transferred to the court. Secondly, ALABMA should also try to avoid a lawsuit. Provided that the arbitrage tribunal finds them guilty of the damages, they will have to indemnify the Korean company and pay legal expenses as well. Legal conflict will increase their costs. Overall, the strategy that we have suggested will enable both the sides to save their time as well as money.
Place of arbitrage
International laws and regulations do not provide clear-cut guidelines as to the selection of the place for arbitration. There are several options that may be available to both the parties, They are the place where the contract was signed, the domicile of the carrier as well as the place of discharge or delivery (Berliengieri 2009, p. 47). There are also international maritime laws such as the Hague-Visby Rules, Hamburg Rules and Rotterdam Rules. Traditionally, the place of arbitrage can be selected by a party which intends to take a claim against the carrier (Berliengieri 2009, p. 47).
However, in recent year, the situation has changed. In particular, according to Rotterdam Rules, the parties cannot select the place of arbitration if the choice of place was prescribed in the contract (Berliengieri 2009, p. 49). According to the contract concluded by Chin Wah and ALABMA, the disputes between the two sides will be resolved by “the Supreme Court of NSW to the exclusion of the jurisdiction of the courts of another country”. This contract clause implies that this dispute is more likely to be resolved in Australia, in particular, by the Supreme Court of New South Wales.
Yet, one should take into account that, at the given moment, Rotterdam Rules were not ratified by the governments of South Korea or Australia. Therefore, in this case, the claimant has the right to choose the place of arbitrage. It would be better for both sides to resolve this dispute in Korea where goods are currently stored. The key advantage is that both sides will have more opportunities to collect evidence about the quality and packaging of goods. This is probably the best way for Chin Wah to protect its interests.
Alleged violation of copyright law
The first scenario: Registered user agreement between the two sides
Provided that Chin Wah and Metorex entered into a registered user agreement with one another, the Korean company would have a right to use the special matt finish on their metal retail goods. In such scenario, Chin Wah can use technologies developed by Metorex in Australia and in other countries as well. The use of matt finish is quite legitimate if the Korean company provides specifications that this matt finish has been developed and owned by Metorex. Traditionally, copyright license agreements provide the licensee (Chin Wah) with a right to manufacture and market the products of a licensor (Metorex). However, these contracts are applicable only to a specified territory or country (Battersby & Grimes 2001, p. 602). Moreover, as it has been identified in the case, the registered user agreement enables Chin Wah to use licensed products globally. Hence, it is possible to say that the Australian company will not be able to sue their Korean company for the infringement of copyright.
Yet, we have to admit that the case does not provide full information about the copyright contract concluded by the two parties. It is said in the case study that Chin Wah is allowed to “use” this technology. However, we do not know what is implied by this word. It may include only manufacturing of products, but not their distribution in Australia. Thus, in order to advise Metorex, one has to examine the contract that they previously concluded.
We can say that such agreements usually provide clear provisions about the rights and responsibilities of both the sides. They do not leave room for any misunderstanding or misinterpretation of the document. There are several reasons why this conflict could occur. First, one of the parties, namely Chin Wah, could violate the terms of the agreement, either intentionally or unintentionally. Secondly, the document itself was poorly drafted. These two explanations seem to be the most credible. The most optimal solution for both the sides is to start negotiations and reconsider the registered user agreement. This document must clearly explain the rights which are conferred to Chin Wah, the licensee. This will enable them to avoid disputes in the future. This is the first scenario that we have to discuss. Its key peculiarity is that there is a pre-existing agreement between the two sides. Thus, if this conflict is transferred to the court, the judges will find it easier to determine which of the two parties is right since they have a document clearly prescribing the rights and responsibilities of Chin Wah and Metorex.
The seconds. Trademark registration
If Metorex had only registered their trademark in Korea, this company would be able to take legal actions against Chin Wah. One should take into account that there are several international laws which protect the rights of copyright holders. One of them is Madrid protocol, which is also known as the Madrid System. This agreement was ratified by the government of South Korea and Australia.
The key peculiarity of Madrid System is that a company or party, which has received registration in one of the member jurisdiction, will receive protection in other member jurisdictions (World Intellectual Property Organization 1989; World Intellectual Property Organization 2011). Therefore, even if Metorex had registered their trademark only in Korea, they would be able to defend their rights in Australian courts as well. At this point, Madrid System is the most popular model of trademark registrations. It has been adopted by the majority of WTO members. Therefore, if Chin Wah illegally manufactured or distributed the products of Metorex, this company would be responsible for copyright infringement not only in Australia but in many other countries as well. Overall, it is possible for us to say that the existing international laws ratified by the majority of economically-advanced countries offer protection to the owner of the patent or trademark. One can argue that Metorex is in a more advantageous position as the company can file a lawsuit against their former partner, if they believe that Chin Wah uses their technologies without proper authorization. From legal point of view, their position will be much more solid.
Still, in order to provide any definitive answer, one should know more about the product or technology itself. It is quite possible that similar products were developed before, and under such circumstances, Metorex will not be able to sue Chin Wah for the alleged violation of copyright. If Chin Wah infringed upon the copyright, this company will have to indemnify the Australian company. The exact amount of reimbursement will be dependent on the sales revenues of the Korean enterprise.
It is rather difficult to provide recommendations to Metorex at this point. This company has to evaluate carefully the user agreement reached by the two sides. Metorex should remember that legal conflict will not necessarily lead to positive outcomes for them, especially if Chin Wah manages to prove that they did not infringe upon the patent. We can argue that it is more difficult to evaluate the circumstances of the second scenario. First of all, we do not know the extent to which the copyright was violated if it was violated at all. It is necessary to compare the matt finishes manufactured by Metorex and Chin Wah in order to understand whether they are identical or not. Without this information, one can hardly advise either the Australia or Korean Company.
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Battersby, G. J. & Grimes, C. W. 2001, License Agreements: Forms & Checklists, Aspen Publishers, USA.
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Burnett, R. 2004, Law of International Business Transactions, 3rd edn., Federation Press, Sydney.
International Chamber of Commerce 2006, UCP 600. Web.
Moore, C. W. n.d., Negotiation. Web.
The Hague-Visby Rules 1968, . Lex Mercatoria. Web.
United Nations Commission on International Trade Law 2010, The United Nations Convention on Contracts for the International Sale of Goods, United Nations Publication, New York. Web.
World Intellectual Property Organization (WIPO) 1989, Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks. Web.
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Zeller, B. 1999, International Commercial Law for Business, Federation Press, Sydney.
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