Problem Question 30 Marks

Problem-Question Scenario:
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 business as it gained 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 relief from 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 had already invested US$50 million in this project.

Frustrated and in despair, SE would like to proceed now with other modes of operating business overseas such 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 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)

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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