Assignment of the Week- International Business Law and Ethics

International Business Law and Ethics

Read United States 29 August 2000 Federal District Court [Pennsylvania] (Viva Vino Import v. Farnese Vini) at http://cisgw3.law.pace.edu/cases/000829u1.html and answer the following questions by researching course material, the Internet and the sources provided in the document; you can ignore all the parts of the decision as it is related to tort or tortious actions:  

1. Which court decided this case and when was is decided? (1 mark)
2. What type of court is deciding the case and is it an international court? (1 mark)
3. Which countries do the litigants come from? (1 mark)
4. What is an exclusive distribution agreement, define it! (2 marks)
5. Explain in your words what this sentence means: The issue before the Court was what law governed the issues set out in plaintiff’s complaint. (1 mark)
6. Explain in your words what this sentence means: When two foreign nations are signatories to the CISG, that Treaty governs contracts for the sale of goods between parties whose places of business are in such nations unless the contract contains a choice of law provision to the contrary. (2 marks)
7. Why is the CISG not applicable to this case? (2 marks)
8. What law does the plaintiff want to have apply to the dispute and what law does the defendant want to govern the contract? And why? (2 marks)
9. What are Pennsylvania's choice of law rules ? (2 marks)
10. Why is the judgement referring to Pennsylvanian law and not United States’ law? (1 mark)
11. What do Pennsylvania’s rules say about which law is applicable to this dispute? (2 marks)
12. How are the following connecting factors evaluated by the court to determine the applicable law (2 marks):

    1. the place of contracting;
    2. the place of negotiation of the contract;
    3. the place of performance;
    4. the location of the subject matter of the contract; and
    5. the domicile, residence, nationality, place of incorporation,
    6. and place of business of the parties.

and how would a civil law court treat the same factors and come to a decision as to what is the applicable law? (2 marks)

13. Why do courts often come to the conclusion that it is their own law that is applicable and not a foreign law? Discuss whether it would be better to simplify international private law and always apply the law of the forum to transnational disputes. (4 marks)

  PART II                    (Total Marks 25) Read the article by the Council on Hemispheric Affairs entitled Understanding the Petrobras Scandal at http://www.coha.org/understanding-the-petrobras-scandal/ dated 7 April 2016 and answer the following questions by researching course material, the Internet and the sources provided in the document:

1. What is the Council on Hemispheric Affairs (COHA) and what does it do? (1 mark)
2. Why has it produced this article? (1 mark)
3. What type of business actors were involved in this scandal? (1 mark)
4. What legal ties does Petrobras, a multinational company, have with the Brazilian government? (1 mark)
5. If Petrobras makes a contract with Exxon Mobile, would this contract be governed by public or by private international law? (1 mark)
6. What are the two legal/ethical issues in this scandal, what are they and how do they interact? (4 marks)
7. Why is the issue of free competition so important from an economic and ethical point of view with regards to this scandal? (2 marks)
8. How are ordinary Brazilians affected by this scandal? (3 marks)
9. What is the link between corrupt directors of Petrobras and the Brazilian government officials? (2 marks)
10. What was the role of offshore companies in this scandal; what are offshore companies? (2 marks)
11. Why is this scandal international? (1 mark)
12. Explain why, looking at this scandal, it is so important for the judiciary (courts) to be independent from the executive (government) power. (2 marks)
13. Looking at this scandal, explain why many countries have laws punishing their own business community when they give bribes to officials in other countries? (4 marks)

PART I

Ans. 1 The case was decided by United States District Court, Eastern District of Pennsylvania. It was decided on 29^th August 2000. Ans.2 The United States District Court for the Eastern District of Pennsylvania is one of the original 13 federal courts. It is, however, not an international court. The jurisdiction of this court is limited to Philadelphia, as well as Berks, Bucks, Chester, Delaware, Lancaster, Lehigh, Montgomery and Northampton counties.   Ans.3 The litigants i.e. Plaintiff comes from United States of America and the defendant comes from Italy.   Ans.4 Under an exclusive distribution agreement, the distributor is appointed by the supplier as its only distributor for a specific market. The agreement prohibits the supplier from distributing the products in the market or to appoint any third party for distribution in the market. In return of this exclave grant, the supplier may require distributor to make some commitments of minimum purchase or other obligations related to performance. These agreements should not be confused with ‘sole distribution agreements’. In the latter, the supplier keeps the distribution right of the product in the area, although letting go of the right to appoint third parties for the purpose. It should be noted that exclusivity provisions are subject to trade law restraints and competition law (Agreement, 2017). Ans. 5 The sentence means that the conflict between the parties to be decided by the court was whether the contract was governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG) for the claims made by the plaintiff or the law of contract of Pennsylvania were applicable or the law of contract of Italy will be applicable on those claims. Ans. 6 The sentence means that when the parties to a contract are citizens of those nations and their place of business is in those two nations which have signed the treaty, then terms of such contract will be governed by the provisions of this treaty. When any dispute arises out of this contract, then the same will be decided in accordance with the treaty. However, the parties to such contract can make a provision in the terms of the contract that the laws of one particular nation out of the two will apply and they will not be bound by CISG. Such a term will be added through consent of both the parties. Ans. 7 In the present case, there were three agreements entered into between the plaintiff and defendant: (1) an agreement of exclusive distributorship; (2) an agreement where 25% interest was granted to defendant and, (3) an agreement of sales commission. It was held in Helen Kaminski Pty. Ltd. v. Marketing Australian Prods., 1997 that the provisions of CISG do not apply to a distributorship agreement as it does not have exact stipulations regarding the price or types of goods that are to be sold. The Court in this case applied the same rationale and held that the three agreements did not contain sale of goods that were specific and also did not have terms of quantity and price. Therefore, the contract will not be governed by CISG. Ans. 8 Firstly, Plaintiff wants the court to apply the CISG on the ground that both USA and Italy are signatories to the treaty and the contract was made by citizens belonging to these countries having a place of business in these countries. Alternatively, Plaintiff wants the court apply law of contract of Pennsylvania because the place of contract and related elements are generated in Pennsylvania. The defendant wants the Italy law to apply because he contends that the place of performance of the contract was Italy. Ans. 9 In Pennsylvania's choice of law provision, the court will have to determine that whether a false or true conflict exists between the two concerned courts which the parties have decided to approach. In case of a ‘false conflict’ the governmental interest of only one jurisdiction will be prejudiced by applying the law of another jurisdiction or there exists no difference between the laws of both the countries in this matter. If the court finds that there is no false conflict then there would exist a true conflict. Then the court will examine that the jurisdiction of which court has greater significance in the application of its law ("What Law Applies? The Importance of Understanding the Interplay Between Contractual Choice of Law Provisions and State Franchise Laws | Forum on Franchising", 2017). Ans. 10 The 50 states of America are separate sovereigns having their own constitutions, governments, and courts (US Legal, 2017). The law of contract in US varies from one state to another and there is no Federal contract law having nationwide application. The matter present in this case is related to private contract between parties and do not involve questions of federal importance. Thus, in this case, the judgement refers to law of Pennsylvania and not the law of USA. Ans. 11 According to Pennsylvania’s rules, if the place of contract,  the place of negotiation of the contract; the place of performance; the location of the subject matter of the contract; the domicile, residence, nationality, place of incorporation and place of business of the parties is in Pennsylvania then the law of Pennsylvania will apply. Since, all these determining factors were present in the given case; the court held that the law of contract of Pennsylvania will apply. Ans. 12 The court held that the place of contract was in Pennsylvania. Although, the parties were not agreeing that place of negotiation was in Pennsylvania, the court held that the performance of contract was in Pennsylvania. The court rejected the argument of defendant that the place of performance was in Italy as the wines were shipped as Free on Board and once delivered to shipper, the defendant was not responsible. This argument, however, did not alter the view of the court that place of performance was in Pennsylvania. It was held by the court that the law of Pennsylvania has the greatest interest in its application. The civil law court will examine firstly, where was the contract negotiated and entered into between the parties.  The court will also see the place where the contract was to be performed. The location of the subject matter of the contract and the place of business of the parties will be examined to finally determine where the case must be brought (Tran, 2017). After examining these factors, the court will come to the conclusion as to which law has the highest relevance for application in the case. Ans. 13 In my view, the court prefers applying their law and not that of the foreign law because it is comparatively easier to apply. This is because of familiarity with it and being accustomed to apply it. It is nearly impractical to import the technique of procedural law of the foreign country. The choice may also be due to the pure chauvinist approach or it may be based on the decision to choose the more sounder of the laws. Simplifying private international law would mean formulating provisions which will be applicable to parties irrespective of their personal national laws. This would bring uniformity. However, in my opinion, many transnational disputes are characterised by the peculiarities specific to the nation from where the parties belong. In such case, having uniform law for all may result in dissatisfied litigants and greater appeals. Simplicity can be brought in the procedural aspect without disturbing the rights of the parties arising out of substantive law.  

Part II

Ans. 1 The Council on Hemispheric Affairs (COHA) is a nonprofit organization for tax exempted independent research and for giving information. It was created for the purpose of promoting interests that are common in the hemisphere; increase awareness about regional affairs and increase the value of inter American relationship. It also aims to assist in formulating policies in USA favoring Latin America ("About COHA", 2017).

Ans. 2 The article was produced to help in understanding the ‘Petrobras Scandal’ involving corruption and money laundering charges against high officials of Brazil.

Ans. 3 The business actors involved are the top level employees of Petrobras, officials of construction companies and the channels through which the money was laundered.

Ans. 4 The direct ownership of the government of Brazil in Petrobras is 54%. At the same time, Brazilian Development Bank and Brazil's Sovereign Wealth Fund each have 5% control. Thus, the State has 64% direct and indirect ownership in the multinational company.

Ans. 5 Petrobras is a Brazilian MNC and Exxon Mobil is an American MNC.  A contract between them will be governed by private international law.

Ans. 6 The two legal issues involve in the scandal are of illegal cartels and corruption. Large constructions firms organized an illegal cartel for the purpose of gaining contracts which were overpriced with Petrobras for private benefits. This caused serious damage to the bottom line of Petrobras. To ensure that the cartels were maintained and only those companies were able to sign the contracts, the firms bribed the high official employees of Petrobras. The corruption watered down to political class as well. In return of protecting the corrupt employees in Petrobras, the officials received money indirectly through money laundering.

Ans. 7 The issue of free competition is important in terms of this scandal because maintaining illegal cartels results in outside firms from getting a fair chance to compete. This results in less competition and lesser expertise. Consumers are entitled to best supply in the market. When supply is made by few only, it results in the consumers not having advantage of increased quality. It is thus not good for the economy as monopoly is encouraged in it. Ethically as well, free competition allows fair business practices allowing all businesses to have a chance of increasing their profits and growing their business. In this scandal, the cartels restricted the entry of other players in the industry thus restricting the fair competition.

Ans. 8 The scandal has resulted in various construction sites to be closed impacting development of infrastructure.  This has caused large scale unemployment. Hostel businesses providing residence to workers of these construction sites have been closed. The oil prices have been greatly affected by the slow operations of Petrobras. The arrests of various public officers have resulted in political instability.

Ans. 9 There was a prominent link between the corrupt directors of Petrobras and politicians. In order to maintain the illegal cartels, and continuing with the preferred construction companies to sign the highly priced contracts, the assistance of political class was needed. The politicians helped the MNC by turning a blind eye to the irregularities and by indicating and maintaining the corrupt employees in key positions and received money in return of this favor.

Ans. 10 The money to be paid to the politicians or their assistance to Petrobras for illegal activities was not paid directly. It was transferred through the process of black marketing. The money was first transferred to offshore companies and then those companies would transfer that money to the intended recipient. This way the money was laundered away from the watch of the revenue department of Brazil. An offshore company is one which is a legal entity or a corporation which is registered in an offshore financial centre or tax haven. Tax haven means a jurisdiction which has favorable tax regime ("taxhavensguide.com", 2017).

Ans. 11 Some of the offshore companies through which the money laundering was done such as Constructora Internacional del Sur S.A and Deep Sea Oil Corp operated internationally. The transactions were spread within and outside Brazil involving nationals of Brazil and foreign countries. Therefore, the scandal became international.

Ans. 12 There are three organs of a State- executive, judiciary and legislature. There must be separation of powers between these there organs. In view of this scandal, the judiciary must function independent of the executive as the defendants in this case are persons holding positions in the executive. If there is no independence, the judiciary will be influenced by the executive and the decision will be biased in favor of the officials. If the decision given by the courts is influenced, it will result in loss of faith of the people in the legal system of the country. Citizens view court as the last resort when all doors are closed. Thus, the judiciary is under the duty to give judgments free from bias.

Ans. 13 Many countries have laws punishing their own business community when they give bribes to officials in other countries. This is mainly due to the fact that the economy of a country is run by the domestic business community. This community contributes for the growth of the economy of the nation. When bribery is done, undue benefits are given to the persons who are not contributing to this growth. This is unfair for the business class within the country. When the money is brought in by way of bribery, the true picture of the nation’s growth is not brought out. This affects the formulation of policies by the government. Bribery also affects the efficiency of the businesses. When a company knows that it can achieve the quality standards without effort, then they would not work towards improving the quality o the goods and services. This in turn finally affects the consumers who are the end recipient of these goods and services. Apart from these practical issues, the practice of bribery is wrong from ethical point of view as well. Conducting a business must involve fair business actions. Every business must e conducted ethically by giving fair chance to everyone and not titling the factors in their favor through illegal means. Also, the act of giving and taking bribe is illegal as it amounts to violation of state and international laws in regard to bribery. It is for this reason many countries have laws punishing their own business community when they give bribes to officials in other countries.