Essay Preview: Mrs
Report this essay
“Compare and contrast from a legal point of view two different methods of entering a new International Market”
Index
Page 3
Introduction
Agency
Page 4
Branch
Jurisdiction
Page 8
Legal Responsibility
Page 11
Conclusion
Page 13
References
Page 14
Bibliography
INTRODUCTION
The two methods I have selected to compare and contrast from a legal point of view in entering an international market are agency and branch. Firstly, I shall consider the definition of agency and branch. Thereafter I shall consider the legal issues of jurisdiction, legal responsibility, tax and competition law. As I shall demonstrate throughout this essay there are a number of similarities between the two methods, for example the legal issue of jurisdiction (i.e. what country’s law applies to the international seller). However, there are also marked differences between these methods for an international seller to consider such as legal consequence of tax.
Agency
An Agent can be described as a person or company that is authorised by the principal to act on his own behalf and the Agent agrees to do so. Another definition is “an individual who is employed as an independent representative of a firm. Unlike a representative office, an Agent conducts business on behalf of the foreign firm (or principal), taking orders making sales and collecting debts.” (August, 2004, p. 206 and 703).
There are three types of agency relationships. Firstly, a “disclosed named principal” where the buyer knows that the Agent is the Agent of the principal, a clear example of this is the case вЂ?Railway Commissioners (NS,) v Orton (1922) (Pryles et al, p366). Secondly, “disclosed unnamed principal” where the buyer knows that the Agent is acting on behalf on the principal but is unaware of the latter’s identity. Thirdly, “undisclosed principal”: where the buyer’s perception is that the Agent is acting on his own behalf, i.e. the buyer believes that he/she enters into contract with the Agent alone, unaware that there is in fact a principal. In the first and second scenarios, it is the principal who is liable for the Agent’s actions, with the exception that should the Agent sign in his/her own name without qualification, then the Agent may be liable as co-principle, which was what happened in Hawkins v Gaden (1925) (Pryles et al, 2004, p367). In the third situation, the principal has the right to intervene and the buyer has right to election of whether to sue the Agent or the principal, but can only sue one. (Pryles, 2004)
Branch
A Branch is not a separate individual or company or legal entity but part of the original company. In other words it is a direct extension of the company in another jurisdiction (see further August, 2004, p. 703). Similarly, in the article by Svernlov 2004 at p. 111 “the Branch office is not considered a separate legal entity, but part of the foreign company”. The company through the Branch creates a legal presence of the parent company in the host country. The Branch office has no share capital of its own, and its assets and liabilities are part of the foreign company’s assets and liabilities. Thus, the company is liable in the host country for all obligations undertaken by/ arising from the Branch office.
I shall now consider critically analyse Agency and Branch when penetrating an international market.
JURISDICTION
Jurisdiction means the applicable law to the contract i.e. what law governs the contract. This is vital for international sellers (and buyers) because they require legal certainty in their business dealing, and particularly so where either side contemplates issuing legal proceedings. Jurisdiction is an area where Agency and Branch may have similar legal effect. This is so with regards to both the Vienna Convention and the Brussels Convention.
The Convention on Contract for the International Sale of Goods 1980
The Convention on Contracts for the International Sale of Goods 1980 (henceforth “CISG” and also known as the Vienna Convention) is an international treaty and a set of rules designed to provide clarity to most international sales transactions involving the sale of goods. As Fletcher and Bassindale (1992, p. 10) state in their commentary of the CISG: “This Convention was intended…..to create a new regime for international sales which would harmonise the laws of the participating nations….” The CISG came into force into on 1st January 1988. The United States as well 62 other countries are parties to the CISG (for further information about the CISG see the very impressive website: www.uncitral.org/uncitral_texts/sale_goods/1980CISG.html).
For example, a Germany company penetrates the US market. The German company’s place of business is in Germany; with the U.S. company’s place of business in the U.S. Both States are parties to the CISG. Of course, the CISG can be excluded from the contract by an express term, however, for the purposes of critical analysis, it will be assumed for the below discussion that there is no clause in the contract excluding the operation of the CISG (CISG: Article 6).
In order for CISG to apply, the companies’ place of business must be based in different States as per Article 1 (a)