Joint Venture Agreement | USCO & ARGO Report

Added on - 22 Sep 2019

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MEMORANDUMTo:Robert Lutz and Gerold LibbyFrom:Date:Re:Conflicts of Laws, Argentine and California LawsFACTSUSCO, ARGCO and Big Bank entered into a joint venture and formed JVCO with 33.15%,31.85% and 35% of shares in the joint venture respectively. A Joint Venture Agreement (JVA)was signed between USCO and ARGO requiring a broad business purpose for developing thebusiness of JVCO. A License Agreement was signed between USCO (licensor) and JVCO(licensee) for the purpose of transfer of technology. It does not contain any clause referring toresolution of disputes and shall be construed as per the laws of California State. The JVA is inthe jurisdiction of Federal Court of Miami and does not contain governing law clause. JVA wasnegotiated in both California and Argentina, but signed by all the parties in Buenos Aires,Argentina.Richard Exec and JVCO signed Employment Agreement that did not contain choice of lawclause. Further, Exec and USCO signed Supplement Contract in their personal capacity and acopy of it was given to ARGCO. It also did not contain provisions regarding resolution dispute,but again law of state of California were made to be applicable in it.Exec has now returned to California after serving a three year period in Argentina as President ofJVCO. But today it was discovered by ARGCO that during his business trip to California, whilehe was President of JVCO, he apparently sold confidential USCO trade secrets (licensed byUSCO to JVCO) to a competitor of JVCO. He also found to have delivered confidential tradesecret documents of JVCO to USCO. Not only that, he was alleged to have sexually harassedMr. Femp during his stay in Buenos Aires.
DISCUSSIONLegal Positions of ARGCOa)Argentina law should apply to the issue of whether USCO should be deemed to havebreached the JVA because of Exec’s sale of USCO trade secrets to a third party.As per the Restatement (Second) of Conflict of Laws Section 188 (1969 Main Vol.), which laysdown the guidelines regarding law governing in the absence of effective choice by the parties("Restatement (Second) sec. 188", 2016). Under Sections 6 and 188 of the Restatement (Second)of Conflict of Laws and as per §188. Law Governing in Absence of Effective Choice by theParties:(1)The rights and duties of the parties with regards to an issue in contract are determined bylocal law of the state.(2)In the absence of effective choice of law by the parties, the following principle will beapplied, on which the contracts will be evaluated as per their relative importance.(a)The place of contracting,(b)The place of negotiation of the contract,(c)The place of performance,(d)The location of the subject matter of the contract, and the domicile, residence,nationality, place of incorporation and place of business of the parties.(3)If the place of negotiation and place of performance are in the same state, the local lawshall be appliedFactual arguments in favor of ARGCONow, in the absence of effective choice of law, the principles that are also taken intoconsideration, as far as contracts are concerned, are – place of contracting, place of negotiation,place of performance, location of subject matter and domicile, residence, nationality and place ofbusiness of the parties. Buenos Aires was the place where performance was occurred. All theparties were present there and they signed the agreement with each other’s consent. So, the statehas the obvious interest in the nature of the performance of contract. As, all the parties are toperform in Argentina in their joint venture company, JVCO, so the state will have so close arelationship to the transaction of the parties. Also, according to the Section (3) of Restatement(Second) of Conflict of Laws Section 188, if the place of negotiation and place of performanceof the contract are in the same state, the local law of the state will be applied.Factual arguments against ARGCOThe Restatement (Second) of Conflict of Laws Section 188 talks about the protection of justifiedclause. This factor is of considerable importance regarding the issues involving the validity ofcontracts. As the parties that enter into a contract will expect at the very least that ultimately the
provisions of the contract will be binding upon them. So, their expectations should not bedisappointed by applying the local law. Also, as per the purpose of contract rule, those factorsare considered that determine the state of most significant relationship to the issue(Weisel, n.d.).But, this rule is also designed to protect a particular party against the unfair use of superiorbargaining power because the state where a given business practice is to be pursued has the mostsignificant interest in the application of its rule. Here, the applicability of Argentine laws willmost likely give the superior bargaining power to ARGCO.ConclusionNow, the Federal Court of Miami has to follow the statutory directive of its choice of law. As thebusiness of JVCO is running in Argentina and as per JVA, both the parties were required to exerttheir best efforts to develop the business of JVCO. However, the sale trade of the secrets wascarried out by Exec to a third party presumably without letting USCO know about thisarrangement on his part. Also, this act of Exec would not have helped USCO in any way becausenaturally USCO would never want its trade secrets known by a third party. Therefore, we canconclude that the Argentina laws would not be applicable in this case.b)California law should apply to the issue of whether USCO should be deemed to havebreached the License Agreement because of Exec’s sale of USCO trade secrets to a thirdparty.As per the Restatement (Second) of Conflict of Laws Section 188 and in relation to §6. Choice oflaw Principles, it states the following:(1)It will be the court that will follow a statutory directive of its own state on choice of law.(2)In absence of such directive, following factors will be considered:(a)Needs of local and international systems(b)Relevant policies of the contract(c)Relevant policies of other interested states for the determination of issue(d)Protection of justified expectations(e)Policies based on particular field of law(f)Certainty, predictability and uniformity of result(g)Ease in the application of law.According to the principles stated in §6, choice of law are used in evaluating the significance of arelationship with regards to the issue(Ehrenzweig, 1965). So, it is important that the rules beapplied with mutually harmonious and beneficial relationships. Among all the applicableprinciples, the protection of justified expectations of the parties is of paramount importance inthe contracts. It will provide the certainty, predictability and uniformity of the result becauseexpectations of the parties will not be disappointed. The extent of interest of state to apply itsrule is to be determined by establishing a relationship of transaction and the parties to that state.Also, for the purpose of contract rule, a specific party is needed to be protected from the unfairuse of superior bargaining power. Also, the state where business practice is to be pursued, will
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