1 Carriage of goods by sea, means of payment, license agreements To begin with we would like to provide some background information

about the analyzed case and the companies under consideration. In this case we have two companies an Australian company Metorex and a Korean company Chin Wah. Metorex has contracted with Chin Wah to sell recycled aluminum scrap metal. The Korean company, based in Seoul, uses the aluminum scrap in the secondary aluminum market; their primary business activity is the manufacture of de-oxidants for the Steel Making industry. This was not the first business contract of these two companies. They have conducted business for about 15 years. The companies agreed to deliver and, respectively, accept two portions of the good, each is around 10 Kt. The sale was for aluminum scrap Taldon, packaged as bales in containers each of which contains 200 bales of scrap. The price stated on the contract was USD $ 2500.00 per Kt, CIF Busan (Korea), to be shipped between the 3 September and 10 September, 2010. The first contract was concluded on 26 August 2010. This contract required payment for the sale by means of an irrevocable, negotiable documentary credit payable by the Korean Development Bank (KDB) within 5 business days of the presentation of all the necessary documentation. The Letter of Credit (L/C) between the Korean Development Bank and ANZ of Australia is to be governed by the UCP 600 rules. The sales contract contains the following clauses: The quantity of metal supplied shall be within 10% of the specified amount without penalty or cause for claim. Any notice of defective goods shall be made within 15 days of the cargo clearance of the goods. The goods of the first contract were shipped within the required dates. Thus, the deadlines were not broken. The bill of lading noted 100 containers each said by shippers load, stow, weight and count to contain 200 bales of scrap. On the day of arrival, 28

2 September, the buyer inspected the goods at Busan port only to find, that the weight of the bales delivered was 9 KT, not 10 KT. Furthermore it appears that when the bales were unpacked, Chin Wah found that the quality of the scrap was in fact Taldork not Taldon. Respectively, different quality means another lead content in the scrap. In fact, this content was higher than was specified in the contract and in the aluminum quality specification. Higher lead content makes the scrap unsuitable for the de-oxidation process. As a result, the buyer can not sell its goods and services. Moreover, it cannot meet its supply commitments to another Korean steel producer. It causes some penalty clauses for the buyer. Additionally they now have to purchase scrap on the open market in order to meet the supply commitments. The price of scrap on the open market is 10% higher than the price, stated in the contract. Taldork like Taldon is now 25% higher in price. As a result, such confusions have led to the conflict between the companies. Metorex has already received payment from the KDB for the shipment. Chin Wah now wants the return of the payment from the bank because of the discrepancies in the quality of the scrap. They also claim that Metorex must compensate them for the penalty payments and for the difference between the higher costs of the scrap they have had to buy. The second shipment received a clean bill of lading on departure, but was significantly delayed in delivery. The delay was two weeks. This was due to a number of causes: the original carrier was unable to load the goods because of a stevedoring dispute in Melbourne before departure until 17 September; there were unusually rough seas en route to Korea which necessitated a detour from the usual route. The payment terms were similar to the terms of the first contract. There was also another problem about 50 bales of scrap were missing from the delivery. The carrier of the

3 cargo denies is fault in the loss and in the damaged containers. Also the loading time was more than tripled. It happened because some of the containers were damaged. Thus we have explained the essence of the conflict between the companies and now we are able to analyze this conflict and suggest some solutions to the problem. First of all, we would like to say that this conflict is really specific. As it has been mentioned, the companies have been cooperating for about 15 years. They have a great experience, they should trust each other. In general, they should have avoided such conflict. Even in the case of conflict they should have developed some mechanisms of their solving. It looks like that in this case the conflict can be resolved only in court. We can say that one of the sides of contract has broken a lot of its terms. This company is an Australian one Metorex. Among the terms that have been broken we can point out the following ones in the first contract: 1. The scrap was the different quality than it was stated in the contract. This different quality means that the buyer is not able to execute its obligations to the other companies; 2. Also, there was 9 Kt, but not 10 Kt as it was stated in the contract. However, it is not some violation of the contract, since it claims that the quantity of metal supplied shall be within 10% of the specified amount without penalty or cause for claim. As a result we have two parties that have suffered because of the mentioned violations Chin Wah and The Korean Development bank. The Korean Development bank experiences some financial losses, while Chin Wah has also its reputation damaged. We believe that the Australian company has a direct fault in this situation, since it has broken some important terms, specified in the contract. that is why it should bear responsibility and compensate all the losses.

4 First of all, Chin Wah does not have some need to take legal actions against The Korean Development Bank. This Bank is also a victim in this situation and also suffers some financial losses. In turn, we believe that these two companies should unite their efforts against the Australian company. The question is what the possible legal actions may be. The answer is really simple to it. The company should require compensation since the contract was broken. We believe that the companies have agreed the mechanisms of such possible compensation in the contract. However, the Korean company should demand compensation for the different quality of the scrap. It may be more difficult to get compensation for penalties and additional costs. In our opinion, such compensation can be achieved only in court. It causes some additional problems, because the contracts have some interesting condition, which is the following. The contract of carriage contains the following clause: This bill of lading shall be governed by and construed in accordance with Australian law and all disputes arising hereunder shall be determined by the Supreme Court of NSW to the exclusion of the jurisdiction of the courts of another country. Chin Wah now wishes instead to have the matter resolved in Korea where the goods are in fact located. We believe that this requirement of the Korean company is not justified. The contract clearly says that all the disputes should be settled in Australia. The Korean company has signed this contract. Thus, it has agreed with such terms. That is why it is unreasonable to demand their changes now. To conclude we would like to say that the dispute should be settled in Australia, as the contract says. Also the Korean company, as for us, has a right to initiate some legal dispute against the carrier ALABMA. At least, an investigation should be initiated. We do not know exactly who has fault in the accident, associated with the second contract. That is why the appropriate

5 bodies should conduct an investigation. If the carrier is guilty it should also bear some responsibility and it should also take some part in compensations for the Korean companies. The conflict between the companies has evolved in the area of intellectual property. In an unusual twist to this situation, it seems that the Chin Wah retail manufacturing and export arm of their business has been using a special matt finish on the metal retail goods sold in Australia. Metorex claims this finish is owned by Metorex and they claim that this use infringes their intellectual property. A formal definition of the term intellectual property can be the following. Knowledge, creative ideas, or expressions of human mind that have commercial value and are protectable under copyright, patent, servicemark, trademark, or trade secret laws from imitation, infringement, and dilution. Intellectual property includes brand names, discoveries, formulas, inventions, knowledge, registered designs, software, and works of artistic, literary, or musical nature. It is one of the most readily tradable properties in the digital marketplace (Intellectual Property Definition). According to the terms of this case we should suppose the following scenario: Metorex had registered their trademark in Australia and Chin Wah had recently entered into a registered user agreement with Metorex for use globally. In this case we believe that the Australian company should not have any complaints to the Korean company, since they have signed the licensed agreement. It looks like that according to this agreement the Korean company has a right to use this finish globally in a form of specific franchise. The second scenario is the following: Metorex had only registered their trade mark in Korea. In such case, first of all, this trade mark can be used only in Korea. Second of all, it can be only used by the Australian company. Chin Wah does not have a right to use this trademark globally. In such case the Australian company has all the preconditions to initiate a legal dispute against the Korean one.

6 To conclude we would like to say the following. Despite the years of cooperation a serious conflict has occurred between the companies. The Australian company is mostly guilty in this conflict. It has violated a lot of terms, stated in the contract. That is why it should compensate all the losses. If it does not want, a legal dispute should be initiated. This dispute should be settled in Australia, according to the conflict. Also, if the Korean company uses illegally the trademark of the Australian one only a court can settle this situation.

7 References Intellectual Property Definition. Available from: <http://www.businessdictionary.com/definition/intellectual-property.html>. [01 June 2011] United Nations Convention on the Carriage of Goods by Sea (The Hamburg Rules) Hamburg, 30 March 1978. Available from: <http://www.jus.uio.no/lm/un.sea.carriage.hamburg.rules.1978/doc.html>. [01 June 2011]