Introduction
Nepal is an import dependent economy. As much as this needs to change, we cannot ignore our economic realities. The import, sale and distribution authorizations from an international manufacturer/supplier come in the form of Distributorship/Dealership/Licensing Agreements. Such agreements are the cornerstones of private international trade and are usually presented as Multi-National Company (MNC) templates. Traditionally in the context of Nepal, these templates have not been the subject of discussion between the international and domestic parties at the time of finalization of the deal. This is due to several reasons, some of them being the small size of the Nepali domestic market leading to a lesser interest from the international stakeholders, high competition amongst the usual domestic players, etc.
This is detrimental not just for the national distributor, but also for the international manufacturer/supplier. These templates are usually drawn up by the legal team of the MNCs keeping in mind principles of law of the country of the manufacturer/supplier and certain general principles of law applied across civilized nations. Although, the later presents a few enforcement challenges in Nepal, the former may run the legal risk of being in contravention with the principles of Nepali law. This becomes problematic when the concerned agreements need to be enforced in Nepal, as any agreement in contravention of Nepali public policy would be treated as void by our courts. The role of our courts becomes important in seeking specific performance of the private international trade agreements or when money recoveries have to be made in or from Nepal.
As such, before agreeing to an international template, the domestic and international parties must keep the following in mind:
Intellectual Property (IP) : Even though Nepal acceded to the Paris Convention for the Protection of Industrial Property 1883 with force from June 22, 2001, at present, due to the persisting interpretational and bureaucratic challenges relating to the law on IP in Nepal, the trademarks of the international manufacturer/supplier must necessarily be registered in Nepal in order to reduce operational cost and legal risks of infringement. The registration must necessarily be done by the concerned international manufacturer/supplier before a distributorship/dealership/licensing agreement is signed in relation to Nepal. It is also incumbent upon the national distributor to ensure that the concerned trademarks have been registered in Nepal by their international counter party so as to also avoid the operational and legal risks associated with infringement.
Royalty : Although, royalty rates or license fees are viewed as the subject matter of the finance teams, it would need to be put to the test of the foreign investment law of Nepal. Inorder, for repatriation of royalty to take place, the payments would need to be within the prescribed limits. In the context of Nepal, the determination and classification of rates is the result of the combined efforts of both the finance and legal teams of the domestic and international parties.
Indemnities : Usually, it has been seen that distributorship templates contain one-sided indemnities in favor of the international manufacturer/supplier. However, consumer protection laws of Nepal impute certain absolute liabilities on the manufacturers and suppliers. This brings us back to the question of enforceability. Our courts will not be able to enforce any provision of the agreement, which may be legal in the parent country of the supplier/manufacturer but is against the public policy of Nepal. This will become a challenge at the time of enforcing any money recovery in Nepal regardless of where the court order or arbitral award was rendered.
Insurance : International suppliers/manufacturers may require certain insurance policies to be taken out. While doing so, it must be noted that any and all insurance related obligations would necessarily need to be in terms of the various directives and approval of the Nepal Insurance Authority. As such, before agreeing to any category of insurance policies, it must first be ensured that the Nepal Insurance Authority allows such policies in Nepal.
Interest Rates : In Nepal, an upper ceiling has been statutorily prescribed in relation to commercial interest rates. Any agreement as to an interest rate in contravention of this will not be enforced during adjudication or recovery proceedings. Further, there is a nuanced difference between interest rates and compensation rates in Nepali jurisprudence. This will also need to be studied at the time of entering into private international trade agreements.
Quality Control: Quality control procedures must be precisely outlined. Any vagueness in the process will lead to grounds for misinterpretations and disputes. Further, the handling of hazardous substances must necessarily be in terms of the Nepali law on the matter.
Governing Law: When the parties to a contract are from two different countries, the question that comes up is whose laws are to be given supremacy. In practice, this is a monumentally disastrous approach to the questions posed in matters of private international trade. Private international trade law allows parties to decide on the governing law of their agreements. This is designed to give effect to the enforceability of the agreements. As a thumb rule, the governing law should be that of the place where the parties want to ultimately enforce the agreement. To answer this question, the parties must simply put themselves to the tests of specific performance and recovery of monies. Where and by whom is the agreement to be majorly performed, and from where is the money to be recovered. This will guide the decision on which country’s law should be the governing law. This is not a question of supremacy, but a question of practical implications. As such, the governing law for these agreements, as a thumb rule, should be Nepal.
Conclusion : From the above discussion we can draw the conclusion that in order for the private international trade with Nepali markets to be operationally sound, the laws of the host country must be studied and applied. This will necessitate a mutual discussion between the international and domestic parties in relation to the finer points of their agreements at the time of finalization of their deals. Such a discussion should be viewed with an open mind, with a goal of practically and prudentially facilitating international trade between the private parties.
(Nida is the Managing Partner of NDM Corporate Solutions and specializes in Legal Risk Management and Alternative Dispute Resolution. She can be reached at [email protected])
