Graduate Diploma in
Purchasing and Supply
Legal Aspects in P&S
LEVEL 6
L6-10
Senior Assessor’s Report
Nov 2009
SECTION A
Question 1
(a) Assess which party’s terms are likely to form the basis of the contract. (15 marks)
(b)If the contract is on LIG’s terms, assess whether LIG could rely on clause 2A to
recover its losses.
(10 marks)
The first part of the question concerns battle of the forms. Candidates were expected to
examine the different documents and identify the legal status of each. This would involve
explaining and applying invitations to treat, offers, counter-offers and critically, unconditional
acceptance. Strong answers would support their analysis with relevant case law like Butler Machine
tool V Ex Cello. The issue of a third party signature on a delivery note should also have been
questioned along with the legal rules applicable to acceptance by conduct. It is highly likely that
the supplier’s terms formed the basis of the contract.
Whilst most candidates correctly identified this was a battle of the forms scenario, a good
number failed to score high marks because of a lack of detail. One common error was a failure
to provide supporting case law or alternatively, only providing case names. Case names alone are
insufficient since they do not demonstrate understanding. Another weakness was the failure to
identify each document e.g. the catalogue was an invitation to treat, the detailed quotation was
an offer, purchase order was a counter-offer etc. Many candidates jumped immediately to the
last document. Acceptance by conduct could have been stronger, especially if it could be linked
with S34 and S35 Sale of Goods Act 1979(as amended).On a more positive note, a good
number of candidates correctly identified that silence does not amount to acceptance.
(b) The second part of the question concerns a possible liquidated damages/ penalty clause.
Answers might have discussed the legal status of a condition in terms of a possible repudiation
of the contract. The substance of the answer should have discussed the legality of the liquidated
damages clause or penalty clause. More candidates seem aware of the guidelines laid down in
Dunlop v New Garage but it was still disappointing that many candidates treated such clauses as
exclusion or limitation clauses and therefore subjected the clauses to the scrutiny of the Unfair
Contract Terms Act 1977. Some responses launched into a detailed analysis of unliquidated
damages which was irrelevant to the question posed.
Question 2
(a)
If the contract is on OS’s terms, assess the likelihood of it being able to rely on
clauses 9 and 15 to avoid the compensation claim made by LIG.
(13 marks)
(b)
Assess whether OS can make a valid claim for payment for the missing furniture.
If valid, discuss against whom such a claim could be made.
(12 marks)
a)
This part of the question concerned exclusion and limitation clauses. Both clauses in the
case study are subject to three tests. The incorporation test, the strict interpretation test (contra
proferentum rule) and the Unfair Contract Terms Act 1977(UCTA). Strong answers did recognise
that one of the clauses covered defective goods and therefore was not relevant to the case study
since the issue concerned delayed goods.
Most responses correctly identified the clauses and there was generally good use of supporting
case law. It was pleasing that case law concerning the UCTA was also evident. Many responses
could have scored much higher marks had they included a more detailed explanation of the
main provisions of UCTA. This is a regular examination topic yet few candidates were able to
demonstrate a detailed awareness of S2, S3 or S6. Few, if any responses, were able to quote and
apply S3 to the scenario. It is important to identify which section applies before application of
S11 and Schedule 2. Simply quoting Schedule 2 will gain average marks at best. Very few
candidates realised that this approach was the desired one, despite the regularity of this theme
over several years.
(c) The second part of the question concerned a delivery problem and raised a number of
different legal issues. Some of those issues included delivery, bailment, agency, ownership risk
and possibly negligence. Answers should have discussed the contractual claim of the supplier
since delivery had been made. Answers might include ownership and risk issues in relation to
the missing furniture and strong answers would reflect that ownership and risk could be
separated. An answer might have discussed the Commissionaire’s role in terms of agency and
bailment. Some answers might also have discussed a possible negligence claim that does not rely
on the existence of a contractual relationship.
There were some encouraging responses with answers referring to at least some of the issues
raised. Answers in relation to bailment were fairly strong. The nature of the case study made it
difficult to draw clear conclusions but the above issues could have been identified and explored.
Many candidates spent a significant amount of time discussing the third party position of the
Commissionaire (which was relevant but not the main part of the answer).
SECTION B
Question 3
Outline the main statutory provisions that may apply if a purchaser is in receipt of:
a) Defective or inaccurately described goods.
(b) An overcharged, delayed or poor quality service.
(15 marks)
(10 marks)
a)
The first part of the question concerned defective or misdescribed goods and essentially
concerned S13 – S15 of the Sale of Goods Act 1979 (as amended). Each section needs to be
explained fully with good answers using supporting case law. This should include definitions of
satisfactory quality and the factors that help determine satisfactory quality, including for
example, freedom from minor defects, durability etc. Strong answers will explain what a sale ‘in
the course of a business’ means. Answers could also make reference to the Consumer
Protection Act 1987.
For many candidates, this proved to be their strongest answer. They showed an ability to
accurately identify the content of the above provisions and give suitable examples (either case
law or hypothetical illustrations). In some responses, there was a tendency to focus almost
exclusively on description, to the exclusion of the other implied terms. Given the wording of
the question, this was both surprising and unfortunate. Some candidates also referred to S12 of
the Act which was not relevant to the question.
b) The second part of the question concerns defective services. The answer should include
reference to part two of the Supply of Goods and Services Act 1982. S13 (reasonable care and
skill) S14 (service must be carried out in a reasonable time) and S15 (at a reasonable price).
Supporting case law would improve the marks awarded.
Many candidates demonstrated a sound knowledge of these provisions and scored high marks.
There seems to have been a realisation in recent times that this Act and its provisions have an
important role within procurement contracting, and suitable revision of its contents is advisable
for this exam. Lack of case law was evident in this part of the question.
Question 4
Outline the legal protections afforded to employees by:
(a) The Transfer of Undertaking (Protection of Employment) Regulations 2006
(15 marks)
(b) The Employment Rights Act 1996 (redundancy rights only).
(6 marks)
(c) The Trade Union and Labour Relations Act 1992 (as amended) (consultation rights
only).
(4 marks)
a) The first part required an explanation of how TUPE protects employees of a relevant
transfer. Some attempt should be made at defining what this means. Answers should discuss the
employment protection, continuity of service, ETO and pension provision. Where appropriate,
supporting case law might be used. Good answers should have demonstrated an awareness of
changes on consultation, disclosure of information and service provision changes.
Most candidates attempting this question appeared to possessed a very general knowledge of
these provisions. A significant proportion of responses blurred into redundancy procedures,
which was not appropriate for this part of the question. As a result, many did not gain a pass
level for this part of the question. Although TUPE is, in practice, a complex area of law, the
level of knowledge required for this module is not over-demanding – but the detail requires
revision and committing to memory.
b) The second part of the question concerns redundancy rights. Redundancy needed to be defined
There should have been discussion about the requirement to consider alternatives (voluntary
severance, early retirement, job freezing, retraining etc). Other issues included statutory
redundancy pay, objective selection criteria and automatic unfair dismissal if chosen because of
pregnancy, trade union activities, asserting a statutory right etc.
Candidates usually showed a reasonable understanding of the above legal provisions.
c) This was mainly concerned with statutory consultation periods. Answers should refer to the
30 day notice period if redundancy is likely to between 20 employees and 99 employees and 90
days notice if 100 or more employees affected. Strong answers might have referred to
consultation with trade unions or staff reps.
Very few candidates showed awareness of the above issues, and very few achieved a good mark.
It was not unusual to find some of the above points being included in part (b) or part (a), but
not mentioned in (c).
Question 5
(a) Distinguish between Article 81 and Article 82 EC Treaty 1957 (as amended).
(12 marks)
(b) Three separate companies own different software designed to operate military
defence systems. Directors from each company have met on a regular basis in order to
plan cartel activity, including price-fixing and bid-rigging (for contracts with the UK’s
Ministry of Defence).
Explain how the provisions of the Enterprise Act 2002 could apply to this
situation.
(13 marks)
a) The first part of the question requires candidates to distinguish between Article 81 and Article
82. This required them to discuss both Articles in detail, highlighting the essential criteria for
each article to apply. This should included reference to the activity affecting or having the
potential to effect trade between member states. Good answers will provide examples of anticompetitive behaviour and mention the behaviour must have the capacity to prevent, restrict or
distort competition. With reference to Article 82, answers needed to concentrate on the abuse of
a dominant position rather than monopolies Good answers might have defined abuse and
referred to the United Brands case. Answers might provide examples of abuse. Recent wellpublicised case law in both areas would have enhanced an answer.
This was the least popular question. The small number who attempted the question found it
difficult to achieve a pass standard and there was little evidence of awareness of recent case law
developments. In relation to Article 82, many answers suggested that holding a monopoly
position is a breach of Article 82 when in fact it is the abuse of that position that is unlawful.
(b)
The second part requires application of new UK competition legislation found in the
Enterprise Act 2002. The scenario clearly indicates the three directors are engaging in cartel
activity but the question requires candidates to apply the new Act to the situation. Answers
should have referred to the increased powers of the OFT and the criminalisation of cartels,
document seizures and disqualification of directors.
In part (b), candidates often had no knowledge of how the Enterprise Act 2002 had
strengthened the investigatory and enforcement powers when dealing with serious cartel abuse.
The ability to prosecute individual employees of the offending companies was a key part of this
question, as well as the enhanced powers relating to dawn raids, disqualification of directors,
negotiation of leniency deals for whistle-blowing etc. This is an area that demands a greater
depth of study.
Question 6
(a) Explain the legal criteria that need to be satisfied for a contract to be discharged by
frustration.
(10 marks)
(b) Examine the limitations the courts place on claims for unliquidated damages
arising from a breach of contract.
(15 marks)
(a) The frustrating event must occur after the contract has been agreed but obviously before
performance is due. It is important an answer stresses the event must be neither party’s fault
(not self - induced), that it could not be foreseen and that it has destroyed the whole basis of the
contract or made it substantially different from what was originally agreed. Goods answers
will point out that merely because a contract becomes more difficult to perform does not mean
it is frustrated. The Suez Canal cases or similar would be useful support an answer. Other useful
case law would Taylor V Caldwell or Krell V Henry or similar.
Strong answers might discuss the legal effect of frustration (an immediate end to the contract)
and use the Law Reform (Frustrated Contracts) Act 1943 to demonstrate how sums of
money and debt is allocated when such an event occurs. Some minor credit should be awarded
for discussion of a force majeure clause in such situations. Such clauses are a more flexible tool for
dealing with these events.
Answers to this part tended to be fairly good. A number of candidates were able to quote
extensive case law to underpin the legal issues being raised. Weaker answers tended to spent too
much time on the other ways a contract can be discharged (agreement, breach and performance)
rather than concentrate on frustration.
(b) Answers might explain the purpose of unliquidated damages is to compensate the innocent
party rather than punishment. Damages are designed to place the innocent party in the position
they would have been in, had the contract been performed. Goods answers will also mention
that damages are a common law remedy and as such are available as a 'right', whenever a
contract is broken.
The loss suffered must not be too remote. A useful supporting case would be Hadley V
Baxendale. An answer should refer to the two rules laid down in this case. (Loss must arise
naturally from the breach of contract or was in the minds of the both parties when they made
the contract). Another useful case would be the Heron11 case. . The loss suffered must not be
too speculative. A useful case to demonstrate a claim for speculative losses would be Victoria
Laundry V Newman Industries. A strong answer might contrast this case with Blackpool Aero Club
V Blackpool B.C. Good answers will also mention the duty of the claimant to mitigate loss. An
exceptional answer will comment on whether damages can be recovered for loss of goodwill.
E.g. Malik v BCCI.
There was a significant improvement on the quality of answers compared to other recent papers
which contained a similar question. Candidates were more able to identify and explain the key
principles (only reasonably foreseeable loss can be recovered, speculative loss is not claimable,
and failure to mitigate the loss can restrict ability to recover). Another pleasing feature was the
effective use of case law to support these principles (e.g. Hadley v Baxendale, Victoria Laundry v
Newman Industries, Brace v Calder etc). Not many answers could explain the two rules of Hadley V
Baxendale.
Basic points such as a definition of unliquidated damages, establishing that the purpose is
entirely compensatory (and not punitive), identifying the basic objective of the award (putting
the injured party in the position it should have been in if the contract had been correctly
performed – not putting them back to the original position as if no contract had been made)
should have provided a foundation for these later points.
APPENDIX: Syllabus matrix indicating the learning objectives of the syllabus unit
content that each question is testing
SECTION A
Question
No.
Learning
Objective
1
1.1
1.2
1.3
1.4
1.5
2
2.1
2.2
2.3
2.4
2.5
2.6
3
3.1
3.2
3.3
3.4
3.5
4
4.1
4.2
4.3
4.4
1
a
SECTION B
3
2
b
a
b
a
4
b
a
5
b
a
6
b
a
b
x
x
Contract law (35%)
x
x
x
Sale and supply of goods and services, including third party rights and
obligations(30%)
x
x
x
x
Specific UK & EU Regulations affecting the purchasing function (25%)
x
x
x
Intellectual property rights and international trade (10%)
x