Qualification:
Unit:
Exam series:
Professional diploma in procurement and supply
PD6 - Legal aspects in P&S (UK)
November 2013
This question required an assessment of the four main vitiating factors (mistake, misrepresentation, duress and undue influence). In terms of mistake, area that could have been covered include the different types of mistake (unilateral, mutual and common mistake). Answers might also have assessed the different circumstances when mistake is accepted. These include mistakes in relation to the existence or the identity of the subject-matter, mistakes concerning the signing documents. The discussion of suitable case law like
Couturier V Hastie would have enhanced an answer. Strong answers would have been able to recognise that mistake renders a contract void.
Another vitiating factor is misrepresentation which makes a contract voidable. The five main parts which make up misrepresentation; statement, fact, false, contracting party and inducement should have been assessed. The three categories of innocent, negligent and fraudulent should have be explained. Suitable case law, like With v O’Flanagan, Dimmock V Hallet, Bisset V Wilkinson, Esso Peroleum V Marsden, JEB
FastenersVBloom or others could have been included.
Duress makes a contract voidable. Economic duress should be explained in terms of illegitimate commercial pressure / coercion. Relevant cases Pau On v Lau Long, Atlas Express v Kafco, Universal Tankships, or others should have be used to support an answer. A strong answer will discuss how a claim for economic duress can be weakened by lack of action by the injured party. Undue influence makes a contract voidable – a person who has been induced into a transaction is entitled in equity to set that contract aside. It is based on the concept that one party has a stronger mind or will than the other; the essence is mental coercion. The different legal approach used when a fiduciary relationship exists is an important component of the discussion.
A fair number of answers launched into the ingredients required for a contract to exist (offer, acceptance etc) rather than addressing the question. Whilst many candidates did recognise the question concerned vitiating factors, there was often a failure to develop answers with suitable case law lacking. The distinction between a void and voidable contract was not always fully understood.
Some common errors included an explanation of conditions and warranties and a good number of candidates
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stating that a contract is void if a condition is broken . Some candidates believe that a breach of the implied terms under the Sale of goods Act renders a contract void which is not the case.
The question concerned ownership and risk issues when goods are being purchased. This required an understanding of S16 – S20 of the Sale of Goods Act c1979 (as amended). S17 is a useful stating point which provides that ownership and risk passes when the parties intend it to pass. The intention will be determined by reference to the contract terms, the conduct of the parties and the surrounding circumstances.
In the absence of any agreement, S18 Sale of Goods Act provides five rules and all of these should be explained in detail with reference to relevant case law. These five rules formed the core of the answer.
Answers might also have discussed the difference between specific and unascertained goods. Strong answers s will discuss that S20 Sale of Goods Act, provides ownership and risk transfer at the same time unless the parties agree otherwise and make reference to Romalpa clause as an example of when title passes.
With regard to risk , credit was also given for answers that referred to Incoterms
Many candidates were aware of the S17 and the five rules of S18. The main issue was the five rules were not always fully explained. Many answers failed to define specific and unascertained and rarely was an attempt made to define deliverable state. Some candidates produced detailed answers on the Nemo Dat rule that unfortunately score few marks since it did not address the question. There were good answers on bailment and negligence but these were secondary issues.
This question aimed to test the candidate’s knowledge of EU competition law legislation
Answers should have compared the anti-competitive provisions of Article 101 and that it prohibits various agreements which might impede free competition in goods in the EU area and compare this with Article 102 which prohibits the abuse of a dominant position by an organisation(S) within the EU. The answers should provide further contrast by providing examples of each of Article 101 and Article 102. There were many examples including directly or indirectly fixing prices or other trading conditions, limiting or controlling production, markets, technical developments or investment, sharing markets or sources of supply, applying
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dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage and making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
Examples under Article 102 should have included some of the following: directly or indirectly imposing unfair buying or selling prices, or other unfair trading conditions, limiting production, markets or technical development to the prejudice of consumers, applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage or making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
Answers can further compare the Articles by explaining that Article 101 concerns the restriction, distortion or prevention of competition between EU states and that it is not necessary to wait until actual restriction of competition has happened. Strong answers would discuss concerted practices. Relevant case law such as
Hugin Kassregister V Commission would have enhanced an answer. Discussion of Article 102 might have included a definition of market and a definition of dominance. Supporting relevant case law such as United
Brands V Commission (1978) with an explanation will enhance the answer. Penalties for breaches of either
Article and the enforcement of EU competition law might also be referred to.
Overall the question was not well answered. There was a general impression this area had not been revised well. The area is important to study, not just for residents in the 28 member states but also for any countries that trade with the EU. Some candidates discussed EU procurement directives which was irrelevant to the question. Definitions like concerted practices, relevant market and dominant position were only occasionally attempted. Those candidates who did quote cases sometimes referred to UK cases rather than EU cases.
Some candidates condemned monopoly/ dominance per se without recognising that it is abuse that is prohibited. A small but significant number of candidates answered the question by discussing protection of intellectual property. Candidates need to study this topic in much more depth and to achieve high marks, need to go beyond the study guide.
b)
Part a) This part of the question aimed to test the candidate’s understanding of how the courts assess damages. The answer should explain that the aim of contractual damages is to place the injured party in the position they would have been in had the contract been performed.
The main rules for restricting damages for a breach of contract were laid down in in Hadley v Baxendale. The case laid down some important principles, namely, that an injured party is only entitled to claim damages that
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result as a natural consequence of the breach or damages that could have been contemplated by both parties when they made the contract. This from the core of the answer to this question
Other restrictions on damages claim would include damages that are too remote cannot be claimed. Relevant case law such as Victoria Laundry would have been useful support. Speculative loss is usually not recoverable.
Damages for loss of reputation or goodwill are generally not allowed unless the damage is reasonably foreseeable. Discussion of liquidated damages, limitation clauses, exclusion clauses and mitigation of loss also received credit.
A good number of candidates discussed the case of Hadley V Baxendale including the case facts though the principles that emerged from it were often absent. Only a minority of candidates mentioned mitigation or valid limitation or exclusion clauses. A common error was to include irrelevant discussions of condition and warranties since damages are payable for breach of either. Some candidates believe damages are only payable for a breach of a condition.
Part b) This question aimed to test the candidate’s knowledge of specific performance.
The answer should explain that specific performance is an equitable remedy whereby the court orders the party in breach to carry out his obligations under the contract. An order of specific performance is granted at the discretion of the court and cannot be obtained as a right (unlike the common law remedy of damages).
The remedy of specific performance will only be granted if both parties could, if necessary, seek the protection of the court. E.g. Minors could not use the remedy in certain situations since it would not available against them. Specific performance will not be ordered by the court in a contract of personal services such as an employment contract on the basis that it is contrary to public policy to compel an unwilling party to maintain continuous personal relations with another. Specific performance would not be granted if the courts were required to supervise the performance of the contract which is likely in many cases, especially if relations have broken down or trust has diminished. Strong answers should state it is only available where the goods are unique and damages are not an adequate remedy e.g. a painting, land transfers.
Those who revised this area well scored very high marks but many candidates had not revised this area at all.
The best candidates were able to quote relevant case law. Many candidates concentrated on the “specific” word and produced answers about specifications. Others looked at “performance” and talked at length about partial performance, frustration etc. Others linked the question to KPI’s. Some focussed on “equity” and discussed fairness generally. Those candidates who correctly identified the topic often believed specific performance is available for any breach rather than in restricted circumstances.
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