Graduate Diploma in
Purchasing and Supply
Legal Aspects in Purchasing and
Supply
LEVEL 6
L6-10
Senior Assessor’s
Examination Report
JULY 2012
SECTION A
Q1(a)
Q1(b)
Assess if and when a contract has been formed between
Evans and Sully.
Assuming a contract has been agreed, assess whether
Sully has any legal grounds to claim the contract should
be set aside.
(15 marks)
(10 marks)
Analysis of the Question
Part (a) required candidates to identify and apply a range of basic legal principles relating to
formation of contract. These centred around the legal rules relating to offer and acceptance
Part (b) required candidates to identify economic duress as the relevant vitiating factor that
could be considered as a means of setting aside the contract.
Analysis of the Answer
Answers should have shown an ability to explain and apply basic contract principles to the
scenario presented. These principles included some of the following: invitations to treat,
offers and how they come to an end (e.g. lapse of time, rejection, counter-offer etc), when
if at all acceptance has taken place and the rules relating to acceptance e.g. unequivocal or
unconditional, communicated, conduct, postal rule.
There needed to be some attempt to relate offer and acceptance principles to the
scenario.
(Minor credit for reference to consideration).
One possible conclusion was to argue that Evan’s first email was no more than an invitation
to treat but its second email was an offer. Sully’s reply could be viewed as a new offer
(change to pricing formula) therefore not an unequivocal acceptance. The third email could
be seen as a counter-offer which destroys Sully’s offer. This counter-offer appears to be
accepted by post.
Supporting case law should have been used e.g. Fisher V Bell, Hyde V Wrench, Butler
Machine Tool etc. Outstanding answers might have quoted more recent cases such as Grant
V Bragg or University of Plymouth V European Language Centre on the issue of contract
formation. Different outcomes were to be given credit providing they were legally sound.
The second part of this question should have recognised economic duress as a possibility
for Sully. This should have been defined and explained in terms of improper pressure being
exerted on the other party to induce agreement to the contract. The leading case of Atlas
Express V Kafco or similar should have been quoted. Better answers should have
mentioned that pressure is part of commercial life and is not always economic duress - to
distinguish between legitimate commercial pressure and improper pressure. There is a
strong possibility that this situation would be regarded as legitimate commercial pressure
as in CTN Cash and Carry V Gallagher. An excellent answer should have been able to argue
that Sully’s affirming the contract for so long is likely to undermine its position as in
Hyundai Construction case.
Exam Question Summary
Most answers showed sound knowledge and understanding of the basic rules on offer and
acceptance, with a significant number showing an awareness that some supporting case law
should be included as part of the response. Many identified the presence of invitation to
treat and counter offers at the negotiation stages. Almost all concluded that a contract had
L6-10 Senior Assessor Report July 2012 FV
been agreed when Sully signed the draft agreement. One problem with a proportion of
answers was the tendency to raise the issue of duress and discuss it in some detail. This
issue was clearly the central issue to the next part of this question (part b) and should not
have been discussed here.
With the second part of this question most answers did identify economic duress and
showed some ability to define the concept. It was pleasing to see a significant number
referring to duress as a vitiating factor and that it rendered the contract voidable if proven.
Many responses included Atlas v Kafco in support with accurate descriptions of the case
details. Some also identified that there had been a delay in pursuing the complaint, and that
this might defeat the ability to bring such a claim (rescission being an equitable remedy
requiring prompt action). The level of cooperation between the parties after the contract
had been agreed was identified in some answers as a further weakness that undermined the
complaint. A significant minority did question whether the pressure amounted to duress or
was legitimate commercial pressure which would not be unlawful. Some answers covered
all the vitiating factors (mistake, misrepresentation, duress and undue influence) but this
was not correct technique for this specific question.
Q2(a)
Q2(b)
Suggest the types of appropriate clause that should be
contained in the draft agreement to protect Evan’s
intellectual property rights.
Assess whether it is legally possible for Evans to
terminate the contract with Sully.
(10 marks)
(15 marks)
Analysis of the Question
The first part of this question required candidates to show awareness and understanding of
how commercial contract clauses can improve the position of buying organisations with
regard to protection of intellectual property rights. The second part required candidates to
establish the legal position where a contract was not being correctly performed by the
supplier and whether the buyer had possible termination rights.
Analysis of the Answer
Answers could be broad and have included a range of intellectual property issues. Here
candidates had the opportunity to be inventive. There is no specific list of items that must
be included in the answer and credit was given for innovative approaches. However, a core
answer should have included some of the following: a confidentiality clause (this is critical
and should cover all employees and/or sub-contractors), a right of ownership of all tools,
plans, drawings etc even if made by Sully, a right to the return of all such items on the
conclusion of the contract, an assertion of all intellectual property rights not only over the
existing product but any new products that may emerge during development, and a right
to inspect the supplier’s (Sully’s) premises to ensure compliance. (‘Liquidated damages’
was not an appropriate response in this situation as it would be very difficult to give a
genuine pre-estimate of losses).
In the second part of the question answers needed to focus on how late delivery is a
breach of a contract. Answers might then have explained the difference between
conditions (major terms that go to the ‘root’ of the contract and are regarded as
fundamental) and warranties (minor terms of the contract, which are subsidiary to the
main purpose of the contract).
Answers might also have differentiated between the remedies available. Breach of a
condition can result in repudiation of the contract and damages whereas breach of
L6-10 Senior Assessor Report July 2012 FV
warranty can only result in damages. Supporting case law such as Pousand V Spiers and
Bettini v Gye would have been useful to include.
Good answers will also have discussed the importance of ‘time is of the essence’. This
makes it clear to the other party that time is of crucial importance, and will ensure that a
failure to meet a delivery time will be a breach of a condition. The buyer will then be
entitled to repudiate the contract and claim damages (if there is a loss). Useful case law
would have been Rickards V Oppenheim. Exceptional answers might have suggested that
by accepting late delivery Evan’s may have waived its right to cancel.
Minor credit was given for answers that touched on agreement (as a way of exiting this
contract), frustration as a possible means of exit and use of Maple Flock rules (even though
it was not clear whether payment was to be per instalment)
Most termination clauses refer to material breaches and it is fairly clear that late delivery
in this case is a material breach. These clauses often provide for time to allow rectification.
Good answers will also have explained innominate terms.
Exam Question Summary
For the first part of this question, most answers displayed a limited awareness of how
contract provisions can protect intellectual property in a variety of ways. Many of the
clauses listed above were not identified, with answers tending to discuss either the statutory
position re. patents, copyright etc. or discuss in generalities the various types of IPR.
Answers to part (b) were often sound, with a substantial proportion showing an ability to
discuss time is of the essence, the significance of conditions and warranties in terms of the
right to terminate and use of cases such as Poussard v Spiers and Bettini v Gye. A significant
problem with a proportion of answers was that they treated this question as one requiring a
general treatment of discharge of contract with extensive coverage of discharge by
performance, agreement, frustration and breach.
SECTION B
Q3(a)
Q3(b)
A procurement manager is in dispute about a security
services contract and an equipment hire contract.
Explain the statutory provisions that imply terms into
these types of contract.
Suggest contractual clauses that a procurement manager
might use to limit the amount of damages payable in the
event of a contractual breach. Your answer should refer
to the legal restrictions on the enforceability of any such
clauses.
(13 marks)
(12 marks)
Analysis of the Question
Part (a)required candidates to recognise the relevance of the implied terms contained in the
Supply of Goods and Services Act 1982 and to show an ability to explain and develop these
duties in an appropriate way to the two contracts identified in the question.
Part (b) expected candidates to identify any suitable clauses that enable procurement
organisations to limit their potential liability against breach of contract and to indicate any
legal inhibitions which might invalidate their effective use.
Analysis of the Answer
For part (a) answers needed to identify the two contracts (security and hire) as service
rather than purchase of goods based, and consequently that the Supply of Goods and
Services Act 1982 is the correct statute to imply terms relating to contract performance. Part
L6-10 Senior Assessor Report July 2012 FV
One of the Act has relevance to the hire agreement as it contains implied duties relating to
the goods involved (the hired equipment): title, description, satisfactory quality, fitness for
purpose and sample (sections 7-10). Part Two of the Act was more relevant to the security
agreementbecause it relates to any work being carried out. Sections 13-15 contain implied
duties concerning reasonable skill and care, reasonable time for completion (if none
specified) and reasonable remuneration (if none specified). Stronger answers would have
included explanation of each of these implied duties and some reference to case law.
For part (b) the use of a liquidated damages clause could have been considered. Liquidated
damages should have been defined and contrasted with penalty clauses. Supporting case
law would have enhanced the answer (especially Dunlop v Selfridge).
Answers should also have referred to the use of limitation and/or exclusion clauses. It is
possible to limit or exclude liability for breach of contract (S3 Unfair Contract Terms Act
1977) if the clause passes the reasonableness test. It is not possible to exclude liability for
negligence that causes death or personal injury. Better answers would have explained the
guidelines for determining reasonableness found in Schedule 2 of the 1977 Act. Strong
answers might also have explained indemnity clauses which would allow recovery of
compensation paid to a third party. Such clauses are not subject to a reasonableness test
unless they involve a consumer. Reference might also have been made to Force Majeure
clauses.
Exam Question Summary
Regarding part (a), many answers achieved high marks and showed a detailed knowledge of
the 1982 Act and its provisions. Although some answers tended to simply list the implied
duties (which is not good practice), many answers developed more detailed explanations of
the implied duties and applied them effectively to the two contracts referred to in the
question. Case law was included regarding the goods/equipment part of the hire contract
(mainly from sale of goods contracts), but this was acceptable in terms of developing the
meaning of issues such as ‘satisfactory quality’, fitness for purpose and description.
For part (b) there were some excellent answers which identified and developed all the
contractual clauses referred to above. In some cases answers were limited to either
liquidated damages/penalties or to limitation/exclusion of liability. These were often
answered soundly, but were affected by their restricted coverage of the overall range of
clauses.
Q4
Evaluate the effects on public sector purchasing staff of
the:
(a)
(b)
Public Contract Regulations 2006.
Freedom of Information Act 2000.
(15 marks)
(10 marks)
Analysis of the Question
The first part of this question required candidates to identify and explain the main changes
introduced by the Public Contract Regulations 2006 to the EU public procurement rules and
how they impact on public sector procurement personnel. The second part required
candidates to consider the implications of the Freedom of Information Act 2000 on the same
personnel.
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Analysis of the Answer
The Regulations enhanced rather than replaced existing provision. Public sector staff will
still have to adhere to advertising requirements, notice periods, non-discrimination,
thresholds etc.
Some new processes have been added and answers needed to show how public sector staff
should be aware of the new statutory duties that are placed on contracting authorities.
These include: the competitive dialogue procedure, framework agreements and standstill
provisions (the Alcatel judgement). The right to feedback for unsuccessful tenderers might
also have been mentioned. The Regulations facilitate e-Procurement (including e-Auctions)
and allow for central purchasing bodies to function on behalf of a group. They also allow for
a completely electronic tendering system through what the Regulations refer to as dynamic
purchasing systems. Strong answers might also have referred to the social and
environmental considerations as part of the criteria for selecting a supplier. Some time limits
were also adjusted.
In part (b), answers should have indicated that the Freedom of Information Act only
applies to public authorities. The public have a general right of access to information. An
authority must respond to a request within a certain time; normally 20 working days. A fee
can be charged for dealing with requests requiring significant costs to the authority;
otherwise it is free. Authorities need not comply with vexatious or repeated requests or
where cost is prohibitive.
The Act also sets out a number of exemptions some of which are subject to a public interest
test. These are divided into absolute and qualified exemptions. The two most relevant to
purchasing are: when information is provided in confidence and the commercial prejudice
exemption. The latter is subject to a public interest test. Procurement staff should be careful
not to promise confidentiality to suppliers unless it is unavoidable. A core answer should
have mentioned at least one of these exemptions. Strong answers might have referred to
each authority’s obligation to establish a publication scheme where the public can access
public records. Good answers might also have mentioned the Information Commissioner
and access to the Information Tribunal if access is denied. The main two exemptions that are
most relevant to procurement should be discussed.
Exam Question Summary
For part (a) many candidates produced answers which consisted of a general overview of the
EU procurement rules. They summarised a wide range of provisions relating to thresholds,
advertising, procedures, evaluation criteria etc. This was not suitable for this question which
required a focus around the reforms introduced by the 2006 Regulations. This has been a
problem with earlier papers where a similar question was included and answers tended to
be over-generalised in the way just indicated. A small number of answers achieved very high
marks by concentrating on the specific reforms brought about in 2006.
For part (b) many answers did include some useful background information relating to the
Freedom of Information Act 2000. This included reference to the exemptions, including
qualified privilege and the public interest test. Answers did also develop the significance of
the confidentiality and damage to commercial interests exemptions (section 41 and 43) in
relation to dealing with suppliers and how this needs to be addressed. Overall there was a
good standard of answer for this part of the question.
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Q5
As a result of a tsunami, a supplier finds it practically
impossible to fulfil an existing contract governed by
English law and wishes to be released from it.
Analyse the different ways this may be achieved.
(25 marks)
Analysis of the Question
Candidates needed to consider the scenario (a tsunami making performance of a contract
practically impossible) and identify those aspects of discharge of contract that were most
applicable to the situation. As such the two key issues were frustration of contract and use
of force majeure clauses).
Analysis of the Answer
An answer might have suggested that under normal circumstances a supplier who cannot
supply goods will bring the contract to an end through a fundamental breach. The supplier
would then be liable to pay damages if there has been a loss. Another possibility is
discharge by agreement. This would require the buyer to willingly release the supplier from
its contractual obligations. This is a practical possibility if the buyer has incurred no extra
costs from finding an alternative source.
The core of an answer should have referred to either frustration or force majeure clauses
or both. A force majeure clause will allow the supplier to be released from the contract
providing the clause covers the event and it passes the reasonableness test under S11 of
the Unfair Contract Terms Act 1977.
In terms of frustration, answers should have been able to quote at least some of the
criteria for frustration to apply including: unforeseen event, makes performance of the
contract impossible or substantially different and not self-induced. Some case law would
have been helpful. In relation to discharge by breach good candidates should have been
able to distinguish between actual and anticipatory breach using supporting case law.
Outstanding answers might have discussed the Law Reform (Frustrated Contracts) Act 1943
that provides for how liabilities should be apportioned in the event of a frustrating event
occurring. Strong candidates might have indicated that the contract was ‘practically’
impossible but not impossible to perform as in the Soya Bean cases and this might hinder
reliance on frustration. Another possibility might be reliance on other contract terms such as
a termination clause.
Exam Question Summary
There were some very good answers which identified and explained in detail how both
frustration of contract and force majeure clauses could be significant to achieving release
from the contract. These answers developed the various forms of frustrating event and
included relevant supporting case law. On force majeure clauses stronger answers discussed
and developed how these operate in practice. A significant number of answers tended to
treat this question as a general one on discharge of contract and spent far too much time
providing detailed coverage of discharge by performance, agreement and breach. Given the
scenario identified in the question this was clearly inappropriate.
L6-10 Senior Assessor Report July 2012 FV
Q6 (a)
Q6 (b)
Distinguish between acceptance of an offer and
acceptance of goods under the Sale of Goods Act 1979 (as
amended).
Where goods are to be delivered by instalments, it is not
possible to cancel the whole contract once one
instalment has been accepted.
Assess the legal validity of this statement.
(15 marks)
(10 marks)
Analysis of the Question
In part (a) candidates were required to distinguish between the rules relating to valid
acceptance of an offer at the formation stage of a contract, and the rules relating to what
constitutes an acceptance of goods at the delivery stage of the contract.
Analysis of the Answer
Answers needed to identify that acceptance of an offer must fulfil certain requirements,
including the need to unconditionally or unequivocally accept the offer in its entirety
otherwise any response might amount to a counter-offer. Other rules of acceptance might
include the need for it to be communicated to the offeror. Good answers might have
discussed the postal rule or acceptance by conduct, especially if the offeror has waived the
right to communication e.g. the reward cases or Carlill V Carbolic Smokeball Company.
In terms of acceptance of goods, answers should have identified some of the main
provisions of the Sale of Goods Act 1979 in relation to this. Answers should have
suggested that acceptance is not on delivery but when the buyer has had a reasonable
opportunity of inspecting the goods to ensure compliance with the contract. Strong
answers would have been able to quote either S34 or S35 of the Act and be able to refer to
the contents (buyer accepts goods where he affirms acceptance or does some act adopting
the goods e.g. re-selling them or thirdly after a reasonable length of time.)
Outstanding answers will be able to recognise that acceptance of goods also leads to all
implied conditions becoming warranties.
Regarding part (b) answers should have made clear that unless it has been agreed, a buyer
in under no obligation to accept delivery by instalments. If a buyer agrees to accept
delivery by instalments which are to be separately paid for, and there is a defective deliver,
it is possible for the buyer to cancel the whole contract. This will depend on two main
tests: the size of the breach (ratio quantitatively) in relation to the whole contract and the
likelihood of the breach being repeated.
Core answers should have been able to refer to at least one of these tests and attempted to
apply it to the statement at the beginning of the question. The statement is untrue. All
defective deliveries can be rejected each time. The whole contract can be still be cancelled
even after the first delivery is accepted if deliveries continue to be defective.
Exam Question Summary
This was the most popular question in Section B. Answers to part (a) were weakened by a
tendency not to develop the basic rules of acceptance of an offer (must be unconditional,
must be communicated, can be by conduct etc.). Although the question asks for the
distinctions between acceptance of an offer and acceptance of goods part of this answer can
legitimately consist of a clear explanation of what each concept comprises. When answers
began dealing with acceptance of goods they were often better developed, although it was
clear that a proportion of answers were not able to cover this issue in an effective manner.
L6-10 Senior Assessor Report July 2012 FV
In part (b) there were only a small number of answers that were able to identify the rules in
Maple Flock and apply them appropriately. Some answers successfully argued the position
without reference to the Maple Flock case and showed sound ability to use judgement and
common sense in an effective way. However, many answers did not cover the question in a
suitable way.
L6-10 Senior Assessor Report July 2012 FV
APPENDIX:
Syllabus matrix indicating the learning objectives of the syllabus unit content that each
question is testing
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