Graduate Diploma in Purchasing and Supply Legal Aspects in P&S L6-10 LEVEL 6 Senior Assessor s Report November 2007
INFORMATION FOR CANDIDATES The senior assessor s report is written in order to provide candidates with feedback relating to the examination. It is designed as a tool for candidates both those who have sat the examination and those who wish to use as part of their revision for future examinations. Candidates are advised to refer to the Examination Techniques Guide (see the following link http://www.cips.org/documents/examinationtechniquesguidefeb07.pdf) as well as this senior assessor s report. The senior assessor s report aims to provide the following information: An indication of how to approach the examination question An indication of the points the answer should include and how marks are allocated An indication of candidate performance for the examination question APPENDIX A syllabus matrix for the examination is included as an appendix. It highlights the learning objectives of the syllabus unit content that each question is testing. The unit content guides are available to download at the following link: http://www.cips.org/studyqualify/cipsqualifications/syllabuses/ ADDITIONAL SOURCES OF INFORMATION The Supply Management magazine is a useful source of information and candidates are advised to include it in their reading during their study. Please see the following link to the Supply Management website http://www.supplymanagement.com/ L6-10/SA report/nov 2007 2
SECTION A Q1 (a) Analyse whether Woo has a valid legal claim in respect of the defective frames supplied by Gem. (10 marks) This question required analyse of a potential breach of contract. The potential breach may have occurred through breach of an expressed term or breach of one or more statutory implied terms laid down in the Sale of Goods Act. Answers were expected to identify whether there was any potential breach of contract through an expressed term such as the specification. The case study stated that the minor defects were within agreed tolerances and therefore could not be a breach of an expressed term. It was anticipated that answers would move on to discuss and apply breach of any implied terms to ascertain whether the injured party could utilise any of them. Strong answers would recognise that with commercial contracts, implied terms rarely overrule expressed ones. Most answers discussed the implied terms under the Sale of Goods Act 1979 (as amended). Many answers referred to satisfactory quality but only a minority of answers could define this term or refer to the factors that determine satisfactory quality e.g. freedom from minor defects, appearance and finish etc. A few answers did provide the practical suggestion of re-drafting the specification in future. Some of the poorer answers failed to provide a detailed knowledge of implied terms. Q1 (b) Analyse whether Woo is legally bound by its own clause 10 in respect of the extra costs it has incurred following the defective mechanism parts supplied by Gem. (15 marks) The question concerned two main issues. The first was a potential breach of contract resulting from a defective mechanism and the second concerned the legality of a clause. The relevant clause needed to be examined in terms of whether it was a liquidated damages clause or a penalty clause. An answer should start with the breach of contract that has occurred. This required an examination of the Sale of Goods Act and particularly S14 (satisfactory quality). The answer then needed to contrast liquidated damages with penalty clauses and provide a conclusion as to which one it is likely to be. Answers needed to explain and apply the guidelines laid down in Dunlop v New Garage. The clauses is likely to be a liquidated L6-10/SA report/nov 2007 3
damages since the sum calculated is less than the actual loss and therefore could not be a penalty clause. As such it is binding on both parties. A number of answers failed to consider whether (and how) the contract was broken and only addressed the second issue. Quite a few candidates identifying liquidated damages but did not demonstrate much ability to compare and contrast with penalties and apply these ideas to the case study. Another general failing was the lack of supporting case law. Some answers subjected the clause to the Unfair Contract Terms Act 1977. Liquidated damages or penalties are not subject to the Act. On the plus side, many answers did state that if the clause was a penalty, there was still a claim for unliquidated damages. Q2 (a) Evaluate whether Woo is legally entitled to recover the 43,000 from RSQ. (15 marks) There were two main issues to address with this question. The first concerned the legal rules relating to contract variation and the second concerned economic duress. The first issue concerned contract variation. A variation of an existing contract is possible providing there is a new agreement supported by consideration. Brogden V Metropolitan Railway, Williams V Roffey or similar cases might be used to demonstrate understanding of contractual variation. Answers were expected to apply these rules to the case study and identify where, if at all, a new contract was formed. The second issue was economic duress. This should have been fully discussed and supported by relevant case law e.g. Atlas Express V Kafco or other cases. Strong answers would distinguish between legitimate commercial pressure and economic duress. Good answers investigated different possibilities i.e. factors both for and against a finding of duress. The most likely outcome is no duress existed. The first issue was only addressed by a minority of candidates. Contract variation is an important area of the syllabus but many answers demonstrated a lack of knowledge or an inability to recognise this area in the case study. Some answers even suggested it was impossible to vary a contract once it had been agreed. A small number of answers identified the need for new consideration where contract variations are introduced. Some candidates thought the price variation clause was subject to the Unfair Contract Terms Act 1977 which is incorrect. Generally, the second issue (duress) was dealt with more competently. There was some case law but few answers could go beyond the Atlas case to demonstrate a fuller understanding of economic duress. L6-10/SA report/nov 2007 4
Q2 (b) Examine the criteria that Bola needed to satisfy to register the patent and assess whether Woo could be found liable for infringement (10 marks) This question was in two parts. The first part required candidates to explain the registration process required for patents and the second part required an examination of what actions amount to infringement. The requirements to register a patent should be explained. The invention must involve an inventive step, be novel and capable of industrial application. Some reference should be made to the 20 year period, the Patents Act 1977 and possible exclusions from registration. The second part of the question concerns infringement. It appears that both parties are liable for infringement even though one of them may have been innocent. Answers were usually satisfactorily and quite frequently to a high standard. There was evidence of a higher level of knowledge and understanding in this area. It was obvious that candidates had studied intellectual property and were able to provide indepth information. Some candidates had obviously learnt all IPR rights and were determined to put it down, so there was some irrelevant material in quite a few answers. SECTION B Q3 Ownership of goods and risk will always passed to the buyer when the goods are ready for collection and the buyer is notified. Evaluate the legal validity of this statement. (25 marks) The question required an examination of S16-S20 of the Sale of goods Act 1979 (as amended) in relation to title and risk. It required candidates to explain the different rules that apply in the absence of any expressed agreement. An answer might start by explaining that ownership and risk are distinct aspects of sale of goods transactions and unless otherwise agreed, ownership and risk do pass at the same time (S20 Sale of Goods Act 1979 (as amended)). However, it is possible for the parties to separate ownership and risk, indeed it is common. Ownership passes when the parties intend it to pass (S17 Sale of Goods Act 1979)). This will be determined by the contract provisions, the conduct of the parties and the surrounding circumstances. L6-10/SA report/nov 2007 5
Strong answers would be able to fully explain the five rules and include some reference to Romalpa clauses. Some credit was given for mentioning Incoterms. This was the most popular question. Responses varied considerably from those who had a detailed knowledge of the Act to those who did not mention the Act at all. Many answers were entirely focussed around Incoterms and some combined that issue with retention of title but little else. Some of the strongest answers in Section B were for this question but there were still weaknesses. Many identified the 5 rules but could not explain them fully and/or did not provide cases examples of their operation. Some included the Nemo Dat rule which was not relevant to the question. Q4 (a) Distinguish between collateral obligations that arise from a tendering process and a collateral contract with a third party (15 marks) This question required candidates to discuss the collateral obligations that arise during a tendering process and to distinguish this with a collateral contract that can arise with a thirds party. An answer should start by fully explaining the collateral obligations that exist during a tendering process. The collateral obligations include the right for a tender to be considered should it comply with the tender process, the right to be given equal treatment, the right to insist the tender is awarded to the lowest bidder if this is stipulated in the tender document, the right to equal and timely access to information etc. Supporting case law such as Blackpool Aero Club v Blackpool BC and Camelot v National Lottery Commission would enhance an answer. The second part of the question should start with an explanation of privity of contract followed with a full explanation of the Shanklin Pier V Detel case. This explanation should also refer to the circumstances when a collateral contract will arise This was another popular question which was often well answered on the issue of collateral obligations in the tendering process. Suitable case law was included (Camelot and Blackpool in particular). A few candidates thought they had to discuss the EU public procurement rules and went into detail here. Many responses were much less successful when dealing with collateral contracts (and it was not unusual to find that a reasonable explanation came later in part b, but not here). Supporting case law was more evident for this question but a minority of candidates still believe that a case name alone (without the facts) is sufficient. L6-10/SA report/nov 2007 6
Q4 (b) Privity of contract creates problems for third parties. Explain the statutory provisions which have been introduced to help address these problems. (10 marks) The question required an explanation of privity of contract and how it creates problems for third parties i.e. an inability to enforce the contract. It also required candidates to recognise statutory interventions designed to help alleviate some of the harsher consequences of the privity rule. An answer could start with an explanation of the privity rule. The main statutory intervention is the Contract (Rights of Third Parties) Act 1999. Answers should outline the main provisions of the Act including that a third party has the right to enforce a term of the contract providing the third party is expressly named in the contract or a term in the contract purports to confer some benefit on the third party. Good answers would also include the Consumer Protection Act 1987 which also gives rights to third parties. This question was often answered with no apparent knowledge of the Contract (Rights of Third Parties) Act 1999. Given that it had appeared in previous papers, this is surprising. A growing number seem to realise it does exist but can hardly explain anything about when and how it operates. Often, it was simply a matter of defining the doctrine of privity and then suggesting the Act improved the position of third parties. Very few were able to get sound marks. Even fewer candidates could relate the Consumer Protection Act to the question. Many answers failed to identify that the question was about statutory provisions and therefore failed to refer to the appropriate Acts. A number of answers referred to the law of negligence which was irrelevant to the question. Q5 Examine the limitations the court place on claims for unliquidated damages that result from a breach of contract. (25 marks) The question required candidates to discuss the aim of damages (compensation rather than punishment) and to provide an in-depth examination of the limitations placed on an award of damages. A good start to the answer would be to outline the purpose of contractual damages i.e. to place the injured party in the position they should have been in, had the other party performed the contract. A key case is Hadley V Baxendale and therefore both the facts and the rule(s) in this case needed to be explained. Good answers would mention speculative loss is generally not recoverable. Case such as Victoria Laundry would assist an L6-10/SA report/nov 2007 7
answer. A strong answer would refer to the obligation that the innocent party is under a duty to mitigate or minimise its loss. Supporting case law would also be helpful. This was not a popular question. There was evidence of improvement from answers supplied in the past in this area. A greater number of candidates could discuss remoteness of damage and some issues relating to speculative loss and mitigation. However, this question was often answered by candidates who were desperately looking for something they thought they could write about and showed very little knowledge at all. Reference to liquidated damages was often made and some credit was given for this. Overall there was a lack of detailed knowledge in this area and few candidates could quote the two aspects of the Hadley V Baxendale rule which is critical to understanding this area. Q6 (a) Evaluate how the following legislation is likely to impact on the procurement function Public Contracts Regulations 2006 (15 marks) The question required candidates to recognise the changes introduced by the Regulations and their potential impact on the procurement function. An answer should highlight the new Regulations rather than areas that were regulated before 2006. The main areas include recognition and acceptance of framework agreements, eprocurement mechanisms, shorter time periods, central purchasing bodies (consortia groups), the incorporation of social and environmental factors into the award criteria, the standstill period and the new competitive dialogue procedure. This part of the question was commonly answered by a basic description of the EU rules (thresholds, adverts, procedures etc). Very few candidates included issues that had been affected in 2006 the Standstill procedure (Alcatel) judgement being the most common. This failure to identify the focus of this task is surprising given how it has been included in recent papers. It seemed that a good number of candidates did not know the 2006 Regulations in sufficient depth to provide a relevant well structured answer. A few better answers did provide an insight as to how the changes would affect the procurement function. Q6 (b) Evaluate how the following legislation is likely to impact on the procurement function: Freedom of Information Act 2000 (10 marks) L6-10/SA report/nov 2007 8
This part of the question required candidates to identify the main provisions of the legislation and how they impact on the purchasing function. An answer should initially recognise that the legislation applies to public authorities who are responsible for administrating a 'publication scheme', which is, in essence, is a guide to the information they hold that is routinely made available to the public. Answers should refer to the right to request access to information which must be answered within set timescales. Good answers might mention fee charging. In terms of procurement, an answer should cover exemptions under the Act. These fall under absolute and qualified. Answers would be expected to refer to the commercial confidentiality exemption which is one that is likely to apply to procurement staff. An exceptional candidate might refer to appeals decided by the Information Commissioner (as referred to in Supply Management articles) This part of the question was answered more successfully. Some candidates showed a sound understanding of the main points of the Act and how it related to procurement practice and appeared better prepared for this. A good number of candidates failed to mention exemptions. L6-10/SA report/nov 2007 9
APPENDIX: SECTION A SECTION B Question No. 1 2 3 4 5 6 Learning Objective a b a b a b a b 1 Contract law (35%) 1.1 5 1.2 7 8 1.3 7 1.4 25 1.5 Marks distribution by section Sale and supply of goods and services, including third party rights and 2 obligations. (30%) 2.1 5 2.2 8 2.3 25 2.4 55 2.5 7 10 2.6 3 Specific UK and EU Regulations affecting the purchasing function. (25%) 3.1 8 3.2 15 3.3 10 33 3.4 3.5 4 Intellectual property rights and international trade. (10%) 4.1 10 4.2 4.3 10 4.4 Total Marks Allocated to Question 25 25 25 25 25 25 150 52 L6-10/SA report/nov 2007 10