Chapter 3.1 Flashcards
Analyse sources and purpose of contractual terms for contracts that are created with external organisations
Express terms
Contractual terms which are specifically stated in contract documents
Implied terms
Contractual terms that exist in legislation, or are common practise and therefore a given, but are not written within the contractual documentation, i.e. the law of the land - by default, a contract must comply with the laws of the land to be legally binding
What is a contract term?
Any provision of a contract
Do contract term and term of a contract mean the same thing
No
How are express terms stated?
They are explicitly stated either orally or in writing and set out the definitive agreement between the parties
Name 1 way terms can be implied into a contract
Custom and practise
When will an express term not override an implied term
If the implied term is a legal requirement in the prevailing legislation
Name a common way for terms to be implied into a contract
Through statute
Should an agreement state whether implied terms can be overridden by express terms?
Yes
Name 2 pieces of case law that relates to how an implied term might be permitted to be overridden by an express term
- Rights of third parties: UK law contracts (Rights of Third Parties) Act 1999
- Right to terminate a contract that as a result of a change becomes non-compliant with EU public procurement rules
Rights of third parties: UK law contracts (Rights of Third Parties) Act 1999
UK law specifically states that people who would normally benefit under a contract can enforce the terms of that contract, even though they are not party to it. There is therefore an implied term that such rights exist. However, the act goes on to say that this ‘does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by a third party. This sentence means that the parties to the contract can expressly state that they do not intend the terms to be enforceable by third parties. if they do so the implied term is cancelled out
Right to terminate a contract that as a result of a change becomes non-compliant with EU public procurement rules
Regulation 73 of the UK Public Contract regulations 2015 (enacting the EU Public Procurement Directive 2014) places a requirement on public bodies to include a right to terminate the contract in circumstances where modifications to it place it outside the parameters permitted by the regulations. The regulations go on to state that if such a right is not expressly stated in the contract, the power to terminate the contract on reasonable notice will be an implied term. There is nothing which permits the parties to agree otherwise
What are expressed terms used to do
Set out as clearly as possible what that agreement is
Name 6 things expressed terms should do
- Set out the obligations of the purchaser
- Set out the obligations of the supplier
- Set out the rights of the purchaser if the supplier defaults
- Set out the rights of the supplier if the purchaser defaults
- State how the parties will deal with circumstances beyond the control of either party
- Where possible, either confirm or override any potential implied terms
What are schedules?
Attachments to a contract which provide more detail - often technical or operational - on the requirements and are structured in such a way as to enable them to be easily updated
What does the use of schedules help to do
Clarify the difference between a ‘contract clause’ and a ‘contract term’
What is a contract clause
The precise wording in the main document, which will have its own reference number
What is a contract term
The totality of that part of the agreement and so it includes the clause wording an any schedule to which it refers
Anything set out in a schedule to a contract is also considered to be an…
express term
Name 3 issues when establishing what the express terms of a contract are
- There may be no written contract
- The written contract may be based on oral negotiations
- The purchaser may not be aware of the conditions of a written contract at the point of contract
What would the legal position be if there was no written contract and all negotiations and agreements were conducted orally?
It depends on the facts of the case, but it can be held that express statements were not intended to be contractual warranties.
What piece of case law relates to if there was no written contract and all negotiations and agreements were conducted orally
Oscar Chess Ltd v Williams 1957
Oscar Chess Ltd v Williams 1957
A man selling a car to a garage said it was a 1948 Morris when in fact it was a 1939 Morris, and he got a better price as a result. It was held that the statement of the car’s age was not an express term of the contract.
This case could also be considered in light of the rules on misrepresentation outlined in section 1.2. The decision may have hinged on the fact that the seller did not know that the log book had been changed by a previous owner, and that the garage buying the car would be more expert than the seller in estimating its age
What would the legal position be if there was a written contract based on oral negotiations
The longstanding view is that the written word supersedes anything said prior to it. The contract means exactly what it says, which is what the court interprets it to say, regardless of what the parties might have intended. However it is now possible to argue that ‘the contract’ is a contract partly in writing and partly oral; or that there are two contracts - one oral and one written. In both scenarios the argument would be that the oral part of the contract can supersede the written part.
What piece of case law relates to if there was a written contract based on oral negotiations
J Evans and Son (Portsmouth) v Andrea Mezario (1976)
J Evans and Son (Portsmouth) v Andrea Mezario (1976)
Evans and son was an engineering firm that regularly imported machinery from mainland Europe. It employed Mezario as forwarding agents. mezario changed its shipping methods to use containers (which were then relatively new). the matter was discussed and Evans agreed, subject to an assurance that its goods would be carried below decks.
A number of transactions occurred on Mezario’s standard terms and conditions which included permission for the goods to be carried above deck. most containers are above deck. the dispute arose when a container containing goods being imported by Evans was lost overboard.
The Court of Appeal held that Evans could recover damages because of the verbal assurance, despite the written conditions that had been used since that assurance was given
Forwarding agents
Specialists in organising the transportation of goods for others
What would the legal position be if there was a written contract where the purchaser may not be aware of the conditions at the point of contract
A purchaser can have actually agreed to conditions they do not know about. The most common application of this is bus or train tickets, which refer to terms and conditions published elsewhere (in a timetable on the companies website). because most of the terms and conditions are held not to be unusual, it has become accepted that they can be enforced.
However if the conditions are unusual then effort must be made to bring them to the attention of the purchaser
What 2 pieces of case law relates to if there was a written contract where the purchaser may not be aware of the conditions at the point of contract
- Thornton v Shoe Lane Parking 1970
- Interfoto Picture Library v Stiletto Visual Programmes Ltd 1989
Thornton v Shoe Lane Parking 1970
A ticket produced by an automatic entry barrier to a car park referred to conditions posted inside the car park. Clearly the users of the car park could not read the conditions until they had entered and parked and were therefore already subject to them. The condition excluded liability for damage to cars (which is quite usual) but unusually also purported to exclude injury to drivers. It was held that the term could not be enforced
Interfoto Picture Library v Stiletto Visual Programmes Ltd 1989
The library lent 47 photographic transparencies to Stilleto Visual on its usual terms which were free for 14 days and £5 per photo per day thereafter. After a month a bill was sent for £3,783.50. The late fee was held to be an unusual condition which had not been properly communicated. As late fees, in general, are not unusual it is assumed that it was the large amount of charge that caused it to be considered unusual in this case
Do oral contracts also include express terms?
Yes
Standard terms and conditions
Basic terms and conditions of business governing transactions that do not have a definitive contract, usually designed to be included in form documents such as orders
What are standard terms of business also known as
Standard terms and conditions
Which two sets of standard terms are organisations likely to have
- One for when they are acting as a purchaser
- One for when they are acting as a supplier
What do standard terms aim to be
A very short form of contractual agreement, normally printed on no more than one or two pages
What do standard terms try to cover?
All eventualities for any type of goods or services that the organisation would normally purchase (or supply)
What are standard terms often written with the aim of
Them being attached to order forms and/or delivery notes
What are standard terms generally used for
Repetitive transactions (usually low value and low risk)
What should have a specific contract rather than relying on standard terms
Any purchase that is subject to the rigours of a full tender exercise with a precise specification and the potential for negotiating variations
Name 3 advantages of using standard terms
- Time saved in negotiating individually with many purchasers
- Reduced administration costs - not having to produce a new contract for every interaction
- Consistency of approach - all transactions on the same terms; staff understand risks and act accordingly; both parties understand ‘the deal’
Name 4 disadvantages of standard terms
- Risk that they do not get effectively incorporated into the contract - legal uncertainty and potential ‘battle of the forms’
- Do not allow for contract-specific risks
- Can become out of date
- Can create conflicts if attached to purchase orders that are also used as call off orders under term contracts
Ineffective contract term
A term in a contract which cannot be legally enforced
Name 4 examples of ineffective contract terms
- Exclusion of liability for negligence
- Unusual and unexpected conditions that would not normally apply and to which the other party’s attention was not specifically drawn
- Exclusion of liability for death of an individual
- Lack of a warranty of fitness for purpose of the goods
Name 16 key areas that should be covered in standard terms
- Definitions
- Express term to override other standard terms
- Express term to state that in specific framework or term contracts signed by the parties, the express terms take precedence over standard terms
- Formation of the contract
- Order of precedence
- Price
- Invoicing and payment
- Specification
- Obligation to comply with the law
- Delivery and risk
- Warranties and liability
- Intellectual property and similar rights
- Termination
- Confidentiality and use of data
- Ethics and environmental, social and governance
- Law and jurisdiction
Time is of the essence
An express condition of a contract used to underline the importance of timely delivery. It is an explicit statement of when goods or services must be delivered. Time is of the essence if failure to supply in accordance with the contract terms has a significant impact on the purchasers ability to perform its normal functions. Time is not of the essence if the late delivery has limited or no impact
Defects
Any aspects of delivery that do not match the specification
Name 8 of the key features of standard terms
- form - concise & generic
- Non-negotiable - unilaterally created by either purchaser or supplier
- Ineffective terms - may be replaced by implied terms
- Advantages - basic contractual protection for most common circumstances
- User friendly - tend to be made to fit on forms by reducing text size almost to ineligibility
- Usage - low value, low risk, repetitive transactions
- Coverage - everything included
- Disadvantages - risk of creating battle of the forms
Precedent
A court judgement which is binding on future legal decisions
Legal certainty
The ability to predict how a court will decide a matter of dispute
Legalese
Complex legal language
What does the ability to draft purchase and supply contracts require
Knowledge of the purchase or supply category and the norms of trading behaviour in that category
What is a common complaint of contracts
Obscure language that is used in them
Name the 4 steps where in common law jurisdictions certain phrases and expressions come to have a specific defined meaning in the context of a contract. How does this work (4)
- A dispute will go to court
- In the course of settling the dispute the judges will explain how they have made their decision. Anything said as part of this judgement can become a fixed precedent, depending on the hierarchical level of the court concerned
- The judges may also add other remarks. These are never binding, but they can be persuasive when future cases are considered
- Both the ratio and obiter are linked to the very precise wording in the case at hand, so if people drafting future contracts want to rely on that judgement, they tend to use the same wording
What concept means disputes can be avoided?
Legal certainty
What is the main benefit of legal certainty
It stops arguments going too far which saves everyone time, money and administrative resource
Model form contracts
Standardised contracts used within certain industries to create stable and consistent contracts which are affordable and broadly equitable. Examples include NEC4, JCT & FIDIC
What level do ethical considerations of a contract tend to be dealt with at?
Supplier management level rather than contract management level
What does a model form contract set out?
Core wording to cover all of the normal scenarios and problems in the context for which it is developed
Name 3 principles that apply across all model form contract standard forms
- Contract-specific details: parties to the contract, contract subject matter, dates etc
- Standard common clauses, covering all key items formulated in a way that is most applicable to the type of purchase normally expected under the relevant form
- Schedules to cover pricing, specification and any other contract-specific detail
Name 7 model forms of contract
- NEC
- JCT
- AS
- FIDIC
- IMechE/IET
- CIPS
- ITC
NEC
New Engineering contract
JCT
Joint Contracts Tribunal
AS
Australian Standards contracts
FIDIC
International federation of Consulting Engineers
IMechE/IET
Institution of Mechanical Engineers/Institution of Engineering and Technology
CIPS
Chartered Institute of Procurement and Supply
ITC
International Trade Centre
Name 3 reasons why when searching for model forms of contract, the results may show a heavy bias to the construction sector
- It is a sector that has long had professional institutions which have traditionally taken the lead in developing model forms in the interests of protecting their members
- It is a sector known to have a wide scope for contractual dispute and legal action, which can be avoided if good contracts are in place
- The nature of the procurement is such that the basic contractual requirements are relatively easily reduced to a common formula
Traditionally who would model forms of contract be developed by?
Professional institutions with the stated aim of producing a contract which protects the interest of its members
Name 3 ways improvements in model form contracts may come about
- Changes in national or international law
- A number of legal disputes have highlighted a particular ambiguity or weakness in the contract
- Technological change in the sector creates new problems, risks or opportunities that need to be catered for within the contract
What must you do with a model form contract
It is only a model/template. Every clause should still be reviewed to ensure that it is applicable in the precise circumstance in which the contract is being used
Name 4 things an accompanying guidance note (model form contracts) should highlight
- Blank spaces on the model form which need to be filled in
- Optional clauses that may only apply in certain circumstances and should be deleted in others
- Options with a default position
- Schedules to be completed or attached
What does any change to a model contract risk?
That the internal logic of the contract gets broken
What should you be careful to do when amending standard forms
To ensure that all cross-references have been appropriately amended
Name 10 key steps in using model forms of contract
- Identify or develop appropriate models for organisations common purchases
- Identify or develop appropriate guidance for the use of the models, including any standard amendments
- Review the model and intended use with legal advisors
- Train procurement staff in the use of the model
- Select the appropriate model for the specific procurement exercise
- Review guidance for using contract and confirm it is indeed appropriate
- Complete blanks, options and schedules with contract-specific info
- Embed draft contract in the tender/negotiation process in the normal way; agree terms with the supplier
- Manage the contract in the normal way
- Continuously review case law which might affect how the model template is being interpreted in legal disputes and how your use of it may be impacted
Name 7 advantages of using model forms of contract
- Saves time and resource drafting bespoke contracts
- Both suppliers and purchasers familiar and comfortable with main terms
- Specific to sector or purchase type
- A measure of legal certainty on court’s response to disputes
- Consistent structure
- Lower costs to produce and approve
- Easier to resolve disputes
Name 4 disadvantages of using model forms of contract
- Poorly trained staff may use templates incorrectly or choose inappropriate model
- Amendments to published templates can create ambiguity
- May become out of date if not review regularly
- May be biased, depending on ownership of the model
