The UN Sales Convention - Essay Example

LEGAL ASSIGNMENT QSC Issue No Which is the final contract? The major issue posed in this context is which are the terms that will constituteterms of the final contract between Work Solutions and QSC? Work Solutions initially provided its terms of offer in a formal document outlining contractual terms. But this will not necessarily have the legal force of a contract, because it is likely to be treated as an offer of services1 rather than a legally binding offer of sale. Similarly, QSC’s tender, inviting companies, including Work Solutions, to submit their quotations, will also fall under the category of invitations to treat. The letter of intent sent out by QSC may not initially be binding upon the parties in their entirety. However, it could be interpreted as binding on the parties if it closely resembles a contract. The letter of intent in this case has clearly specified that the binding terms of the contract would be QSC’s and the formal contract prepared by the procurement team is also in accordance with QSC’s terms. Letters of intent have traditionally been held to be non binding. For example, in the case of Turiff Construction Ltd v Regalia Knitting Mills Ltd2 it was held that a letter of intent will have two characteristics (a) it will express the intent to enter into a contract in the future and (b) it will itself create no liability in reference to the future contract. This would at the outset, suggest that QSC’s letter of intent specifying that its own contractual terms will prevail, may not have binding force. But in the Turniff Construction case, the Court nevertheless upheld the contractual obligations associated with the letter of intent, on the basis of the facts in the case. In the case of British Steel Corporation v Cleveland Bridge and Engineering Co Ltd3, while it was held that while no contract was created based on the letter of intent itself, liability was nevertheless imposed. The Court in this instance pointed out that both the parties had expected a formal contract to eventuate, therefore work commenced after the issue of the letter of intent - if followed by a contract - “will be treated as having been performed under that contract.”4 This was also affirmed by Neill LJ in Monk Construction Ltd v Norwich Union Life Assurance Society5, in making a general statement that a contract may come into existence following a letter of intent, depending upon the individual circumstances of the case. According to HH Judge Thornton in A.C. Controls v British Broadcasting Corporation, “in construing and giving effect to a letter of intent, it is necessary to take into account the factual background out of which the letter of intent arose.”6 In this case, the letter of intent was premised on the basis of the formal contract which was to eventuate and it clearly held that the contract terms would be QSC’s. Applying these precedents, it may thus be argued that the subsequent contract sent by QSC to Work Solutions constitutes the terms under which Work Solutions has performed the work. QSC may have grounds to claim that its letter of intent clearly stipulated that the terms of contract would be QSC’s, hence work performed after the issue of the letter of intent, which was followed by the QSC contract, constituted an acceptance by Work Solutions of the terms of that contract. In the “battle of the forms”, Work Solutions’ contract was received earlier, but QSC’s letter of intent followed by the contract was acted upon by Work Solutions, i.e, starting the work. In the case of Percy Trentham Ltd v Archital Luxfer Ltd7, the Court held that even in instances where no formal agreement signifying the agreement of the parties existed, a contract could be concluded by conduct. Applying this precedent to this case, Work Solutions’ commencement of the work after receiving the letter of intent from QSC specifying that contractual terms would be QSC based, would mean that a contract had been concluded on QSC’s terms, especially since this was also followed by the contract. Since the Court is also likely to look into the circumstances surrounding the case, these factors support QSC’s case in ensuring that contractual terms are to be enforced on the basis of QSC’s terms. A significant weakness that exists however, is the letter from Work Solutions dated March 31 which specifically states that the terms of their original contract will apply. This amounts to a conditional acceptance of the terms of QSC’s contract. Since QSC has not posed any counter offer to this and has allowed work to continue, there is a possibility that the Courts may hold the Work Solutions contract to be the final version of the contract after all the contract negotiations. Issue no: 2: Contractual price agreement of $1,750,000 over a six month period: On this particular issue, QSC has a strong case in its favor. There has been an agreement between the parties on consideration, because the feasibility study provided by Work Solutions also offers a quotation of $1,750,000. Secondly, the budget which has been orally agreed to between the parties at a “maximum” of $1.750,000. In the case of Bannerman v White8the Court held that the importance of the representation as a factor inducing a party to enter into contract will be important, because the contracting party might never have entered into the contract without this representation. This is also the case with Work Solutions, which has made a representation about the price it will charge that has induced QSC to enter into the contrac. Clause 5 in the terms of contract offered by Work Solutions also states that prices will be charged in accordance with the prices set out in Schedule One. But the Company is now charging an extra 40,000 which was not intimated at the outset. It is also charging an additional $192,000 to bring the system up to the requirement that was already set out in the initial specifications. According to the MF/1 contract, during the “Defects Liability period” which covers a period of 12 months after taking on the work, it is the Contractor who is responsible for repairing or replacing any defective workmanship or design. QSC can also contest the extra charges on this basis. In the case of Hadley v Baxendale9, Hadley made a claim for loss of profit which failed because the Court held that the loss would not be covered under damages because it did not arise naturally. Baxendale was not aware of this possibility while contracting. In the instant case, Work Solutions was well aware of the kind of system which was required, because Mark’s initial request has specified that “The new system must be capable of responding with an answer to any user query or other such command within a second.” Work Solutions was also aware of the maximum price that QSC wished to pay and was well aware that the current losses being caused was due to the failure of the existing systems and therefore had the responsibility to adhere to the price. Issue no: 3: Quality of services delivered: QSC also has strong grounds to file suit under the provisions of the Sale of Goods Act 1994. Sections 13 on description, Section 14(2) on satisfactory quality of goods or services and Section 14(3) on fitness for purpose will all apply in this context. Section 14(2) of the Sale of Goods Act also applies in the case of businesses and “there is an implied term that the goods supplied under contract are of satisfactory quality.”10 Section 14(3) clearly stipulates that the goods must be suited for the buyer’s intended use and especially when a particular purpose is stipulated, the Seller is expected to meet that demand. At the outset, the system that has been designed is not meeting the requirement for a response within a second. Since this is what the buyer is looking for to satisfy the purpose for which the services are to be used, the Seller will be expected to meet that demand. It must also be noted that the other two suppliers who submitted tenders have indicated their inability to meet the Buyer’s requirements within the price requirement. But since Work Solutions has agreed to perform the work, it will be expected to meet the Buyer’s demand and Courts are likely to find that the goods do not meet the intended purpose of the Buyer. The goods are also expected to be of satisfactory quality and this is set out in the Act as a “standard that a reasonable person would regard as satisfactory.”11 Since the system is very slow in dealing with queries and as per QSC’s contract, time is of the essence in the functioning of the system, it may not meets the standard of satisfactory quality. Work Solutions: The major issue that also arises in this case is the question of the battle of the forms because both QSC and Work Solutions have their own forms with contractual terms set out in their favor. In the case of Butler Machine Tool Co v Ex Cell-O Corp12, Butler’s contract included a provision that its terms were to prevail, but Ex Cell-O had its own form for order acknowledgement in which was to be based on terms stated in its contract, which Butler was required to sign. Butler’s signature indicated agreement with Cell-O’s contractual provisions, although the covering letter reiterated Butler’s terms. The Court held that Ex Cell-O’s terms constituted a counter offer13, which Butler had agreed to by its signature, hence those terms would prevail. This precedent may work in favor of Work Solutions. The strongest aspect that supports the case for Work Solutions’ Terms of contract to be held as the final contract based upon which disputes are to be decided is their letter dated 31st March. This letter states “All work will be done in accordance with our terms as set out in the original offer.” While QSC has provided its terms of contract, this letter from Work Solutions is akin to a counter offer, because its acceptance of the contract is based on the document containing its own conflicting contractual terms. In this battle of the forms, the contract will be made on Work Solutions’ terms, because QSC has acted upon those terms, i.e, by allowing the contractual work to continue, hence this could constitute an acceptance. In the long process of offer and counter offers, this is the last stage after which negotiation between the parties has been arrested; as a result, it may be held to constitute the final contract. Secondly, Work Solutions’ demand for the additional amount of $190,000 may be held to be valid on the grounds that it amounts to a new contract, since each time the supplier delivers the required product or service, a new contract is formed.14 Moreover, Mark and Work Solutions have agreed orally to a price of $1,750,000 as the “maximum” price, but this stipulation has been omitted in writing and therefore may be held by the Courts to be warranty rather than a condition to the contract.15 The system does not respond within one second and does not satisfy the Buyer’s purpose. Although this was stipulated in Mark’s original objective for the project, it may be noted that the feasibility study provided by Work Solutions does not incorporate this aspect and may therefore not be held to be a contractual term. Moreover, applying the standards of a reasonable person, it may be held that QSC’s requirements within the price and stipulated design may be difficult to fulfil for a price of 1,750,000, especially since two other contractors have indicated their inability to do so. Work Solutions can also contend that under Section 18 of the Sale of Goods Act, the risk associated with the services has passed to the Buyer when the system was delivered, thereby they can claim they are not liable for damages. Resolution of dispute: The provisions contained under the NEC contracts will be applicable to this contract, since it includes supply contracts, where a supplier provides goods and services to a purchaser16. A typical supply contract will also allow for some secondary options for dispute resolution. Some that may be applicable in this instance, in favor of the Supplier, are (a) X1 or a price adjustment for inflation, wherein the parties can agree on a compromised price arrangement to tackle the extra costs that are now required (b) X14 or advanced payment to the supplier17 whereby the amount of 1,750,000 can be held to be an advance paid to the supplier with some additional amounts due from buyer. Provisions favorable to the Buyer would include (a) X17 or low performance damages, which QSC can use to contend that performance of the system provided has been inadequate and thereby require the Supplier to provide those expenses to bring the system up to par (b) Option X7, or delaying damages, whereby the Supplier is required to complete the work in lieu of delaying or not claiming damages for failure in stipulated performance (c) Option X 21 which allows for the facility of delaying the defects liability period from 12 months after execution of the contract by extending it firther to enable Seller to cope with additional expenses. Since this particular contract is not strictly a “construction” contract as defined under the Housing Grants, Construction and Regeneration Act of 1996, as a result the provisions specified under that Act for dealing with disputes on the definition of goods and services may not be fully applicable or its application can be disputed by the parties. In this case, QSC and Work Solutions are provided with Dispute Resolution Options W1 and W2, of which the appropriate one can be selected. Under Option W1, adjudication will be the first level of dispute resolution, while arbitration or litigation through a Tribunal will be the second level of dispute resolution. The parties will be required to appoint an Adjudicator under the NEC Adjudicator’s contract at the starting date.18 Alternatively, the Parties can also include a provision for an adjudicator nominating body to name an Adjudicator to be appointed as the need arises in the resolution of a dispute. This may be especially relevant in this instance, because it specifically allows an employer/buyer to refer a dispute on a price or quotation which has already been agreed upon, to an Adjudicator and may thus allow the facility for selection of the Adjudicator by the Buyer/employer. One of the most important elements in this dispute is the question of price, and the additional amounts that QSC is being asked to pay so this avenue may be applicable. The W2 option differs from W1 in that it allows any party to refer a dispute to an Adjudicator at any time. It places the onus on the employer/buyer to choose the arbitrator. Alternatively, secondary options are also provided, wherein the employer/buyer can decide which aspects of a contract the buyer wishes to retain and which ones it wishes to avoid paying for, For instance, some of the standard elements introduced into contracts are retention, liquidated damages and performance bonds, irrespective of whether the buyer wants them or not.19 This allows some flexibility in price adjustments which can aid in the resolution of the dispute. Since QSC’s contract also allows for the use of third parties, arbitration can be an option. Lastly, the parties can also negotiate new arrangements. Deficiencies in QSC’s procurement contract: QSC could improve its current procurement process by firstly preparing plans that set out their requirements for service delivery in a more realistic manner. For instance, based upon the quotations it has received from two other suppliers, QSC could have realized that the price levels it has allocated for the high quality performance expected, i.e, response time of one second, may not be a realistic goal in practice. As a result, the Company needs to either (a) modify the prices it will pay the supplier by revising its purchase order amount upwards or (b) reduce its expectations on performance and allow for a slower response time, so long as the integration of the two systems is achieved. Another aspect in which QSC’s procurement contract is lacking is in not allowing any options for termination of the contract, but only including provisions for addressing and remedying defects in provision of supplier services. In order to protect itself effective, QSC would also need to include provisions that would allow it to terminate the contract on the basis of (a) default in supply of services by supplier or (b) on the basis of convenience. This would allow QSC to terminate either part or all of the contract at any time by serving the Supplier with a written notice of termination. This provides the option for QSC to move out of a contract which may not be meeting its needs and also allow the Supplier to recover any losses that may be considered fair and reasonable. QSC could have also improve its options for recovery and remedial measures if chooses to include the contract under the provisions of UNCITRAL or the Vienna Convention. According to Professor Peter Schlechtriem, the Vienna Convention is the “uniform law convention with the greatest influence on the law of worldwide trans border commerce.”20 The Vienna Convention operates on the basis of standard international contractual forms and CIF contracts. The Vienna Convention, unlike the UK Act on the Sale of Goods operates on the basis that the contract which exists is between parties in two different countries.21 The second underlying assumption of the Act is that where the rules of private international law arise, then the law of the contracting state will prevail. Therefore, it enjoys precedence over national laws, since in an instance where there is a conflict of laws generated, it will be the international Vienna Convention that will prevail. This aspect would be very useful to QSC in its negotiations with foreign suppliers, where it could address disputes that may invoke a conflict of laws. ICC Model Commercial Agency Contract, which addresses the potential conflict of laws by including the following provisions: “Any questions relating to this contract which are not expressly or implicitly settled by the provisions contained in this contract shall be governed, in the following order: (a) by the principles of law generally recognized in international trade as applicable to international (agency) (distributor) contracts, (b) by the relevant trade usages and (c) by the UNIDROIT principles of International Commercial Contracts….”.22 From the above, it may be noted that the provisions mentioned above on the resolution of disputes clearly spell out the manner in which disputes arising out of uncertainty of jurisdiction are to be settled. Thus, if QSC designs its procurement contracts under the ICC form of contract dispute resolution procedures will be clearly set out and its foreign suppliers will be forced to adhere to them. QSC may also benefit from adopting the provisions of electronic commerce, in order to be up to date and able to function in a rapidly changing technological environment…………………….3192 words Bibliography Kronke, Herbert, 2005-6. “The U.N. Sales Convention, the UNIDROIT Contract Principles and the way beyond”, Journal of Law and Commerce, 25, pp 450-465 Mitchell, Bronwyn and Trebes, Barry, “NEC Managing Reality”, Thomas Telford Rowlinson, Mike,2008. “NEC3 Supply Contract”, http://www.alway-associates.co.uk/legal-update/article.asp?id=143; Sale and Supply of Goods Act. http://www.opsi.gov.uk/acts/acts1994/ukpga_19940035_en_1#pb1-l1g1; Schlechtriem, Peter, 2005. “Requirements of Application and Sphere of applicability of the CISG” 36, VUW Law Review at 781 to 794 Cases cited: A.C. Controls v British Broadcasting Corporation (2002) 89 Con LR 52 Bannerman v White(1861) CB (NS) 844 Birch v Paramount Estates (1956) 167 British Steel Corporation v Cleveland Bridge and Engineering Co Ltd (1981) 24 BLR 94 Butler Machine Tool Co v Ex Cell-O Corp (1979) 1 All ER 965 Hadley v Baxendale 9 Exch 341 Hyde v Wrench (1840) 3 Beav 334 Monk Construction Ltd v Norwich Union Life Assurance Society (1992) 62 BLR 107 Patridge v Crittenden (1968) 2 All ER 421 Percival Ltd v London City Council (1918) Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyds Rep 25 Turiff Construction Ltd v Regalia Knitting Mills Ltd (1971) 2 BLR 20 Read More