Contract Management Analysis Using Applicable Laws

Like it or not, contracts for the National or International Sale of Goods or Supply of Services among parties is unavoidable, the issue is what is goods? What is a service? The answer is found in the introductory part of chapter one and in the first case example of chapter five under resolution of contract breach where software was used in analysis and differentiation. This is distinct from traditional contract management software that is used in the day-to-day creation and management of legal contract documentation.

Offer, acceptance and contract settlement with main case example are included in the first chapter. Chapter two explains the contractual liability, strict liability by analysing the main case and other cases in regard to the liability of each party.

Chapter three explains the meaning, the background, application, and the perceived advantages of CISG together with applicable case laws. The outcomes of unaccountability of either party to the contact are contract breach, dispute and finally their resolution; all these are covered under chapter four and five with case examples.

Finally conclusion, recommendation and list of references are incorporated.

PREAMBLE

Rwanda currently lacks a comprehensive set of civil laws and consequently is abandoning parts the of structures of civil law that, because of its history as a Belgian colony, were heavily influenced by French jurisprudence. Many of the country’s laws date back to the 1800s and wants to adopt the Anglo-American style code of contract law based on common law. It is believed that once in place Rwanda’s common law could serve as a model for the country’s neighbours, Uganda and Tanzania, which also lack comprehensive contract codes.

Preference of Civil law over Common law

The difference between civil law and common law is not only codification, but the methodological in approach to codes and statutes. In civil law countries, legislation is seen as the primary source of law. Therefore courts base their judgments on the provisions of codes and statutes, from which solutions in particular cases are to be derived. Courts therefore reason on the basis of general rules and principles of the code, often drawing analogies from statutory provisions to achieve coherence. By contrast in the common law system cases are the primary source of law, while statutes are only seen as incursions into the common law and thus interpreted narrowly. (Kristy Laval, 2007)

The civil law therefore described as a top-down approach to principles, whereas the common law can be described as a bottom up approach. Both systems value principles equally, but arrive at them, and deal with the interface between principle and detail, in very different ways. (ashcroftburnham, 2007)

CHAPTER 1: OFFER, ACCEPTANCE AND SETTLEMENT OF CONTRACTS

Introduction

Definition of a Contract

A contract may be defined as a legally bidding agreement between two parties written, signed and witnessed. In Rwandan general condition of contract, a Contract is defined as “means the Contract Agreement entered into between the Procuring Entity and the Supplier, together with the Contract Documents referred to therein, including all attachments, appendices, and all documents incorporated by reference therein” (rppa n.d).

Goods are physical or tangible items intended for sale. Offer of goods in exchange for money, is sale of goods for example a customer who buys a product from a retailer or producer. On the other hand, service may be work done by an individual or group of individuals for the benefit of others. With supply of services there are no tangible items or goods exchanged but intangible things that is to say “buy things that can’t be touched” (socialstudiesforkids n.d.) for example sauna and massage.

Process of Contract management

When two or more parties engage in trade and service provision, there is need to safeguard against malpractices and unfair conduct and this is where contract and contract management is needed. Contract management is needed for the parties to stick to the terms of the agreement, provision of fair play in the market and there are laws to guide the parties.

In order for contract management to have meaning the seller must have specifications that are be logical, concise and accurate. The terms of the contract should be agreed on by both the buyer and seller before the contract agreement is signed. The signing of the contract should be preceded by contract negotiation and clarifications of terms and conditions to avoid disputes and breaches of contract in future.

I.1. Laws governing contract management in UK

Laws on sale of goods have evolved over many years in the UK. Today it is set out in the Sale of Goods Act 1979 which has been amended to create the Sale and Supply of Goods Act 1994 and more recently by the Sale and Supply of Goods to Consumers Regulations 2002. (DTI, 2005)

Protection for those who hire goods, or acquire them under hire purchase, or conditional sale, agreements is under the Supply of Goods and Services Act 1982 and the Supply of Goods (Implied Terms) Act 1973 provide. (DTI, 2005) In no way can a consumer’s rights in relation to the sale and supply of goods cannot be curtailed by a term in the contract. Whereas restrictions may be possible in business to- business contracts, any restriction is subject to the provisions of the Unfair Contract Terms Act 1977. Consumers may not always make claims directly against the manufacturer.

In the United Kingdom, however, a seller and a buyer may agree that certain rights do not apply to a particular transaction for the provision of a service or should only apply to a limited extent. Any such exclusion or restriction is subject to the provision of the Unfair Contract Terms Act 1977. (DTI, 2005)

Sales of goods at distance such as mail order or over the internet is under different additional legislation.. (DTI, 2005)

Offer of Contract

According to Professor Mellor, Contract offer is the willingness to provide a good or service by one party what has been requested or required by another party (2010). A contract starts with a purchase order to the seller following agreement with what was written in the quotation or offer to supply a product or service by the seller or supplier.

Case analysis: PSC VS COMPUTER POINT

In the case under review COMPUTER POINT (the seller) offered to supply 37 Desk tops, 5 Laptops, UPSs and to PSC [the Public Service Commission] (the buyer) by 30 December 2008. Under the contract the following were agreed on; the description of the goods, Force Majeure or Act of God, contractual liability, Copyright, the quantity, Negligence, and others as shown below:

License Agreement

The contract was supposed to remain valid for a period of 30 days working according to the initial contract prepared by Procurement Officer. However the . The

Costs and Delivery

The price of 10 licenses is $2000 for downloadable AVG software and AVG on the CDs is $5000 including delivery costs to the buyer. On download option, the buyer shall have full responsibility for the installation and the functioning of the software on the server and clients while when bought as goods then (CD packages) the seller will take full responsibility for the delivery of the goods to the site, installation and functioning of the software on the server and clients.

Terms of payments

Pay 20% advance after 5 working days of signing contract, 80% to pay within 10 working days after delivery. The payment will in Rwandan francs.

Discounts/promotion

From fifty (50) licenses and above, there is 5% discount and promotion 10 more free licenses. This discount increases as licenses increases by 50% of the initial licenses.

Contract acceptance

According to Prof. Mellor acceptance is the willingness to accept what has been offered by another party or an unconditional assent communicated by the buyer to the seller that the product or service was in compliance to comply with all terms of the offer (2009)

The offer by MFI was accepted by Tumba because of the fair terms and reasonably low price with discount. Delivery of software license would not be in instalments.

After negotiation the contract was signed by both parties on the terms of the buyer with the added clause.

Settlement of contract

The closure agreement defines the law and venue of contract the resolution in any related disagreement between two parties as below

Choice of law and venue

This agreement will be governed by Rwandan law; any violation of liability of either party shall be brought before the Rwandan court. The CISG Convention is excluded.

On successful completion of the contact between both parties, the contract discharge will be after the warrant period which is 6 months after installation.

CHAPTER 2: LIABILITY OF EACH PARTY TO THE CONTRACT

Introduction

The seller and buyer are legally bound by their commitment. The liability of the parties help to protect them from inferior, faulty or low standard goods and prevents the seller from vending goods are faulty, defective or of poor quality.

From the above mentioned case we find that Computer Point, the suppliers were under obligation From the case of MFI v. Tumba colleague, we find that when the Ant-virus bought as good then MFI is liable for delivery to the site and install the server and clients (the number clients depends the purchase order from the buyer). Similarly when software is bought as a service then the buyer is accountable to its installation to the servers and clients and functionality.

Contractual liability

The MFI is liable of delivering the working ant-virus software as agreed in the terms and condition and Tumba is liable to pay the specified price in the due period. On this point the United Kingdom law in the Sale of Goods Act 1979 (c. 54) article 27 says that “It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale” (opsi.gov.uk c.1980).

Rwandan Law on contractual liability

The Rwandan General Condition of Contract (GCC) says “Delivery of the Goods and Completion of the Related Services shall be in accordance with the Delivery and Completion Schedule specified in the Schedule of Requirements (rppa 2007). The delivery of goods and its payment procedure should be specified in Specified Condition of Contract, this means that when there are disagreement between parties (seller and buyer) the court judgment bases on their signed terms and conditions.

CISG Convention in relation to MFI vs Tumba case

The Article 1(a) says “This Convention applies to contracts of sale of goods between parties whose places of business are in different States, when the States are Contracting States. The above case is not governed by this law, if it was in different States and both parties are signatories of this convention then the rights and obligations of the seller and the buyer arises from their contract, (Martnussen 2006).

Strict liability with case law example: Sukljian v. Charles Ross & Son Co

From research the depreciation of goods which can be sold to other party are found to fall under strict liability. For example, Sukljian vs. Charles Ross & Son Co. In Sukljian, the Court of Appeals upheld the dismissal of a suit against General Electric brought after the company purchased a grinding mill for $4,000, had the manufacturer install a safety switch and removable fee hopper, used the machine for 11 years and then sold it as surplus for $35 to a company where the worker was ultimately injured. Because of the number of sales or the extent of sales activities, a seller of depreciated equipment would fit squarely within the rationale for imposition of strict liability, (Hamblett 2008).

Sales by description

The main case of MFI v. Tumba is found to be sales by description, from Sale of Goods Act 1979 (s.13) in the UK law, there is an implied term that the goods will correspond with the description as in the purchase order from the buyer.

For example: The case of Re Moore & Landauer

There was a contract for the sale of 3,100 tons of peaches. The goods were described as being packed 30 tons to a case when in fact some of the tons were packed 24 to a case, although the same number of tons was delivered. The purchaser was held entitled to reject the goods under s.13 (e-lawresources.co.uk 2009).

Liability and reasonable person under s.14

The seller should provide the goods which satisfy the buyer’s condition as it was defined in the contract and which is relevance to its price. The Liability under s.14 of the sales of goods act 1979 (2A) says, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances, (e-lawresources.co.uk 2009).

Exclusion of liability

In the case of MFI vs Tumba the liability of each party to the contract is necessary and should be fair and reasonable, otherwise it can be subjected to unfair Contract Terms and should be supported by reasonable reasons for them.

Liability for the loss or damage of goods

Liability for the loss of damage of goods should not be excluded here due to type of goods, the goods like ant-virus software the sellers should be liable of it during and before the being received by the buyer, the seller at this point will be accountable with any loss or damage of the goods, on the other hand the buyer should be liable on the loss or damage after test and acceptance note to the seller.

Liability of seller and buyer under the CISG Convention

If contracting parties were signatories of CISG then whole of article 36 indicating their liabilities will be applicable, it explains the liability on lack of conformity.

CHAPTER 3: THE PERCEIVED ADVANTAGES OF CISG MEMBERSHIP

Background to CISG

Many countries use different laws in trade which may be a challenge for businesses involved in international trade because their interpretation and usage may be different and may be a deterrent to the smooth flow of the import-export trade. There was need to harmonise the different laws to allow the smooth of international trade between countries.

CISG stands for Convention on Contracts for the International Sale of Goods of the United Nations. The CISG has been described as the most successful international trade treaty so far, (smith 2004). Adopted in 1980 in Vienna, Austria by diplomatic conference, the CISG was debated by the United Nations Commission on International Trade Law (UNCITRAL). On January 1, 1988, among the 11 original signatory nations CISG came into effect. Today, there are 62 countries which have adopted the CISG.

As a document, CISG has 101 articles grouped into 5 chapters addressing areas such as; formation of the contract, sale of goods, anticipatory breach, conformity of the goods, payment of the price, Sphere of application, delivery of the goods, remedies, damages general provisions, and final provision.

CISG membership benefits

It has been argued that CISG is a fair and balanced regime in line with business peoples’ expectations as it eases international trade through a legal regime that is used in different countries.

CISG has the ability to enable companies trading partners in different jurisdictions to avoid the inconsistency of the different laws and operate under the certainty of the CISG regime (2008).

Another benefit of CISG is its unified code of rules and regulations that allows that facilitates import, export and other facets of international trade easier.

CISG provides a neutral law for the smooth flow of business which is in different languages and can be used without large costs to contracting parties as long as their countries are signatories of CISG

CISG application

Article 1 (a) stipulates the CISG sphere of application where sale of goods is between parties whose places of business operations are in different stating specifically modalities for contracting with other states as the name implies that is to say contract for international sale of goods (Martinussen 2006). Article 3(2) of the Convention states the application boundaries or scope.

Limits of CISG application

Article 2 states that the goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither new nor ought to have known that the goods were bought for any such use by auction, stocks, shares, investment securities, negotiable instruments, ships, vessels, hovercraft or aircraft and electricity. In general its application is limited to the contract validity of the property or the goods sold.

Contractual choices in negotiation

From the foregoing, domestic laws are limited in international trade and can be interpreted in different ways which reduces trust and yet the uniform interpretation, integrity and balance of CISG do not change. Real advantage of the CISG to a party is when it cannot negotiate a contractual choice of its domestic law. Companies need to ask themselves whether they prefer contracts under domestic sale of goods law of the country in which their counterparts operate or by the CISG. The CISG may turn out to be a better choice.

Advantages of CISG Membership

Apart from Britain, Japan was the only major economy that had not assented to the CISG. Japanese companies were already subjected to the CISG where their contractual choice of law is the law of a signatory State. Japan’s accession to the CISG 1 August 2009 was particularly helpful in fostering its increasingly important trading relationships with China and South Korea, both of which have signed the CISG.

CISG awareness

The horizons of business continue to expand internationally while effects of globalisation are have made the world a global village and yet most lawyers, businessmen and community in general are not aware on CISG. This can be limiting factor, as the case example below shows;

Dutch-Russian case

Brödermann in his arbitration practice found a case of ignorance which says that, “I recently had a Dutch-Russian case without any explicit choice of law. When the arbitration tribunal advised on the applicability of the CISG – both the Netherlands and the Russian Federation are contracting states – it just caused surprise on both parties´ sides”. He added that some layers never take the time to concentrate on the CISG. As a consequence, they stay away from it to avoid doing something wrong and / or becoming liable for it: In some cases where the CISG is even better for their party, they may do so nonetheless not even realizing that they do not act in favour of their client. (2007).

CISG disadvantage s

The major disadvantage of CISG is lack of awareness and publicity about its benefits and support to international trade and commerce. More publicity and awareness campaigns would remove tits advantages as more and more countries become signatories.

The case of MFI vs Tumba in regard to CISG

The exclusion of CISG laws may be due to being not signatories or if MFI is located in a State where CISG applies it might be the lack of awareness. The States weather signatories or not should adopt and introduce it in academic programs, the learnt lawyers and businessmen about the CISG will be open to choose the CISG in the contract agreements.

CHAPTER 4: POTENTIAL DISPUTE

Introduction

Disputes arise when a seller or buyer fails to meet his/her obligations as stipulated in the contract agreement are considered as potential dispute. Disagreements between contracting parties if not amicably resolved lead to trade and commercial disputes.

Main case dispute

In the case of MFI v. Tumba, the buyer received software on the CDs from the seller. According to supply of goods and services act 1982, this is the sale of goods. After installation and testing the buyer found the goods was not corresponding to the described terms, the functionality of the goods was not what he expected; this was the start of dispute between parties. If the buyer sees the actual goods by applying the Act 1979 in s.15 (2C) which is sale by sample in the contract terms then the goods will be free from any defect.

Disputes as a results of Sale by description case

“This position was clearly stated in Harlington & Leinster Enterprises v Christopher Hull Fine Art [1991] 1 QB 564 concerning the sale of a painting described as being painted by German expressionist, Munter. The purchasers were unable to invoke s.13 when the painting turned out to be a fake because they had sent their agents to inspect the painting before making the purchase. There may, however, be an express term of the contract which may be relied upon or there could be an action for misrepresentation if the goods were seen before the purchase” (zootscoot ed. 2009). This case can cause a potential dispute due to unclear description or misinterpretation of the contract terms and condition.

Dispute as a result of modifying some clauses

Case of Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd (HPH 72)

In this case, the supplier of a machine sent its terms to the purchaser of the machine. The terms included a price variation clause. This was a relatively lengthy contract, it being expected that it would take 10 months to manufacture the machine and deliver it. Hence the seller wanted to protect itself with a price variation clause in case raw materials or labour prices went up over that period. The buyers relied on their form – an order form – which of course contained no price variation clause. As prices had varied over the period, the sellers wanted to invoke the price variation clause and charge an extra £2,892; naturally the buyers resisted this, claiming that the contract was on their term (law.anu.edu.au 1998).

Since contracting is by mutual agreement, the buyer should carefully and clearly define the terms and condition before assenting to the contract agreement because failure to do so may lead to high costs and penalties. In the case of Butler Machine Tool Co Ltd v Ex-Cell-O Corp, it was stated clearly that it would prevail over the buyer’s terms and conditions and this is the point the judge used to conclude the case.

The disputes and law

The law in Rwanda

According to the law in Rwanda the obligation of the seller and the buyer are clearly stated. Rwanda currently uses the civil law system, Condition of Contract (SCC) (2007, General Condition of Contract (GCC) and Special) in the standard bidding document. Clause 9.1 and 9.2 of GCC concerns dispute handling.

Dispute resolution in Rwanda

It is important to note that many disputes in Rwanda are resolved amicably without litigation in court which reduces the time and cost involved in courts of law.

According to Rwanda Official gazette special n° of 13 August 2008 a specialized commercial court was created and is operational according to Constitution of Rwanda of June 4, 2003 Article 155 : “There are hereby established the commercial courts competent to try commercial cases which are the Commercial High Court and the Commercial Courts”.

In addition arbitration and alternative methods of dispute resolution are encouraged and many new laws have been created while others are in the process of being drafted such as commercial and labour codes, as well as administrative procedures provide for arbitration.

In 1998, an Arbitration Centre was created as a non-governmental organization with the view to settling all commercial disputes. The formation of more arbitration centres is a policy adopted the Rwanda Government. A Law on Arbitration and Conciliation been drafted to provide a legal framework for improving arbitration and alternative dispute resolution in general.

The intention is for Rwandan courts to recognize a governing-law clause in an agreement that provides for foreign law whose selection is real, genuine, bona fide, legal and reasonable. Also Rwandan courts may not honour a foreign law where parties apply it in order to evade the mandatory provisions of a Rwandan law.

Rwanda and the Government have not been involved in a dispute or settlement under the auspices of the World Trade Organization (WTO) but in future this may change. RWANDA also a member of the International Centre for the Settlement of Investment Disputes (ICSID and a founding member of the African Trade Insurance Agency (ATI).(RIEPA, 2007). It is important to note that Rwanda is a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989. MIGA provides guarantees against non-commercial risks.

Figure 3 Rwanda court system

(source : JRLO,2008)

Law in the United Kingdom

The buyer’s right which allows opportunity to examine the goods for conformity with the contract is protected by the Sale of Goods Act 1979 s.54 (34). Disputes may arise if the spirit of article 29 of Sale of Goods Act 1979 c.54 is not fulfilment.

The CISG Convention

Under GISG the article 9(1) is applicable in any dispute between parties,. The convention has the binding power of law for the parties whose headquarters located are located in signatory countries. However article 6 indicates that,” the parties may exclude the application of this Convention. By explicit specifications in the contract parties may choose to exclude the provisions of CISG (smith 2004).

CHAPTER 5: BREACHES OF CONTRACT RESOLUTIONS

Introduction

Between parties unperformed obligation amicably, arbitrator or court

Contract Contract breach Dispute Resolution of contract breach

Clause 9.3 of GCC of Rwanda law and Sales of Goods act 1979 c.54, article 28 of the UK law sets out the rights and obligations of contract terms and conditions. In case the seller is unable to deliver the goods and services or buyer is unable to pay according to contract then negotiation phase is recommended before arbitration. The resolution of amicable or through courts of law.

Breach of contract

From the main case of MFI v. Tumba defective goods can cause breach of contract, in the case of software or program, the description should be clear and differentiated from services. The case below gives us the difference between goods and services with resolution to the contract breach.

Case 1: St. Albans city and district council v. International computers limited: Is a computer system “goods”.

Package consisting of 3 items hardware ($14,390) and 2 items of software (business management and WordStar ($2,160). Vendor agreed to install, train staff and provide post sale service. Council invited tenders for provision of computerized rate system. Faulty software led the council to believe that they had more ratepayers than in fact they did. Was the contract subject to any implied term as to quality or fitness for purpose, and if so, they checked the nature of that term in equivalency with of Sale of Goods Act. Is software goods? They found that Software can involved a tangible disc onto which a program is encoded and the intangible program itself (Noonan 2006).

What was the resolution in this case 1

For purposes of English Sale of Goods Act and Supply of Goods and Services Act the definition of “goods” would include the disc but not the program, (Noonan 2006).

Case 2: Microbeads v Vinhurst Road Markings [1975] 1 WLR

Vinhurst alleged breach of the term of fitness for purpose, and claimed that Microbeads did not have the right to sell the machine and Vinhurst did not have quiet possession.

The claimant purchased some road marking machines from the defendant. After the purchase a third party was granted a patent right in the machines. This meant the claimant could not use the machines unless they were granted a licence to do so (Noonan 2006).

What was the resolution in this case 2

There was no breach of s.12(1) of Sales of Goods act 1979 c.54 as at the time of the sale the seller had the right to sell the goods. However, there was a breach of s.12 (2) of Sales of Goods act 1979 c.54 in that the buyer could not enjoy quiet possession of the goods (Noonan 2006).

The breach of contract results into mitigation of loss

Article 77 of CISG states that, “A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated” (Martinussen 2006). When two contracting parties are governed by CISG Convention the article mentioned above may be used in resolution if the contracted parties.

Case example where CISG is neither included nor excluded

Ajax Tool Works, Inc. v. Can-Eng Manufacturing Ltd., 2003 WL 223187 (N.D. Ill. 2003), the plaintiff was an Illinois corporation, while the defendant was an Ontario corporation. The contract between the parties stated: “This agreement shall be governed by the laws of the Province of Ontario, Canada.”24 The court held that this statement did not exclude the CISG. Rather, the court held, “because the CISG is the law of Ontario, the CISG governs the parties’ agreement (Smith 2004). According to the article 6 of CISG, the case above both parties did not opt-out the CISG conventional which means it is still applicable.

Rwandan law on Contract with foreign Supplier

International Commercial Arbitration may have practical advantages over dispute resolution methods in case of contracts with foreign suppliers. In case of the arbitration proceedings, the purchaser or seller may consider the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules of 1976. According to the Rwanda public procurement Authority (RPPA) either of the two above may also consider the terms of the International Chamber of Commerce (ICC), the Rules of the London Court of International Arbitration