Legal Aspect of Supply Chain | Q&A

Legal Aspect of Supply chain
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The legal aspect of supply chain 1
Contents
Question 1...................................................................................................................................................2
Question 2 (a)..............................................................................................................................................3
Question 2 (b)..............................................................................................................................................6
Bibliography................................................................................................................................................9
Legislation 9
Case laws 9
Books/Journals 9
Other Resources 9

The legal aspect of supply chain 2
Question 1
The supply chain is an important area for each business that refers to a network between the
organization and its suppliers to produce and distribute a particular project. There are different
areas of law that affect supply chain participants and knowledge of the same seems necessary to
have. The two areas of the law selected for the discussion hereby are tort of negligence and the
Modern Slavery Act.
Firstly, to discuss the implementation of the Modern Slavery Act this is to state that the act
outlines principles of human rights and prevent actions such as human trafficking, slavery, and
other issues. Modern Slavery Act1 puts an additional burden on entities where they are required
to ensure that no human right abuse or related activities are being done in their supply chain and
the system is transparent2. Knowledge of these rights makes the supply chain participants aware
of their rights where they can save themselves from exploitation or other adverse activities. In
addition to this, many times such participants further delegate their authorities to juniors or
employ people and in such a situation they also need to take care of this act. In many of the case,
it has been seen that suppliers of business use slave labors and therefore knowledge of this act
seem necessary to have for them to know their liability.
Further to discuss tort of negligence this is to state that the same brings liability to a person who
commit wrongdoing against another party to whom he/she owed a duty of care. In a supply
chain, many times people possess physical injury or economic harm by others and in such a
situation, they can bring an action of damages if the same would know tort law of negligence.
Vicarious liability is an important concept of tort law according to that employer is responsible
for the tort committed by the employees3. In such a situation if any supply chain participants are
employees of an organization rather than an independent contractor then their employers may
have to face the liability if the negligence is committed during the regular course of their duties.
1 Modern Slavery Act 2015
2 (Assets.publishing.service.gov.uk, 2020) <https://assets.publishing.service.gov.uk/government/uploads/system/
uploads/attachment_data/file/649906/Transparency_in_Supply_Chains_A_Practical_Guide_2017.pdf> accessed 15
April 2020.
3 Peter Bowal and Louis Bontorin, 'Vicarious Liability: The Legal Responsibility Of Employers - Lawnow
Magazine' (LawNow Magazine, 2020) <https://www.lawnow.org/vicarious-liability-legal-responsibility-of-
employers/> accessed 15 April 2020.

The legal aspect of supply chain 3
Knowing these areas of law might be helpful in a future career as they make a person enable to
understand what are the rights and liabilities of parties under a case or what are other key points
that should be paid attention to, possible areas of liabilities, penalties and other aspects related to
business transactions. By developing knowledge of these acts, a person may escape his/her
liability under different areas of business or else can guide others as well in the capacity of legal
consultants.
Question 2 (a)
A valid contract between the parties decides rights and obligation of them where both the parties
are liable to act in the manner outlined under the contract and can ask to do the same to another
party. As soon as a contract is developed, parties become bound to perform their promises
mentioned under the contract. It clearly shows that for doing so a valid contract needs to exist
between the parties. Now moving the discussion towards discharge of a contract, this is to state
that a contract may be discharged in many ways. The most basic way is the discharge of a
contract by the way of performance where both the parties do their work as decided under the
contract and become free from their obligations. If only one party fulfills its promises and the
other party does not then the situation is known as breach of contract. In such a situation
contract, the law offers certain remedies to innocent parties. Here one another aspects are also
necessary to discuss that has an impact on the type of remedies. This aspect is the contractual
terms.
There are two types of terms under a contract one is condition and another one is warranty4.
Where conditions are the essentials and indispensable to contract, warranties are not. It means
conditions are those terms, which are essential for the main purpose of the contract. A breach of
warranty does not lead to the discharge of a contract. In the given situation, the machine used by
the Action Ltd malfunctioned and attained the services of Bex Ltd for the repair of the machine.
Bex Ltd. been agreed to repair the same in a period of seven days but later on breached the
contract by not doing so.
Remedies
4 Jill Poole, James Devenney, and Adam Shaw-Mellors, Contract Law (Contract Law Concentrate: Law Revision
and Study Guide 2017).

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As mentioned earlier, contract law offers a range of remedies in case of breach of contract that
includes damages, repudiation, specific performance, injunctions, and rescission. Damages are
repudiation are the most two common types of remedies. Damages can be understood as the
reward of money offered to the innocent party to compensate him/her5. The main purpose of
damages is to put the injured party in the situation they would have been if the contract had been
performed. While determining the award of damages some other rules do also apply which are
namely rules of causation, remoteness, and mitigation. These are different rules that determine
the award of damages as well as its limitations.
Causation:- This rule states that the breach of contract must be the lead cause of loss suffered by
the innocent party. In other words, this is to state that there must be a casual connection between
the breach of contract and loss sustained.
Remoteness:- This is the second principle that needs to study while discussing the remedy of
damage under contract law. These principles have been set out under the case of Hadley v
Baxendale6 according to which a claimant under breach of contract can recover only those seems
to occur naturally from the breach or those which were supposed to be in contemplation of the
parties at the time of development of the contract7. The discussion of facts and decision of this
case seems to be necessary here. In this case, the claimant had a mill where the crankshaft broke.
He attained repair services of the defendant where the same was liable to take the broken
crankshaft from the premises of the claimant and to return it after repairing the same. The
crankshaft has been returned to the claimant with a delay of 7 days due to the negligence of the
defendant8. Cause of such unavailability of the crankshaft the claimant was not able to use the
mill during this time and therefore later asked damages for the loss of profit occurred due to shut
down of mill for seven days. The defendant had made his argument when the matter went into
the court. In his argument, he stated that he was not aware of the fact that the mill would have
been closed due to such delay and as a result, he was not liable for the loss that happened to the
claimant as the same was too remote. The court decided that damages under a breach do allow
5 'Types Of Damages Available For Breach Of Contract' (LegalMatch Law Library, 2020)
<https://www.legalmatch.com/law-library/article/types-of-damages-available-for-breach-of-contract.html> accessed
15 April 2020.
6 Hadley v Baxendale [1854] EWHC Exch J70 Courts of Exchequer
7 Wayne Courtney, Contractual Indemnities (Bloomsbury Publishing 2014).
8James Marson and Katy Ferris, Business Law (5th edn, Oxford University Press 2015).

The legal aspect of supply chain 5
for the losses that seem to arise naturally from such breach as well as those which were supposed
to be in contemplation of the parties at the time of development of the contract.
The application of this principle can be seen in many of the cases where the same made a
significant influence over the amount of damages. One such case is Victoria Laundry (Windsor)
Ltd. v. Newman Industries Ltd9. In this case, the claimant brought a large boiler to use in his
business of laundry and dying. Even being aware of the nature of the business of the claimant
and the immediate requirement of the boiler, the defendant made a delay in the delivery of the
boiler. Due to this late delivery, the claimant suffered from the loss of profit that he could earn
during this period of delay if the boiler was delivered on time10. In addition to this, the claimant
also lost a contract in the meanwhile due to the unavailability of the boiler. In this case, the
claimant brought an action against the defendant for the loss of income as well as the loss of
contract. In the decision of this case, the court provided that the claimant was only entitled to
recover loss of profit due to the absence of a boiler as the same were in the reasonable
contemplation of the parties. The defendant was not and could not be aware of the lucrative
contract and therefore damages cannot be awarded for the same.
Here, in other words, this can be stated that the damages are to be awarded for the losses that are
foreseeable to the defendant in a reasonable manner.
In the given case, even after being aware of the importance of the machine in the business of
Action Ltd. Bex Ltd delayed the repair work by two months. During this period, Action Ltd used
less efficient machinery that resulted in less production and a loss worth £4000 each month i.e. a
total loss of £8000. The facts of this case are very similar to Victoria Laundry (Windsor) Ltd. v.
Newman Industries Ltd. Similar to this case, in the given case also the innocent party has lost a
significant business contract due to delay caused by the liable party.
Applying the provisions of causation, the delay of Bex Ltd. seems to be a cause of loss of £8000.
Further applying the principles of the remoteness of damages confirmed in the case of Hadley v
Baxendale and the decision given in the case of Victoria Laundry (Windsor) Ltd. v. Newman
Industries Ltd, the loss of £8000 seems to be a natural outcome from the breach done Bex Ltd.
The loss of contract was not reasonably foreseeable as Bex Ltd could not assume that Coplay
9 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
10 Jill Poole, Textbook On Contract Law (Oxford University Press 2014).

The legal aspect of supply chain 6
would offer such a contract to Action Ltd and the company would not be able to accept due to
the unavailability of the toy-manufacturing machine.
Duty to mitigate loss:- According to this principle, the claimant owes a duty to reduce the risk
by taking reasonable steps. In the case of Payzu v Saunders11, the claimant made a mistake in
making the payment of installment to the defendant and due to the same, the defendant canceled
to continue with the contract12. Nevertheless, he has been agreed to continue with the same by
offering some additional terms to the claimant, which has been rejected by the claimant. Later
on, the claimant sought damages for the difference in price he had to pay due to the cancellation
of the contract with the defendant. It was held that the claimant had no entitlement to receive
such damages as he rejected an opportunity earlier and taken no step to mitigate the loss.
As many of the facts and aspects remain involved in a case therefore the aforesaid three
principles likely to be important in the determination of the amount of damages. In the case
provided hereby the risk seems to be properly mitigated by Action Ltd as it continued the
production with the less efficient machine and therefore the loss occurred to the same were
actual losses after all the reasonable efforts made by the innocent party. To conclude the issue
raised in the given case study, this is to state that as per the rules of causation, remoteness, and
mitigation, Action Ltd seems entitled to receive damages for actual losses only and not the loss
of contract the same could enter into with coplay.
Question 2 (b)
The supply chain is a business process similar to any other operation and therefore it is common
to have disputes under the same. Parties of such disputes have the option to settle the same in
various ways. It means the disputes can be resolved by following the traditional litigation process
or by choosing alternative methods of dispute resolution that mainly include arbitration,
arbitration, mediation, and consultation. In this part of the report, the focus will remain on the
first two methods i.e. arbitration and consultation. This is to state that supply chain participants
may want to resolve their dispute through these methods as they provide a range of benefits.
Staring the discussion over the benefit of ADR, this is to state that it is a friendly method to
11 Payzu v Saunders [1919] 2 KB 581
12 'Payzu V Saunders' (E-lawresources.co.uk, 2020) <http://www.e-lawresources.co.uk/cases/Payzu-v-
Saunders.php> accessed 31 March 2020.

The legal aspect of supply chain 7
resolve a dispute where parties may select arbitration of their choice13. In such a situation the
chances to follow the decision being satisfied enhances. The second major benefit of this form of
ADR is the same is cheaper as well as flexible in comparison to the litigation as this is a less
formal process than court litigation14. The supply chain is a continuing activity and the
occurrence of disputes seems common. In such a situation, these participants cannot be involved
in the hardcore process of courts, as it demands much time, efforts and cost. The process of
arbitration as well as awards of the same remains as confidential as court proceedings and
sometimes even more confidential than the court litigations15. Here the participant remains to
relax about their personal details. Arbitration resolves the disputes between the parties very
frequently and for this reason, too the same seems attractive to the supply chain participants.
Lastly, the arbitrator award has the same value as a decree of the court and parties have to follow
the same in an equal manner.
Similar to arbitration, mediation is another important method of ADR that supply chain
participants might prefer to choose. The reason is the same as this method also does have a
variety of benefits to serve. This method does mainly preferred by those who do not want a
binding decision, as awards under mediation are not binding similar to a court decree or
arbitration award. Further, the cost involved in this dispute resolution method is even less than
the arbitration and of course to litigation. In this manner, this seems to be a very good option for
those cases where disputes are minor and do not require the involvement of strict authority. The
most significant point to make here is the relationship between the parties. It is generally known
that the litigation process often disturbs the mutual relationship of parties, the case is not the
same with mediation. It is a friendly method to resolve the dispute that maintains the healthy
relation of parties even after the settlement of disputes. Supply chain participants have to deal
with the same workers and partners regularly and hence in this situation, this method seems to be
better for them rather than others16. In addition to this, it ensures confidentiality, support and a
13 What Arbitration?, 'What Are The Advantages And Disadvantages Of Arbitration?' (UpCounsel, 2020)
<https://www.upcounsel.com/what-are-the-advantages-and-disadvantages-of-arbitration> accessed 31 March 2020.
14 'What Are The Benefits And Drawbacks Of Arbitration?' (The Balance Small Business, 2020)
<https://www.thebalancesmb.com/what-are-the-benefits-and-drawbacks-of-arbitration-398535> accessed 31 March
2020.
15'Advantages Of Arbitration | Scottish Arbitration Centre' (Scottisharbitrationcentre.org, 2020)
<https://scottisharbitrationcentre.org/?page_id=200> accessed 31 March 2020.
16 The Group, '8 Benefits Of Mediation' (The Liberty Group, 2020) <http://thelibertygroup.com.au/8-benefits-of-
mediation/> accessed 31 March 2020.

The legal aspect of supply chain 8
good level of control and therefore for these reasons, supply chain participants may prefer these
methods.

The legal aspect of supply chain 9
Bibliography
Legislation
Modern Slavery Act 2015
Case laws
Hadley v Baxendale [1854] EWHC Exch J70 Courts of Exchequer
Payzu v Saunders [1919] 2 KB 581
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
Books/Journals
Courtney W, Contractual Indemnities (Bloomsbury Publishing 2014)
Marson J, and Ferris K, Business Law (5th edn, Oxford University Press 2015)
Poole J, Devenney J, and Shaw-Mellors A, Contract Law (Contract Law Concentrate: Law
Revision and Study Guide 2017)
Poole J, Textbook On Contract Law (Oxford University Press 2014)
Other Resources
(Assets.publishing.service.gov.uk,2020)
<https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/
file/649906/Transparency_in_Supply_Chains_A_Practical_Guide_2017.pdf> accessed 15 April
2020
'Advantages Of Arbitration | Scottish Arbitration Centre' (Scottisharbitrationcentre.org, 2020)
<https://scottisharbitrationcentre.org/?page_id=200> accessed 31 March 2020
Arbitration? W, 'What Are The Advantages And Disadvantages Of Arbitration?' (UpCounsel,
2020) <https://www.upcounsel.com/what-are-the-advantages-and-disadvantages-of-arbitration>
accessed 31 March 2020

The legal aspect of supply chain 10
Bowal P, and Bontorin L, 'Vicarious Liability: The Legal Responsibility Of Employers -
Lawnow Magazine' (LawNow Magazine, 2020) <https://www.lawnow.org/vicarious-liability-
legal-responsibility-of-employers/> accessed 15 April 2020
Group T, '8 Benefits Of Mediation' (The Liberty Group, 2020) <http://thelibertygroup.com.au/8-
benefits-of-mediation/> accessed 31 March 2020
'Payzu V Saunders' (E-lawresources.co.uk, 2020)
<http://www.e-lawresources.co.uk/cases/Payzu-v-Saunders.php> accessed 31 March 2020
'Types Of Damages Available For Breach Of Contract' (LegalMatch Law Library, 2020)
<https://www.legalmatch.com/law-library/article/types-of-damages-available-for-breach-of-
contract.html> accessed 15 April 2020
'What Are The Benefits And Drawbacks Of Arbitration?' (The Balance Small Business, 2020)
<https://www.thebalancesmb.com/what-are-the-benefits-and-drawbacks-of-arbitration-398535>
accessed 31 March 2020