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NEW QUESTION 49
Terry's Toys is a Toy Manufacturer who has an agreement to provide Toys to an online re-tailer. The retailer has ordered 500 toys from Terry and Terry has incurred costs of £3000 manufacturing the toys. Halfway through production the retailer calls Terry to cancel the order. Terry reads through the contract and sees a liquidated damages clause of £1000. What should Terry do?

• A. Terry can do nothing and must pay the additional £2000 out of his own pocket
• B. Terry can sue the retailer for the additional costs incurred above the liquidated damages
• C. Terry can apply to the court to increase the liquidated damages to £3000
• D. Terry can deliver the toys as agreed as there is a contract in place

Answer: A

Explanation:
The correct answer is 4- Terry can do nothing and must pay the additional £2000 out of his own pocket. Liquidated damages are a pre-estimate of loss - they can't be changed by a court and you can't demand the buyer pays any higher than this if you actually lose more than is stated. This is one of the major disadvantages of having liquidated damages. Option 3 is a bad idea- the retailer has communicated that they do not want the toys so Terry is likely to only incur additional costs if he continues manufacturing them and delivers them. See p.106. There are lots of questions like this in the exam. Remember to think what the study guide would say- rather than what would happen in real life. Don't over complicate things.

NEW QUESTION 50
Derrek owns a factory and employs a Facilities Management Company called Balls FM to look after certain aspects of the factory including cleaning and testing the machinery to ensure they are in good working condition. One day he realises that one of the cleaners doesn't work for Balls FM, he works for another company called Bells FM. Which of the following statements regarding subcontracting is true?

• A. It is okay for Balls FM to subcontract out part of the contract to Bells FM if they are unable to fulfil their obligations
• B. Balls FM have committed a fundamental breach of the contract
• C. Subcontracting is never allowed in a contract unless specifically mentioned.
• D. Subcontracting would be if Derrek delegated responsibility for managing the contract to a member of his team

Answer: A

Explanation:
"It is okay for Balls to subcontract" is the correct answer. This question is testing whether you know that subcontracting can be a remedy in a contract. It is usually okay for a supplier to use a subcontractor if they're unable to fulfil their responsibilities and the alternative would be to breach the contract. This is a difficult question because you don't get a lot of context- it's based on a similar question in the exam- but just remember subcontracting can be a solution if one party can't fulfil their obligations in a contract. This is better than them breaching the contract. See p.89 for more information on subcontracting

NEW QUESTION 51
Which of the following statements about adjudication is true?

• A. adjudicators are appointed at random and therefore may not have specific knowledge of the subject matter
• B. the decision made by the adjudicator is binding and usually communicated within 28 days
• C. parties are expected to present their cases in person in front of the adjudicator
• D. the decision making process can be lengthy and expensive

Answer: B

Explanation:
The true statement is 'the decision made by the adjudicator is binding and usually communicated within 28 days'. The other three are false- adjudicators are usually experts in their field, the decision making process has a tight timescale and parties present their arguments in writing. This is the only written conflict resolution method.

NEW QUESTION 52
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