Terms, Conditions, Innominate terms
Lord Justice Dipplock, by his judgment in Hong Kong Fir Shipping Co V Kawasaki
Kisen Kaisha1, put into effect a new way of examining the cases for the breach of a
contractual term and the rights of innocent party to terminate the contract or to sue for
damages. Since then, the principle was the classification of the terms into 'conditions'
and 'warranties'. After the leading case of Hong Kong Fir Shipping, a new
intermediate level of terms category, the 'innominate terms', came in to give the
courts more flexibility to judge with fairness.
The classification of terms can be made in three different ways2. The first one is by
Parliament. The Sale of Goods Act 1979 in many sections3 classifies the terms as
'conditions', giving guidelines to the courts. A decision based on the above Act (its
previous version of 1893) was this of Arcos Ltd V Ronaasen and Sons4 when the
House of Lords gave the right to the purchasers to reject the goods because what the
sellers delivered did not agreed with the description that existed in the written
contract5.
The second one is by the courts. The courts, when the terms are classified neither by
Parliament nor by the contractual parties, use their previous judgments and, after
Hong Kong Fir Shipping case, the principle of innominate term to decide whether a
breach of a term has such serious consequences as to bring the contract to an end. The
mission of Courts to take such a decision is very difficult since usually there are
inaccuracies in the contract documents and the innocent party may state a claim to
terminate the contract using false reasons for its intention.
Thirdly, the contractual parties can classify a term as 'condition' by making clear the
intention to do so and this intention must be expressly stated in the contract
document.
Nevertheless, since the word 'condition' has various meanings including 'condition
precedent' , in some cases the written intention of the parties to consider a term as a
'condition' does not oblige the courts to take it under consideration. Such a case is L
Schuler AG V Wickman Machine Tools Sales Ltd6, where the clause 7(b) was written
as a 'condition'. The use of the word 'condition', according to Lord Ried, was a mere
'indication', the breach of which neither caused such serious consequences nor can
give the right to Schuler AG to terminate the contract.
Accounting not only the above facts and difficulties of the courts to classify the terms
but also that in 1962, when the Hong Kong Fir Shipping case took place, the Sales of
Goods Act 1979 was not established, we can understand easily the statement of Lord
Dipplock. It was necessary to find a new way to judge with flexibility and fairness the
"contractual undertakings ...
This is a preview of the whole essay
'indication', the breach of which neither caused such serious consequences nor can
give the right to Schuler AG to terminate the contract.
Accounting not only the above facts and difficulties of the courts to classify the terms
but also that in 1962, when the Hong Kong Fir Shipping case took place, the Sales of
Goods Act 1979 was not established, we can understand easily the statement of Lord
Dipplock. It was necessary to find a new way to judge with flexibility and fairness the
"contractual undertakings of a more complex character which can not be categorized
as being 'conditions' or 'warranties'7", since the "late ninenteenth century"8 meaning
was, until then, given by the Sales of Goods Act 1893 and the leading case of Bentsen
V Taylor, Sons and Co9.
The word 'condition' is used for an important term of the contract and the word
'warranty' for a term of lesser importance. A breach of a condition gives the right to
the innocent party to terminate the contract and to sue for damages,or to affirm the
contract but also sue for damages. A breach of a warranty gives to the innocent party
the right only to sue for damages and in no way to terminate the contract10. Two
similar cases for classification of terms as 'conditions' or 'warranties' are Poussard V
Spiers11 and Bettini V Gye12.
In Poussard V Spiers, the plaintiff was a singer who agreed with the defendant that
she would play in an opera, as leading role, for a period of three months. Five days
before the opera was due to start, the singer became seriously ill. Since the defendant
did not know when she would become well enough to play and as she had the leading
role, he replaced her permanently terminating their agreement. The court, taking
under consideration "the failure of her performance", decided that performance her
perform had to be categorized as "condition". According to that, the defendant had the
right to terminate the contract, as he did.
Similarly in Bettini V Gye, Bettini was a singer as well, and agreed with Gye
to play tenor role from the end of the march to the middle of July. Bettini had to
attend rehearsals six days before the first program of the season but because of an
illness he did so with three days delay and Gye terminated the contract. Since Bettini
could attend the remaining three days of rehearsals and the whole season's program as
well, the term was considered as a 'warranty' and the court decided that Gye was not
entitled to terminate Bettini's contract.
Both the above cases give clearly the guidelines for judging cases by examining the
consequences of the failure of a party to perform its obligations to the other. But
some cases are so complex and , that the courts have difficulties classifying the terms
in the two main categories. Moreover, the classification into 'conditions' and
'warranties' does not give flexibility to the courts.
The classification into the two traditional categories is not applied in cases such as
Hong Kong Fir Shipping Co V Kawasaki Kisen Kaisha Ltd13. In the Hong Kong Fir
case, the defendant chartered a 'seaworthy', according to the terms, ship from the
plaintiff for twenty four months. The engines of the ship were very old and the
engine room staff was inefficient. As a result the ship needed repairs and this caused
delays to its use by the defendant. Defendants decided to terminate their contract with
Hong Kong Fir Shipping not only because of the breach of the term for the
'seaworthiness' of the ship but also because the ship-owners failed to provide a ship
fitted for "ordinary cargo service". Plaintiffs brought an action against the charters for
wrongful repudiation. The court found difficulties in examining whether the term was
'condition' or 'warranty' and it was finally decided that the term was of a new
intermediate category of terms, the 'innominate terms', a breach of which has to be
counted by the court according to the significance of the damages of the innocent
party. In Hong Kong Fir Shipping Co V Kawasaki Kishen Kaisha Ltd case, it was
decided that the defendant was not entitled to terminate the contract but only to sue
for damages, since these damages were not the whole amount of the contract but a
part of it. The validity of the contract remained after the repairs and could continue
until the agreed date of termination.
After the judgment in the above case, courts have the flexibility of using not only the
two traditional categories but the intermediate one as well. Furthermore, the
'innominate terms' give fairness to the court's decisions since in examining any case
separately, the facts and the consequences are important to guide judges to the rights
of the innocent party. The above statement can be proved by cases in which the
breach of an 'innominate term' had a different significance for the courts.
In Maredelanto Compania Naviera SA V Bergbau-Handel GmbH (The Mihalis
Angelos)14 the ship-owner promised a vessel to be ready to load on 1st of July 1965.
The charters had the option to bring the contract to an end in the case that the ship
would not be ready up until the 20th of July. However, the defendants cancelled the
charter, because of the absence of the shipment, on 17th of July. The court held that
the charters had the right to repudiate the contract because the "expected to be ready"
term was treated as a condition. In a contract, a term like the option of the charters to
cancel the contract, within a specific period of time, can be used as a condition
especially when the contract is occupied with sales of goods which are going to be
carried in the sea15.
Nevertheless, in cases, like Cehave NV V Bremer Handelsgesellschaft mbH (The
Hansa Nord),16 where the buyer agreed to purchase an amount of citrus pulp pellets
including a term stating that the cargo should be transported in "good condition", the
court held that this will not be a condition. More specifically, in that case the court's
judgment was that, as the goods were not entirely destroyed , the contract should not
be treated as discharged. The buyers, though, had the right to sue for damages for the
part of the cargo which was destroyed. Moreover, in that case, it can be apparent that,
even though the buyers used an agent to buy the pellets for them in a lower price of
£30,000 to use them for their original purpose, the court prevented this from
happening by its decision that the contract should not be repudiated.
As a result of these, innominate terms provide contractual fairness due to the remedial
flexibility that they promote. In cases where innominate terms can not be applied,
unfairness might arise, like in Arcos Ltd V Ronaasen and Sons17. Here the court
affirmed the repudiation of the contract, even though there was no substantial damage
to the shipment. The judgment of the court was based on the s.13 of Sale of Goods
Act 1893 and classified the term as a condition, without considering the consequences
of the breach but only focused on the nature of it.
In conclusion, I would like to mention that innominate terms can be a very helpful
tool for the court to discover the significance of an undertaking in relation to the
classification of terms. Furthermore, I strongly believe that intermediate terms result
in a contractual fairness which focuses on the consequences of the breach and as a
result offers remedial flexibility. Problems arise when innominate terms are not used,
as the court may have difficulty determing which terms are important for the contract.
Finally, in my opinion, the statement of Lord Justice Dipplock, in Hong Kong Fir
Shipping Co V Kawasaki Kisen Kaisha , is a fresh and flexible approach for the
mission of courts to define contractual terms.
Bibliography
* Davies F.R., Contract, 4th edn. (London Sweet & Maxwell 1981)
* H.G.Beale, W.D. Bishop & M.P. Furmstom, Contract Cases and Materials, 4th edn.(Butterworths 2001)
* Holborn law tutors, Ellements of the law of the contract casebook (Old Bailey Press Limited 1986)
* Keenan Denis, English Law, 14th edn. (Pearson Longman 2004)
* Mckendrick Ewan, Contract law, 6th edn. (Palgrave Macmillan 2005)
* Mckendrick Ewan, Contract law Text, cases and Materials 2nd edn. (Pearson Longman 2004)
* Wheeler Sally & Shaw Jo, Contract Law Cases, Materials and Commentary (Oxford Clarendon Press 1994)
[1962] 2 QB 26
2 Contract Law, Cases and Materials, McKendrick p.942
3 s.12(5A) s.13(2), s.14(6), s.15(3), s.15A(1)
4 [1933] AC 470
5 s.13 Sale of Goods Act 1979
6 [1974] AC 235
7&8 Lord Justice Dipplock in Hong Kong Hong Kong Fir Shipping Co V Kawasaki
Kisen Kaisha
9 [1893] 2 QB 274
0 s.61(1) Sale of Goods Act 1979
1 [1876] 1 QBD 410
2 [1875] 1 QB 183
3 [1962] 2 QB 26
4 [1971] 1 QB 164
5 Mocata J in Maredelanto Compania Naviera SA V Bergbau-Handel GmbH (The Mihalis
Angelos)
6 [1976] QB 44
7 [1933] AC 470
