This case is famous for introducing the modern classification of terms, innominate terms.
Defendants had a ship chartered by the claimants for a 2 year period. The agreement included a term that the ship would be seaworthy throughout the period of hire. The ship was delivered in February and on the same day sailed to the USA picking up cargo then moved onto Japan. The ship was old, with the necessary maintenance of the machinery by experienced staff being needed. There was insufficient staff and the chief engineer was a drunk.As a result problems developed with the engine of the ship. Consequently the ship was out of service for a 5 week period and then a further 15 week period due to malfunctions.
Within the agreement, there was clause stating that the ship must be seaworthy. As the ship was not the defendants could have bought forth action and claimed damages. However the defendants treated this as a breach of condition and ended the contract based on the term seaworthiness. The claimants brought an action for wrongful repudiation arguing the term relating to seaworthiness was not a condition of the contract.
The legal issue here was whether the consequences of breaching this clause amounted to that of a warranty or condition.
The defendants were liable for wrongful repudiation. The court introduced the innominate term approach. Rather than seeking to classify the term itself as a condition or warranty, the court sought to look as the effect of the breach and question if the breach had substantially deprived the innocent party of the whole benefit of the contract. Only where this is answered affirmatively would a breach to a condition exist.
20 weeks out of a 2 year contract period did not substantially deprive the defendants of whole benefit and therefore they were not entitled to repudiate the contract. It was held by the Court of Appeal that clause was not a condition as it was not great enough to frustrate the commercial purpose if the charter. The defendants were still able to sail the ship. Termination would've been possible only if the benefit of the charter was completely lost. For instance, had they not been able to set sail at all due to the the malfunctioning machinery.
This case opens up the debate of whether innominate terms ought to be a classification of terms.
It can be argued that only terms should only be able to fall between the classifications of conditions, warranties and innominate terms. In favour of innominate terms being a classification, one may argue that by looking at the consequences of the clause, the courts could reasonably come up with a variety of appropriate remedies for the situation. Inturn, unnecessary remedies which may be deemed too much or too little, retrospectively, are avoided initially.
On the other hand, the traditional classifications are seen by some to be the only necessary forms of terms; raising the question of whether the courts should even bother looking at innominate terms. The presence of such a classification arguably makes the understanding and clarity of clauses in a contract much more blurred than they ought to be. Transactional certainty can be lost between both parties as a result. This may lead to nullity with both parties walking away without an agreement between them. incompleteness may also present itself as either or both parties fail to include essential terms.
With regards to the case, the term seaworthiness itself is open to suggestion. The degree of what makes a ship sea worthy is debatable. Where to party A for examples, a missing railing would deem a ship completely unavailable and out of service, to party B the term may apply only to malfunctioning machinery and engines of such. So, perhaps, the degree to which the term would have been valid, should have been mentioned in the contract to avoid any miscommunication and inturn misunderstandings about remedies available should there be a breach. The certainty and clarity of the clause would also improve significantly.
All in all, the presence of innominate terms provides a grey area in which some cases may fall into. without this area, as mentioned previously, the remedy provided may prove to be too strong or too week. Innominate terms allows each case to be given the remedy they deserve according to the consequences that the clauses bring forth.