181 CLS Seminar

Condition - A condition is a major term of the contract which if breached can lead to termination of the contract. The remedies for breach of a condition are damages and termination of the contract, although this does not mean they MUST terminate for a breach, the parties may continue with the contract if they reach an agreement.

An example of a condition can be seen in D&G Cars Ltd v Essex Police Authority 2015. In this case it was held that there was an implied CONDITION with regard to honesty and integrity. D&G Cars recovered vehicles that had been seized by the police, one vehicle which they had been instructed to crush had in face been used for a training exercise for D&G's apprentices. They had swapped the body of the supposedly crushed Land Rover onto another vehicle for training purposes. The court referred to Lord Denning's judgement in the Honk Kong Shipping case "if the breach goes to the root of the contract, the other party is entitled to treat himself as discharged." Also referring to Yam Seng Pte LTD v International Trade Corportation LTD, which Justicie Leggatt in his judgement stated "the two principle criteria used to identify terms implied in fact are that the term is so obvious that it goes without saying and that term is necessary to give business efficacy to the contract." The court held that the breach of honesty with regard to the vehicle was a CONDITION of the contract and therefore Essex Police had the right to terminate the contract.

Warranty - is a minor or ancillary term of the contract, the remedies for such are only to sue for damages. However a warranty in a insurance contract is treated as a condition.

An explanation of this was given by Lord Denning in the Honk Kong Shipping case "if the breach goes to the root of the contract, the other party is entitled to treat himself as discharged: but if it does not go to the root he is not." In Bettini v Gye it was stated in the contract that the singer should attend reharsals 6 days before the start of the show, however Mr Bettini was unable to due to a temporary illness, they sought to terminate the contract. It was found that the attendance of rehearsals was NOT a condition of the contract, the court gave several reasons for this. Firstly "if the engagement had only been for a few performances... it would afford a strong argument that attendance for the purpose of rehearsals during the six days immediately before... was a vital part of the agreement." The contract was for 15 weeks and they also found that it could only affect the "first week or fortnight of this engagement... we think, therefore, that it does not go to the root of the matter." It should also be noted that his contract prevented him from working for the 1st January to 31st December, despite the fact that he did not start until March 30th. The court referred to this deprivation of earnings during this time and clearly placed weight on the fact that this seems very unfair to now terminate the contract for such a small breach in light of the fact that he has stayed out of work for 3 months to comply with the contract.

Innominate Term - This is a 'wait and see' approach if its not possible from the outset to state the consequences of the breach of the term. If it goes to a court, they will see what the breach is and provide a remedy depending on its level of seriousness. They can find an innominate term a condition OR warranty and will provide the relevant remedy.

A key case to demonstrate a innominate term is the Hansa Nord case 1975. The buyers had rejected a shipment of citrus pulp pellets (intended for animal feed) under the term in their contract "shipment to be made in good condition." It was not disputed that soem of the pellets were damaged on arrival. Initially they had paid £100,000 for 12,000 tons but by the time the shipment had arrived the price had substantially fallen; after they rejected the shipment, the exact same shipment was sold to an importer for £30,000 who on the same day sold it back to the original buyers for the same price £30,000. The key to this case is that they used "the entire cargo to manufacture cattle food... by using smaller percentages in their compound feeds than would be normal with sound goods." The court found that the term "good condition" was not a condition of the contract, and thus they were not entitled to reject the entire cargo. This was because the pellets were of "merchantable" quality and were used for their intended purpose of animal feed so the breach did not go to the root of the contract. Crucially the court did agree that it was a warranty of the contract and the buyers were entitled to damaged for the product that arrived in a poor condition.

Hong Kong Fur Shipping v Kawasaki Kisen Kaisha LTD 1962 - the issues concerned the charter of a cargo ship, the ship itself was built in 1931. After the ship was delivered the charterers encountered several problems with the ship, initially the vessel had engine repairs that took 5 weeks, then on completion of the first voyage she needed further engine repairs taking another 15 weeks. That repair was as a result of the incompetence of the engine room staff and their inability to maintain the ship properly (the ship was undermanned and without sufficient expertise for such an old ship). The ship had been delivered on 13th February 1957 and it took until 15th September 1957 until the vessel was seaworthy in every respect and had the correct engine-room staff, at this point there was still 7 months left on the charter. by mid-August freight rates had dropped from 47s per ton to 13s 6d per ton, on the 11th September 1957 the charterers had written to the owners terminating the contract. Lord Justice Sellers stated that there was no precedent to allow un-seaworthiness alone "to entitle the charterer to escape from the charterparty." He stated the conditions in which they could terminate, "if the delay in remedying any breach is so long in fact... that the commercial purpose of the contract would be frustrated." He did however make the distinction in the Stanton v Richardson case where the ship was not fit to carry the cargo and could not be made fit in time to frustrate the voyage, thus the charterers were entitled to refuse. The difference clearly in this case is that they have not been wholly deprived of the commercial use as they still have 7 months left on the charter. However as this was established as a warranty, the court agreed the charterers would have been able to claim damages for the delay, so they would not go without remedy.

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