#17243 - Classification Of Terms - GDL Contract Law

Terms may be either:

• Conditions: go to the route of the contract.

  • Remedy: elect to terminate/affirm contract or to claim damages. NB this election is binding. If elect to sue for damages cannot later request performance.

• Warranties: terms of less importance

  • Remedy: damages only.

• Innominate Terms: terms that are neither conditions nor warranties

  • Remedy: if the breach deprives the innocent party substantially the whole benefit of the contract then a right of election. If not then only damages are available.

Electing to Terminate/Affirm

• No controls on making this election

• Professor Brownsword suggests six reasons one might wish to terminate:

  • 1) Breach shows lack of commitment to contract.

  • 2) Breach raises concerns about competence of other party

  • 3) Breach renders the performance of the contract radically different

  • 4) Proving losses arising from the breach puts the innocent party at risk.

  • 5) Breach leads to concerns about other party’s ability to keep future promises.

  • 6) Breach leads to concerns about innocent party’s ability to keep future promises.

Conditions:

• Schuler v Wickman Machine Tool Sales (1974) – Wickman was to act as agent in obtaining buyers for panel presses manufactured by Schuler. Clause stated it was a condition for Wickman to send representative to solicit orders once a week, missed a few of these. Another clause gave right to terminate after 60days if a breach remained un-remedied. Schuler terminated.

  • Majority in HoL held that a few missed visits could be remedied, was not a condition.

  • Lord Wilberforce dissented: no basis for the assumption that the parties had adopted “a standard of easygoing tolerance rather than one of aggressive, insistent punctuality and efficiency”

  • Lord Reid: construction has an ordinary English meaning as well as the legal meaning.

  • Professor McKendrick The key to understanding this case lies in the relationship between clauses 7 and 11 of the parties’ contract. Lord Wilberforce would be right if just clause 7, but the contractual machinery in clause 11 meant that other interpretation justified.

Warranties:

• Sale of Goods Act 1979 defines a warranty as “collateral to the main purpose of the contract”

Innominate terms:

• Distinction above is based on the intention of the parties. But it may well be that a very important term could be breached in a very minor way, causing little loss, and vice versa.

• Hong Kong Fir Shipping v Kawasaki (1962) – charterparty for 24months. Term required the vessel be fit for use (seaworthiness clause). Vessel was unfit for 20weeks as a result of engine trouble and incompetence of crew. Charters wrote to terminate contract.

  • Held, in seminal judgement of Diplock LJ, that seaworthiness clause was neither warranty nor condition.

  • The question was whether the breach “deprived the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract”

• NB it is NOT the case that an innominate term is effectively a condition if the consequences of its breach are serious, and a warranty if otherwise.

  • Threshold for termination is very high.

Reactions to Hong Kong Fir and Innominate Analysis:

• The Mihalis Angelos [1971] – Charterparty Haiphong to Hamburg stated a date the ship was expected ready to load. In fact the ship was not.

  • CA was anxious to limit application of innominate...