Lecture 11-Classification

Question 1

Classification

Answer 1

Conditions

Warranties

Innominate terms

Question 2

Conditions

Answer 2

Conditions are essential, important or major terms of a contract – they go to the root of or core of the contract

If a condition is breached, the injured party can sue for damages AND can terminate the contract

Terms can be classified as a condition by:
the parties themselves,
by statute, or
by the courts

Question 3

By courts

Answer 3

There are two grounds on which the courts may decide that a term is a condition:

Where performance of the term goes to the root of the contract (reflects intention of the parties)
Couchman v Hill [1947]

Where binding authority requires the court to hold that the term is a condition (standard term of charter parties)
The Mihalis Angelos [1971]

Question 4

Breach gives rise to

Answer 4

Damages and Repudiation

Question 5

Warranties

Answer 5

Warranties are minor or subsidiary terms – they are not essential terms of the contract

Collateral to the main purpose of the contract.

Question 6

Warranty breach gives rise to

Answer 6

Only damages

Question 7

Innominate terms (breach-based)

Answer 7

Hongkong Fir Shipping v Kawasaki [1962]

Certainty can be achieved most effectively by deciding whether or not a term is a condition according to the nature of the term broken, not by requiring the parties to wait and examine the consequences of the breach before deciding whether or not they are sufficiently serious to justify the classification of the term as a condition.

Question 8

Key question

Answer 8

Does the breach deprive the innocent party of substantially the whole of the benefit he expected to gain from the contract?

Question 9

Clarification

Answer 9

The Hansa Nord [1976]
The breach must be serious and substantial/ goes to the root of the contract

Question 10

No breach

Answer 10

Valilas v Januzaj [2014]
No breach where the party is not deprived of the whole benefit of the contract

Question 11

Statutory Implied Terms

Answer 11

Sometimes statutory implied terms are stated also to be conditions or warranties

Question 12

Stipulation by parties

Answer 12

Schuler AG v Wickman Ltd [1974]
Where a term is described as a condition, there is a presumption that (a ‘strong indication’ that) it will be treated as such BUT this presumption can be rebutted

Question 13

Rebuttal

Answer 13

When to interpret the term as a condition would lead to an unreasonable result

Question 14

High Threshold

Answer 14

Heritage Oil and Gas Ltd. v Tullow Uganda Ltd [2014]
Not keen on going against stipulation (high-threshold)

Dangerous presumption as many contracting parties are careful over deciding the terms in the contract.

Question 15

Binding Authority

Answer 15

The Mihalis Angelos [1970] ‘Expected readiness to load’ clauses in shipping contracts should be classed as conditions for the purposes of certainty, a ‘most indispensable quality of mercantile contracts.’

Question 16

Reaffirmed

Answer 16

Bunge v Tradax [1981]

Question 17

Term will be treated as a condition:

Answer 17

if an applicable statute treats it as a condition;

if there are precedents which have categorised a term of that type as a condition (although older precedents should be approached with caution);

if the contract designates the term as a condition;

if the nature of the contract, the subject-matter, or the circumstances of the case lead to the conclusion that the parties must have intended that the innocent party would be discharged from further performance of his obligations if the term was not fully and precisely complied with

Question 18

Time Clauses

Answer 18

Valilas v Januzaj [2014] “[t]ime of payment is not generally of the essence of a commercial contract unless the parties have agreed (either expressly or by necessary implication) that it should be.” (per Lord Justice Underhill)

Classification of innominate outside of shipping contracts.

Question 19

Approach to classification

Answer 19

Overall, the “modern approach is that a term is innominate unless a contrary intention is made clear.” (per Hamblen LJ in Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016])