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... the shipowners undertaking to tender a seaworthy ship, has as a result of numerous decisions as to what can amount to unseaworthiness, become one of the most complex of contractual undertakings. It embraces obligations with respect to every part of the hull and machinery, stores and equipment and the crew itself. It can be broken by the presence of trivial defects easily and rapidly remedial, as well as by defects which must inevitably result in a total loss of the vessel.
per Diplock LJ in The Hong Kong Fir Shipping case [ 1962 ] 2 QB 26 (CA). In the Hong Kong Fir Shipping Co. , Ltd v. Kawasaki Ken Kaisha Ltd case the principals were indeed fundamental. The plaintiffs (owners) had chartered the Hong Kong Fir to the defendants (charterers) for twenty-four months from delivery to the charterers in Liverpool. The vessel was delivered in Liverpool on February 13 th 1957. The vessel then started it voyage to America to get a cargo of coal.
It then left for Osaka and was delayed by five weeks due to the repairs needed on the engine. On arrival to Osaka the vessel was found to need more repairs due to the vessel being in very bad condition, and was worked on for fifteen more weeks, to make the vessel seaworthy. by the time the vessel was rendered seaworthy it was September 15 but on the 6 th of June and on the 11 th of September the Charterers had written to the owners (plaintiffs) repudiating the Charter. It is on the date of delivery of the vessel to the docks in Liverpool when the court found the vessel to be unseaworthy as the engine room staff were found to be incompetent and inadequate in number in view of the age of the vessels machinery. In this case the defendants had chartered the ship from the plaintiffs.
It was a term of contract that the ship was seaworthy. In fact the ship was unseaworthy, owing to the combination of an aging engine and an less than adequate engine room staff. This led to the repeated need to stop for repairs. there was a definite breach of contract and the defendants would have been entitled to bring an action for damages. instead the elected to terminate the contract.
the plaintiff claimed that along they (the plaintiffs) were in breach of contract, the breach was not one which entitled the defendants to terminate, and that, therefore, the defendants had repudiated the contract by wrongful termination. The question has to asked weather the term seaworthiness is a condition or a warranty. In fact one Judge did this and his outcome was that it was a warranty. However Diplock LJ made an historical judgment and said that they were not entitled to terminate the contract. This judgment was brought about because Diplock LJ said that two fold analysis into conditions and warranties was incomplete, and that there were intermediate terms where the effect of breach depended on the importance of the breach. He thought that the term seaworthiness was on of these terms, because it could be broken into a wide variety of ways and could have a wide variety of effects due to this.
This Judgment was significant because up to this point most contract lawyers would have said that there two types of contractual terms, conditions and warranties. Conditions were the most important of these two terms, as breach of this term ment termination of the contract and enabled you to sue for damages. A warranty was declared less important because a remedy for breach of warranty was an action for damages. But Diplock LJ said that there was another term the intermediate terms, terms without names. The Charterers in this case believed that that because the ship was considered not to be seaworthy that they could repudiate. Repudiation is a remedy, and its effect is to terminate the contract.
It puts the parties involved back to the beginning before they have signed the contracts. This was believed because one of the clauses in a time charter contract is that the ship has to be seaworthy. Diplock LJ said that this is wrong because the term seaworthy is to big a definition. This term can be broken in many different ways from the trivial to the serious and it is impractical to to attempt to asses the seriousness of the breach without first paying attention to the way in which it has been broken. The other information to do with this case was that there was a steep fall in freight rates from 47 s in June to 13 s. 6 d. per ton in August.
This clearly indicated that the charterer could be paying less if they started another time charter. By simply repudiating the contract, they had a chance to do this. On the other hand the owner was making vast money compared to the present freight rates. So with one party wanting to terminate the contract and the other wanting to keep it, it was only a matter of time, the foundations were cast when the ship was docked for repairs, the charterers terminated the contract on the ground of breach of contract. It can be seen that Diplock LJ, saw the potential of this happening every time the charterer saw an opportunity elsewhere. In effect he was protecting the interests of the shipowners, as the term seaworthy could be from the trivial to the serious.
To put it another way the charterer could find many reasons to terminate the contract because the ship was not seaworthy. This could have been why it was considered a breach of warranty, to protect the shipowners. It could be said that this is exactly what the charterers did, because they could have not accepted the vessel in the condition it was in when it arrived at Liverpool, they had a week before the contract began. The importance of this case was its implications on contractual law.
This case looked at the remedies of contracts. In this case there seemed to be a need to terminate the contract because of a breach of condition, in fact this was seen as a warranty not a condition. Lord Wilberforce said; Diplock LJ in his seminal judgment illuminated the existence in contracts of terms which were neither, necessarily, conditions nor warranties, but, in terminology which has since been applied to them, intermediate or in nominate terms capable of operating, according to the gravity of the breach, as either conditions or warranties. If a contract is broken and one party claims to be entitled to terminate, the first thing that must be established is the breach a breach of condition.
This term can be as a condition by a statute, as in the Sale of Goods Act. The court may see the undertaking as very important because of the way it falls in with other obligations in the contract. A good example of this is Bung Corp v Trade SA (1981). In this case the seller had to ship the goods during June 1975. The buyer had to give 15 days notice of the readiness of the vessel, but only gave notice on the 17 June. Clearly the seller might have been able to complete his obligation to load in 13 days rather than 15, but the House Of Lords held that as the sellers obligation to load in time was certainly a condition, so that the buyers obligation to give notice was a condition since it would be unfair to deprive the seller of his full period of notice in the context of a contract of this kind.
Diplock LJ during the Hong Kong Fir case opened up the way for modifications of remedies for breach of implied terms. This is because this country operates a system of case or Judge made law, so this case sets the precedent for future cases. The Hong Kong Fir case had its effect on consumer law also. The Law Commission recommended that the consumers right to reject for any breach of a term implied by ss 13 to 15. The right to reject has been lost where the seller can prove the buyer is a non consumer, the breach slight and it would be unreasonable for the buyer to reject. The law Commission believed that damages would normally be adequate for non-consumers.
In these circumstances, the right to terminate for the slightest breach could be unfair for the seller whose loss might far exceed the cost of remedying the defect. So as you can see the Judgment in the Hong Kong Fir case was not unique, it was called for from all sections of the law. In conclusion this was an historic case, it allows for courts to take into account a number of relevant factors in deciding whether rescission was justified such as, the proportion of the promised performance with the other party had receive or would receive; whether damages would be an adequate remedy if rescission were not available; and it might also be said, the motive of the party claiming he is entitled to withhold performance. The real reason in many cases to terminate is to seek higher profitability, this should tighten the net and stop this from flowing through the courts. Bibliography: a-level law
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