Forms of breach and discharge .1 Introduction

Commercial and consumer contracts often contain express rights of termination, and the question then arises as to how these relate to the right to terminate for breach at common law. ³⁴⁷ The right to discharge for breach under English law depends on whether the term broken is a

‘condition’; ‘warranty’ or ‘intermediate term.³⁴⁸ Not all breaches lead to discharge as discharge calls for restitution.

3.3.2.2 Breach of Condition

Breach of condition is where a breach always gives rise to a right to terminate. ³⁴⁹ According to s11(1)(b) of the Sale of Goods Act 1893, a condition is described as a term ‘the breach of which may give rise to a right to treat the contract as repudiated’ but not breach of warranty.³⁵⁰ This is supported by Fletcher Moulton LJ who advocates that a breach of condition gives rise to the right to terminate,³⁵¹ The word ‘condition’ is used in many different ways in the law of contract, ³⁵² and in the present context it can be used to mean not only an important term of the contract but also some agreed contingency that must occur before a particular obligation becomes due for

345 Redmond and Stevens Contracts 157.

346 Martin and Turner Contracts 400.

347 Carter and Goh Concurrent 33.

348 Treitel Conditions 185; Carter Condition 90.

349Per Megaw LJ Maredelanto Compania Naviera SA v Bergbau-Handel GmbH The Mihalis Angelos [1970] 3 All ER 125. 138 f, p 540 j, p 541 f to j, p 542 a b d to j, p 543 j to p 544 c and j to p 545 b and g to p 546 e, p 549 h to p 550 e, p 551 d to g and p 554 d, post); dictum of Diplock LJ in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962) 1 All ER at 485–489.

350 Sale of Goods Act 1893, s 11(1)(b) and the Sale of Goods Act 1979, s 11(3).

351 Wallis, Son and Wells v Pratt and Haynes (1910) 2 KB 1003 (CA) 1012 (Fletcher Moulton LJ (dissenting)). The appeal was allowed, and the sentiments of Fletcher Moulton LJ were approved, by the House of Lords at (1911) AC 394 (HL).

352 A ‘chameleon-like word that takes on its meaning from its surroundings’: Skips A/S Nordheim and ors v Syrian Petroleum Co Ltd and anor (The Varenna) (1984) QB 599 (CA) 618 (Donaldson MR); SJ Stoljar, ‘Th e Contractual Concept of Condition’ (1953) 69 LQR 485.

50 performance.³⁵³ In accordance with the general law of contract, which had been expressly preserved by s 61(2)a of the 1893 Act, it was the duty of the court to construe a stipulation to see if it was a condition in the strict sense, in which case any breach of the stipulation by the party would entitle the other to treat himself/herself as discharged. ³⁵⁴ If the stipulation was not a condition, the court was then required to look into the extent of the actual breach; if it went to the root of the contract the other party was entitled to treat himself/herself as discharged. ³⁵⁵

3.3.2.3 Breach of warranty

Breach of warranty is where a breach never or at any rate, hardly ever gives rise to a right to terminate. According to s11(1)(b) of the Sale of Goods Act 1893, a warranty is a term ‘the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated’.³⁵⁶A breach of warranty occurred in Cahave NV v Bemer Handelsgesllschaft mbH.³⁵⁷ A German company sold US citrus pulp pellets to a Dutch company but part of the cargo in one hold was found to be severely damaged and resulted in the buyers rejecting the whole cargo. The fact that the pellets could only be resold at a reduced price since they had subsequently been used for the purpose for which they were commonly sold, ie, for cattle food, suggests that the buyers were not entitled to reject the cargo since there had been no breach of that condition but a breach of warranty. In the same way, the word ‘warranty’ has been used to denote not only a minor term of the contract, but also: (1) a term of the contract as opposed to a ‘mere representation’;³⁵⁸ (2) a guarantee of goods or services; ³⁵⁹ (3) a fundamental term in an insurance contract; ³⁶⁰ and even (4) a fundamental term generally.

353 Treitel 1990 LQR 185; Carter 1990-91 JCL 90.

354 Cahave NV v Bemer Handelsgesllschaft mbH (1975) 3 ALL ER 739. The stipulation in cl 7 that the goods were to be shipped ‘in good condition’ was not a condition in the strict sense and the sellers’ breach of it did not go to the root of the contract. Accordingly the buyers were not entitled to reject the whole cargo because of the breach of that stipulation but where only entitled to claim damages.

355 NV v Bemer Handelsgesllschaft mbH (1975) 3 ALL ER 739 p 746 g to p 747 a c d and f to h, p 748 a to c, p 754 b and c, p 755 a and f, p 756 b g and h, p 757 d to h, p 765 f and g, p 766 d to f and 767 c to e, post); dicta of Upjohn and Diplock LJJ in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha [1962] 1 All ER at 487, 487 applied.

356 Wallis, Son and Wells v Pratt and Haynes [1910] 2 KB 1003 (CA) 1012 (Fletcher Moulton LJ (dissenting)). The appeal was allowed, and the sentiments of Fletcher Moulton LJ were approved, by the House of Lords at [1911] AC 394 (HL).

357 (1975) 3 ALL ER 739; (see p 748 e, p 749 e to p 750 a, p 761 a to d, p762 j, p 763 g and h and p 764 e, post);

dictum of Lord Reid in Henry Kendall & Sons v William Lillico & Sons Ltd [1968] 2 All ER at 451 applied.

358 Oscar Chess Ltd v Williams [1957] 1 WLR 370 (CA) 377 (Hodson LJ); Dick Bentley Productions Ltd and anor v Harold Smith (Motors) Ltd [1965] 1 WLR 623 (CA) 627 (Lord Denning MR).

359 Bernstein v Pamson’s Motors (Golders Green) Ltd [1987] RTR 384 (QBD) 393 (Rougier J); Dandara Holdings Ltd v Co-operative Retail Services Ltd [2004] EWHC 1476 (Ch); [2004] 2 EGLR 163, para 70 (Lloyd J); National

51 Breach of an innominate or intermediate term is where a breach sometimes gives rise to a right to terminate. In the Hongkong Fir case, ³⁶¹ Diplock LJ added that not all contractual terms could be classified as ‘conditions’ or ‘warranties’, but there were some terms of which the breach might or might not give rise to a right to terminate, depending on the gravity of the consequences.³⁶² In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, ³⁶³ the Court of Appeal rediscovered and reaffirmed that English law recognizes contractual terms which, on a true construction of the contract of which they are part, are neither conditions nor warranties but are, to quote Lord Wilberforce’s words ³⁶⁴ ‘intermediate’. This type of term has been classed as an ‘innominate’ or ‘intermediate’.³⁶⁵ However, neither of these terms are free from ambiguity.

3.3.3 Conclusion

In summary, conditions are situations where a breach always gives rise to a right to terminate, warranties occurs where a breach never or at any rate, hardly ever gives rise to a right to terminate, and innominate or intermediate terms is a situation where a breach sometimes gives rise to a right to terminate. Given that the right to terminate for serious breaches can arise quite independently of the construction of the contract, it can be argued that this threefold analysis is over-subtle.³⁶⁶ In short, one would better simply to speak of: (1) conditions (where breach always gives rise to a right to terminate); and (2) warranties (where this can only be done if the consequences of the breach are sufficiently serious). However, courts have accepted the idea of an innominate term. ³⁶⁷

House Building Council v Revenue and Customs Commissioners (2010) UKFTT 326 (FT); (2010) STI 2655, para 62 (Sir Stephen Oliver QC).

360 Marine Insurance Act 1906, s 33(3); De Maurier (Jewels) Ltd v Bastion Insurance Co (1967) 2 Lloyd’s Rep 550 (QBD: Commercial Ct) 560 (Donaldson J); Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) (1992) 1 AC 233 (HL) 262 (Lord Goff ); Global Process Systems Inc v Syarikat Takaful Malaysia Bhd (Th e Cendor Mopu) [2011] UKSC 5; [2011] 1 Lloyd’s Rep 560, para 56 (Lord Mance).

361 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (Th e Hongkong Fir) (196)] 2 QB 26 (CA).

362 The Hongkong Fir , 70

363 (1962) 1 All ER 474, (1962) 2 QB 26

364 in Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem (1978) 2 Lloyd’s Rep 109 at 113,

365 Cehave NV v Bremer Handelsgesellschaft MBH (Th e Hansa Nord) [1976] QB 44 (CA) 82 (Ormrod LJ); Bunge Corp v Tradax Export SA (1981) 1 WLR 711(HL) 714 (Lord Wilberforce); Dominion Corporate Trustees Ltd v Debenhams Properties Ltd (2010) EWHC 1193 (Ch); [2010] 23 EG 106 (CS) para 22 (Kitchin J.

366 Carter, JW, (1998), Classification (1981) CLJ 219.

367 Carter, (1998), Classification (1981), 219.

52 3.4 Fundamental breach

3.4.1 Introduction

Broadly speaking, termination for breach of contract at common law can take place in two cases, the first being where the other party has broken a condition of the contract, and the second where there has been some other breach with very serious consequences. Since deciding whether a particular term is a condition is primarily a matter of construction³⁶⁸because the distinction between termination for breach of condition and termination under a contractual right can be a very difficult one to draw. According to The Hongkong Fir, ³⁶⁹ the right to discharge may be exercised not only for breaches of condition but for other serious breaches too. Such breaches are described in various ways; for instance ‘fundamental’ breaches, ³⁷⁰ ‘frustrating’ breaches, ³⁷¹

‘repudiatory’ breaches, ³⁷² or breaches that go to ‘the root of the contract’. ³⁷³ Unfortunately none of these terms are without difficulty.

3.4.2 Forms of fundamental breach