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The Treatment of Breach of Contract1

Published online by Cambridge University Press:  16 January 2009

Lord Devlin
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Extract

I want to start from the basic position in which I was brought up (I expect you were all brought up in it too) that the terms of a contract consist of conditions and warranties, the distinction between them being that the condition is something that is essential to the contract, while the other terms that are collateral or ancillary are merely warranties. If a condition is broken the aggrieved party is discharged from his obligations and can rescind the contract. If it is a warranty that is broken, the breach sounds only in damages.

The Hongkong case—a new approach to breach

The traditional thinking on this point has recently been rather mystified by references to something which is called the fundamental term and which has not yet, so far as I know, been judicially defined. Then there have been some suggestions that what matters is not the fundamental term but the fundamental breach. And finally there is the very important judgment of Diplock L.J. in the Hongkong case in which he opens up new vistas, suggesting that the traditional classification of terms into conditions and warranties has been outmoded and ought to be scrapped in favour of a new approach altogether based on the event.

It must be accepted that whatever sort of approach is made to this topic, whether a new or a traditional one, there must be some way of defining the situation in which the aggrieved party is entitled to rescind. He cannot be allowed to do so for every breach of every term.

Type
Research Article
Information
The Cambridge Law Journal , Volume 24 , Issue 2 , November 1966 , pp. 192 - 215
Copyright
Copyright © Cambridge Law Journal and Contributors 1966

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References

2 Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. [1962] 2 Q.B. 26.Google Scholar

3 Ibid. at p. 56.

4 If they had, they could not have left unconsidered a number of difficult points. There was in fact a contract time given in the charterparty: the vessel was to be delivered at latest by March 31, 1957. Prime facie, the shipowner, having failed by March 31 to deliver a seaworthy vessel, was in breach of the condition of the contract. Accordingly, the charterer, when he knew of the facts constituting the breach, i.e., the inefficiency of the crew, would have had a reasonable time thereafter within which to make up his mind whether he would rescind or not.

The orthodox approach to the result reached by the Court of Appeal would have had to have been along one of the following three routes:

(i) By way of a finding of fact that the charterer did not elect promptly enough after the knowledge of the breach to treat it as a breach of condition. Consequently, the term would become a warranty ex post facto. There does not appear to be any finding of fact to this effect.

(ii) By importing into the case the principles of acceptance and rejection that govern the sale of goods. Clearly the charterer was entitled on February 13 to reject the tender of the ship and to demand that she be put into a seaworthy condition. But if he did not do it, even though he could hardly be expected to discover for himself the inefficiency of the crew, could be thereafter rely on the breach of condition? I am not aware of any authority for importing these principles into contracts of hire or of service and anyway the point was not discussed.

(iii) By holding that the time limit specified in the charterparty was of no effect. This would be to go further than to hold that time was not of the essence. Time not being of the essence means that punctuality is not a condition and that (as in contracts for the sale of land) a reasonable time after the named date must be allowed before the contract can be rescinded. It is one thing to say that, where time is not mentioned at all, the only implication about delay that should be made is that it must not be inordinate, i.e., such as to frustrate the contractual purpose; and it is another thing to say that the same implication (rather than the implication of a reasonable time) should be made even when time is specified. The latter would mean that there is no difference in this type of contract between specifying a date and not specifying it and that an express time limit is to be wholly disregarded. The few authorities relating to time charters which touch on this point are considered in Colinvaux's Carriage by Sea (1963) paras. 746 and 747. The learned author treats the Hongkong case as supporting the view—hitherto a minority one—that the latter implication is correct. Neither this point nor the relevant authorities are discussed in the judgments in the Hongkong case.

If the Hongkong case has not effectively disposed of these “progenitors,” they may yet prove troublesome to practitioners in shipping law. For the purpose of the general principles that I am now considering, I treat the Hongkong case as if the charterparty had not specified a time limit for tendering the vessel.

5 [1962] 2 Q.B. 26 at p. 57.

6 Ibid. at p. 63.

7 Ibid. at p. 70. The language here used by Diplock L.J. seems to me clearly to distinguish between the breach and the event resulting from the breach. But in the Hardwick Game Park case, he seems at [1966] 1 W.L.R. 287 at p. 342Google Scholar to treat the breach as the event. I think that the explanation is that on the facts in the latter case the two were indistinguishable. The delivery of a feedingstuff with a poisonous ingredient means that, if it is used, it will be fatal. Thus the breach was one which would inevitably give rise to a frustrating event and there was no need to consider breach and event separately.

8 These words, cited by Lord Moulton, are apparently derived from Buller J. in Pasley v. Freeman (1789) 3 T.R. 51 at p. 57.

9 Heilbut Symons and Co. v. Buckleton [1913] A.C. 30 at p. 49.Google Scholar

10 Bentsen v. Taylor, Sons and Co. (2) [1893] 2 Q.B. 274 at p. 281.

11 Wallis, Son and Wells v. Pratt and Haynes [1910] 2 K.B. 1003 at p. 1012.Google Scholar

12 Forest Oak Steam Shipping Co. Ltd. v. Richard and Co. (1899) 5 Comm. Cas. 100.

13 (1874) L.R. 10 C.P. 125 at p. 142–143.

14 [1962] 2 Q.B. 26 at p. 71.

15 Consider now what Viscount Dilhorne and Lord Upjohn said on that point in Suisse Atlantique [1966] 2 W.L.R. 944Google Scholar at pp. 954–955, 978.

16 The expression was used by Lord, Greene M.R. in Alderslade v. Hendon Laundry Ltd. [1945] K.B. 189 at p. 193.Google Scholar

17 Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943]Google Scholar A.C. 32.

18 [1942] 1 K.B. 12 sub nom. Fibrosa Société Anonyme v. Fairbairn Lawson Combe Barbour Ltd.

19 Renton (G. H.) & Co. Ltd. v. Palmyra Trading Corporation of Panama [1959]Google Scholar A.C. 149.

20 [1956] 1 Q.B. 462 at pp. 502, 503.

21 In Suisse Atlantique [1966] 2 W.L.R. 944 at pp. 985–986Google Scholar the shipowner argued that a demurrage clause in a charterparty was a benefit to the charterer which he ought not to be allowed to take advantage of if he had committed a fundamental breach, even though the shipowner had elected to affirm the contract. The difficulties in the way of arguing that a demurrage clause, which is a way of providing for liquidated damages, creates a special benefit for either party are very great—so great that the point was not taken in the lower courts or in the appellant's case in the House of Lords. The House allowed the point to be taken and held that the demurrage clause was not a limitation clause. Some of their Lordships considered the legal position on the hypothesis that it was. It seems clear from what they said that as a rule an exceptions or exclusions clause or similar provision does not apply to a situation created by a fundamental breach of contract. There was a great deal of discussion about whether this was the result of a rule of law or a rule of construction based on the presumed intention of the parties; and the latter was preferred.

22 In Suisse Atlantique [1966] 2 W.L.R. 944 at p. 987Google Scholar Lord Wilberforce said: “One may safely say that the parties cannot, in a contract, have contemplated that the clause should have so wide an ambit as in effect to deprive one party's stipulations of all contractual force: to do so would be to reduce the contract to a mere declaration of intent.”

23 I have in mind the language of Lord Radcliffe in Davis Contractors Ltd. v. Fareham U.D.C. [1956] A.C. 696 at p. 729.Google Scholar

24 [1893] A.C. 351.

25 Charterhouse Credit Co. Ltd. v. Tolly [1963] 2 Q.B. 683.Google Scholar

26 (1961) 77 L.Q.R. 98, 327.

27 [1964] C.L.J. 60, 254.

28 (1963) 79 L.Q.R. 534.

29 London, Sweet & Maxwell, 1964.