Status of terms — common mistakes

In a problem question, first identify the breached term. Then, consider if it is labelled as a condition or warranty by the parties, statute, or precedent. If not, or if the classification is ambiguous, you must apply the Hong Kong Fir test for innominate terms. Analyse the effect of the breach on the innocent party to determine whether it is repudiatory. Using the phrase 'deprived of substantially the whole benefit' will show the examiner you understand the test.

Not necessarily. While the parties' choice of wording is a strong indicator of their intent, the courts retain the final say. In Schuler AG v Wickman Machine Tool Sales Ltd, the House of Lords held that using the word 'condition' was not conclusive. They decided that it would be unreasonable to allow termination for a very minor breach of that term, so they interpreted it as a warranty instead. The courts seek to avoid outcomes where a party can use a trivial breach to escape an otherwise valid contract.

Innominate terms were introduced to create flexibility and achieve fairer outcomes. The rigid condition/warranty distinction could be harsh, as a party might be able to repudiate a whole contract over a technical but minor breach of a 'condition'. The innominate term approach, from Hong Kong Fir Shipping, allows the court to assess the actual effect of the breach before deciding the remedy. While it introduces a degree of uncertainty at the time of contracting, it promotes commercial justice by ensuring the remedy is proportionate to the harm caused by the breach.

Many key terms implied by statute are classified as conditions, for example, s.12 (title) and s.13 (description) of the Sale of Goods Act 1979. However, statute itself has recognised the potential harshness of this. For example, s.15A of the Act was introduced to prevent a non-consumer buyer from rejecting goods for a breach of the implied terms on quality or fitness for purpose (s.14) if the breach is so slight that it would be unreasonable to reject them. In such cases, the breach is treated as a breach of warranty, reflecting the innominate term approach.