Status of terms — practice questions

1. Identify the Term and Breach: The term is the seaworthiness clause ('in every way fitted...'). The breach is the engine breakdown making the ship unseaworthy for 20 weeks.

2. Classify the Term: The seaworthiness term is a classic example of an innominate term, as established in Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha. Its status is not fixed; the remedy depends on the effect of the breach.

3. Apply the Hong Kong Fir Test: Did the breach deprive the charterers of 'substantially the whole benefit' of the 24-month charter?

• The ship was unavailable for 20 weeks (approx. 5 months) out of a total 24-month period.
• However, the ship was repaired and available for the remaining 19 months of the charter.
• The court in Hong Kong Fir held that while the breach was serious, it was not so serious as to frustrate the entire commercial purpose of the contract. The charterers still had access to the ship for the great majority of the charter period.

4. Determine the Remedy and Conclusion: Since the breach did not deprive the charterers of substantially the whole benefit, it is treated as a breach of warranty. The charterers' only remedy was to claim damages for the 20 weeks the ship was unavailable. By terminating the contract, the charterers themselves committed a repudiatory breach.

Advice: The shipowners should be advised that the charterers' termination was wrongful. The shipowners are entitled to sue the charterers for damages for loss of the contract for the remaining 19 months.

1. Identify the Term and Breach: The term is the oven's capacity of '500 loaves per hour'. This is an express term. The breach is the oven's failure to meet this specification, only producing 400 loaves per hour.

2. Classify the Term: The term could be classified as a condition. The specific output capacity is likely fundamental to the bakery's business model and profitability, going to the 'root of the contract'. Alternatively, we can use the innominate term approach.

3. Analyse the Effect of the Breach (Calculation): We must assess if the breach deprives the bakery of 'substantially the whole benefit' of the contract.

• Shortfall in output: 500 loaves (promised) - 400 loaves (actual) = 100 loaves per hour.
• Hourly profit loss: 100 loaves/hour * £0.50 profit/loaf = £50 per hour.
• Daily profit loss: £50/hour * 8 hours/day = £400 per day. This is a significant and ongoing financial loss that directly undermines the commercial purpose for which the oven was purchased. The 20% reduction in capacity is not a minor issue.

4. Determine the Remedy and Conclusion: Given the substantial impact on the bakery's operations and profitability, the breach is severe. It is highly likely to be considered a breach of condition (or a repudiatory breach of an innominate term). Therefore, The Daily Bread is entitled to repudiate the contract.

Advice: The Daily Bread should be advised that they have the right to:

• Reject the oven and terminate the contract.
• Claim a full refund of the £20,000 purchase price.
• Claim damages for the losses incurred, such as lost profits, until a suitable replacement oven can be found.