Essay question

Critically assess mechanisms utilized by the courts to differentiate terms as conditions and warranties and the effectiveness of the parties’ attempts to define the terms in advance. What impact did the ‘breach-based’ approach have in adding certainty to the definition of terms?

Answer:

•   The remedy available for breach will depend upon whether it is a warranty or a condition.

•   A warranty is a lesser term of a contract. The importance of identifying whether the term is a condition or warranty is the remedy available to the injured party. If the term breached is a warranty the remedy of damages for any loss may be claimed but the injured party is not entitled to repudiate the contract (they must continue to fulfil their obligations in the contract - Bettini v Gye).

•   A condition is an important term of the contract. Due to it being so fundamental to the contract, a breach of a condition enables the injured party to claim damages AND they have the option to bring the contract to an end. If the contract is to be ended this must be acted upon quickly and within a reasonable time (Poussard v Spiers).

•   Traditionally, identifying the terms of a contract involved a ‘term based’ approach being taken by the courts (looking at the parties’ intentions in drafting the contract). This may not always be the most appropriate mechanism to use and hence it may adopt a ‘breach based’ approach. The focus being on the seriousness of the consequences of the breach. These are described as innominate terms (they are intermediate terms until the consequences of the breach are identified) - Hongkong Fir Shipping Co. v Kawasaki Kisen Kaisha.

Hongkong Fir identified the importance of correct and technical drafting of contracts. Certainty will only arrive following careful drafting of contracts, but this still is dependent to a large degree when left to the courts to determine a term's importance.