Case study of Sea Traders Ltd.
In the said case, Sea Traders Ltd contracted to charter a ship from Ships For Hire Ltd including a clause in the contract stating the condition of the said contract is that the ship is seaworthy in all respects. The contract was for 18 months. However, at the beginning of the charter, there existence many maintenance problems as the crew were inexperienced and the chief engineer was incompetent. Due to these reasons, the ship’s engine was damaged making it impossible for ship to enter the sea for first 3 months. Thus, Sea Trader Ltd intended to end the contract and claim their losses from Ships For Hire Ltd (Beale et al 2010).
Therefore, the issue in the said case is whether Sea Traders Ltd can end the contract with Ships For Hire Ltd and claim for compensation for their losses suffered?
A valid contract is formed based on various terms and conditions which are pre-determined. Terms of a contract are very important and form the central theme of the agreement. These terms determines the basic formation of a contract. Terms included in the contract gives rise to contractual rights and obligations (E-lawresources.co.uk 2016). The element of promise that is core to an agreement depends on the terms of the contract. Thus, terms under a contract can be in the form of different conditions, warranties or innominate terms. Each of these different kinds of terms has different effects on the contract if any party to the same is willing to terminate the contract (McKendrick 2014). The concept of innominate term was introduced with the judgement in the case Hong Kong Fir Shipping v Kawasaki Kisen Kaisha. In the said case, Hong Kong Fir Shipping had contracted with Kawasaki Kisen Kaisha to charter their elderly ship for a period of two years. The term in the charter agreement required the ship to be seaworthy at all times and in all respect making it "in every way fitted for ordinary cargo service." However, the crew of the said charter were incompetent and less in number to maintain the old fashioned machinery of the charter. Additionally, the chief engineer of the charter was a drunken man. During the voyage, the said charter suffered certain engine defects making the ship go off-hire for a total number of five weeks. During this period of five weeks, it was undergoing repairs. Once the said ship arrived at the desired port of Osaka, it required a further repair of fifteen weeks to make it seaworthy again. However, the said repair period would leave only seventeen weeks out of the two year charter agreement with the Kawasaki Kisen Kaisha. Thus, as the market freight charges fell, Kawasaki Kisen Kaisha ended the contract with Hong Kong Fir Shipping stating breach of their part. However, Hong Kong Fir Shipping stated in response that Kawasaki Kisen Kaisha has indeed breached the contract based on wrongfully repudiating the contract (Adriaanse 2010).
The trial court stated that although the ship was seaworthy when it reached Liverpool port, the employees and the chief engineer of the Hong Kong Fir Shipping have failed to exercise care and diligence to maintain the charter and keep it seaworthy as stated in the term of the said contract. However, the trial court judge found that the said breach was not substantial enough to allow Kawasaki Kisen Kaisha to validly repudiate the contract. However, Kawasaki Kisen Kaisha appealed the said trail court’s decision (Anson et al 2011).
The Court of Appeal held that the word seaworthiness was not breached in a sufficient manner making it serious and required to repudiate the contract. Thus, the said term was an innominate term under the charter contract. While deciding cases based on the concept of innominate terms, court do not review and classify terms as conditions and warranties but look at the review he effects of the breach determining whether the innocent party in the contract was substantially deprived of the whole benefit which was attached to the contract due to the breach. Only in cases where the innocent party was deprived substantially of benefits attached to the contract, repudiation of the contract was considered justified. Thus, in the said case, the issue was not about the seaworthiness of the charter, the question which arose was whether the seaworthiness of the sea has caused a grave and sufficient effect on the benefits of the contract to allow to validly repudiating the same. However, reviewing the facts of the said case, the judge of the Court of Appeal held that the Kawasaki Kisen Kaisha had benefited from the contract about 80% of the total time period of the charter agreement and therefore, the Court held that the said breach by Hong Kong Fir Shipping can be sufficiently and adequately remedied by awarding damages (Gadhia, Kotzab and Prockl 2011).
Thus, in the given case, when Sea Traders Ltd contracted for a charter agreement with Ships For Hire Ltd, a condition was imposed stating that the ship should be seaworthy in all respects. However, the same was not the case and due to inefficient crew and chief engineer, the said ship was not in the condition to start the voyage for at least 3 months of the first 8 months of the contract. Thus, in the said case, reviewing the Hong Kong Fir Shipping v Kawasaki Kisen Kaisha which has similar case, it is to be noted that the issue here is to determine whether the breach was sufficient enough to allow valid repudiating of the contract. In the said case, as the contract was between Sea Traders Ltd and Ships For Hire Ltd had not even started, Sea Traders Ltd had not benefited from the said contract at all and the primary purpose of the contract which was to ensure that the goods to be carried in the ship reach their customers on time was defeated. Thus, in the said case, due to the inefficiency of the crew and civil engineer, Sea Trader Ltd was unable to deprive benefits of the contract and thus under the innominate term approach, the seaworthiness in the said case was enough to have deprived Sea Trader Ltd benefits of the contract thus, the said contract is to be validly cancelled. Additionally, as the goods were not able to reach the customers on time, damages are to be awarded to Sea Traders Ltd for their loss in business as the goods were unable to reach the customers on time due to unseaworthiness of the charter (Koffman and Macdonald 2010).
Thus, in the present case, Sea Traders can validly repudiate the said contract and claim for damages from Ships For Hire Ltd based on innominate approach and case law Hong Kong Fir Shipping v Kawasaki Kisen Kaisha.
De Mooij, M., 2010. Consumer Behavior and Culture: Consequences for Global Marketing and Advertising: Consequences for Global Marketing and Advertising. Sage.
Deakin, S.F., Johnston, A. and Markesinis, B.S., 2012. Markesinis and Deakin's tort law. Oxford University Press.
E-lawresources.co.uk. (2016). Contract Law.
E-lawresources.co.uk. (2016). Contributory negligence.