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Hong Kong Fir Shipping Ltd v Kisen Kaisha Ltd (1962) EWCA Civ 7
Construction of contractual terms as ‘conditions’ and repudiatory breach of contract.
Ship owners let the vessel, Hongkong fir, to charterers for a period of 24 months. Clause 1 of the contract obliged the owners to deliver a “seaworthy” vessel and Clause 3 further obliged them to maintain the vessel’s seaworthiness and good condition. Upon initial delivery, the vessel’s machinery was described to be in ‘reasonably good condition,’ yet required constant maintenance due to its age. The vessel owner’s chief engineer was inefficient and incompetent, and the vessel suffered numerous breakdowns and delays. The charterer’s repudiated the contract, alleging a breach of the obligations to deliver and maintain a seaworthy vessel.
The questions arose as to (1) whether the seaworthiness obligation constituted a ‘condition’ of contract, the breach of which entitles the party to repudiate; and (2) whether the breach caused delays of a sufficient degree so as to entitle the charterer to treat the contract as repudiated.
Firstly, the Court held that in order to construe whether a contractual clause constitutes a condition precedent, the breach of which permits repudiation, or an innominate term, the breach of which permits damages, depends on a holistic assessment of the contract’s surrounding circumstances in determining the intention of the parties in their treatment of the clause. On the facts, the Court held that the seaworthiness and maintenance clause was not viewed as so fundamental so as to amount to a condition of the contract, but rather constitutes a term allowing damages. Secondly, the Court held that an innocent party cannot treat the contract as repudiated due to delays, however significant, if the breach falls short of a frustration of the contract rendering performance impossible. On the facts, the delays, albeit serious and repeated, did not amount to a frustration of contract that entitled repudiation of the contract, but merely a breach allowing for damages.
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