This approach is very different from that traditionally taken by the courts.
Rather than decide whether a term should be a condition or a warranty,
which in turn would indicate the action to be taken, the courts take the
approach set out below.
The Hong Kong Fir approach- Look at the consequences of breach of an innominate term.
- Consider how serious the breach is.
- Decide whether the term is to be regarded as a condition or as a
warranty. - Apply the appropriate remedy, either repudiation or damages.
Note that the courts are only treating the terms like a condition or warranty
in this situation, not labelling the term. This is necessary because if the
contract continues, the same term could later be treated in a different way.
In addition, if the courts were merely labelling the terms, the Hong Kong
Fir approach would not be needed. This new approach is very useful when
a term is very wide-reaching and can be breached in many ways with
varying degrees of seriousness (for example, if a car was stated to be
roadworthy). This is, of course, exactly what happened in the Hong Kong
Fir case.
The principle was discussed and then applied in the following case.
The approach was also used in the case of Reardon Smith Line v Hansen
Tangen.
114 Contract law
wrongful repudiation. The Court of Appeal upheld the plaintiff ’s claim
and would not allow repudiation. It was not simply a question of
whether a condition or warranty was breached. The term did not lend
itself to traditional analysis. Diplock LJ said that the breach would be
considered serious enough to entitle the innocent party to repudiate the
contract if the effect of it is to ‘deprive the party not in default of
substantially the whole benefit which it was intended that he should
obtain from the contract’.Cehave v Bremer Handelsgesellschaft (1975) (The Hansa Nord)
A cargo of citrus pellets was under contract to be shipped ‘in good
condition’. Some of the cargo was damaged but not seriously. It was
held by Court of Appeal that the effect of the breach was not serious on
this occasion, and that the buyers were not therefore entitled to
repudiate the contract. The term was treated as a warranty, with the
consequence of damages being payable to compensate for the loss.