Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] EWCA Civ 7 is a landmark English contract law

English contract law

English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...

case. It introduced the concept of innominate term

Innominate term

In English contract law, an Innominate term is an intermediate term which cannot be defined as either a "condition" or a "warranty".In Hong Kong Fir Shipping Co. Ltd v. Kawasaki Kisen Kaisha the Court of Appeal of the United Kingdom first conceived the notion of an "innominate term"This was...

s, between "warranties" and "conditions". Diplock LJ emphasised that some terms could lead to either the right to terminate a contract as a remedy, or to the mere entitlement to damages (and no right to terminate). What mattered was not whether you call a particular contract term a "warranty" or a "condition" but how serious the breach of the term was.

Lord Diplock did in fact not use the word "innominate" himself. It was in use for over 100 years, as for example in Mungall v Bowhill Coal Co, Fife, Ltd.

Facts

Hong Kong Fir Shipping hired out their ship under a two-year time charter-party to Kawasaki Kisen Kaisha. It was to sail from Liverpool to collect a cargo at Newport News, and then to proceed via Panama to Osaka. A term in the charter-party

Charter-party

Charter Party , a written, or partly written and partly printed, contract between a shipowner and a merchant, by which a ship is let or hired for the conveyance of goods on a specified voyage, or for a defined period...

(the hire agreement) required the ship to be seaworthy and to be "in every way fitted for ordinary cargo service." However the crew were both insufficient and incompetent to deal with her old fashioned machinery; and the chief engineer was a drunkard. On the voyage from Liverpool

Liverpool

Liverpool is a city and metropolitan borough of Merseyside, England, along the eastern side of the Mersey Estuary. It was founded as a borough in 1207 and was granted city status in 1880...

to Osaka

Osaka

is a city in the Kansai region of Japan's main island of Honshu, a designated city under the Local Autonomy Law, the capital city of Osaka Prefecture and also the biggest part of Keihanshin area, which is represented by three major cities of Japan, Kyoto, Osaka and Kobe...

, the engines suffered several breakdowns, and was off-hire for a total of five weeks, undergoing repairs. On arrival at Osaka, a further fifteen weeks of repairs was needed before the ship was seaworthy again. By this time, only seventeen months of the two-year time-charter remained. Once in Osaka, freight rates happened to fall, and Kawasaki terminated the contract for Hong Kong's breach. Hong Kong responded that Kawasaki were now the party in breach for wrongfully repudiating the contract.

At first instance, it was held that although the ship was a seaworthy vessel on delivery in Liverpool, Hong Kong Fir had not exercised due diligence to maintain the vessel in an efficient and seaworthy state. However, the trial judge found that this breach was not substantial enough to entitle the charterer to repudiate the contract. Kawasaki appealed.

Judgment

The Court of Appeal held that the "seaworthiness" term was not breached in a sufficiently serious way to entitle the charterer to terminate. It was an "innominate term". Diplock LJ's judgment went as followed.

Significance

The Hong Kong Fir held that the meaning of the term "seaworthiness" has a very broad meaning ranging from trivial defects like a missing life preserver or a major flaw that would sink the ship. Accordingly, it is impossible to determine ahead of time what type of term it is. Thus, the type of breach must be determined by the judges. "Seaworthiness" is defined both by common law and by statute. In McFadden v Blue Star Lines [1905] 1 KB 607 it was stated that, to be seaworthy, a vessel must have the degree of fitness that an ordinarily careful and prudent shipowner would require his vessel to have at the commencement of a voyage, having regard to all possible circumstances. And the Marine Insurance Act 1906

Marine Insurance Act 1906

The Marine Insurance Act 1906 is a UK Act of Parliament regulating marine insurance. The Act was drafted by Sir Mackenzie Dalzell Chalmers, who had earlier drafted the Sale of Goods Act 1893. The Marine Insurance Act 1906 is of huge significance, as it does not merely govern English Law, but...

s 39(4) provides that "a ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the adventure insured."

In the Hong Kong case, the issue was not whether the unseaworthiness was "serious" or "minor"; rather the question was whether the undoubtedly serious unseaworthiness had had an effect sufficiently grave to allow the charterer to repudiate. On the facts, given that the charterer had had the "substantial benefit" of the contract for some 80% of the time period, the court held that the breach was adequately remedied by damages.

The Hong Kong Fir decision was met with some alarm in the shipping world, where certainty is crucial. The problem was the delay element; one had to "wait and see" the effect of the breach. The enormous costs involved in chartering mean that parties cannot afford to leisurely loiter, whilst pondering the consequences of the breach. Soon after, in The Mihailis Angelos [1971] 1 QB 164, it was held the impossibility of the shipowner to meet the "expected ready to load" date, ipso facto entitled the charterer to repudiate for anticipatory breach of condition. (The charterer was relieved to be able to cancel, as his proposed cargo of apatite had not materialised!) PS. Lord Denning used the word "warranty" in a very different way.

Facts

Judgment

Significance

See also