Hong Kong Fir v. Kawasaki Kisen Kaisha Ltd.

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Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha, [1962] 2 QB 26, 1 All ER 474, known as the Hong Kong Fir case, is a leading English case on contract law. The Court created a third class of contractual term outside of warrantees and conditions known as inominate term, which are determined by the consequences of the breach of the contract. This case represented a significant change in the standard of determining types of terms, which were normally determined by looking at the contract at the time it was formed.

[edit] Background

Hong Kong Fir contracted with Kawasaki to charter a vessel for a period of 24 months. A provision in the terms warranted that the vessel was "fitted in every way for ordinary cargo service". Soon after beginning the voyage it was discovered that the vessel was in need of many repairs. Initially, Hong Kong Fir spent five week fixing the vessel, but more damage was found and so more repairs were needed totaling 15 weeks before it was seaworthy.

Hong Kong Fir repudiated the contract on the grounds that a condition of the contract was that the vessel was seaworthy. Kawasaki sued Hong Kong Fir for damages from the repudiation of the contract.

[edit] Opinion of the Court

Lord Diplock, writing for the Court, held that the term regarding the seaworthyness of the vessel was neither a warrantee or condition, but an innominate term.

The type of term can be determined by examining the consequences of the breach. A breach that deprives an innocent part of "substantially the whole benefit" would mean the term is a condition.

Here, Diplock found that Hong Kong Fir was not deprived of "substantially the whole benefit" as they still had most of the rental period available to use the vessel.

Diplock considered that certain terms are impossible to determine without looking at the extent and circumstances of the breach. Consequently, where the legal consequences depend on the nature of the breach and does not fall within a reasonably expected classes of breach then the terms are innominate and will be determined to be a warrantee or condition based on the extent of the breach.

Here, it was 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 on the consequences.