Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd

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The Hong Kong Fir
Osaka Express Container Ship.JPG
Court Court of Appeal
Full case name Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
Citation(s) [1962] 2 QB 26, [1961] EWCA Civ 7, [1962] 1 All ER 474
Transcript(s) Full text of judgment

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] EWCA Civ 7 is a landmark English contract law case. It introduced the concept of innominate terms, 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.

Facts[edit]

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, Virginia, and then to proceed via Panama to Osaka. A term in the charter-party (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 to Osaka, 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 were 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[edit]

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[edit]

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 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.

See also[edit]

Notes[edit]

  1. ^ (1647) Aleyn 26
  2. ^ (1863) 3 Best & Smith, 826
  3. ^ (1874) 10 Common Pleas 125
  4. ^ (1607) 1 Williams 319
  5. ^ (1700) 12 Modern page 435
  6. ^ 1 Henry Blackstone, page 273
  7. ^ 8 QB 358
  8. ^ 8 Barnewall & Cresswell page 325
  9. ^ 10 East page 359
  10. ^ (1957) 2 QB 401, 434
  11. ^ (1893) 2 QB 274, 280

References[edit]

  • Guenther Treitel, Some Landmarks of Twentieth Century Contract Law (2002) 113, says Diplock LJ 'has a fair claim to being the most important judicial contribution to English contract law in the past century.