Express Terms Advance Tertiary College United Kingdom Transfer Program Semester 1

Express Terms
✔ If a party fails to perform any one of the promises in a contract, it is in breach and
liable to pay damages. But not all promises in a contract have the same
significance.
✔ Some breaches of contract not only entitle the injured party to claim damages,
but also entitle him to put an end to the contract.
✔ A contractual term can be divided into three:
1. Condition
2. Warranty
3. Innominate Terms

Condition & Warranty

✔ Wallis, Son & Wells v Pratt & Haynes (1911)
Fletcher Moulton LJ defined a condition as “an obligation which goes directly
to the substance of the contract or in other words so essential to its very
nature that it’s non-performance may be considered by the other party as a
substantial failure to perform the contract at all.
✔ Remedies for breach of a condition:
The injured party has an irrevocable election to either;
1. treat the contract as repudiated and sue for damages; or
2. Affirm the contract and sue for damages.
✔ A warranty is a term, which is collateral or secondary to the main purpose of the
contract.
✔ The injured party can only claim damages after a breach of warranty

Test to distinguish Condition and Warranty

Factual Matrix Test
✔ The courts primarily look at the parties’ intention as may be expressly stated in
the contract.
✔ For instance, if the parties had stated that a particular term is to be the essence of
the contract the courts will classify it as a condition in an effort to give effect to
the expressed intention of the parties.
✔ The obvious problem in this area is that contracting parties very seldom expressly
state the importance they have attached to each of the terms under the contract,
hence the test of intention will fail.
✔ In the occurrence of the above event, the courts will then apply the test of subject
matter or the factual matrix test as per Lord Wilberforce in Reardon Smith Line v
Hansen Tangen (1976)
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Express Terms Advance Tertiary College United Kingdom Transfer Program Semester 1

✔ Poussard & Spiers v Pond [1876]

An actress was employed to play the leading part in a French operetta as from
the beginning of its run. She was unable to take her role until a week after the
season had started. The producers who had engaged a substitute refused her
services. The producers had a right to repudiate the contract.
✔ Bettini v Gye (1876)
On somewhat similar facts the producers were not allowed to repudiate the
contract. Here the clause in contention related to the issue of rehearsals. The
singer ought to have arrived 6 days in advance for rehearsals; he actually arrived
however only 3 days in advance.
✔ The Factual Matrix Test therefore looks at the term breached in relation to the
purpose or the subject matter of the contract.
✔ The above test of factual matrix must be applied at the time the contract is
entered into.

Innominate Terms
✔ The courts have now recognized that the classification of terms as conditions or
warranties is not exhaustive. Hence a third category of terms called innominate
or intermediate terms was explicitly recognized in Hong Kong Fir v Kawasaki
Kisen Kaisha (1962) by Diplock LJ at the Court of Appeal which was affirmed in
the House of Lords.
✔ Facts: The plaintiff chartered a ship to the defendant for a period of 24 months.
The engine room staff were incompetent and the machinery was ancient and this
caused 20 weeks to be lost. The defendant claimed to treat the contract as at an
end and the plaintiff sued for wrongful repudiation.
✔ There was a term in the contract which was “... that the ship would in every way
be fitted for cargo service.” The plaintiff argued that their breach did not entitle
the defendant to put an end to the contract but only to claim damages.
✔ Diplock LJ at the Court of Appeal said, “The problem in this case is in my view
neither solved nor soluble by debating whether the ship-owner’s expressed or
implied undertaking to tender a sea - worthy ship is a “condition” or a “warranty”.
The solution was to be found by looking at the events which had occurred as the
result of the breach and deciding whether those events deprived the charterer of
substantially the whole benefit which it was the intention of the parties that they
should obtain ... under the charter party.”
✔ Held: On the facts of the case at the end of the period of delay the charter party
still had 20 months of use. The charter party was not deprived of substantially the
whole benefit of the contract as was intended by the parties that they should
obtain. As such the defendant was not entitled to terminate the contract.

Prepared by Sharavanaa Mahendran LLB (Hons) (London),

MBA sara@atc2u.edu.my
Express Terms Advance Tertiary College United Kingdom Transfer Program Semester 1

✔ Innominate terms therefore are a category of terms that defy classification as

either conditions or warranties. This category of terms brings with them a
multitude of obligations as opposed to one clear-cut obligation.
Ex-post Facto Test
1. If the breach is so serious as to go to the root of the contract, therefore depriving
the innocent party of substantially the whole benefit of the contract that was
intended he should obtain under the contract, then the injured or innocent party
has an irrevocable election to either repudiate the contract or affirm the contract
and claim damages.
2. If the breach is not so serious as to go to the root of the contract, therefore not
depriving the innocent party substantially of the whole benefit that was intended
he should obtain under the contract, then the injured or innocent party can only
claim damages.
✔ Cehave NV v Bremer Handelgesselschaft GmbH, The Hansa Nord (1976)
The phrase “shipment to be in good condition” in this case was held to be an
innominate term which did not give the right to reject unless the breach went to
the root of the contract. Since the entire cargo was used for its intended purpose
as animal feed, the breach did not go the root of the contract and the buyers
though entitled to damages, were not entitled to reject the goods.
✔ Lombard North Central v Butterworth (1987)
Here the plaintiffs leased a computer to the defendant. Clause 2a of the
agreement made punctual payment of each installment the essence of the
contract; failure to do so would terminate the agreement. The defendant was late
in making a few payments and when the 6th installment was overdue, the
plaintiffs terminated the agreement and sought damages for breach of contract.
The Court of Appeal stressed the parties were free to classify the relative
importance of terms as they sought fit. Since Clause 2a made prompt payment
the essence of the contract it was thought that this clause was a condition,
hence the plaintiffs could terminate the contract.
✔ L Schuler AG v Wickman Machine Tool Sales (1974)
Wickman, the English company was given the sole selling rights for the German
co. panel presses for 4 1/2 years. Clause 7 (b) of the distributorship contract
provided that “ It shall be a condition of the agreement that Wickman shall send
it’s representative to visit (the 6 largest motor manufacturers) at least once in
every week” to solicit orders. Wickman failed to make a number of these visits
and Schuler terminated the agreement under clause 11 (a) on the basis that
Wickman had committed a material breach of its obligations which it failed to
remedy within 60 days of being required to do so. Wickman claimed damages for
wrongful repudiation.
Held: Clause 7 (b) was not a condition in the sense that a single breach however
trivial would entitle the innocent party to terminate the contract.

Advantages and Disadvantages of Ex-Post Facto Test and Factual Matrix Test
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MBA sara@atc2u.edu.my
Express Terms Advance Tertiary College United Kingdom Transfer Program Semester 1

✔ Arcos v Ronaasen (1933)

A contract for the sale of a quantity of wooden staves for making barrels
described the staves as being 1/2 an inch thick. Some of the staves delivered
were not 1/2 an inch thick but very slightly out. There was nothing wrong with the
quality of the wood and they could still be used for the intended purpose of
making barrels. The buyer rejected the goods as the price of wood had fallen and
he could purchase them cheaper elsewhere.
Held:
The purchasers were entitled to reject the goods under s.13 as they were not as
described.
✔ Arcos v Ronaasen illustrates the harshness of Factual Matrix test. Since it is an
intention based test, the court will strictly look at the intention of the parties
regardless of the fact that the consequences are not serious.
Factual Matrix Test EX-Post Facto Test

✔ Certainty ✔ Flexibility
The law will be rigid and The breach will be classified
certain and it is easy for the flexibly by the judges as
citizens to understand the serious and not serious.
way the law Flexibility needed to prevent
works injustice like in Arcos v
Ronaassen.

✔ Giving effect to intention of ✔ Danger of giving discretion

the parties to judges
Freedom of contract is the Discretion will leads to
cornerstone of the English contradictory judgments
Contract Law

✔ Claimants may understand ✔ It will be very difficult for the

the case and able to obtain lawyers to give advice to clients
advice from lawyer. The as the law is very flexible in
case will be nature.
predictable

New Test
✔ Arnold v Britton & Ors [2015] UKSC
The focus of the debate, and the importance of the decision, centres around
the limits of the so-called "commercial common sense" (also referred to as
"business common sense") approach to the interpretation of contacts.
Over the past 45 years, the House of Lords and Supreme Court have
discussed the correct approach to be adopted to the interpretation, or
construction, of contracts in a number of cases starting with Prenn v
Simmonds [1971] and culminating in Rainy Sky SA v Kookmin Bank
 [2011]
When interpreting a written contract, the court has to identify the intention
of the parties by reference to "what a reasonable person having all the

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MBA sara@atc2u.edu.my
Express Terms Advance Tertiary College United Kingdom Transfer Program Semester 1

background knowledge which would have been available to the parties

would have understood them to be using the language in the contract to
mean", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes
Ltd [2009]
It does so by focusing on the meaning of the relevant words, in their
documentary, factual and commercial context. Lord Neuberger (providing
the leading judgment in this case) held that that meaning has to be
assessed in the light of:
I. The natural and ordinary meaning of the clause;
II. Any other relevant provisions of the contract;
III. The overall purpose of the clause and the contract;
IV. The facts and circumstances known or assumed by the parties
at The time that the document was executed; and
V. Commercial common sense; but
VI. Disregarding subjective evidence of any party's intentions.

✔ Lord Neuberger emphasised seven factors, which will no doubt form the basis of
any subsequent analysis of the commercial common sense approach to
contractual interpretation:

First, the reliance placed in some cases on commercial common sense

and surrounding circumstances should not be invoked to undervalue the
importance of the language of the provision which is to be construed.
Unlike commercial common sense and the surrounding circumstances,
the parties have control over the language they use in a contract.
Second, when it comes to considering the centrally relevant words to be
interpreted, it is accepted that the less clear they are, or, to put it another
way, the worse the drafting, the more ready the court can properly be to
depart from their natural meaning. However, that does not justify the court
embarking on an exercise of searching for, let alone constructing, drafting
infelicities in order to facilitate a departure from the natural meaning.
Third, commercial common sense is not to be invoked retrospectively.
The fact that a contractual arrangement, if interpreted according to its
natural language, has worked out badly, or even disastrously, for one of
the parties is not a reason for departing from the natural language.
Fourth, while commercial common sense is a very important factor to be
considered when interpreting a contract, a court should be very slow to
reject the natural meaning of a provision as correct simply because it
appears to be a very imprudent term for one of the parties to have agreed.
The purpose of interpretation is to identify what the parties have agreed,
not what the court thinks that they should have agreed.
 Fifth, when interpreting a contractual provision, one can only take into
account facts or circumstances which existed at the time that the
contract was made, and which were known or reasonably available to
both parties. Given that a contract is a bilateral arrangement involving

Prepared by Sharavanaa Mahendran LLB (Hons) (London),

MBA sara@atc2u.edu.my
Express Terms Advance Tertiary College United Kingdom Transfer Program Semester 1

both parties, it cannot be right, when interpreting a contractual provision,

to take into account a fact or circumstance known only to one of the
parties.
Sixth, in some cases, an event subsequently occurs which was plainly
not intended or contemplated by the parties, judging from the language of
their contract. In such a case, if it is clear what the parties would have
intended, the court will give effect to that intention.
An example is Aberdeen City Council v Stewart Milne Group Ltd [2011]
UKSC 56, where the court concluded that "any … approach" other than that
which was adopted "would defeat the parties' clear objectives", but the conclusion was
based on what the parties "had in mind when they entered into" the contract.
Seventh, and specific to leases, reference was made in argument to
service charge clauses being construed "restrictively". Lord Neuberger
was unconvinced by the notion that service charge clauses are to be
subject to any special rule of interpretation.
Prepared by Sharavanaa Mahendran LLB (Hons) (London),
MBA sara@atc2u.edu.my