[1981] 2 All ER 513
House of Lords
By a fob (free on board) contract Tradax agreed to sell to Bunge 5,000 tons soya bean meal, shipment to be made in June. Clause 7 of the contract provided that the buyer had to give 'at least 15 days' notice of probable readiness' of the vessel that was to carry the soya bean meal. This meant that the last day for giving notice was 12 June; in fact the buyer did not give notice until 17 June. Tradax claimed that this late nomination was a breach of a condition of the contract which entitled them to rescind the contract. Bunge argued that the term was an innominate term which, in the circumstances, only entitled Tradax to claim damages.
The issue before the court was whether the term, which was not called a condition in the contract, was a condition or an innominate term
Lord Wilberforce
'The appeal depends upon the construction to be placed upon clause 7 of GAFTA form 119 as completed by the special contract. It is not expressed as a 'condition' and the question is whether, in its context and in the circumstances it should be read as such.
... [T]he main contention of counsel for the appellants was based on the decision of the Court of Appeal in Hongkong Fir Shipping Co. Ltd. v Kawasaki Kisen Kaisha Ltd, as it might be applied to clause 7. Diplock LJ in his seminal judgment illuminated the existence in contracts of terms which were neither, necessarily, conditions nor warranties, but, in terminology which has since been applied to them, intermediate or innominate terms capable of operating, according to the gravity of the breach, as either conditions or warranties. Relying on this, counsel's submission was that the buyer's obligation under the clause, to 'give at least [15] consecutive days' notice of probable readiness of (vessels) and of the approximate quantity required to be loaded,' is of this character. A breach of it, both generally and in relation to this particular case, might be, to use counsel's expression, 'inconsequential,' IE not such as to make performance of the seller's obligation impossible. If this were so it would be wrong to treat it a breach of condition: Hongkong Fir would require it to be treated as a warranty.
This argument, in my opinion, is based upon a dangerous misunderstanding, or misapplication, of what was decided and said in Hongkong Fir. That case was concerned with an obligation of seaworthiness, breaches of which had occurred during the course of the voyage. The decision of the Court of Appeal was that this obligation was not a condition, a breach of which entitled the charterer to repudiate. It was pointed out that, as could be seen in advance the breaches, which might occur of it, were various. They might be extremely trivial, the omission of a nail; they might be extremely grave, a serious defect in the hull or in the machinery; they might be of serious but not fatal gravity, incompetence or incapacity of the crew. The decision, and the judgments of the Court of Appeal, drew from these facts the inescapable conclusion that it was impossible to ascribe to the obligation, in advance, the character of a condition.
Diplock LJ then generalised this particular consequence into the analysis which has since become classical. The fundamental fallacy of the appellants' argument lies in attempting to apply this analysis to a time clause such as the present in a mercantile contract, which is totally different in character. As to such a clause there is only one kind of breach possible, namely, to be late, and the questions which have to be asked are, first, what importance have the parties expressly ascribed to this consequence, and secondly, in the absence of expressed agreement, what consequence ought to be attached to it having regard to the contract as a whole.
The test suggested by the appellants was a different one. One must consider, they said, the breach actually committed and then decide whether that default would deprive the party not in default of substantially the whole benefit of the contract. They invoked even certain passages in the judgment of Diplock LJ in the Hongkong Fir case to support it. One may observe in the first place that the introduction of a test of this kind would be commercially most undesirable. It would expose the parties, after a breach of one, two, three, seven and other numbers of days to an argument whether this delay would have left time for the seller to provide the goods. It would make it, at the time, at least difficult, and sometimes impossible, for the supplier to know whether he could do so. It would fatally remove from a vital provision in the contract that certainty which is the most indispensable quality of mercantile contracts, and lead to a large increase in arbitrations. It would confine the seller - perhaps after arbitration and reference through the courts - to a remedy in damages which might be extremely difficult to quantify. These are all serious objections in practice. But I am clear that the submission is unacceptable in law. The judgment of Diplock LJ does not give any support and ought not to give any encouragement to any such proposition; for beyond doubt it recognises that it is open to the parties to agree that, as regards a particular obligation, any breach shall entitle the party not in default to treat the contract as repudiated. Indeed, if he were not doing so he would, in a passage which does not profess to be more than clarificatory, be discrediting a long and uniform series of cases - at least from Bowers v Shand onwards which have been referred to by my noble and learned friend, Lord Roskill. It remains true, as Lord Roskill has pointed out in Cehave NV v Bremer Handelsgesellschaft mbH. (The Hansa Nord), that the courts should not be too ready to interpret contractual clauses as conditions. And I have myself commended, and continue to commend, the greater flexibility in the law of contracts to which Hongkong Fir points the way (Reardon Smith Line Ltd. v Yngvar Hansen-Tangen (trading as H. E. Hansen-Tangen)). But I do not doubt that, in suitable cases, the courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that an obligation has the force of a condition, and that indeed they should usually do so in the case of time clauses in mercantile contracts. To such cases the 'gravity of the breach' approach of the Hongkong Fir case would be unsuitable. I need only add on this point that the word 'expressly' used by Diplock LJ in Hongkong Fir should not be read as requiring the actual use of the word 'condition': any term or terms of the contract, which, fairly read, have the effect indicated, are sufficient. Lord Diplock himself has given recognition to this in this House: Photo Production Ltd. v Securicor Transport Ltd. I therefore reject that part of the appellants' argument which was based upon it, and I must disagree with the judgment of the learned trial judge in so far as he accepted it. I respectfully endorse, on the other hand, the full and learned treatment of this issue in the judgment of Megaw LJ in the Court of Appeal.
I would add that the argument above apples equally to the use which the appellants endeavoured to make of certain observations in United Scientific Holdings Ltd. v Burnley Borough Council, a case on which I do not need to comment on this occasion.
In conclusion, the statement of the law in Halsbury's Laws of England, 4th ed., vol. 9... (generally approved in the House in the United Scientific Holdings case), appears to me to be correct, in particular in asserting (1) that the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties, and (2) that broadly speaking time will be considered of the essence in 'mercantile' contracts - with footnote reference to authorities which I have mentioned.
The relevant clause falls squarely within these principles, and such authority as there is supports its status as a condition: see Bremer Handelsgesellschaft mbH. v JH Rayner & Co. Ltd. and see Turnbull (Peter) & Co. Pty. Ltd. v Mundas Trading Co. (Australasia) Pty. Ltd. In this present context it is clearly essential that both buyer and seller (who may change roles in the next series of contracts, or even in the same chain of contracts) should know precisely what their obligations are, most especially because the ability of the seller to fulfil his obligation may well be totally dependent on punctual performance by the buyer.
I would dismiss the appeal...'