A Preference for Innominate Terms: The Good, the Bad Bargain and the Ugly

AuthorOliver Williams
S.S.L.R. A Preference for Innom inate T erm s: The Good,
the Ba d Bar gain a nd t he Ugly
A Preference for Innominate Terms:
The Good, the Bad Bargain and the Ugly
Oliver W illiam s
At less than ten pages in length, the succinct ju dgment of Lord J ustice Dip lock
in Hongk on g Fir Ship ping Co Ltd v Ka w asaki Kisen Kaisha Ltd succeeded in
alt ering th e legal lan dscap e of mo dern cont ract law forever .1 In depar ting fr om
the tradition ally accepted a priori determ in ation of an in nocent par ty’s
entitlement t o elect to ter minate for breach of cont ract, based on classification
of the term , the innovat ive ‘inn omin ate terms’ doctrine shifted att ention t o the
consequen ces resu lting from t he br each. 2
Subsequen tly, this em ergin g doct rine flourished as it was soon recogn ised,
first by Lord J ustice Roskill in the Cou rt of Appeal, 3 an d thereafter by the
House of Lor ds, that where there is a discretion in classifying a term as a
condition or innominat e term, favour sh ould be given to th e latter, save in the
context of time clau ses in mercantile contracts.4 The preferen tial tr eatment
affor ded to innominate terms, entren ched by over three decades of legal
pedigr ee, and as loyally restated in the m ost recent High Cou rt decision
regarding th e construction of con tractual u ndertakin gs,5 h as becom e a well-
established rule of thum b when constructing con tracts. Notwithstanding the
longevity of the preferen ce, th is essay ch allen ges the reason in g underp in ning
the judicial reluctance to classify term s as conditions in the context of non-
tim e clau ses in com mer cial tr ansact ions.
This essay crit iques the pr eference for in nom inate terms by exam in in g the
develop men t of the right to terminate from a defence against an action for
non-perform ance of a ‘condition precedent’. By ascertain ing the purpose of
th e right to terminat e, this essay is able to com pare an d contrast th e success of
bot h types of term in achievin g ‘the good’ envisaged by the rule in the context
of the ‘charact er istic com m ercial contract’ in English law (contracts for th e
1 [1962] 2 QB 26 (CA) 6 5-73 (Lor d Ju stice Dip lock).
2 Hon gko ng Fir S hipp ing (n 1) 72 (Lor d Ju stice D iplock) .
3 Cehav e Nv v Brem er H ande lsgesells chaft MBH , The H ans a No rd [1976 ] QB 44 ( CA) 70-71
(Lor d Ju stice R oskill); 61 (Lord Den nin g MR).
4 Bun ge Cor pora tion , New Yor k v Tr adax Expor t SA, Pa nam a [198 1] 1 WLR 711 (HL) 715-16
(Lor d Wilbe rforce ); 727 (Lor d Ros kill).
5 RG Gr ain T rad e LLP (UK) v Feed Fact or In tern ati onal L td [2 011] EWHC 18 89 (Com m);
20 11 WL 2747730 (HC).
[2012] Sou tha mpton Stud ent Law Review
Vol. 2
carriage of goods by sea), 6 and contr acts for the sale of goods and
commodities. As th is is ent win ed with the br oader funct ion of con tract law as
an ‘engin e for trad e’,7 this is con sidered in conjunction with the ability of
innominate terms to facilitat e competitive exch ange, en capsulat ed by the
market-in dividua lism ideology pr omulgated by Adam s an d Brownswor d.8.
This essay also qu estions whether th e importan ce the ju diciary place on
prevent in g the dischar ge mech anism being ‘misused’ to escape abad bar gain
can be ration alised by the market-in dividualism and consumer-welfarism
ide ologie s. 9 To exem plify the multifarious and contesting policy issues of
relevance to th is exploration, a distinction between ‘predatory termination
andterm inatio ex culpa is pioneered, exemplifying the significance of the
fault of t he party in breach in answer ing th is question.
By undertakin g the aforesaid r esear ch th is essay exp oses t he in adequacy of t he
reasoning supp or ting a preferen ce for innominate terms. The present att itude
towards termination , influenced by the belief in the need to prevent
term in ation enablin g escape from bad bargains, neither accords with the
purpose of th e law nor oils the engine of trade. Moreover, th e inability of th e
law to scru tinise the fault of the party in breach, as n ecessitated by m arket-
individualism and consumer-welfarism, exposes an ugly truth : it’s time for a
new ap proach to disch arge for breach.
escr ibed as ‘one of the m ost perplexing problems in the English law of
contract’,10 the cause of action available to an innocen t par ty following
a breach of obligation by his con tractual counterpart is of notable
theoretical and practical significance. Of the op tion s available, th e righ t to
bring con tractual perfor m ance to a premature en d by terminatin g the
relation ship is one of the m ost high ly valued,11 yet it is also one of the m ost
dr acon ian . 12 Although much judicial ink has been spilt in furt herance of
justifying the position taken by En glish law, the cu rrent law is by no means
immun e from criticism. 13 This essay seeks to reinvigorate the debate
concerning the determ in ation of a right to terminate for breach of cont ract
6 Lord Goff, ‘The Futu re of t he Comm on La w’ (1997) 4 6 ICLQ 745 , 751.
7 Lord Irvin e, ‘The Law: An Engin e for Tra de’ (20 01) 64 MLR 333.
8 JN Ada ms an d R Bro wnswor d, ‘The id eologies o f contr act’ (1987) 7 Le gal Stud ies 20 5; R
Brow nswor d, ‘Retr ieving R eason s, Ret rievin g Ratio nalit y? A New Look at th e Right to
With dra w for Bre ach of Con tra ct’ (1992 ) 5 JCL 8 3; R Bro wnswor d, ‘Sta tic and Dynam ic
Mar ket-I ndivid ualis m’ in H alson (ed) E xplori ng th e Boun dar ies of Con tract (Dar mou th,
1996 ); Brown sword Contr act La w: Them es for the Tw en tieth Cent ury (2nd edn , Oxford
Un iversit y Pr ess, New York 20 06 ); Adam s and Brown sword , Und ersta ndin g Con tract Law
(5th ed n, Sweet and Maxwell, Lo ndon 200 7).
9 JN Ada ms an d R Brow nswor d (n 8 ).
10 GH Tr eitel, ‘Som e Prob lems o f Brea ch of Cont ract’ (1967) 30 Mod L Rev 139, 139.
11 JW Car ter , ‘Int erm ediat e Ter ms Arr ive in Aus tra lia an d Singa pore ’ (20 08 ) 24 J CL 226, 226.
12 K Taka hash i, ‘Righ t to Te rmin ate (Avoid ) Int ern ation al Sal es of Comm odit ies’ [20 03] J BL
102, 102 .
13 Not ably, T Weir , ‘Contr act A Buyer ’s Right to Reject for Defect ive Good s’ [1967] CLJ 33.

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