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Facts[]

Hong Kong Fir agreed to rent their ship to Kawasaki for 24 months and stated on the date of delivery that the ship was fitted or use in ordinary cargo service. However, due to the fact that the engine room staff was inefficient and the engines were very old, the ship was held up for 5 weeks, and then needed 15 more weeks worth of repairs after the deal had been made. Kawasaki repudiated the contract, and Hong Kong Fir sued for wrongful repudiation. Hong Kong Fir was successful at trial and Kawasaki appealed.

Issue[]

  1. What is the test for determining if a breach of a contract leads to a right of repudiation?

Decision[]

not appeal

Reasons[]

Diplock, writing for a unanimous court, states that the test does not always depend on whether the thing that was breached was a warranty or a condition, as sometimes the circumstances are more complex than this. He states that the correct test is to look at the events which have occurred as a result of the breach at the time when the contract was purported to be repudiated and to decide if these events deprived the party attempting to repudiate of the benefits that it expected to receive from the contract. He decides that in this case, as the charterers still get to have the boat for 20 more months, the expected benefits can still be received. Therefore this breach should not lead to repudiation, but only to damages.

Ratio[]

The correct test to determine if a breach should lead to repudiation is to look at the events which have occurred as a result of the breach and to decide if these events deprived the party attempting to repudiate of the benefits that it expected to receive from the contract (the breach must lead to the party not being able to obtain all or a substantial proportion of the benefits that they intended to receive by entering into the contract) - if they do, then repudiation is in order, else only damages can be awarded.

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