The Using of Barge - Case Study Example

Red hired a barge from Blue on a time-charter party contract for 3 years starting 1st January 2006. The owner promised the barge would be ready-to-load at the port of Liverpool from the start of the charter, but was actually ready-to-load on the 3rd January 2006 because the port was closed for holidays. Red used the barge problem-free for 2 years. In January 2008 the barge had to be towed from Oslo to Liverpool because of a serious engine failure. On the 15th February Blue’s chief engineer tells Red the engines will take 5 months to repair, which would leave (once repaired) just under 5 months on the time-charter. Red gets a second opinion from Green, a consultant engineer, who confirms the problem. Green also revealed the engine fault was at least 3 years old and had reduced the barge’s engine capacity by 20%. Red wants to hire another barge with immediate effect and on reading the agreement finds the following clauses: Clause 4: The barge will be in delivered in safe working order for the purpose of sea-faring voyages. Clause 8: A condition of this agreement is that the barge will be available from 1st January 2006 until 31st December 2008. Advise Red when he asks you if he can withdraw from his contract with Blue and claim compensation for any past and future losses. In assessing any claims that Red might have against blue it is necessary to examine the terms of the contract to determine whether a breach has occurred. From there it should be possible to determine whether Red can claim compensation for any losses that have occurred or that are likely to incur The starting point in this situation is to examine the content of the contract and to determine whether the clauses inserted into the contract amount to a condition, a warranty or an inominate term. Clause 4 of the agreement clearly states that the barge will be delivered in safe working order for the purposes of sea-faring voyages. At present due to the engine failure the boat is unusable in its present state and is likely to take a considerable amount pf time to repair. According to the engineer it has been stated that the fault with the engine is at least 3 years old. In essence this means that the boat was not fit for the purposes of sea-faring from the initial usage of the barge by the plaintiff. It could be argued that clause 4 is an implied warranty as to the condition of the vessel. The courts examined the effect of a breach of warranty in the case Bettini v Gye1 in which the plaintiff had signed a contract for a season of concerts. The plaintiff arrived 3 days late of the agreed date due to being ill but had failed to inform the respondent that he would be late. As a result of this lateness the plaintiff failed to attend rehearsals which were viewed as a lesser part of the contract. The court held that there had been a breach of the warranty to attend the rehearsals but that the defendant was only entitled to compensation for this loss and was not entitled to repudiate the contract. In this particular case the warranty for the boat is a major part of the contract and it is likely that the court would allow the plaintiff to repudiate the contract on this basis. Under the Supply of Goods and Services Act 1982 s4 there is an implied warranty that the goods supplied are of satisfactory quality and fit for the intended purpose. It is obvious that as the engine was faulty before the contract was entered into that it was not fit for the intended purpose. Red could argue that he is entitled to compensation on the basis of reliance of the assertions made by Blue that the barge would be usable for the full 3 years. This could be achieved by ordering Blue to pay for the cost of the hiring of another barge whilst the one hired to Red is being repaired. As the barge will not be usable for the full three years Red could claim there has been a breach of contract. Under a claim in breach of contract Red would be able to claim not only for his out of pocket losses but also for loss of profit2. In this particular instance Red would lose a considerable amount of profit if he is unable to hire a different barge to use whilst his is being repaired3. It may be that the courts will not allow Red to repudiate the contract as a substantial part of the contract has been performed before the ship become unusable. It has been stated that the boat will take approximately five months to repair which would mean that there would still be 5 months of the charter left to run. The courts are likely to apply the decision made in Hong Kong Fir Shipping4 in reaching their conclusion. This case is very similar to the case of Red in that the ship was unusable for 15 weeks of the agreed charter. In this case the court held that it would be wrong to allow the plaintiff to repudiate the contract when a substantial portion of the contract could be performed. The court stated that the correct form of redress was through compensation for loss of profit and earnings whilst the vessel could not be used. As the vessel will be out of use for 5 months the court could order that Blue pays the cost of a replacement boat until the original one is fixed. The case of Schuler v Wickman Machine Tool5 provides further authority for the proposition that the plaintiff would not be entitled to repudiate the contract. In this case the court held that in order for the plaintiff to terminate the agreement there had to be a material breach of the contract and that even of the breach being more than a minor breach the respondent ought to be given 60 days in which to remedy the breach. There would also appear to be a breach of clause 8 as the barge was unavailable until 2 days after the agreed date on the contract. This in essence would mean that there had been a breach of the contract from the very beginning. Applying the case of Poussard v Spiers6 it could be viewed by the courts that the agreement for the boat to be ready by a certain date was a condition of the contract and as the boat was not ready on the required date Red would have been able to repudiate the contract. In order to claim that the breach of clause 8 renders the contract as void the plaintiff would have to show good reason for not rejecting the item sooner. It is likely that the courts would regard the action of Red as affirmation of the contract. If this can be proven then Red would not be able to claim damages for the breach. In the case of Bunge Corp v Tradax7 the court held that the seller was entitled to repudiate the contract as the delivery notice was issued 5 days too late. The House of Lords stated that in the case of mercantile contracts time would be of the essence and not an inominate term. Deciding the date from which the damages should be awarded is usually done on the basis of when the breach occurred8. Assessment on this basis is on the assumption that the claimant knows of the breach as soon as it is committed and that the claimant can take steps to mitigate any losses as a consequence of the breach. In this particular case Red would only be able to mitigate his losses if he is able to hire a replacement barge to use whilst his barge is being repaired9. The amount of damages awarded can be limited depending on the circumstances of the breach. Under the principle of remoteness the defendant cannot be held liable for a loss which is classed as too remote. Remoteness is assessed on the basis of whether the loss should have been within the reasonable contemplation of the parties involved. Alderson B in Hadley v Baxendale10 quantified reasonable contemplation in terms of ‘the damages should be such as may fairly and reasonably be considered either arising naturally, that is to say according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach.’ Red could rely on the authority of the Owners of the Steamship Mediana v Owners of Lightship Comet11 to claim for the financial losses incurred as a result of not being able to use the barge to complete his contract. In this particular case the Court of Appeal held that under the circumstances it was acceptable to allow a claim for the loss of the use of the lightship Comet or for the hire of the services of the lightship Orion. This was based on the notion that ‘by the wrongful act of the defendants the plaintiffs were deprived of their vessel.’ Earl of Halsbury LC. p.127. It is likely in the above case that Red could claim for breach of contract as the barge cannot be used for the full time agreed in the contract. It is unlikely that the court would allow rescission of the contract as the actions of Red by not rejecting the barge when it was not supplied as promised on the agreed date and by continuing to use the barge thereafter amounts to an affirmation of the contract. In such a case the courts are likely to order that Blue should bare the cost of the hiring of an alternative vessel or if no such vessel is available that Red should be compensated for any losses that he is likely to incur whilst the barge is unable to be used. Bibliography Treitel, G H, The Law of Contract, 10th Ed, 1999, weet and Maxwell Beale, HD, Bishop, WD, Furmston, MP, Contract Cases and Materials, 3rd Ed, 1995, Butterworths Civil Procedure Volume 2, The White Book Service, 2002, Sweet and Maxwell Rose, FD, Statutes on Contract, Tort & Restitution, 10th Ed, 2000, Blackstone’s Civil Procedure Volume 1 2002, Sweet & Maxwell Harvey, b & Marston , J . Cases & Commentary on Tort, 1998, 3rd Ed, Pitman Publishing Mozeley & Whiteley’s, Law Dictionary, 1993, 11th Ed, Butterworths Treitel, G H. Law of Contract, 1999, 10th Ed, Sweet & Maxwell Read More