In the present case, Alpha Ltd and Omega Hotel have entered into a contract to hire a suite in the hotel for 48 hours. Some issues with regard to the contract have now arisen between Alpha Ltd and Omega Hotel. These issues are discussed below.
The first issue relates to ‘conditions for hire’ signed by Alpha and Omega, which specify terms that include the terms that the suite shall be in good structural and decorative order. The issue is whether the term is a condition or a warranty and whether the leak in the ceiling violates the term.
Terms of contract are classified as: conditions, warranties and innominate terms. A Condition is a fundamental term in the contract. Warranty is a peripheral term, the breach of which only leads to a right to claim damages. An innocent party cannot repudiate a contract for breach of warranty. An innominate term is somewhere between condition and warranty and the remedy for its breach depends on the seriousness of the consequences of breach. Nature of the term to be a condition is decided before or at the time of the contract. The use of the word ‘condition’ is by itself not enough to make the term a condition. It is not conclusive evidence of it being a condition (Schuler V Wickman Tool Sales). However, the use of the word ‘condition’ may be an indication of an intention of the parties to make it a condition (L’estrange v Gracoub). Applying the principle of Hong Kong Fir Shipping Co Ltd v Kawasaki Kishen Kaisha Ltd, a term in the contract may even be said to be an innominate term. This would depend on the nature and effect of the breach. Terms of the contract should be distinguished from mere representations (Inntrepreneur Pub Ltd v East Crown Ltd).
The parties have signed the document entitled ‘Conditions for Hire’, therefore they are bound by it. Where the parties have expressed the term to be a condition, the courts also view this expression as the intention of the parties. The term that the room provided will be structurally and aesthetically in a good order is contained in this document. There are four water leaks in the ceiling of the suite room. Thus, the suite is not in a good structural condition for the meeting, as was agreed to in the ‘Conditions for Hire’. As the suite is being hired for a corporate meeting with a big prospective investor, the terms in the contract for the structural, decorative condition are essential terms for the performance of the contract. Therefore, this is a condition in the contract.
Omega Hotel has breached a condition of the contract by providing a conference room with a leaking ceiling.
The second issue relates to the term that the hotel will provide a suitable environment for corporate events. The issue is whether the use of pneumatic drill outside just outside the meeting room leads to breach of condition.
Nature of the term to be a condition is decided before or at the time of the contract. The use of the word ‘condition’ is by itself not enough to make the term a condition. While it is not conclusive evidence of it being a condition (Schuler V Wickman Tool Sales) it may be an indication of an intention of the parties to make it a condition (L’estrange v Gracoub).
The Presborough Borough Council is carrying out roadworks just outside the suite. The pneumatic drills that are to be used will be for the first 6 hours of the meeting. This is a breach of one of the terms in the ‘Conditions for Hire’, that is, hotel will provide a suitable environment for corporate events. While, the works are being carried out by a local authority over which the hotel has no control, it is also clear that the manager of the Omega Hotels was aware of this scheduled work when he signed the ‘Conditions for Hire’. This shows misrepresentation on his part.
Omega Hotel has breached a condition of the contract by providing a conference room with a leaking ceiling.
The third issue is whether there is a breach of contract by Omega Hotels giving rise to a right for Alpha Ltd to repudiate the contract.
Repudiation is a remedy available to the innocent party once there has been a breach of condition by the other party. This remedy can be exercised by the innocent party with immediate effect.
Failure to comply with the condition is a breach of contract and will render the contract voidable at the option of the other party. Here the other party may terminate the contract and sue for damages (Poussard v Spiers and Pond). Alternatively, the other party may choose to still treat the contract as valid, in which case he cannot at a later point object to the breach of condition. A breach of condition allows the innocent party to treat his or her own primary performance obligations to be at an end. The innocent party must also show that breach of term has deprived the innocent party of “the whole benefit of the contract” (Hong Kong Fir Shipping Co Ltd v Kawasaki Kishen Kaisha Ltd). Unless the innocent party is deprived of the whole benefit, a repudiation will be a wrongful termination of the contract. The repudiating party may even be sued for such wrongful termination (IJS Contractors v Dew Construction). Alternatively, the other party may use ‘erroneous construction rule’ to say that there is no repudiation of contract (DTR Nominees Pty Ltd v Mona Homes Pty Ltd.).
The breach of conditions will enable Alpha Ltd to repudiate the contract and also claim damages, in case they can show some loss due to the breach of the conditions. It is imperative that Alpha Ltd be able to show a breach of condition by Omega Hotels for it to exercise this remedy. Applying the ‘wait and see’ approach (Hong Kong Fir Shipping Co Ltd v Kawasaki Kishen Kaisha Ltd), it will be seen that Alpha Ltd is not really deprived of the whole benefit of the contract, as the contract is for 48 hours and the disturbance of pneumatic drill is for 6 hours. However as there are leaks in the ceiling there is still a breach of condition by Omega Hotels. On the morning of the meeting, Alpha Ltd had been made aware of the investigation being conducted into Gamma Inc for embezzlement and Alpha Ltd is no longer keen on the investment from Gamma. Therefore, it does not need to conduct the meeting any longer. This can go against Alpha Ltd if it repudiates the contract and the case goes into litigation. However, as Omega Hotels have breached two conditions of the contract, this may become relevant to only the issue of payment of damages to Alpha Ltd but not to the right to repudiate the contract.
As Omega Hotels has breached conditions in the contract, therefore, Alpha Ltd can repudiate the contract.
4. Conclusion
Alpha Ltd can repudiate the contract. However, as it is not interested in having the meeting with Gamma Inc, Alpha may not be able to sue for damages. This is due to the reason that they may not be able to show actual loss due to breach of condition.
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