Innominate Contract Terms

Introduction

Innominate terms are contract terms that are not fixed in advance as either conditions or warranties. Instead, the legal response to a breach depends on how serious the consequences are. If the breach deprives the innocent party of substantially the whole benefit of the contract, termination (plus damages) is available. If not, the remedy is damages only.

This approach comes from Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. It allows courts to respond sensibly to a wide range of breaches without overreacting to minor problems or underreacting to serious failings. The trade-off is that parties may face more uncertainty where a term is not clearly a condition or a warranty.

This guide explains what innominate terms are, how they relate to conditions and warranties, where the courts draw the line, and how to draft and litigate with confidence.

What You'll Learn

• What an innominate term is and how it differs from a condition or a warranty
• The Hong Kong Fir test: “substantially the whole benefit” and when termination is justified
• How labels and context can make a term a condition (e.g. time clauses in mercantile contracts)
• Key cases: Hong Kong Fir, Bunge v Tradax, The Hansa Nord, Rice v Great Yarmouth, and Lombard v Butterworth
• How the Sale of Goods Act 1979 and s15A affect rejection and damages in business-to-business contracts
• Practical steps before terminating for breach to avoid wrongful termination
• Drafting tips to reduce disputes over whether a breach is “serious enough”
• A quick-reference table with authorities and takeaways

Core Concepts

What is an innominate term?

An innominate term is a contractual promise that is neither pre-classified as a condition nor as a warranty. When such a term is breached, the court looks at the consequences:

• If the breach deprives the innocent party of substantially the whole benefit of the contract, the breach is treated as going to the root of the contract and termination is available (with damages).
• If the breach does not cross that threshold, the remedy is damages only.

This consequence-based approach was set out by Diplock LJ in Hong Kong Fir. The charterer tried to terminate a two-year charter because the ship was not maintained and there were lengthy delays. The Court of Appeal held that—although the owner was in breach—the overall benefit of a two-year charter had not been lost. Termination was therefore not permitted.

Key points:

• Classification happens after the breach, based on its impact.
• The same term can lead to termination in one case and damages only in another, depending on the seriousness of the breach.
• The test aligns with the general concept of repudiatory breach: does the breach go to the root of the contract?

Conditions, warranties, and when labels matter

• Conditions: fundamental terms; any breach gives a right to terminate and claim damages.
• Warranties: minor terms; breach gives damages only, not termination.
• Innominate terms: consequences vary with the seriousness of the breach.

Labels can matter, particularly in commercial agreements. Clear drafting can signal that time or punctual performance is “of the essence” so that any breach triggers termination. Courts also recognise established categories:

• Time clauses in mercantile contracts are commonly treated as conditions. In Bunge Corporation v Tradax SA [1981] 1 WLR 711, a late notice obligation was treated as a condition.
• Parties can expressly state that punctual payment is a condition (Lombard North Central plc v Butterworth [1987] QB 527), and the courts will usually give effect to that.

That said, calling a term a condition is not magic. The court will read the clause in context. A clause that purports to allow termination for “any breach”, no matter how minor, may be read as requiring a serious breach before termination is permitted (see Rice v Great Yarmouth).

Statutory terms: description and quality

In sale of goods:

• Section 13 Sale of Goods Act 1979 (SGA) requires goods to match their description.
• Section 14 SGA implies terms about satisfactory quality and fitness.

Historically, these were treated as conditions. However, s15A SGA (in many non-consumer sales) limits the right to reject where the breach is so slight that rejection would be unreasonable, leaving the buyer to claim damages. This produces a result similar to the innominate approach, even where the statute refers to a “condition”.

In consumer contracts, the Consumer Rights Act 2015 (e.g. s9 quality, s11 description) provides specific consumer remedies. The innominate terminology is less central there because the legislation sets out clear routes for repair, replacement, price reduction or rejection.

How courts assess seriousness

When deciding whether a breach of an innominate term justifies termination, courts consider practical, fact-specific factors, including:

• The extent of the performance shortfall: how far has the promised performance fallen away?
• Duration of the breach relative to the contract term
• Whether the breach can be cured, and how quickly
• Likelihood of repetition
• The impact on the core purpose of the deal, including missed market opportunities
• Whether the innocent party still obtains most of the expected benefit
• The parties’ knowledge at the time and reasonable forecasts about future performance

No single factor is decisive. The overall question is whether the benefit of the bargain has been largely lost.

Key Examples or Case Studies

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

• Context: Two-year time charter; serious maintenance failures caused about 20 weeks’ delay.
• Decision: Breach, but not serious enough to deprive the charterer of substantially the whole benefit.
• Point: Not all serious problems justify termination; look at the contract as a whole.

Bunge Corporation v Tradax SA [1981] 1 WLR 711

• Context: Commodity sale; late notice of readiness.
• Decision: In mercantile contracts, such time clauses are conditions; late notice allowed termination.
• Point: Some obligations are treated as conditions to support certainty in trade.

Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44

• Context: Sale of citrus pulp pellets described as “fair average quality”; goods partly defective.
• Decision: Breach did not justify rejecting the whole cargo; buyer entitled to damages.
• Point: Quality or description breaches may not always permit rejection; the court examines the gravity and consequences.

Rice v Great Yarmouth Borough Council [2003] TCLR 1

• Context: Leisure services contract with a clause allowing termination for “any breach”.
• Decision: Termination was not justified for a series of relatively minor breaches; read the clause as requiring a serious breach.
• Point: Sweeping termination clauses will not always be read literally where that would produce unreasonable results.

Lombard North Central plc v Butterworth [1987] QB 527

• Context: Finance agreement stated punctual payment was a “condition”.
• Decision: Late payment entitled the finance company to terminate.
• Point: Clear wording can turn a term into a condition, though context still matters.

Practical Applications

Drafting tips to reduce disputes

• Identify truly critical obligations and label them as conditions. Use clear language such as “time is of the essence” where timing is business-critical.
• Avoid absolute “any breach” termination triggers. Prefer “material breach” with an agreed definition and examples, or set objective thresholds (e.g. service levels, defect rates).
• Include cure periods and escalation steps so that minor breaches can be remedied without ending the contract.
• For long-term service contracts, add “repeated breach” and “persistent breach” triggers with measurable thresholds.
• Align with statute: in B2B sale contracts, remember s15A SGA may restrict rejection for slight breaches; make your remedies clause work with that framework.
• Keep termination clauses consistent with other parts of the agreement (e.g. service credits, liquidated damages, price adjustments).

Assessing a breach before termination

• Map the breach against the contract’s purpose: has most of the benefit been lost?
• Assess the scale and duration of the problem, likelihood of cure, and risk of recurrence.
• Quantify the commercial impact: missed market, lost output, idle capacity, regulatory risk.
• Consider alternatives to termination: insist on cure, demand assurances, adjust performance under a variation.
• Serve a clear notice setting out breaches and required remedial steps. Reserve all rights to avoid affirming the contract by mistake.
• Avoid precipitous termination. A wrongful termination itself can be a repudiatory breach, exposing you to damages.

Litigation and evidence pointers

• Plead termination and, in the alternative, damages for breach without termination. Do the same in defence: challenge seriousness and argue for damages-only if appropriate.
• Collect contemporaneous evidence: timetables, production logs, defect data, audit reports, correspondence, and expert analysis on causation and delay.
• Where statutory terms are engaged, address s15A SGA (non-consumer) and any contractual limitations or exclusions.
• Watch for affirmation: continued performance, acceptance of substitute performance, or payment without reservation can forfeit the right to terminate.

For buyers and customers

• If delay or defects threaten the core purpose (e.g. seasonal goods or a critical launch), document that urgency in the contract and in your notices.
• Keep detailed records showing why late or defective performance undermines the deal as a whole.

For sellers and service providers

• Respond promptly with a recovery plan, timetables, and assurances. Prompt cure reduces the risk that a court will treat the breach as going to the root of the contract.
• Offer interim measures (e.g. alternative performance) where possible to preserve the customer’s key benefits.

Summary Checklist

• Identify whether the term is expressly a condition, or falls into an established category (e.g. mercantile time clauses).
• If not, treat it as innominate and apply the Hong Kong Fir seriousness test.
• Ask whether the breach deprives the innocent party of substantially the whole benefit of the contract.
• Consider duration, cure, recurrence, and overall impact on the deal’s purpose.
• In sale of goods (B2B), remember s15A SGA can limit rejection for slight breaches.
• Use clear notices, specify breaches, require cure, and reserve rights.
• Avoid wrongful termination; consider alternatives and obtain advice where needed.
• Draft with precision: define “material breach”, include cure periods, and align remedies with commercial priorities.

Quick Reference