Xavier manufactures photocopying machines designed for customers with special requirements. It is his practice not to sell the machines but to lease them to his customers. His standard leasing contract contains the following provisions:

1.    Punctual payment of the agreed monthly rent is deemed to be the essence of the contract.
2.    It is a condition of the contract that the lessee will disconnect the power supply to the machines at the close of business each day.
3.    The lessee will notify Xavier immediately of any fault in the machine and will not permit repairs to be carried out by any person other than Xavier’s representative.

In March 1989 Linus leased a photocopier from Xavier for 3 years on the above terms at a monthly rental of £ 200. Xavier recently discovered that Linus sometimes allows the power supply to remain connected overnight and has repaired minor faults himself on a few occasions. Linus was also 2 days late in paying last month’s rent.

Advice Xavier, who could now charge £ 300 a month rent if the same photocopier were leased to a new customer.

[1]    Introduction
-    Advice Xavier (X) who wishes to terminate / repudiate the contract with Linus (L).
-    The type of contract entered into between X and L – contract of hire / lease which is governed by Supply of Goods and Services Act (SASOGA) 1982.
-    In order for X to repudiate the contract, he must prove on a balance of probabilities that there was either a breach of condition or a serious breach of innominate term.

[2]    How can X establish a breach of contract and claim any form of compensation     from the contract?
-    It should also be noted that there are 2 ways in which X can do this:
    [a]    an action for a breach of contract (as stated above)
    [b]    an action for misrepresentation
-    On the facts the contract was concluded on standard terms provided by X. Thus one need not look into the validity of any pre-contractual statement as either terms or representation.
-    Since there are standard terms, one must decide the status of each term as to whether it amounts to a condition (Wallis v Pratt); warranty (Bettine v Gye) or an Innominate Term (Hong Kor Fir v Kawasaki Kisen Kaisha).

[3]    How to decide on the status of the terms?
-    Two tests:
    [a] The intention of the Parties (Factual Matrix) Test;
    [b] The consequence of the breach (Ex Post Facto) Test.
-    How does one apply the test of intention to decide the status of the term? Thus one have to consider how the parties were treating terms – was it treated as an important term or merely ancillary to the contract?
-    In coming to the decision, the courts will examine the conduct /words used by the parties. Bannerman v White.
[4]    Analysis of Clause 1 – Punctual Payment is the essence of the contract.
-    Mustill LJ in Lombard North Central v Butterworth stated that the word “essence’ means the parties were treating the obligation as a root of obligation. Therefore it is essential that L pays the rental on time.
-    On the facts, L was late for 2 days in paying the rental for last month. As stated above, X’s exact remedies depend on the classification of clause 1 - as to whether it amounts to a condition / warranty?
-    Thus the test of intention at the time of contract (Factual Matrix) as per Behn v Burness can be utilized. In Wallis v Pratt, Fletcher Moulton LJ stated that time clauses are very important to a contract as it goes to the root of a contract and will be treated as a condition.
-    This was also supported in Bunge v Tradax which stated that in commercial contracts – there is always a presumption that time is of the essence.
-    Therefore it could be concluded that there was a breach of condition which will entitle X to repudiate/affirm the contract and claim damages.

[5]    It should however be noted that on the facts, X had accepted the rental last month despite the fact that it was paid 2 days late. Since he had accepted the ‘late’ rental; this seems to indicate that he had affirmed the breach or in other words – he had waived his right to repudiate/terminate the contract based on these facts. Hence X cannot repudiate/terminate this contract based on breach of Clause 1. Nevertheless he will be entitled to claim damages from L for breaching Clause 1.
 
[6]    Analysis of Clause 2 – it is a condition of the contract that power supply will be disconnected.
-    On the facts, L had sometimes allowed the power supply to remain connected overnight. The question is whether X can repudiate the contract since there is a breach of a condition / clause 2.
-    Based on Schuler v Wickman, the courts stated that despite the use of the word condition – a breach of a term would not automatically create the right to repudiate the contract.
-    Taken literally, not disconnecting the power supply could mean a breach of a condition. However it could be argued that the fact that the machine was allowed to remain connected overnight may be due to doing overtime on those days.
-    On the other hand it should also be noted that L may not have been doing overtime but merely had forgotten to switch off the machine. (Arguable)

[7]    Thus if the words used were not conclusive – then there are other important factors that need to be looked in determining whether it is a condition or warranty.
-    For example the courts might look at the commercial importance of a term in relation to a particular trade, industry / profession.
-    On the fact the machine was specifically designed with special requirements. That being the case, it may have been a breach of a condition.
-    On the other hand, if the above construction is not taken – based on the improbabilities, it is difficult for us to make an accurate or precise ascertain on the status of clause 2. It is also to decipher the intention of the parties.
-    If it is clearly intended that the parties treated it as a condition, then for commercial necessity it will be maintained – Bunge v Tradax.
-    As stated above, Lord Reid in Schular v Wickman stated that if the parties had conclusively intended to use the word condition, then it will be treated as a condition but if it is merely used as a label and not in the strict sense, then the courts would not treat it as a condition.
-    Therefore the parties must have used the word ‘condition’ knowing the effect of it and not merely as a label.

[8]    However the intention of the parties must still be      considered in determining this.
-    The dissenting judgment of Lord Wilberforce could be raised i.e. His Lordship stated that the courts would not exactly know the intention of the parties.
-    Since it is unclear as to whether clause 2 is a condition / warranty, alternatively the Ex Post Facto test as per Hong Kong Fir v Kawasaki Kisen Kaisha could be used to solve the uncertainty.
-    In utilizing this test, the courts would look at the consequence of the breach as opposed to the intention of the parties. This approach has been accepted in the subsequent cases nut it must be noted that the courts are playing a significant role in determining what is the bargain as opposed to recognizing the existence of a bargain.
-    The courts in Cehave v Brummer (The Hansa Nord) stated that it is for the courts to determine the seriousness of the breach.
-    Looking into the circumstances objectively, since the machine is still functioning; one may submit that the consequences of not disconnecting the power supply are not so serious.

[9]    Alternatively, if clause 2 is considered as a condition, in the sense that it goes to the root of the contract – then the failure to switch off the machine would allow X to repudiate the contract.
-    This could be further supported by the fact that on the facts there is a contract of lease and by leaving the power supply to remain connected it might reduce the lifespan of the machine and the chance of a rehire could be diminished.
-    If this construction is adopted, then X can terminate the contract.

[10]    Analysis of Clause 10 – repairs could only be made by X’s representative
-    On the facts this term had been breached since L repaired some minor faults by himself and did not notify X about the fault at all. Therefore X’s exact remedy depends on the classification of the term breached.
-    The contentious word that one needs to examine would be fault and repair. These words have many meanings. Based on the test of intention, it is difficult to decipher the intention of the parties as Clause 3 contains multiple obligations as opposed to a singular obligation (for example as clauses 1 and 2).
-    Whenever a particular term leads to multiple obligations – one would have to use the Ex Post Facto test. On the facts it depends on how one construe the consequence to be since the machine is still functioning.
-    However after being repaired if it has caused further damage then the breach would lead to a serious consequence. If the consequence of repairing the machine is merely trivial then X cannot repudiate the contract, otherwise he can.

[11]    The facts further indicate that L repaired minor faults and on a few occasions – this suggests that the consequence of L repairing the contract might be trivial as per the Hansa Nord and therefore X cannot repudiate the contract based on the breach of Clause 3.
-    Nevertheless X would be awarded damages for the breach of Clause 3.

[12]    Conclusion.