A five-year contract requires a contractor to keep a client's fleet of refrigerated lorries 'in good working order'. This obligation could be breached in trivial ways, such as a faulty cab light, or very seriously, such as refrigeration failing across the whole fleet. The contract does not say what happens on breach. How will the court decide whether the client may terminate for breach of this term?

Correct answer: B) By looking at whether the consequences of the breach deprive the client of substantially the whole benefit of the contract

Explanation

A term that can be broken in ways ranging from trivial to very serious is an innominate (intermediate) term, as recognised in Hongkong Fir Shipping v Kawasaki Kisen Kaisha. The right to terminate depends on how serious the consequences of the breach are. Termination is allowed only if the breach deprives the innocent party of substantially the whole benefit it was intended to obtain. Otherwise damages are the only remedy. Dishonesty is not the test.