Research Proposal on "Deviation and Fundamental Breach of Contract"

Research Proposal 5 pages (1647 words) Sources: 10 Style: Harvard

[EXCERPT] . . . .

deviation and fundamental breach of contract. 2) Demonstrate how the salvage convention and SCOPIC clause work together to give the salvor a proper reward.

Contractual maritime law:

The relationship between deviation and fundamental breach of contract and how the Salvage Convention and SCOPIC clause work together to give the salvor a proper reward.

When a contract is said to have been breached, this simply means that the terms of the contract have not been met. Thus the original terms of the contract are, in effect, dissolved -- as one party has not met his or her agreed-upon obligations he or she will not be recompensed. However, the concept of what constitutes a breach of contract "does not fit conveniently into the traditional principles of either the common or the civil law" regarding maritime matters of commerce. Exigent circumstances such as weather or piracy may inhibit the fulfilling of an obligation at sea (Chapter 5, p.3).

The notion of a fundamental breach of contract, a complete failure of meeting the original contractual obligations, is even more difficult to define in maritime and shipping law, although the penalty for such a violation is quite harsh: "When a contract of carriage by sea is breached, the defaulting carrier must recompense the shipper or consignee for the damages suffered according to the terms of the contract, and the applicable common law or civil law, or the applicable international convention" (Chapter 5, p. 3). Also, "in the case of a breach of contract, the innocent party, instead of asking for the resolution of the contract and damages, may demand specific performance by the defaulting party of his obligations under the contract (e.g. To make delivery of the goods he has damaged). In addition, the innocent party may recover compensatory damages. If the innocent party elects to demand performance, he must carry out his own contractual obligations (e.g. pay the freight, take delivery, etc.)" (Chapter 5, p.15). In many instances, demanding performance may be the most favorable course of action for both the offending and the innocent party, but this is not always feasible.

A fundamental breach is "serious, usually the result of a fraudulent or willful act" and "the courts have questioned whether the carrier may rely on the terms of the contract or the law, and in particular, whether the carrier may rely on the exclusion or limitation clauses in the contract and in the law, because the carrier has seemingly placed himself outside of the contract and of the law," by giving a "performance... totally different from that which the contract contemplates" (Chapter 5, p. 3). Because of the breach, the other party involved in the contract may elect to terminate all of the further contractual obligations "because the other party has breached the contract in so serious a manner as to deprive him of substantially the whole benefit which it was intended he would obtain from the contract" (Chapter 5, p. 4). In short, not is the carrier simply not compensated for the specific action he failed to fulfill in a satisfactory fashion but all future terms of the contract are null and void.

Under the current Hague Rules, which govern the majority of the legislation regarding shipping amongst the world's trading nations there are "three specific cases of fundamental breach or rupture of the contract. They are (i) misleading statements by the shipper, (ii) unreasonable geographic deviation, and (iii) unjustified deck carriage, a quasi-deviation" (Chapter 5, p.19). Misrepresentation or fraud regarding the nature of the goods being shipped is a fairly straightforward concept. Geographical deviation, however, is more complicated. In the case of geographical deviation, whereby the ship deviates so far from the designated, agreed-upon path, the shipper, rather than the insurer, is now responsible for the risks of the venture, as he or she has exposed the cargo to unforeseen circumstances and waters.

Geographic deviation is a very old idea: long before the Hague Rules, in one of the earliest maritime cases in British common law, a ship was deemed to have become the de facto insurer of the cargo because, it argued that had it had known the ship was going to take such a detour, it never would have agreed to the original contract (Chapter 5, pp. 4-5). "Unjustified deck carriage (without the shipper's consent) also came to be viewed as the equivalent of a deviation, depriving the carrier of contractual defenses under exclusion or limitation clauses," because of added weight and other potential safety hazards (Chapter 5, p. 5). Finally, under some interpretations of the Hague Rules, misdelivery to the wrong location or using improper methods may also be held to be deviation.

All Hague Rules were "intended to protect unfortunate consumers from unfair contracts drafted by merchants with overwhelming bargaining power. Both limitation and total exclusion clauses in contracts were held not to operate where the person benefitting from such clauses (usually the merchant) created a situation completely different from that contemplated by parties to the contract. In other words, exemption and exclusion clauses did not avail a party who was 'guilty of a breach which goes to the root of the contract'" and who did not take measures to verify if the deviations were acceptable to the other contractual party before acting (Chapter 5, p. 5). While certain changes in plans may be unavoidable, major changes in route or transportation methods must be verified with the second party of the contract.

Contemporary interpretations of deviance from contracts do vary widely between nations, however, despite the existence of international treaties and the relatively uniform acceptance of the Hague Rules. For example, because America is "historically a shipper rather than carrier nation" its courts have been seen as particularly "intent on preventing the goods from being exposed to greater risks than had been agreed" (Chapter 5, p.11). American courts have been notable for its particularly vigorous enforcement of deviation clauses. The deviation doctrine as interpreted by American courts have held that almost any type of "voluntary and unexcused departure from the intended course of the voyage 'ousted' the contract of insurance, discharging the cargo underwriters totally for any loss occurring subsequently" (Chapter 5, p. 11). American maritime courts are also extremely rigorous in enforcing quasi-deviations, such as deck carriage, over-carriages and delays in shipping (Chapter 5, p. 11). The Carriage of Goods by Sea Act (COGSA) establishes a $500 limitation upon losses, except when quasi-deviations and deviations are an issue, so the financial loss is often considerable for carriers found to be in violation of Hague Rules.

The SCOPIC clause is a relatively recent innovation in maritime law. It was created as supplementary to the provisions of Article 14 of the International Convention on Salvage 1989 ( or "Article 14") (SCOPIC, 2007). The International Convention on Salvage: 1989, was meant as a remedy to the common concept of 'No Cure - No Pay' which meant that "a salvor is only rewarded for services if the operation is successful," again, according to the concept that a breached contract should not be fulfilled (IMO, 1989).

However, the Convention on Salvage wished to reformulate this concept to take consideration of the needs of the modern oceanic environment. Although the 'No Cure, No Pay,' philosophy might seem sound on the surface, "it did not take pollution into account. A salvor that prevented a major pollution incident (for example, by towing a damaged tanker away from an environmentally sensitive area) but did not manage to save the ship or the cargo got nothing. There was therefore little incentive to a salvor to undertake an operation which has only a slim chance of success" even though it might be beneficial to the environment as a whole and the world maritime community (IMO, 1989). "Special compensation" was to be paid to salvors… READ MORE

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