In regard to the first issue, a party is considered in breach of a contract when a party fails to perform its obligations under the said contract. In the problem, the contract provides that the barge will be delivered in safe working order for the purpose of sea-faring voyages (Clause 4) and that a condition of the agreement is that the barge will be available from 1st January 2006 until 31st December 2008 (Clause 8). Blue is guilty of breach of contract because the barge was only actually ready-to-load on the 3rd of January 2006 in violation of the owner’s promise (Clause 8) that the barge will be ready-to-load from the start of the charter, i.e. the 1st of January. Moreover, Blue is guilty of breach of contract because the barge had to be towed sometime January 2008 (when the contract is still effective) from Oslo to Liverpool due to serious engine failure in violation of Clause 4. Having failed to perform its obligations under the contract, Blue is therefore in breach of contract.
In regard to the issue of whether Red may exercise the right both to terminate the contract and to claim compensation for past and future losses, the answer depends on whether the terms of the contract violated by Blue is a condition or a warranty. This is because not all contract terms are of equal significance. Some are more important than others. A condition is an essential term of the contract which goes to the root or the heart of the contract while a warranty, on the other hand, is a lesser, subsidiary term of the contract. The distinction between a condition and a warranty is vital in the event of a breach of contract. A breach of a condition enables the party who is not in breach of contract (“the innocent party”) either to terminate the performance of the contract and obtain damages for any loss suffered as a result the breach or to affirm the contract and recover damages for the breach. A breach of a warranty, on the other hand,