Lloyd's Maritime and Commercial Law Quarterly
A FUNDAMENTAL BREACH OF DUTY
F. D. Rose
M.A., B.C.L., Lecturer in the Law of International Trade, University College London.
In the 1960s the courts developed a rule of law whereby a party who had committed a fundamental breach of contract1 was, regardless of its construction, automatically deprived of the protection apparently afforded to him by an exemption clause.2 Without having to decide the point and without unequivocally doing so or overruling any of the cases, the House of Lords in the Suisse Atlantique case3 indicated that, in the majority of cases at least, the substantive doctrine of fundamental breach was misconceived and that the applicability of exemption clauses should be a matter of construction. However, the Court of Appeal subsequently rehabilitated the doctrine, applying the rule of construction only so far as it produced the same result. Photo Production Ltd. v. Securicor Transport Ltd.4 has finally enabled the House to reconsider the question.
On its standard terms, Securicor contracted in 1968, for £8.15s.0d. per week, to patrol Photo Production’s factory when it was closed, four times per night plus twice on Saturday afternoon and four times during Sunday daytime. One night, Securicor’s duty employee, for reasons which remained unsolved, deliberately started a small fire. It got out of control and a large part of the premises burnt down. Damages of £615,000 were claimed for breach of contract and/or the negligence of Securicor in the employment of or for the acts done by its servant or for the negligence of other servants or agents of Securicor which caused the destruction. Securicor relied on condition 1 of the contract :
“1. Under no circumstances shall the company be responsible for any injurious act or default by any employee of the company unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of the company as his employer, nor in any event shall the company be held responsible for: (a) Any loss suffered by the customer through burglary, theft, fire or any other cause, except insofar as such loss is solely attributable to the negligence of the company’s employees acting within the course of their employment …”.
1 A fundamental term is breached where the contract is not being carried out at all; other cases of fundamental breach are those where the manner and consequences of the breach are fundamental. See Treitel, The Law of Contract, 5th edn. (1979), 164 n. 6; Photo Production Ltd. v. Securicor Transport Ltd. [1978] 1 W.L.R. 856, 872 A-B.
2 The law up to 1979 is summarised by Treitel, op. cit., 160–177, q.v. The nomenclature for the clauses in issue are not conclusive of their effects. Different considerations may (but not necessarily will) apply, depending on whether the clause is contrived; to excuse the defendant from liability incurred; to limit the sum which may be claimed from him or the time within which suit must be brought; to pre-determine the damages payable for breach (as with the demurrage clause in Suisse Atlantique, infra); to limit the circumstances in which the defendant undertakes to be contractually bound; or to require one party to indemnify another for the latter’s liability. See Kenyon Ltd. v. Baxter Hoare & Co. [1971] 1 W.L.R. 519, 522G-H. The purpose of a clause may not always be immediately apparent. Thus a clause whereby “the carrier—shall be discharged from all liability … unless suit is brought within one year” did not merely bar the remedy but extinguished the claim: The Aries [1977] 1 W.L.R. 185; but cf. The Virgo [1978] 1 W.L.R. 986.
3 Suisse Atlantique Société d’Armement Maritime S.A. v. N. V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361; (1966) 29 M.L.R. 546.
4 [1978] 1 W.L.R. 856 (C.A.); [1980] 2 W.L.R. 283 (H.L.).
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