No magic in the words “fundamental breach”
There is no rule of law which prevents parties to a contract agreeing to limit their respective liabilities. It is a question of the construction of the particular clause as to whether it applies to a fundamental breach or not. The court doubted the value of continuing the doctrine of fundamental breach or breach of a fundamental term. Exemption clauses may be held inapplicable to certain breaches of contract as a matter of construction of the contract. The court will be reluctant to ascribe to an exemption condition a meaning which effectively absolves one party from all duties and liabilities. It is not necessary for parties to a contract, when stipulating a condition, to spell out the consequences of breach.
Lord Wilberforce recognised that ‘a deliberate breach may give rise to a right for the innocent party to refuse further performance because it indicates the other party’s attitude towards further performance.’ However, if a repudiation is not accepted and the innocent part elects to treat the contract as continuing, then it remains in existence for the benefit of the wrongdoer as well as of the innocent party.
Lord Upjohn said: ‘A fundamental term of a contract is a stipulation which the parties have agreed either expressly or by necessary implication or which the general law regards as a condition which goes to the root of the contract so that any breach of that term may at once and without further reference to the facts and circumstances be regarded as a fundamental breach . .’
. . And ‘there is no magic in the words ‘fundamental breach’; this expression is no more than a convenient shorthand expression for saying that a particular breach or breaches of contract by one party is or are such as to go to the root of the contract which entitles the other party to treat such breach or breaches as a repudiation of the whole contract. Whether such breach or breaches do constitute a fundamental breach depends on the construction of the contract and on all the facts and circumstances of the case.’
Lord Reid considered problems arising from exemption clauses: ‘Exemption clauses differ greatly in many respects. Probably the most objectionable are found in the complex standard conditions which are now so common. In the ordinary way the customer has no time to read them, and if he did read them he would probably not understand them. And if he did understand and object to any of them, he would generally be told he could take it or leave it. And if he then went to another supplier the result would be the same. Freedom to contract must surely imply some choice or room for bargaining. At the other extreme is the case where parties are bargaining on terms of equality and a stringent exemption clause is accepted for a quid pro quo or other good reason. . . This is a complex problem which intimately affects millions of people and it appears to me that its solution should be left to Parliament. If your Lordships reject this new rule [that an exemption clause necessarily does not avail against breach of a fundamental term, which their Lordships did reject] there will certainly be a need for urgent legislative action but that is not beyond reasonable expectation.’
Lord Upjohn, Lord Wilberforce
[1967] 1 AC 361, [1966] 2 All ER 61
England and Wales
Cited by:
Cited – Daewoo Heavy Industries Ltd and Another v Klipriver Shipping Ltd and Another CA 3-Apr-2003
The carrier had loaded the cargo on the ship’s deck, despite a clause requiring it to be stowed in a hold. The charterparty sought to use the breach to remove the carrier’s limit of liability. The older form of Hague rules applied.
Held: It . .
Cited – Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd; The New York Star PC 1980
A question arose, in the context of dispute between a consignee of goods and stevedores, whether the latter could rely on a time bar. It was argued that because of the fundamental nature of the breach, the stevedore had deprived itself of the . .
Cited – Super Chem Products Limited v American Life and General Insurance Company Limited and Others PC 12-Jan-2004
PC (Trinidad and Tobago) A fire occurred at premises in which the stock was insured under two policies. Both insurers denied the claims alleging arson, and that it was out of time. The claimant said that the . .
Cited – Pegler Ltd v Wang (UK) Ltd TCC 25-Feb-2000
Standard Conract – Wide Exclusions, Apply 1977 Act
The claimant had acquired a computer system from the defendant, which had failed. It was admitted that the contract had been broken, and the court set out to decide the issue of damages.
Held: Even though Wang had been ready to amend one or . .
Cited – F L Schuler AG v Wickman Machine Tools Sales Limited HL 4-Apr-1973
The parties entered an agreement to distribute and sell goods in the UK. They disagreed as to the meaning of a term governing the termination of the distributorship.
Held: The court can not take into account the post-contractual conduct or . .
Cited – Gold Group Properties Ltd v BDW Trading Ltd TCC 3-Mar-2010
The parties had contracted for the construction of an estate of houses and flats to be followed by the interim purchase by the defendants. The defendants argued that the slump in land prices frustrated the contract and that they should not be called . .
Cited – Future Publishing Ltd v The Edge Interactive Media Inc and Others ChD 13-Jun-2011
The claimant said that the defendant had infriged its rights by the use of its logo on their publications. . .
Cited – Avintair v Ryder Airline Services Ltd SCS 30-Dec-1993
The pursuers asserted a contract between themselves and the defenders for a consultancy, and that reasonable remuneration was due under it. The Lord Ordinary had found that no contract had been completed, the parties being, at all points, in dispute . .
Cited – Photo Production Ltd v Securicor Transport Ltd HL 14-Feb-1980
Interpretation of Exclusion Clauses
The plaintiffs had contracted with the defendants for the provision of a night patrol service for their factory. The perils the parties had in mind were fire and theft. A patrol man deliberately lit a fire which burned down the factory. It was an . .
Lists of cited by and citing cases may be incomplete.
Contract
Leading Case
Updated: 02 November 2021; Ref: scu.181082