The doctrine of fundamental breach
The doctrine of fundamental breach was developed par-
ticularly by Lord Denning MR in the Court of Appeal as
an additional weapon in the judiciary’s fight against
exclusion clauses which had been properly incorporated
into a contract. According to the doctrine, no exemp-
tion clause, however clear and unambiguous, could, as a
matter of law, protect a party from liability for a serious
or fundamental breach of contract. This line of argu-
ment was rejected by the House of Lords in the Suisse
case (1966) but was then revived by the Court of Appeal.
The House of Lords re-established its authority and
finally demolished the doctrine in Photo Production Ltd
v Securicor Transport Ltd(1980).
After this Act, in commercial matters generally, when the
parties are not of unequal bargaining power, and when
risks are normally borne by insurance, there is everything
to be said for leaving the parties free to apportion the
risks as they think fit and for respecting their decision.
In this case the parties had contracted as equals and
were clearly in the best position to decide how to alloc-
ate the risk of the factory being damaged or destroyed.Statutory control
At first, Parliament intervened on a piecemeal basis to
control the use of exemption clauses in specific types
of contract. Section 43(7) of the Transport Act 1962
(repealed in 1977), for example, declared that any clause
which purports to exclude or limit the liability of the
British Railways Board in respect of injury or death to a
passenger ‘shall be void and of no effect’. Other examples
of statutory control of exemption clauses include the
Occupiers’ Liability Act 1957, the Carriage of Goods
by Sea Act 1971 and the Defective Premises Act 1972.
Parliamentary interest in exemption clauses culminated
in the enactment of the Unfair Contract Terms Act 1977,
which lays down rules of general application to most
contracts. The 1977 Act is now supplemented by the
Unfair Terms in Consumer Contracts Regulations 1999.Unfair Contract Terms Act 1977
Preliminary matters
1 The Act came into force on 1 February 1978. It does
not apply to contracts made before that date.
2 The title of the Act is misleading in two respects. First,
it affects the law of tort as well as contract law because
it covers non-contractual notices and signs. Second, it
does not deal with all unfair terms in contracts, only
unfair exemption clauses.
3 Most of the provisions of the Act apply only to
‘business liability’, i.e. liability for things done in the
course of business or from the occupation of premises
used for business purposes. A business includes a pro-
fession, the activities of government departments and
those of a local or public authority.
4 The Act does not apply to international supply con-
tracts, and ss 2– 4 do not apply to certain contracts listed
in Sch 1, which include:Part 3Business transactions
290
when it slid overboard. The Court of Appeal held that the
defendants could not rely on an exemption clause con-
tained in the standard conditions of the forwarding trade,
on which the parties had contracted, because it was
repugnant to the oral promise that had been given.Photo Production Ltdv Securicor
Transport Ltd(1980)
The defendant security company agreed to provide a
visiting patrol service at nights and weekends for the
claimants’ factory. One night, the defendant’s patrolman
lit a fire inside the factory. The fire got out of control and
the factory and its contents, worth a total of £615,000,
were completely destroyed. The defendant relied on an
exclusion clause in its contract which stated that it would
not be responsible ‘for any injurious act or default by any
employee... unless such act or default could have been
foreseen and avoided by the exercise of due diligence’
by the defendant. The claimants did not allege that the
defendant had been negligent in employing the man who
lit the fire. The House of Lords held that the defendant
was protected by the exemption clause. Although a
breach of contract with serious consequences had taken
place, the exclusion clause, as a matter of construction,
was clear and unambiguous and it covered even the
‘fundamental’ breach that had taken place.The contract in the Photo Productioncase was entered
into before 1 February 1978 and so the House of Lords
could not apply the provisions of the Unfair Contract
Terms Act 1977. Nevertheless, their Lordships’ decision
was greatly influenced by the principles contained in the
Act. In the words of Lord Wilberforce: