Fundamental breach
Fundamental breach of
Whereas breach of condition is a serious breach that "denies the plaintiff the main benefit of the contract",[2] fundamental breach was supposed to be even worse, with the result that any exclusion clause limiting the defendant's liability would automatically become void and ineffective. Also, whereas breach of condition gives the plaintiff the option to repudiate, fundamental breach automatically discharges the entire contract.[3]
Although the concept caused some excitement in the 1950s and 1960s, the concept was regarded as flawed by the
Background – the law of deviation
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The origins of the idea of fundamental breach may be traced to early cases on the doctrine of deviation. In Davis v. Garrett [7] Tindal C.J. stated that a carrier's deviation from the agreed voyage route amounted also to a deviation from the terms of the contract, including its exceptions or limitation clauses provided by such a contract. This view was adopted in the leading cases of Leduc v Ward (1888) [8][9] and Glynn v Margetson (1893).[10][11]
In Leduc v Ward, a vessel bound from Fiume (modern day
Similarly, in Glynn v Margetson, a vessel carrying
Tate & Lyle v Hain Steamship Company was a further deviation case following this approach.[12]
Adoption of fundamental breach within contract law
Although the 19th century cases were maritime cases, the idea of the "main purpose" caught on in the general law of contract after Lord Greene MR, in Alderslade v. Hendon Laundry Ltd.(1945),[13] labelled the fundamental term as ‘the hard core of the contract'.
In
Although the clause was clear and well drafted, the
This decision was clearly fair to the buyer, and Karsales v Wallis soon became the leading case on "fundamental breach". As a matter of law, under the doctrine of fundamental breach of contract, exclusion clauses were deemed not to be available to a party in fundamental breach of the contract. However, all was not well, as business people felt alarmed that an agreed contract term could be set aside by a court; there seemed to be no "certainty".[citation needed]
Also, there arose some confusion as to what "fundamental breach" actually was. Some alleged it was a breach that went to "the root of the contract", a breach so fundamental it would permit the distressed party to repudiate the contract and claim damages. However, since both common law[14] and statute[15] already recognised that while that breach of warranty entitled a claimant only to damages, any breach of condition would entitle a claimant to both repudiation and damages, it seemed that fundamental breach offered nothing new.[a]
Resolution – the Suisse Atlantique
The matter came to a head in 1966 in the House of Lords decision in
The House of Lords boldly held that Karsales Ltd v Wallis had overstated the law, and that whether or not a fundamental breach extinguishes any protection that the defendant might rely on was a "question of construction" and not a "question of law".[b] Although the demurrage clause was so absurdly low that it amounted to an exemption clause, nevertheless its existence plainly showed that the parties had contemplated the possibility of delay, so delays would not amount to fundamental breach.
After the Suisse Atlantique decision, there was a series of cases where the
These two cases (the Suisse Atlantique and Photo Productions) thus formed the definitive statement of the law up to the Unfair Contract Terms Act 1977.[c]
More recently, this law was successfully applied in two cases related to carriage of goods by sea and application of limitation clauses under the
Although the Suisse Atlantique case has taken the sting out of the fundamental breach idea, in deviation itself little has changed. Glynn v Margetson still holds, so that not only may deviating carriers be denied the protection of exemption clauses expressly in the contract, they will also be denied the protection of implicit exemptions such as Article IV of the
Canada
The doctrine of fundamental breach has been “laid to rest” by the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) in 2010.[23] In its place, the court has created a three-step test to evaluate the application of exclusion clauses. The first step is to evaluate the exclusion clause in the factual context of each case to determine if it applies to the material circumstances. The second step is to evaluate if the exclusion clause was unconscionable at the time of incorporation. The final step is to evaluate whether the exclusion clause should not be enforced on public policy grounds.
See also
- Maxine Footwear Company Ltd. v. Canadian Government Merchant Marine Ltd (1957)[24][25]
- Breach of contract
- Pacta sunt servanda, a brocard or basic principle of law
- Terms in English contract law
Notes
- ^ In other words, fundamental breach was not some kind of "super breach of condition".
- ^ i.e not automatic
- ^ Since amended by the Consumer Rights Act 2015
References
- ^ Sometimes known as a repudiatory breach
- ^ Hong Kong Fir Shipping v Kawasaki Kisen Kaisha, 1961
- ^ Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd
- ^ [1966] 1 Lloyd's Rep. 529
- ^ Photo Production Ltd v Securicor Transport Ltd
- ^ a b c Pinsent Masons, Exemption clauses need strong words to survive deliberate, fundamental breaches, says High Court, published 6 May 2009, accessed 28 October 2023
- ^ Davis v. Garrett case report
- ^ Leduc v Ward (1888) 20 QBD 475
- ^ Leduc v Ward case report
- ^ Glynn v Margetson [1893] AC 351 [1907] 1 KB 660
- ^ Glynn v Margetson case report
- ^ iLaw, Tate & Lyle v Hain Steamship Company, 1936) 55 Ll.L.Rep. 159], Lloyds Law Reports, accessed 26 April 2021
- ^ [1945] KB, 189 at p. 193
- ^ Bettini v Gye (1876)
- The Sale of Goods Act 1893
- ^ [1966] 1 Lloyd's Rep. 529
- ^ [1970] 1 QB 447
- ^ Also, The Kapitan Petko Voivoda [2003] 2 Lloyd's Rep. 1
- ^ [2002] 2 Lloyd's Rep. 357.
- Re Polemis and Donoghue v Stevenson
- ^ viz The Glenfruin (1885) 10 PD 103 and McFadden v Blue Star Line [1905] 1 KB 697
- ^ Moss, G., Internet Broadcasting Corporation Ltd. (T/a Nettv) & Anor v Mar LLC (T/a Marhedge) [2009] EWHC 844 (Ch), delivered 24 April 2009, accessed 28 October 2023
- ^ Supreme Court of Canada, Tercon Contractors Ltd. v. Her Majesty The Queen in Right of the Province of British Columbia, by her Ministry of Transportation and Highways, 2010 SCC 4, para. 81, published 12 February 2010, accessed 26 April 2021
- ^ [1957] S.C.R. 801: Canadian Supreme Court [1]
- ^ [1959] A.C. 589: Privy Council [2]