Securicor Transport Ltd. v. Photo Production Ltd.

"Photo Production Ltd v. Securicor Transport Ltd." [1980] AC 827 is an English case decided by the Court of Appeal and the House of Lords on contract law and the doctrine of fundamental breach.

Background

A security guard, employed by Securicor Transport, was put in charge of guarding Photo Production's building. The agreement between Securicor and Photo Productions contained an exclusion clause that absolved Securicor from any liability for "injurious act or default by any employee of the company."

While the security guard was on patrol of the Photo Productions building he intentionally started a fire that destroyed the whole building.

The issue was whether Securicor could rely on the exclusion clause to escape liability for their employee's conduct.

Photo Productions argued that the clause could not apply under the doctrine of fundamental breach. That is, the breach of the contract was so massive that it invalidated the whole agreement.

At the Court of Appeal, Lord Denning held that the doctrine of fundamental breach did apply, and that Securicor was liable.

Opinion of the Lords

Lord Wilberforce, writing for the Court, overturned Denning and found that the exclusion clause could be relied upon. Wilberforce explicitly rejected Denning's application of the doctrine of fundamental breach and opted for a "rule of construction" approach. Exemption clauses are to be interpreted the same as any other term regardless of whether a breach has occurred. The scope of the exclusion is determined by examining the construction of the contract. On the facts, Wilberforce found that the exclusion clause precluded all liability even when harm was caused intentionally.

Lord Wilberforce

It necessary to underline that both Lord Denning M.R. in the Court of Appeal ( [1978] 3 All ER 146) and Lord Wilberforce in the House of Lords based their judgements on decision of their Lordships in "Suisse Atlantique Societe d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale" [1966] 1 Lloyd's Rep. 529. Lord Wilberforce, however, criticized Lord Denning’s approach that "Suisse Atlantique" case:

...affirms the long line of cases in this court that when one party has been guilty of a fundamental breach of the contract ... and the other side accepts it, so that the contract comes to an end ... then the guilty party cannot rely on an exception or limitation clause to escape from his liability for the breach.

he said:

My Lords, whatever the intrinsic merit of this doctrine, as to which I shall have something to say later, it is clear to me that so far from following this House's decision in the Suisse Atlantique case it is directly opposed to it and that the whole purpose and tenor of the Suisse Atlantique case was to repudiate it. The lengthy, and perhaps I may say some-times indigestible speeches of their Lordships, are correctly summarised in the headnote:

'(3) That the question whether an exceptions clause was applicable where there was a fundamental breach of contract was one of the true construction of the contract.'

That there was any rule of law by which exception clauses are eliminated, or deprived of effect, regardless of their terms, was clearly not the view of Viscount Dilhorne, Lord Hodson or myself.

Disapproving decision of the Court of Appeal Lord Wilberforce stated that:
1. Although the doctrine of fundamental breach had served a useful purpose and prevented injustice when 'it was worse than unsatisfactory to leave exception clauses to operate' but the Unfair Contract Terms Act 1977, instead of the doctrine, took under the control all disputes between the parties with unequal bargaining power and
2. in commercial matters when risks are normally borne by insurance were purposely left by the Parliament for the contracting parties to apportion 'the risks as they think fit and for respecting their decisions'.
3. the deviation cases from which the doctrine of fundamental breach got its historical background 'can be regarded as proceeding on normal principles applicable to the law of contract generally, viz that it is a matter of the parties' intentions whether and to what extent clauses in shipping contracts can be applied after a deviation, ie a departure from the contractually agreed voyage or adventure. It may be preferable that they should be considered as a body of authority sui generis with special rules derived from historical and commercial reasons.

Notes

The case is remembered for two principal reasons:
* firstly, the explicit rejection of the doctrine of fundamental breach under English law (and hence, by extension, for much of the common law world); and
* secondly, it is remembered as the high water mark of the disputes between the Lord Denning led Court of Appeal and an increasingly unamused House of Lords, who strongly disapproved of Denning's attempts to remould the law in a manner that he perceived to fit the justice of the situation before him.

External links

* [http://www.bailii.org/uk/cases/UKHL/1980/2.html Full text of House of Lords decision from BAILII.org]