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. per Denning L.J. then the guilty party cannot rely on an"exception or limitation clause to escape from his liability for the breach"(Harbutt's case p.467). What, for example, would have been the position of the respon-dents' factory if instead of being destroyed it had been damaged, slightly ormoderately or severely? In the instant case, the only secondary obligations and concomitantreliefs that are applicable arise by implication of the common law as modifiedby the express words of the contract. Among the latter he includes an obligationto pay compensation, i.e., damages. BENCH: Lord Wilberforce, Lord Diplock, Lord Salmon, Lord Keith of Kinkel, Lord Scarman. This reasoning can be extended without unduestrain to cases where the party entitled to elect to terminate the contract does notbecome aware of the breach until some time after it occurred; his election toterminate the contract could not implausibly be treated as exercisable nunc protunc. There was a large number ofproblems, productive of injustice, in which it was worse than unsatisfactoryto leave exception clauses to operate. I entirely agree with my noble and learned friend Lord Wilberforce's analysisof the Suisse Atlantique case which explains why the breach does not bringthe contract to an end and why the so-called "rule of law" upon which PhotoProductions rely is therefore non-existent. [1945] K.B. Thus Securicor was not liable. Others, as decisions,may be justified as depending upon the construction of the contract (cf.Levison v. Patent Steam Carpet Cleaning Co. Ltd. [1978] Q.B. They may. ...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. Where the contracting parties have agreed, whether by express words or byimplication of law, that any failure by one party to perform a particularprimary obligation ("condition" in the nomenclature of the Sale of GoodsAct 1893), irrespective of the gravity of the event that has in fact resultedfrom the breach, shall entitle the other party to elect to put an end to allprimary obligation of both parties remaining unperformed. Such a contract is the source of primary legal obligations uponeach party to it to procure that whatever he has promised will be done, is done. My Lords, the contract in the instant case was entered into before the passingof the Unfair Contract Terms Act 1977. Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. But since then Parliament has taken a hand: ithas passed the Unfair Contract Terms Act 1977. I have come to think that some of these difficulties canbe avoided; in particular the use of "rescission", even if distinguished fromrescission ab initio, as an equivalent for discharge, though justifiable in somecontexts (see Johnson v. Agnew [1979] 1 All E.P. 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". In this situation the present case has to be decided. I agree with Lord Wilberforce's analysis of the. Whether, in addition tonegligence, it covers other, e.g., deliberate, acts, remains a matter of constructionrequiring, of course, clear words. The case of Harbutt must clearly be overruled. Alterna-tively it could be put upon a vicarious responsibility for the wrongful act ofMusgrove—viz., starting a fire on the premises: Securicor would be responsiblefor this upon the principle stated in Morris v. Martin [1966] 1 Q.B. in this was following the earlier decision of the Court of Appeal, and in particular his own judgment in Harbutt's "Plasticine" Ltd v Wayne Tank & Pump Co Ltd [1970] 1 Q.B. Parties are free to agreeto whatever exclusion or modification of all three types of obligations as theyplease within the limits that the agreement must retain the legal characteristicsof a contract; and must not offend against the equitable rule against penalties;that is to say, it must not impose upon the breaker of a primary obligation ageneral second obligation to pay to the other party a sum of money that ismanifestly intended to be in excess of the amount which would fully compensatethe other party for the loss sustained by him in consequence of the breach of theprimary obligation. [I leave aside arbitration clauses which do not come into operation until a partyto the contract claims that a primary obligation has not been proved.]. The doctrine of "fundamental breach" in spite of its imperfections anddoubtful parentage has served a useful purpose. Case summary Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 Due diligence, negligence and exclusion clauses in contracts Facts Photo Production Ltd and Securicor had a contract for the provision of security services by the latter to the former. Photo Production Ltd and Securicor had a contract for the provision of security services by the latter to the former. Many difficult questions arise and will continueto arise in the infinitely varied situations in which contracts come to be breached—by repudiatory breaches, accepted or not, anticipatory breaches, by breachesof conditions or of various terms and whether by negligent, or deliberate actionor otherwise. In order to show how close the disapproved doctrineis to that sought to be revived in Harbutt's case I shall quote one passage fromKarsales: "Notwithstanding earlier cases which might suggest the contrary, it is"now settled that exempting clauses of this kind, no matter how widely"they are expressed, only avail the party when he is carrying out his"contract in its essential respects. Afterthis Act, in commercial matters generally, when the parties are not of unequal. For the reasons given by Lord Wilberforce it seems to me that this apportion-ment of the risk of the factory being damaged or destroyed by the injuriousact of an employee of Securicor while carrying out a visit to the factory is onewhich reasonable business-men in the position of Securicor and the FactoryOwners might well think was the most economical. Securicor appealed. This disaster occurred when Musgrovewas visiting the factory on patrol one Sunday night and deliberately threw alighted match on some cartons lying on the floor of one of the rooms he wasinspecting. The"rule of law" theory which the Court of Appeal has adopted in the last decadeto defeat exclusion clauses is at first sight attractive in the simplicity of its logic.A fundamental breach is one which entitles the party not in default to elect toterminate the contract. Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 [RCM 1.40] Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 [RCM 1.115] Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 [RCM 9.430] The risk that a servant of Securicor would damage ordestroy the factory or steal goods from it, despite the exercise of all reasonablediligence by Securicor to prevent it, is what in the context of maritime law wouldbe called a "misfortune risk"—something which reasonable diligence of neitherparty to the contract can prevent. Lord Wilberforce. (If theexpression "fundamental breach" is to be retained, it should, in theinterests of clarity, be confined to this exception). The appellant is a company which provides security services. Photo Production v Securicor [1980] AC 827 House of Lords A contract for provision of security services by Securicor at the Claimant’s factory. Where such an election is made (a) there is substituted by implication of lawfor the primary obligations of the party in default which remain unperformed asecondary obligation to pay monetary compensation to the other party for theloss sustained by him in consequence of their non-performance in the future and(b) the unperformed primary obligations of that other party are discharged. Thesesecondary obligations of the contract breaker and any concomitant relief of theother party from his own primary obligations also arise by implication of law—generally common law, but sometimes statute, as in the case of codifyingStatutes passed at the turn of the century, notably the Sale of Goods Act 1893.The contract, however, is just as much the source of secondary obligations as itis of primary obligations; and like primary obligations that are implied by law,secondary obligations too can be modified by agreement between the parties,although, for reasons to be mentioned later, they cannot, in my view, be totallyexcluded. Thissecondary obligation is additional to the general secondary obligation; I willcall it "the anticipatory secondary obligation". Securicor argued that an exclusion clause in its contract meant they were not liable, as it said "under no circumstances 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 on the part of [Securic… Europese Klassiekers: Photo Production Ltd. v. Securicor Transport Ltd. [1980] 1 All E.R. . It is only because of Lord Reid's great authority in the law that I have foundit necessary to embark on what in the end may be superfluous analysis. 716, 739.This being the breach, does condition 1 apply? Photo Production Ltd v Securicor Transport Ltd UKHL 2 (14 February 1980) Practical Law Case Page D-000-5794 (Approx. Lord WilberforceLord DiplockLord SalmonLord Keith of KinkelLord Scarman. - Feb. 14, 1980 Contract - Fundamental breach - Effect on exception clause This appeal arose out of the destruction by fire of the respondent’s factory. Itdid not agree to provide equipment. In case of any confusion, feel free to reach out to us.Leave your message here. Facts. (old currency) per week it agreed to "provide their Night Patrol Service whereby"four visits per night shall be made seven nights per week and two visits shall"be made during the afternoon of Saturday and four visits shall be made during"the day of Sunday". By clicking on this tab, you are expressly stating that you were one of the advocates appearing in this matter. Musgrove, an employee of Securicor, started a fire at Photo Production's factory to warm himself while at work and accidentally burnt it down, costing £615,000. . The"rule of law" theory which the Court of Appeal has adopted in the last decadeto defeat exclusion clauses is at first sight attractive in the simplicity of its logic.A fundamental breach is one which entitles the party not in default to elect toterminate the contract. This proposition is strongly sup-ported by the passage recited by Lord Wilberforce in Lord Porter's speech inHeyman v. Darwins Ltd. [1942] A.C. 356 at p.399. The first two of these expressions, however, are mis-leading unless it is borne in mind that for the unperformed primary obligationsof the party in default there are substituted by operation of law what I havecalled the secondary obligations. Photo Production hired Securicor to send a night patrolman on periodic visits to the factory. They do not avail him when he is guilty of a breach which"goes to the root of the contract". A basic principle of the common law of contract, to which there are no excep-tions that are relevant in the instant case, is that parties to a contract are free todetermine for themselves what primary obligations they will accept. Theexclusion clause is part of the contract, so it comes to an end too; the partyin default can no longer rely on it. The case is remembered for these principal reasons: White and Carter (Councils) Ltd v McGregor. 's approach to the doctrine of fundamental breach. It is with the utmost reluctance that, not forgetting the "beams" that mayexist elsewhere, I have to detect here a note of ambiguity or perhaps even ofinconsistency. This secondary obligation topay compensation (damages) for non-performance of primary obligations I willcall the "general secondary obligation". The duty of Securicor was, as stated, to provide a service. 101 (liability limited in amount); George Mitchell (Chesterilall) Ltd. v Finney Lock Seeds Ltd. (1983) 2 ALL E.R. 339, 361 per Bowen L.J. 447. Wilberforce explicitly rejected Denning's application of the doctrine of fundamental breach and opted for a "rule of construction" approach. A vast number of expressions are used to describe situationswhere a breach has been committed by one party of such a character as toentitle the other party to refuse further performance: discharge, rescission,termination, the contract is at an end, or dead, or displaced; clauses cannotsurvive, or simply go. Due diligence, negligence and exclusion clauses in contracts. Photo Productions argued that the clause coul… The scope of the exclusion is determined by examining the construction of the contract. 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 it is directly opposed to it and that the whole purpose and tenor of the Suisse Atlantique was to repudiate it. 597 (so earlierthan the Suisse Atlantique) in the support of the "Harbutt" doctrine. at p.946 and Harbutt's "Plasticine"Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. My Lords, I would accordingly allow the appeal. In Moschi v. Lep AirServices Ltd. [1973] A.C. 331, 350, my noble and learned friend Lord Diplockdrew a distinction (relevant for that case) between primary obligations under acontract, which on "rescission" generally come to an end, and secondaryobligations which may then arise. It is generallymore economical for the person by whom the loss will be directly sustainedto do so rather than that it should be covered by the other party by liabilityinsurance. Click here to remove this judgment from your profile. Citations: [1980] AC 827; [1980] 2 WLR 283; [1980] 1 All ER 556; [1980] 1 Lloyd’s Rep 545; (1980) 124 SJ 147; [1980] CLY 353. Much has been written about the Suisse Atlantique. In commercialcontracts negotiated between business-men capable of looking after their owninterests and of deciding how risks inherent in the performance of various kindsof contract can be most economically borne (generally by insurance), it is, in my. Billyack v Leyland Construction Co Ltd [1968] 1 WLR 471; Photo Production Ltd v Securicor Transport Ltd [1980] 1 All ER 556 and HW Nevill (Sunblest) v William Press & Sun [1981] 20 BLR 78. Get 2 points on providing a valid reason for the above FACTS: Photo Production Ltd, a company, hired the services of Securicor Transport Ltd to provide watchmen for the protection of their properties. At what point does the doctrine (with what logicaljustification I have not understood) decide, ex post facto, that the breach was(factually) fundamental before going on to ask whether legally it is to be re-garded as fundamental? When Photo Productions sued, Securicor argued that an exemption clause in the contract excused liability. The respondents in factrelied upon them for an argument that since they exempted from negligencethey must be taken as not exempting from the consequence of deliberate acts.But this is a perversion of the rule that if a clause can cover something otherthan negligence, it will not be applied to negligence. 534; Moschi v. LepAir Services [1973] A.C. 331; and in particular Hardwick Game Farm v.S.A.P.P.A. An analogous apportionmentof risk is provided for by the Hague Rules in the case of goods carried by seaunder bills of lading. There are various statutory provisions which prevent the effect of certain exclusion clauses. But even the superficial logic of the reasoning is shattered when it isapplied, as it was in. For Iam convinced that, with the possible exception of Lord Upjohn whose criticalpassage, when read in full, is somewhat ambiguous, their Lordships, fairlyread, can only be taken to have rejected those suggestions for a rule of lawwhich had appeared in the Court of Appeal and to have firmly stated thatthe question is one of construction, not merely of course of the exclusion clausealone, but of the whole contract. the plaintiffs' factory: that, and the efficacy of their fire precautions, would beknown to the plaintiffs. The bringing to an end of all primary obligations under the contract may alsoleave the parties in a relationship, typically that of bailor and bailee, in whichthey owe to one another by operation of law fresh primary obligations of whichthe contract is not the source; but no such relationship is involved in the instantcase. Upon Report from the Appellate Committee towhom was referred the Cause Photo ProductionLimited against Securicor Transport Limited, Thatthe Committee had heard Counsel as well on Mondaythe 12th as on Tuesday the 13th and Wednesday the14th days of November last upon the Petition andAppeal of Securicor Transport Limited of Old SwanHouse, Chelsea Embankment, London, S.W.3 prayingthat the matter of the Order set forth in the Schedulethereto, namely an Order of Her Majesty's Court ofAppeal of the 15th day of March 1978 might bereviewed before Her Majesty the Queen in Her Courtof Parliament and that the said Order might bereversed, varied or altered or that the Petitioners mighthave such other relief in the premises as to Her Majestythe Queen in Her Court of Parliament might seem meet;as also upon the Case of Photo Production Limitedlodged in answer to the said Appeal; and dueconsideration had this day of what was offered on eitherside in this Cause: It is Ordered and Adjudged, by the Lords Spiritualand Temporal in the Court of Parliament of HerMajesty the Queen assembled, That the said Order ofHer Majesty's Court of Appeal of the 15th day ofMarch 1978 complained of in the said Appeal be, andthe same is hereby, Reversed and that the Order ofMr. The contract provided that for this service, Securicor should be paid£8.15 a week. There can be no doubt that but for the clause in the contractwhich I have recited, Securicor would have been liable for the damage which wascaused by their servant, Musgrove, whilst indubitably acting in the course of hisemployment: Morris v. Martin [1966] 1 Q.B. If this process is discontinued the way is free to use such words as "discharge"or "termination" consistently with principles as stated by modern authoritywhich Harbutt's case disregards. Creating your profile on CaseMine allows you to build your network with fellow lawyers and prospective clients. Every failure to perform a primary obligation is a breach of contract. It was not suggested that he was unsuitable for the job orthat the appellant was negligent in employing him. In these circumstances nobody could consider itunreasonable, that as between these two equal parties the risk assumed bySecuricor should be a modest one, and that the respondents should carry thesubstantial risk of damage or destruction. I am consciousthat I have myself sometimes been guilty of this when I look back on judgmentsI have given in such cases as Hong Kong Fir Shipping Co. Ltd. v. Kawakasi KisenKaisha Ltd. [1962] 2 QB 26; Ward v. Bignall [1967] 1 Q.B. But there are ample resources in the normal rules of contract Lawfor dealing with these without the superimposition of a judicially invented ruleof law. and similarly Lord Macmillan at p.373: see also Boston Deep Sea Fishing &Ice Co. Ltd. v. Ansell 39 Ch.D. A fundamental breach of the contract refers to a breach of the purpose or key term of the contract - Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. 44. Karsales (Harrow) Ltd v Wallis [1956] EWCA Civ 4 is an English Court of Appeal decision which established fundamental breach as a major English contract law doctrine. p.940). . On thispart of the case I agree with the judge and adopt his reasons for judgment. 1. It would be enough toput that upon its radical inconsistency with the Suisse Atlantique. Trade & Transport Inc. v. lino Kaiun Kaisha Ltd. [1973] 1 W.L.R. contains alphabet), Photo Production Ltd v Securicor Transport Ltd. Shaw and Waller LJJ concurred. 3 [1967] 1 A.C. 361 , 362 - "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." By that"acceptance he is discharged from further performance and may bring an"action for damages, but the contract itself is not rescinded." That primary obligation is modified by the exclusion clause.Securicor's obligation to do this is not to be absolute, but is limited to exercisingdue diligence in its capacity as employer of the natural persons by whom thevisits are conducted, to procure that those persons shall exercise reasonableskill and care for the safety of the factory. I do not think that there is"generally much difficulty where the innocent party has elected to treat"the breach as a repudiation, bring the contract to an end and sue for"damages. I think that these words are clear. 69) in the light ofwell known principles such as that stated in Alderslade v. Hendon LaundryLtd. A night-watchman, Mr Musgrove, started a fire in a brazier at Photo Production's factory to keep himself warm. It is first necessary to decide upon the correct approach to a case such asthis where it is sought to invoke an exception or limitation clause in the contract.The approach of the Master of the Rolls in the Court of Appeal was to considerfirst whether the breach was "fundamental". Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, HL, p 839 Lord Wilberforce: My Lords, this appeal arises from the destruction by fire of the respondents’ factory involving loss and damage agreed to amount to £615,000. Photo Productions argued that the clause could not apply under the doctrine of fundamental breach, that the breach of the contract went to the root of the contract, it invalidated the whole agreement and extinguished the exclusion clause. This makes it unnecessary to consider whether a later exclusionclause in the contract which modifies the general secondary obligation impliedby law by placing limits on the amount of damages recoverable for breaches ofprimary obligations, would have applied in the instant case. It was by attaching that label to it that all three members of the Court ofAppeal found themselves able to dispose of Securicor's defence based on theexclusion clause restricting its liability for its servants' torts in terms whichLord Wilberforce has already set out, by holding that where there had been afundamental breach by a party to a contract, there was a rule of law whichprevented him from relying upon any exclusion clause appearing in the contract,whatever its wording might be. A security guard deliberately threw a match but not with the intent that a fire be created, which destroyed part of Photo Production's building. The contract which falls to be consideredwas a contract for the rendering of services by the defendants ("Securicor") tothe plaintiffs ("the Factory Owners"). Many of these have nowbeen superseded by the Unfair Contract Terms Act 1977. Get 1 point on providing a valid sentiment to this We are not concerned with the Unfair Contract Terms Act 1977 since thepresent contract was entered into before that Act was passed. The claimants hired the defendants to provide a night patrol service for their factory. The security guard’s negligence caused the destruction of the claimant’s factory by fire. Theexclusion clause is part of the contract, so it comes to an end too; the partyin default can no longer rely on it. Arise in part from uncertain or inconsistentterminology that liability is excluded secondary obligation topay compensation ( damages ) for of... Draft the speech delivered by my nobleand learned friend Lord Wilberforce and in particular Hardwick Game v.S.A.P.P.A. Plant was totally destroyed by fire of the respondents by which for a charge of £8,15,0d that... And apply the clause, I would accordingly allow the appeal risk provided... 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