Interpreting Contracts in English Law - Exclusion Clauses - Fundamental Breach

Fundamental Breach

The courts tried to control and strike down very extreme exclusion clauses, those which excluded liability for very serious breaches of contract. The simple rule now, is that it is a matter of construction whether an exclusion clause covers a fundamental breach which occurred. Lord Denning wanted a ‘rule of law’ approach so that liability for some fundamental breaches of contract could never be excluded no matter how widely the clause was drafted. But Suisse Atlantique Societe d’Armament Maritime SA v NV Rotterdamsche Kolen Centrale 1 AC 361 held that the preferable ‘rule of construction’ approach was to interpret the clause against the party relying on it. In Harbutt’s Plasticine Ltd v Wayne Tank Pump Co Ltd 1 QB 477, Lord Denning MR seized on the judgments ambiguities and resurrected his own rule. But that was stopped at last in…

• Photo Production Ltd v Securicor Transport Ltd AC 827

• Clauses which exempt someone from a serious breach, such as for a term going to the contract’s root (Karsales (Harrow) Ltd v Wallis 1 WLR 936) or a deliberate refusal to perform (Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd AC 576) must be very expressly excluded.

• Curtis v Chemical Cleaning and Dyeing Co Ltd 1 KB 805, a party cannot rely on an exclusion clause if he has misrepresented its effect.
• Couchman v Hill KB 554, a written exclusion clause can be overridden by express and inconsistent undertakings at the time of the contract.

There is no general power to strike down unreasonable exclusion clauses.