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Photo Production Ltd v Securicor Transport Ltd
Factual and Procedural Background
The Respondent operated a factory which was protected at night by the Appellant, a commercial security firm. Under a 1968 contract the Appellant agreed, for a modest weekly fee, to carry out a fixed number of patrol visits. The written contract contained standard conditions, including a clause purporting to exempt the Appellant from liability for “any injurious act or default” of its employees unless such act could have been foreseen and avoided by the exercise of due diligence.
One Sunday night the Appellant’s patrol employee deliberately ignited cartons inside the factory, causing a fire that destroyed the premises and produced an agreed loss of £615,000. The Respondent sued for that sum. At first instance, Judge MacKenna held that the exemption clause was effective and dismissed the claim. The Court of Appeal reversed, treating the incident as a “fundamental breach” which, as a matter of law, prevented reliance on any exclusion clause. The Appellant obtained leave to appeal to the House of Lords. The present opinion represents the final decision of that court.
Legal Issues Presented
- Whether the contractual exclusion clause could be invoked at all in the circumstances of a deliberate fire started by the Appellant’s employee.
- If the clause was capable of application, whether its wording validly excluded liability for the particular loss sustained.
- More broadly, whether a doctrine of “fundamental breach” operates as a rule of law automatically preventing a contract-breaker from relying upon an exclusion clause, or whether the effect of such a clause is solely a matter of construction of the contract.
Arguments of the Parties
Appellant’s Arguments
- The express exclusion clause, drafted in unequivocal terms (“in no circumstances”), covered any injurious act of an employee, including deliberate wrongdoing, unless the act could have been foreseen and avoided by due diligence—conditions not satisfied here.
- The doctrine of fundamental breach is not a rule of law but one of construction; therefore the clause remained operative.
- The contractual allocation of risk was commercially reasonable: the weekly fee was small and the Respondent was better placed to insure its own plant.
Respondent’s Arguments
- The fire amounted to a fundamental breach which automatically deprived the Appellant of the benefit of the exclusion clause, following Court of Appeal authority such as Harbutt’s “Plasticine”.
- Even if the clause survived, it should be construed contra proferentem so as not to cover deliberate wrongdoing by the Appellant’s servant.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Harbutt’s “Plasticine” Ltd v Wayne Tank & Pump Co Ltd [1970] 1 Q.B. 447 | Court of Appeal doctrine that fundamental breach nullifies exclusion clauses. | Expressly overruled as inconsistent with House of Lords authority. |
| Suisse Atlantique v Rotterdamsche Kolen Centrale [1967] 1 A.C. 361 | Exclusion clauses are questions of construction, not subject to an automatic rule of law. | Cited as controlling authority; House reaffirmed its approach. |
| Karsales (Harrow) Ltd v Wallis [1956] 1 W.L.R. 936 | Early statement that exclusion clauses fail on fundamental breach. | Characterised as not representing settled law; reasoning disapproved. |
| U.G.S. Finance Ltd v National Mortgage Bank of Greece [1964] 1 Lloyd’s Rep. 446 | Further Court of Appeal support for automatic invalidity of clauses on fundamental breach. | Rejected for the same reasons as Karsales. |
| Heyman v Darwins Ltd [1942] A.C. 356 | Termination for breach discharges future performance but not existing contractual rights. | Relied upon to show that exclusion clauses may survive termination. |
| Morris v Martin [1966] 1 Q.B. 716 | Employer’s vicarious liability for employee’s intentional wrongdoing. | Used to show the Appellant would have been liable but for the clause. |
| Trade & Transport Inc v Iino Kaiun Kaisha Ltd [1973] 1 W.L.R. 210 | Judicial preference for deciding cases on construction rather than fundamental breach. | Cited approvingly. |
| Wathes (Western) Ltd v Austins (Menswear) Ltd [1976] 1 Lloyd’s Rep. 14 | Extended fundamental breach doctrine despite contract continuing. | Overruled. |
| Charterhouse Credit Co Ltd v Tolly [1963] 2 Q.B. 683 | Application of fundamental breach to defeat an exclusion clause. | Overruled insofar as it depended on the doctrine. |
| Hain Steamship Co Ltd v Tate & Lyle Ltd [1936] 2 All E.R. 597 | Deviation cases on exclusion clauses in carriage of goods by sea. | Distinguished; not a basis for a general fundamental breach rule. |
| Kenyon Son & Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 W.L.R. 519 | Attempt to reconcile deviation doctrine with fundamental breach. | Cited as illustrating doctrinal confusion now removed. |
| Levison v Patent Steam Carpet Cleaning Co Ltd [1978] Q.B. 69 | Example where decision could rest on construction rather than fundamental breach. | Left intact as a construction case. |
| Alderslade v Hendon Laundry Ltd [1945] K.B. 189 | Principle that clear words are needed to exclude liability for negligence. | Applied when analysing wording of the clause. |
| Boston Deep Sea Fishing & Ice Co Ltd v Ansell 39 Ch.D. 339 | Older authority on the effect of discharge following breach. | Cited to support modern view that obligations persist for damages. |
| Moschi v Lep Air Services Ltd [1973] A.C. 331 | Distinction between primary and secondary contractual obligations. | Used by Judge Diplock to explain why exclusion clauses may apply to secondary obligations. |
| Johnson v Agnew [1979] 1 All E.P. 883 | Terminology concerning rescission and discharge of contracts. | Referenced in discussion of consistent terminology. |
| Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26 | Flexible approach to contract termination and breach classification. | Cited in Judge Diplock’s analysis of ambiguous terminology. |
| Ward v Bignall [1967] 1 Q.B. 534 | Example of earlier imprecise use of “fundamental breach”. | Mentioned as part of jurisprudential background. |
| Hardwick Game Farm v S.A.P.P.A. [1966] 1 W.L.R. 287 | Commentary on emerging doctrine of fundamental breach. | Used to illustrate past judicial doubts about the doctrine. |
Court’s Reasoning and Analysis
Judge Wilberforce, delivering the leading opinion, emphasised that the House had already rejected any automatic “rule of law” invalidating exclusion clauses upon a fundamental breach. The correct inquiry is always one of construction of the entire contract.
The Lords found that:
- The Court of Appeal’s reliance on Harbutt’s line of authority was inconsistent with the House’s decision in Suisse Atlantique; those authorities were expressly overruled.
- The contract was negotiated between parties of equal bargaining strength and allocated risk in a commercially sensible manner: the Appellant charged only 26 pence per visit and could not be expected to insure against the Respondent’s large property losses.
- The exemption clause was drafted in clear wording (“Under no circumstances … any injurious act or default…”) sufficient to cover deliberate as well as negligent acts of employees.
- Statutory developments (Unfair Contract Terms Act 1977) now protect consumers, making judicial creation of doctrines like fundamental breach unnecessary in commercial contracts.
- Accordingly, on a true construction of the contract, the clause excluded the Appellant’s liability for the damage caused by its employee, and any alternative limitation clauses did not need to be considered.
Holding and Implications
Held: The appeal was allowed; the Court of Appeal’s order was reversed and the trial judge’s decision restored. The Respondent’s claim for £615,000 fails, and the Respondent must pay the Appellant’s costs in the Court of Appeal and in the House of Lords.
Implications: The House of Lords definitively rejected the notion that a fundamental breach automatically nullifies exclusion or limitation clauses. In commercial contracts, the effectiveness of such clauses is a matter of construction, not a rule of law. The decision re-aligns English contract law with that principle and overrules a series of conflicting Court of Appeal authorities, thereby providing greater certainty for parties who allocate risk through contractual drafting.
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