Facts
- Photo Production Ltd entered into a security services contract with Securicor Transport Ltd.
- While on duty at Photo Production’s factory, a Securicor employee caused a fire resulting in extensive damage to the premises.
- The contract contained an exclusion clause stating Securicor would not be responsible for injurious acts or defaults of its employees unless preventable with due diligence by Securicor.
- Following the fire, Securicor relied on this exclusion clause to disclaim liability for the loss suffered by Photo Production.
Issues
- Whether the exclusion clause in the contract protected Securicor from liability for the intentional or serious act by its employee.
- Whether the doctrine of fundamental breach operated as a rule of law to invalidate the exclusion clause following a serious breach.
- How the exclusion clause should be interpreted in light of legislative developments such as the Unfair Contract Terms Act 1977.
Decision
- The House of Lords held that the doctrine of fundamental breach was not a rule of law that automatically voided exclusion clauses, but rather a matter of contractual interpretation.
- The specific exclusion clause in the contract was interpreted to cover the acts of the Securicor employee, and Securicor was not liable for the loss.
- The courts must construe exclusion clauses according to their wording within the context of the contract, rather than based on the severity of breach alone.
- Statutory controls, especially under the Unfair Contract Terms Act 1977, provide the appropriate mechanism for assessing the fairness and effectiveness of exclusion clauses.
Legal Principles
- Exclusion clauses must be interpreted according to their plain language and the context in which the contract was formed.
- The doctrine of fundamental breach is not an automatic rule negating exclusion clauses, but rather a principle of contractual construction.
- Statutory frameworks such as the Unfair Contract Terms Act 1977 take precedence in determining the reasonableness and enforceability of exclusion clauses.
- Secondary obligations, such as damages arising after contract termination, remain subject to valid contractual provisions.
- The decision affirmed the approach in Suisse Atlantique Societe d'Armement Maritime S.A. v N.V. Rotterdamsche Kolen Centrale [1967] 1 AC 361 and was cited in subsequent cases, including George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803.
Conclusion
In Photo Production Ltd v Securicor Transport Ltd, the House of Lords rejected fundamental breach as an automatic rule invalidating exclusion clauses, holding instead that the applicability of such clauses depends on contractual interpretation and statutory requirements, notably under the Unfair Contract Terms Act 1977.
