Exclusion clauses
Exclusion clauses

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3.4 Fundamental breaches

McKendrick (2013, p. 193) defines a fundamental breach of contract as one, which either:

  • breaches a fundamental term of the contract (one which goes to the root of the contract or is part of its essential character), or
  • involves a deliberate refusal to perform obligations under a contract, or
  • has especially serious consequences for the other party.

For a number of years it was unclear what approach should be taken where one party to a contract was seeking to rely on an exclusion clause to avoid liability for a fundamental breach of contract. However, in the case of Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, the House of Lords held that it was possible to apply an exclusion clause where there had been a fundamental breach, but this would depend on the construction of the contract. McKendrick (2013, p. 193) suggests that the more serious the breach, or the consequences of the breach, the less likely it is that the courts will interpret the exclusion clause as applying to the breach.

Activity 4 What does the clause cover?

Timing: You should allow yourself 15 minutes to do this activity.

Match the rule, which determines what a clause covers, with the correct description of it.

Using the following two lists, match each numbered item with the correct letter.

  1. A clause must clearly indicate the type and extent of the liability it is excluding.

  2. Any doubt is resolved against the person seeking to rely on the exclusion clause.

  3. A third party can only benefit from an exclusion clause in very limited circumstances, unless the Contracts (Rights of Third Parties) Act 1999 applies.

  4. Whether an exclusion clause applies depends on the construction of the contract.

  • a.Privity of contract

  • b.Fundamental breach

  • c.Contra proferentem rule

  • d.Use of clear words

The correct answers are:
  • 1 = d
  • 2 = c
  • 3 = a
  • 4 = b

So far in this course we have been examining the common law (case law) which has produced the rules dealing with incorporation of the exclusion clause and the interpretation of the clause. We have seen that at common law inequality of bargaining power, in itself, is not a ground for invalidating such a clause any more than it is a ground for invalidating a contract as a whole. However, with legislative intervention, in particular with the coming into force of the Consumer Rights Act 2015, the position is different.

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