House of Lords
The House of Lords overturned the Court of Appeal and held that Securicor's exclusion clause was effective and exempt it from liability for damage. Lord Diplock held that the clause’s effectiveness was a question of construction of the contract, and that it did cover the damage. He noted ‘the reports are full of cases in which what would appear to be very strained constructions have been placed upon exclusion clauses’ though the need should have gone since the passage of the Unfair Contract Terms Act 1977.
Lord Wilberforce, writing for the Court, overturned Denning and found that the exclusion clause could be relied upon. Wilberforce explicitly rejected Denning's application of the doctrine of fundamental breach and opted for a "rule of construction" approach. Exemption clauses are to be interpreted the same as any other term regardless of whether a breach has occurred. The scope of the exclusion is determined by examining the construction of the contract. On the facts, Wilberforce found that the exclusion clause precluded all liability even when harm was caused intentionally. He went out of his way to disapprove the doctrine of fundamental breach of contract.
|“||Lord Denning M.R. 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 1 Q.B. 447. In that case Lord Denning M.R. distinguished two cases (a) the case where as the result of a breach of contract the innocent party has, and exercises, the right to bring the contract to an end, (b) the case where the breach automatically brings the contract to an end, without the innocent party having to make an election whether to terminate the contract or to continue it. In the first case the Master of the Rolls, purportedly applying this House's decision in Suisse Atlantique Societe d'Armament SA v NV Rotterdamsche Kolen Centrale 1 AC 361, but in effect two citations from two of their Lordships' speeches, extracted a rule of law that the "termination" of the contract brings it and with it the exclusion clause, to an end. The Suisse Atlantique case in his view
...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. (Harbutt's case 1 Q.B. 447, 467).
He then applied the same principle to the second case.
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. The lengthy, and perhaps I may say sometimes indigestible speeches of their Lordships, are correctly summarised in the headnote - holding No. 3 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." That there was any rule of law by which exceptions clauses are eliminated, or deprived of effect, regardless of their terms, was clearly not the view of Viscount Dilhorne, Lord Hodson, or of myself.
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