Fundamental breach
A fundamental breach of a contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

, sometimes known as a repudiatory breach, is a breach
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....

 so fundamental that it permits the distressed party to terminate performance of the contract, in addition to entitling that party to sue for damages.


The law of fundamental breach was historically treated as an extension of the doctrine of deviation
Deviation (law)
The doctrine of deviation, as it pertains to legal contracts, is a departure from a planned contractual course or design. When a plan has been adopted for a building, and in the progress of the work a change is made from the original plan, the change is called a deviation...

. The development of this doctrine can be traced down to the first half of the 19th century, when Tindal C.J. stated in Davis v. Garrett that deviation made by the carrier from the agreed voyage route brings the latter outside of contract and therefore outside of exceptions or limitation clauses provided by such a contract. This harsh attitude to deviation cases originated from the earlier marine insurance practice when cargo insurance policy was lost in case of deviation. Thereby strict obligations imposed to the carrier were designed to afford protection to the cargo owner.

English law

The doctrine of fundamental breach further developed in numerous cases and by the second half of the nineteenth century was extended far beyond of the deviation cases and cases related to the carriage of goods by sea. Lord Greene M.R. in Alderslade v. Hendon Laundry Ltd. labelled the fundamental term as ‘the hard core of the contract'. Lord Reid in Suisse Atlantique Societe d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale defined fundamental breach as a

‘well-known type of breach which entitles the innocent party to treat it as repudiatory and to rescind the contract’.

As a matter of law, under the doctrine of fundamental breach of contract, exclusion clauses were deemed not to be available to a party in fundamental breach of the contract. In particular, the common law approach that the carrier deviated from his contractual voyage has been deprived of the defence available under the Hague Rules, even if the bill of lading contract of carriage was governed by the Rules, was unchanged and unchallenged for many years when in Tate & Lyle, Ltd. v. Hain Steamship Company, Ltd. the ordinary law of contract was applied to the deviation case for the first time. In the second half of the 20th century, first in Maxine Footwear and Suisse Atlantique and then in several posterior cases
Karsales (Harrow) Ltd. v. Wallis
- Introduction :Karsales Ltd. v. Wallis, [1956] 1 W.L.R. 936 is an English court decision regarding contract law which established the rules of fundamental breach...

, principally in Photo Production Ltd. v. Securicor Transport Ltd, the unavailability of exclusion clauses to the party in fault in cases of fundamental breach was doubted in favour of such cases as falling within authority of the ordinary law of contract .

Several statutory changes such as passing by the Parliament of the Carriage of Goods by Sea Act 1971 and the Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...

, further affected the law position on the doctrine of fundamental breach and liability limitations. Former by giving the force of law to the Hague-Visby Rules and later by providing the rules to regulate the contracts between the parties with the different bargaining strength.

This law was successfully applied in two most recent cases related to carriage of goods by sea and application of limitation clauses under the Hague and The Hague-Visby Rules:Daewoo Heavy Industries Ltd. v. Klipriver Shipping Ltd. and The Happy Ranger

In English law, fundamental breach was first examined by the House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....

 in the Suisse Atlantique case, wherein they decided that a contract can be voided if a breach of a fundamental term can be found. That is, a breach of a condition that "goes to the root of the contract". This approach is known as the Rule of Law doctrine.

At the Court of Appeal level in Photo Productions Ltd. v. Securicor Transport Ltd. Lord Denning championed the Rule of Law doctrine and extended the rule in Suisse Atlantique case to apply to all exemption clauses. However on appeal to the House of Lords Lord Wilberforce effectively overturned the Rule of Law doctrine and instead maintained a strict Rule of Construction approach whereby a fundamental breach is found only through examining the reasonable intentions of the parties at the time of the contract.


The doctrine of fundamental breach has been “laid to rest” by the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways).. In its place, the Court has created a three-step test to evaluate the application of exclusion clauses. The first step is to evaluate the exclusion clause in the factual context of each case to determine if it applies to the material circumstances. The second step is to evaluate if the exclusion clause was unconscionable at the time of incorporation. The final step is to evaluate whether the exclusion clause should not be enforced on public policy grounds.
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