Contract law (2022): Breach of contract: Fundamental breach

Fundamental breach of contract, is a controversial concept within the common law of contract. The doctrine was, in particular, nurtured by Lord Denning, Master of the Rolls from 1962 to 1982, but it did not find favor with the House of Lords.

Whereas breach of condition is a serious breach that "denies the plaintiff the main benefit of the contract", fundamental breach was supposed to be even worse, with the result that any exclusion clause limiting the defendant's liability would automatically become void and ineffective. Also, whereas breach of condition gives the plaintiff the option to repudiate, fundamental breach automatically discharges the entire contract.

Although the concept caused some excitement in the 1950s and 1960s, the concept was regarded as flawed by the Law Lords, whose decision in the Suisse Atlantique substantially curtailed the doctrine, which has now been effectively "laid to rest" in England and Canada. The relevant concept in English Law is repudiatory breach of contract.

Background – the law of deviation.

The origins of the idea of fundamental breach may be traced to early cases on the doctrine of deviation. In Davis v Garrett  Tindal C J stated that a carrier's deviation from the agreed voyage route amounted also to a deviation from the terms of the contract, including its exceptions or limitation clauses provided by such a contract. This view was adopted in the leading cases of Leduc v Ward (1888)  and Glynn v Margetson (1893).

In Leduc v Ward, a vessel bound from Fiume (modern day Rijeka) to Dunkirk headed instead towards Glasgow, sinking in a storm in the Clyde estuary. The court held that even though the shipper may have known of the planned deviation, the parol evidence rule meant that the route described in the bill of lading was conclusive, and that the deviation was actionable, preventing the carrier from invoking the protection of the "perils of the sea" exemption.

Similarly, in Glynn v Margetson, a vessel carrying Seville oranges from Malaga to Liverpool deviated from the agreed route, by heading first to Burriana (near Valencia). This deviation caused delay and deterioration of the perishable cargo. The carrier relied on a 'liberty clause' in the bill of lading which purported to allow the vessel 'liberty to visit any port in any order'. In the House of Lords, Lord Herschell LC declared the liberty clause to be an exemption clause in disguise, adding "the main object of this bill of lading is the carriage of oranges from Malaga to Liverpool". He thus established the "main purpose rule", holding that no exclusion clause would be allowed to cut into the main purpose of any contract.

Tate & Lyle v Hain Steamship Company was a further deviation case following this approach.