Fundamental Breach of Contract - A Post Mortem

FUNDAMENTAL BREACH OF CONTRACT: A POST-MORTEM
Benjamin James Dominikovich
A research paper presented in partial fulfilment of the requirements for Bachelor of Laws
(Honours) at the University of Auckland

2
Table of contents
Title Page 2
Abstract of Research Paper 4
Acknowledgements 5
I. Introduction 6
II. The injustice of exception clauses 6
III. The doctrine: A rule of law 8
IV. The ancestors of fundamental breach 10
A. Deviation 10
B. Non-performance 12
V. So what was fundamental breach? 14
VI. Fundamental Terms 15
A. The dichotomy of terms 16
B. Something more fundamental than a condition 17
C. Defining the fundamental term 18
VII. Fundamental Breach 20
A. Discharge by breach 21
1. The election issue 22
2. The termination issue 22
3. From what point does termination operate? 22
B. Function of exception clauses 23
C. Deviation Distinguished 23
VIII. The First Fall of Fundamental Breach 24
IX. The Return of Fundamental Breach 26
X. Legislative Response 28
XI. The Superfluous Doctrine 29
XII. Is There Any Scope For Fundamental Breach To Be Argued? 30
A. New Zealand’s position 30

3
B. Legislative developments 31
C. Canadian reserve 32
XIII. Conclusion 33
Appendix 1: Bibliography 34

4
Abstract:
The University of Auckland Law School holds a proud history of scholarship with regards
to the doctrine of fundamental breach. Emeritus Professor Brian Coote’s critique of the
doctrine has been published widely and is considered seminal authority for its ultimate
demise.1
To the contrary, Professor Francis Dawson’s Law Quarterly Review thesis
promulgated the theory of interdependent promises in support of the doctrine.2
At the
height of debate as to the doctrine’s existence, the work of both Professors was recognised
in counsel’s argument before the House of Lords.3
To fast track three and a half decades is to recognise that the heat of this debate has
been and gone. In the words of the country’s leading text, “the doctrine can be consigned
to the archives of legal history.”4
However, the doctrine persists within our legal
vernacular. Within its reference, there is a lack of understanding as to what it entailed.
As a matter of legal history, there are many lessons to be adopted from the
development of the doctrine. Spanning a life of thirty years, the doctrine reflected the
development of contract law orthodoxy. It was adopted as a means of judicial discretion in
reaction to the unforgiving nature of exception clauses. The doctrine demonstrates
persistent misunderstanding of the operation of discharge by breach. Further it represents
the development of understanding as to the function of an exception clause. This article
desires to leave you with a greater appreciation of the mechanics underlying this means of
artificially bypassing an exception clause.
1
Brian Coote Exception Clauses (Sweet & Maxwell, London, 1964); Brian Coote, “The
Rise and Fall of Fundamental Breach” (1967) 40 ALJ 336; Brian Coote, “The Effect of
Discharge by Breach on Exception Clauses” (1970) 28 CLJ 221; Brian Coote,
“Correspondence with Description in the Law of Sale of Goods” (1976) 50 ALJ 17. Brian
Coote, “Discharge for breach and exception clauses since Harbutt’s ‘Plasticine’” (1977)
40 MLR 31; Brian Coote, “Unfair Contract Terms Act 1977” (1978) 41 MLR 312; and
Brian Coote, “The Second Rise and Fall of Fundamental Breach” (1981) 55 ALJ 788.
2
Francis Dawson, “Fundamental Breach of Contract” (1975) 91 LQR 380.
3
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, [1980] 1 All ER 556.
4
John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed,
LexisNexis NZ Ltd, Wellington, 2016) at 241.

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Acknowledgements
I dedicate my effort in completing this research paper to my Grandfather, Dennis
Dominikovich. Dennis passed away on 14 April 2016. He is loved and missed dearly. As
my father figure, my Grandfather repeatedly sacrificed for my education. The opportunities
I have held – among which include completing this research paper – may be directly linked
to my grandfather’s own work ethic and prioritising of the family unit.
I am privileged to have a family, in particular my Mother and Grandmother, that have
supported me throughout my time at law school. To them I am grateful.
I am blessed to have had the pleasure of learning from Mr Marcus Roberts throughout this
year. Having written this paper, I now hold a heightened appreciation when I read the
fluidity and ease with which his scholarly writing appears. Marcus, as far as teaching goes,
you strike the perfect balance between a friendly/outgoing disposition and professionalism.
Thank you.
To Professor Francis Dawson: your passion for the law of contract and legal reasoning is
infectious. The practical tips of ‘read every case three times’ and ‘you only learn from
engaging in case law’ remain with me. Thank you.
Having studied in a Law Faculty that I am extremely proud of, I have enjoyed the
opportunity to study among a smaller group of people. To my honours class: it has been a
pleasure.

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Fundamental Breach of Contract: A Post-Mortem
Benjamin Dominikovich
I. Introduction
At one time it was thought there was a legal rule whereby no exclusion clause, no matter
how aptly worded, could protect a party for a “fundamental breach”.5
Fittingly named the
doctrine of fundamental breach, this rule was once described as “the most important
development in the modern law of contract”6
and “firmly entrenched”.7
However, today it
may be described as “dead”8
and “consigned to the archives of legal history”.9
This paper
will attempt to mend the gap between these two positions, methodically analysing the
doctrine’s introduction, development and subsequent demise. While serving a purpose in
overcoming the rigidity of exception clauses in standard form contracts, the doctrine never
held prior authority and was hopelessly ambiguous. The doctrine will be analysed in
accordance with the developing jurisprudence surrounding discharge for breach of
contract. This article will accordingly argue that the doctrine is today incapable of
successful argument in New Zealand courts.
II. The injustice of exception clauses
To walk in the shoes of a consumer prior to effective consumer legislation is to comprehend
the demand for the doctrine. The development of modern commerce in nineteenth and
twentieth centuries had necessitated a marked increase in the use of standard form
5
Laws of New Zealand Exclusion Clauses at [138].
6
KW Wedderburn, “Contract—Exemption Clauses—Fundamental Breach—Main
Objects of the Contract” [1957] CLJ 16 at 16.
7
Brian Coote, “The Rise and Fall of Fundamental Breach” (1967) 40 ALJ 336 at 336.
8
David G Pierce, “Contract: Of Cabbages and Fundamental Breach” (1982) 24 Mal LR
349 at 349.
9
LexisNexis NZ Ltd, Wellington, 2016) at 241.

7
contracts.10
While such contracts held advantages for sophisticated commercial parties,
they held disadvantages unorganised consumers. Unlearned in the law, consumers may
sign the contract without appreciating its terms.11
If the commercial party had included an
exception clause, they may have purported to exempt themselves of all liability. As a
consequence of this power imbalance,12
freedom to contract through the standard form was
that of the commercial party only.13
Here lay a familiar tension between laissez-faire
philosophy, its underlying rationale of pacta sunt servanda, and consumer wellbeing.14
In the absence of statutory guidance, the court’s role was to construct the contract.15
The weight placed by this injustice was initially expressed through the method of
“regulatory” interpretation.16
Where the clause was ambiguous or capable of ambiguity,
the clause could be regulated through the exercise of interpretation.17
This may have
included application of rule of interpretation contra proferentem against the drafting
party.18
The court may otherwise have gone so far as to place an artificial misconstruction
of the clause in favour of consumer party.19
However, exclusion clauses of express terms
were legally permissible and the court could not expressly account for the injustice of the
behaviour.20
10
C Grunfeld “Reform in the Law of Contract” (1961) 24 MLR 62 at 64.
11
Alfred W Meyer (1964) 50 Va L Rev 1178 at 1179: otherwise refers to such contracts
as ‘contracts of adhesion’: “[o]ne party ‘adheres’ to the terms prescribed by the other”.
12
C Grunfeld, above n 10, at 64.
13
14
LJ Montrose, “Some Problems About Fundamental Terms” [1964] CLJ 254 at 264.
15
16
Edwin Peel Treitel on the Law of Contract (13th
ed, Sweet & Maxwell, London, 2011)
at [7-023]; and Andrews Brothers (Bournemouth) Ltd v Singer Ltd [1934] 1 KB 17.
17
See Wallis v Pratt & Haynes [1910] 2 KB 1003 (CA).
18
In Alexander v Railway Executive [1951] 2 KB 882 at 893, Devlin J defines the rule of
construction contra proferentem: “No principle is more firmly settled than that, when one
is construing exceptions to the general liability… those exceptions are to be construed
strictly, so that if a word is capable of bearing two meanings, the narrower meaning
should be adopted.”
19
Alfred W Meyer, above n 11, at 1180; and in George Mitchell (Chesterhall) Ltd v
Finney Lock Seeds Ltd [1983] QB 284 (CA) at 297, Lord Denning suggests that in the
face of injustice, judges would place a “strained and unnatural construction” on exception
clauses to achieve a just outcome.
20
In L’Estrange v F Graucob Ltd [1934] 2 KB 394, Miss L’Estrange contracted for a
cigarette dispensing machine with Graucob Ltd. A wide exception clause in small print at

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III. The doctrine: a rule of law
Where methods of construction faltered, the doctrine of fundamental breach was employed
and served its greatest role.21
The background to which it was created meant it initially
received an enthusiastic welcome.22
As it first operated, the doctrine was a substantive rule
of law, overriding the operation of an exception clauses. In the words of Professor Guest:
“[a] party who has been guilty of a fundamental breach of contract cannot rely on an
exemption clause inserted in the contract to protect him.”23
It was this mandatory nature
that distinguished it from construction of the contract: it was not possible to contract out of
fundamental breach, no matter how aptly worded the exception clause.
The terminology of ‘fundamental breach’ and ‘fundamental terms’ was first
articulated in the maritime deviation case, Hain Steamship v Tate & Lyle.24
However, if we
are to demarcate a doctrinal birthdate, it was Mr Justice Devlin’s trilogy of cases that
conceived the terms as a substantive rule of law.25
In Alexander v Railway Executive26
and
Chandris v Isbrandtsen-Moller Co,27
the learned Justice referred back to the language in
Hain Steamship28
but continued to engage in construction of the exception clause itself.
The possibility of a more carefully drafted clause could have precluded the resulting
inapplicability of the exception clause. It was not until Smeaton Hanscomb that Devlin J
provided obiter remarks29
that a true fundamental breach could not be avoided by an
exclusion clause.30
the bottom of an order form was held effective in limiting liability when an inoperable
machine was delivered. Maugham LJ opined: “I regret the decision to which I have come,
but I am bound by legal rules and cannot decide the case on other considerations.”
21
AG Guest, “Fundamental Breach of Contract” (1961) 77 LQR 98 at 98.
22
Brian Coote Exception Clauses (Sweet & Maxwell, London, 1964) at 108.
23
AG Guest, above n 21, at 98.
24
[1936] 2 All ER 597 (HL) [Hain Steamship].
25
Alexander v Railway Executive, above n 18; Chandris v Isbrandtsen-Moller Co Inc
[1951] 1 KB 240; and Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son & Co (No 1)
[1953] 1 WLR 1468 [Smeaton Hanscomb].
26
At 890-893.
27
At 243-248.
28
Above n 24.
29
At 1470.
30
Alfred W Meyer, above n 11, at 1179.

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If Devlin J may be credited with having conceived the doctrine, it is Denning LJ
who must be credited with its development as substantive law. He first described this as a
‘proviso’ overriding construction in J Spurling v Bradshaw:31
“These exempting clauses are nowadays all held to be subject to the
overriding proviso that they only avail to exempt a party when he is carrying
out his contract, not when he is deviating from it or is guilty of a breach
which goes to the root of it. Just as a party who is guilty of a radical breach
is disentitled from insisting on the further performance by the other, so also
he is disentitled from relying on an exempting clause.”
In Karsales (Harrow) Ltd v Wallis, the Lord Justice went further, and issued a warning to
draftsmen, explaining:32
“Notwithstanding earlier cases which might suggest the contrary, it is now
settled that exempting clauses of this kind, no matter how widely they are
expressed, only avail the party when he is carrying out his contract in its
essential respects.”
He went on to provide the mechanics for bypassing the clause and imply the dominant
perspective of an exception clause’s function:33
“The thing to do is to look at the contract apart from the exempting clauses
and see what are the terms, express or implied, which impose an obligation
on the party. If he has been guilty of a breach of those obligations in a respect
which goes to the very root of the contract, he cannot rely on the exempting
clauses.”
31
[1956] 1 WLR 461 at 465.
32
[1956] 1 WLR 936 at 940-941.
33
At 940.

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IV. The ancestors of fundamental breach
In an attempt to justify the implementation of the doctrine, its architects sought to ground
it in past authority. This past authority may be simplified into two broad categories: (a)
deviation and (b) non-performance. However, the doctrine was of doubtful parentage:
neither line of cases supported the introduction of a rule of law that operated in spite of the
effective construction of an exception clause.34
Both instances of avoiding effective
construction may be explained by reference to construction of the contract. The doctrine
may thus, at best, be described as an extension and restatement of this prior law.35
A. Deviation
The origin of the doctrine is often said to lie in cases concerning deviation in charterparty
agreements.36
In contracts for carriage of goods by sea, an implied obligation rests on the
carrier to proceed by a usual and reasonable route without unjustifiable deviation.37
From
the moment the ship departs from the contract route, the carrier cannot rely on an
exceptions clause. Consequently, any loss incurred while deviating is entirely at the
carrier’s risk.38
From maritime deviation spawned deviation in carriage of goods by land39
and to bailment in general (‘quasi-deviation’). From deviation the analogy is close between
carrying goods on a route other than that specified and storing goods in a place40
or
34
Jerry Hubbard, “Deviation in contracts of sea carriage: after the demise of fundamental
breach” (1986) 16 VUWLR 147; Brian Coote, “The Second Rise and Fall of
Fundamental Breach” (1981) 55 ALJ 788 at 791.
35
Grunfeld, above n 10, at 72.
36
LW Melville, “The Core of a Contract” (1956) 19 MLR 26 at 32; JF Wilson,
“Fundamental Breach: The Plot Thickens” (1971) 4 NZULR 254 at 254; and F Dawson,
“Contract” [1991] NZ Recent Law Review 18 at 31.
37
Davis v Garrett (1830) 6 Bing 716 at 724, 130 ER 1456 at 1459; Bernard Eder and
others Scrutton on Charterparties and Bills of Lading (22nd ed, Sweet & Maxwell and
Thomson Reuters, London, 2011) at 265; AG Guest, above n 21, at 106.
38
Joseph Thorley Ltd v Orchis SS Co [1907] 1 KB 660 per Fletcher Moulton LJ at 669.
39
London & North Western Railway v Neilson [1922] 2 AC 263.
40
Lilley v Doubleday (1881) 7 QBD 510; and Davies v Collins [1945] 1 All ER 247.

11
manner41
outside the prescribed mandate. Once the goods are held outside this mandate,
the protection of the exception clause ceases.
The underlying justification for this phenomenon may be explained according to
the four corners rule42
or the principle in Gibaud’s case:43
“The principle is well known, and perhaps Lilley v Doubleday44
… is the best
illustration, that if you undertake to do a thing in a certain way, or to keep a
thing in a certain place, with certain conditions protecting it, and have
broken the contract by not doing the thing contracted for in the way
contracted for, or not keeping the article in the place in which you contracted
to keep it, you cannot rely on the conditions which were only intended to
protect you if you carried out the contract in the way in which you had
contracted to do it.”
A party may only rely on exception clauses while operating within the contractual purview
and not on some independent adventure.45
If we consider a contract according to its
metaphysical ‘four corners’, we envisage deviation and quasi deviation as adventures
outside the contract’s scope. However, this is not justification for a rule operating in spite
of the contract’s construction. The ‘four corners’ of the contract are to be ascertained by
reference to the terms of the contract itself.46
Consequently, the exceptions clause may
directly qualify the terms of bailment, e.g. by providing a ‘liberty clause’ to authorise
deviation or the option of sub-bailment to a third party.47
41
Alexander v Railway Executive, above n 18; and Spurling v Bradshaw, above n 31.
42
Alderslade v Hendon Laundry [1945] All ER 244 (CA) per Lord Green MR at 245: “A
limitation clause of this kind only applies where the damage in respect of which the
limitation clause is operative, takes place within the four corners of the contract. A
contracting party who goes outside his contract cannot rely upon the clause if the loss
occurs during operations outside the contract, as distinct from operations which the
contract contemplates.”
43
[1921] 2 KB 426 per Scrutton LJ at 435.
44
Above n 40.
45
JF Wilson, above n 36, at 255.
46
47
Davies v Collins [1945] 1 All ER 247 at 249 and 251.

12
However, where a liberty clause was provided, there were certain circumstances
where the court would refuse to apply it. Glynn v Margetson, a liberty clause provided a
ship with the ability to deviate from its route, carrying oranges from Malaga to Liverpool.48
When the consignment was delivered in a perished state, the House of Lords refused to
allow a construction of the liberty clause that would defeat the ‘main object’ of the
contract.49
Their Lordships held a construction where liberty to deviate was only
permissible where it did not defeat the delivery of oranges to Liverpool. It is submitted that
this is simply a manner of interpreting the clause; from the terms of the contract, the parties
could not have intended to reduce the contract to a mere declaration of intent.50
B. Non-performance
‘Non-performance’ entails the application of the principle in Gibaud’s case the sale of
goods context.51
Where goods contracted are distinct from goods delivered, the contract
has not been performed and the exception clause does not operate. Thus it may be said that
the vendor has not entered the periphery of contractual performance. Paradigm examples
of this include the instances when a vendor fails to provide good title to the goods sold52
or provided different goods to those contracted for.53
As long ago as 1838, Lord Abinger
articulated this in the often cited ‘peas and beans’ example:54
48
[1893] AC 351.
49
Per Lord Halsbury at 357: “Looking at the whole of the instrument, and seeing what
one must regard… as its main purpose, one must reject words, indeed, whole provisions,
if they are inconsistent with what one assumes to be the main purpose of the contract.”
This was later applied as an example of fundamental breach in Sze Hai Tong Bank v
Rambler Cycle Co [1959] AC 576.
50
AG Guest, above n 14, at 106; Jerry Hubbard, “Deviation in contracts of sea carriage:
after the demise of fundamental breach” (1986) 16 VUWLR 147 at 155; PN Legh-Jones
& MA Pickering, “Fundamental Breach” (1971) 87 LQR 515 at 530.
51
The underlying principle is referred to through a variety of terminology, including
‘supply of the wrong thing’, ‘the difference-in-kind doctrine’ and ‘total breach’ of
contract.
52
Rowland v Divall [1923] 2 KB 500.
53
Chanter v Hopkins (1838) 4 M & W 399.
54
At 404.

13
“If a man offers to buy peas of another, and he sends him beans, he does not
perform his contract. But that is not a warranty; there is no warranty that he
should sell him peas; the contract is to sell peas, and if he sends him anything
else in their stead, it is a non-performance of it.”
Difficulty arises in this line of cases when attempting to ascertain a clear boundary line
between defective performance and non-performance. The qualities of products at the time
of the doctrine’s creation were more sophisticated than ‘peas and beans’.55
Consequently,
courts held the discretion defining non-performance. The court may be willing to equate
grossly defective performance with non-performance. In Pinnock Brothers v Lewis & Peat
Ltd, where a delivery of ‘copra cake’56
included a mixture of castor beans so as to render
it poisonous to cattle, Roche J held: “the delivery in this case could not be properly
described as copra cake at all.”57
Further, in certain instances, the court may be willing to
construct an accumulation of defects as non performance. In W & S Pollock v Macrae, the
House of Lords found considerable defects in the manufacture of two boat engines: “Now,
when there is such a congeries of defects as to destroy the workable character of the
machine, I think this amounts to a total breach of contract.”58
Proponents of fundamental
breach later seized upon the uncertainty of this boundary line to create the doctrine.59
However, this rule, it will be later submitted, remains founded on construction.
55
56
Copra cake is the dried meat or kernel of coconut, often used to feed cattle.
57
[1923] 1 KB 690 at 697.
58
[1922] SC 192 (HL) at 200.
59
In Karsales (Harrow) Ltd, above n 32, at 870: Birkett LJ describes, “the thing
delivered was not the thing contracted for,” while Parker LJ employed similar language,
“the vehicle delivered is not properly described as a motor vehicle.” In Yeoman Credit Co
Ltd v Apps [1962] 2 QB 508 Harmed LJ cited Pollock v Macrae when describing the case
as one of fundamental breach.

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V. So, what was a fundamental breach?
In order to overcome the injustices of exception clauses in standard form contracts, the
courts had thus created a new rule of law – a piece of judicial legislation. The effect of this
was doubtless: the exception clause could not be relied upon in an instance of fundamental
breach. However, one is still left with a perplexed feeling as to how this was achieved: “so
what on earth is a fundamental breach?” This feeling is a result of a failure to provide an
adequate conceptual framework to identify the doctrine’s process.60
Regardless of the merit
in the doctrine’s outcome, this lack of “elegantia” rendered it “inadequate to comprehend
the complexities of actual situations.”61
The doctrine has been referred to in a wide variety of terms, examples of which
include: “fundamental breach of contract”,62
“fundamental breach which went to the root
of the contract”,63
“breach of a fundamental term”,64
“breach of a fundamental term which
is in the nature of a deviation”,65
“breach of a fundamental term akin to deviation”,66
“total
breach”,67
“the main object and intent of the contract”,68
“one of the prime obligations of
the contract”69
and a breach that “evinces a deliberate disregard of… bounden
obligations”.70
All of these terms were suggested to refer to the same principle. This
conceptual uncertainty leads the unsuspecting jurist into a rabbit warren of interconnected
but ambiguous legal reasoning. It is this illusion of reason that provided the opportunity
60
JL Montrose, above n 14, at 60. In Photo Production Ltd v Securicor [1980] 2 WLR
283 per Lord Wilberforce at 289: “a legal complex so uncertain as the doctrine of
fundamental breach must be… [leads to] analysis, which becomes progressively more
refined, of decisions in other cases leading to inevitable appeals”.
61
JL Montrose, above n 14, at 268.
62
Alexander v Railway Executive, above n 18, at 888-889.
63
Alexander v Railway Executive, above n 18, at 887; J Spurling v Bradshaw, at 465; and
Karsales (Harrow) Ltd v Wallis at 940-941.
64
Alexander v Railway Executive, above n 18, at 888; Smeaton Hanscombe v Setty, above
n 25, at 1470; Karsales v Wallis, above n 32, at 941.
65
Swan Hunter v France Fenwick Tyne [1953] 1 WLR 1026 [The Albion] at 1030-1032.
66
Spurling v Bradshaw, above n 31, at 469.
67
Yeoman Credit Co Ltd v Apps [1961] 2 All ER 281 per Harman LJ at 292.
68
Sze Hai Tong Bank v Rambler Cycle Co, above n 49, at 587.
69
70

15
for judges to usurp their function of interpreting contracts in favour of achieving justice.71
Fundamental breach was a formulae of judicial discretion. The formulation of a rule with
no clear reasoning maximises the flexibility of the law.72
One consequence of this, was the later debate as to whether ‘fundamental terms’
were distinct from ‘fundamental breach’. Denning LJ suggests there is no distinction:
“these are all comprehended by the general principle that a breach which goes to the root
of the contract disentitles the party from relying on the exempting clause.”73
However, to
the contrary, Professor Montrose explains the difference, “[t]here may be a fundamental
breach though there is no breach of a fundamental term, and it may well be that a breach
of a fundamental term should be placed in a separate category from a fundamental
breach.”74
It is submitted that analysis is best served according to these two concepts and
parts VI and VII proceed accordingly. After all, discharge by breach may entail reference
to the term broken and the nature and effect of breach itself.
VI. Fundamental terms
The concept of a ‘fundamental term’ indicates the way in which the doctrine was
understood in the period from 1953 to 1966.75
Contract law orthodoxy held that repudiation
was assessed by reference to a condition in the contract. Consequently, Devlin J attempted
to create something more refined. A fundamental term is best understood as a term, the
breach of which would always be so serious that an exemption clause could not deny
liability.76
To interpret the exception clause as exempting liability for a fundamental term
would otherwise reduce the contract to a mere declaration of intent. All exception clauses
71
Alfred W Meyer, above n 11, at 1198-1199.
72
73
Karsales (Harrow) Ltd v Wallis, above n 35, at 941.
74
75
Brian Coote, “Correspondence with Description in the Law of Sale of Goods” (1976)
50 ALJ 17 at 21.
76
In Karsales (Harrow) Ltd v Wallis, above n 35, per Parker LJ at 943: “However
extensive the exclusion clause may be, it has no application if there has been a breach of
a fundamental term.”

16
would accordingly be considered conditional upon the fundamental term.77
This concept
held great appeal in the sense that to both create and destroy an obligation in the same
document is a contradiction in terms.78
This was particularly relevant in the sale of goods
and hire-purchase context, as judges attempted to provide a baseline quality for goods
sold.79
At the height of the concept, the stage was reached where a fundamental term could
be implied into the contract, despite express terms to the contrary.80
A. The dichotomy of terms
The Sale of Goods Act 1893 (UK) had provided a dichotomy of contractual terms into
conditions and warranties.81
A condition was defined as a stipulation “the breach of which
may give rise to a right to treat the contract as repudiated”,82
while a warranty was defined
as that “the breach of which may give rise to a claim for damages but not to a right to reject
the goods and treat the contract as repudiated.”83
Prior to Hong Kong Fir, this informed the
orthodox view that that discharge for breach was always evaluated by reference to breach
of a condition.84
As was stated that the beginning of the paper and perhaps the raison d'être
for the doctrine’s being: it was legally permissible for draftsmen to exclude conditions,
even those express.85
77
Lord Devlin, “The Treatment of Breach of Contract” [1966] CLJ 192 at 208.
78
79
80
In Yeoman Credit Ltd v Apps [1962] 2 QB 608 and Charterhouse Credit Co Ltd v Tolly
[1963] 2 QB 683, the English Court of Appeal implied fit for purpose terms into hire
purchase agreements for cars, despite wide exception clauses that no warranty was given.
81
82
Section 11(1)(b).
83
Section 62(1).
84
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 (CA)
[Hong Kong Fir].
85
L’Estrange v Graucob, above n 12.

17
B. Something more fundamental than a condition
Devlin J sought to overcome this in Smeaton Hanscomb, providing that there are some
terms more fundamental than conditions, in a passage worthwhile repeating:86
“It is no doubt a principle of construction that exceptions are to be construed
as not being applicable for the protection of those for whose benefit they are
inserted if the beneficiary has committed a breach of a fundamental term of
the contract… I do not think that what is a fundamental term has ever been
closely defined. It must be something, I think, narrower than a condition of
the contract, for it would be limiting the exceptions too much to say that
they applied only to breaches of warranty. It is, I think, something which
underlies the whole contract so that if it is not complied with the
performance becomes something totally different from that which the
contract contemplates. If, for example, instead of delivering mahogany logs
the sellers delivered pine logs, and the buyers inadvertently omitted to have
them examined for fourteen days, it might well be that the sellers could not
rely on the time clause.”
The apparent logic of the learned Justice was that for this was that while exception clauses
applied to conditions, “fundamental terms” were not covered.87
By providing the
mahogany and pine log example, Devlin J was attempting to assimilate the previously
mentioned non-performance cases into the doctrine.88
It was posited that it was a
‘fundamental term’ to deliver goods of the ‘kind’ contracted for. Although defective
performance is not the same as ‘non-performance’, in the sense that it is not an independent
adventure, it was argued to amount to a constructive deviation.89
86
Above n 25, at 1470.
87
88
In Smeaton Hanscomb v Sassoon I Setty, above n 25, at 1470 Devlin J refers to
Pinnock Brothers v Lewis & Peat Ltd, above n 58, above as an example of fundamental
breach.
89

18
However, it was widely viewed as difficult to imagine a term more fundamental
than a condition.90
The breach of a condition already entitled the injured party to repudiate
the contract. This view had been affirmed by the court. In Wallis v Pratt, Fletcher Moulton
LJ, whose judgment was adopted on appeal by the House of Lords, regarded a breach of a
condition as “a substantial failure to perform the contract” in one passage and as “total
failure” in another.91
This was widely considered as a finding that a condition was as
‘fundamental’ as any term could be92
or equating fundamental terms with conditions.93
Further, it is not clear that Lord Wright and Lord Maugham intended to distinguish
‘fundamental terms’ from ordinary conditions in Hain Steamship, from where the phrase
was initially derived.94
Even assuming that this difficulty could be overcome to create a new category of
contractual terms, grave theoretical concerns were held for the concept. Like the difficulty
in ascertaining the boundary between non-performance and defective performance, it was
difficult to precisely define the fundamental term. In the sale of goods context, greater
difficulty was created by s 13 of the Sale of Goods Act 1893 (UK), which limited the
‘description’ of goods to the status of condition of the contract. Commentators sought to
overcome this by distinguishing the ‘definition’ from the ‘description’, which could
accordingly become a ‘fundamental term’.95
C. Defining the fundamental term
Lord Denning had encouraged commentators to provide a formula by which goods could
be defined and the ‘fundamental term’ could be ascertained.96
Indeed, commentators had
90
FMB Reynolds, “Warranty, Condition and Fundamental Term” (1963) 79 LQR 534 at
541.
91
[1910] 2 KB 1003 (CA) at 1012.
92
LW Melville, above n 36, at 27.
93
FMB Reynolds, above n 90, at 541.
94
Above n 24, at 607-608 and 614.
95
96
AG Guest, above n 14, at 98: “In his address to the Society of Public Teachers of Law
at their Meeting held in Oxford in September, 1959, Lord Denning called for a definitive
formulation of the scope, limits and application of the new doctrine.”

19
already begun attempting to attain such a mechanically applicable criteria. Mr Melville
attempted to define the “core” of a contract, “a central or main promise, which must be
performed”.97
While Professor Montrose suggested, “[o]ne must look to all the terms and
circumstances of a contract to discover what is the parties’ definition of the contract
goods.”98
But, with respect to the learned writers, it is submitted that both methods were
executed with reference to the construction of the contract. Consequently, neither rule lent
support to the doctrine of fundamental breach.
To adopt a generalised rule to determine when peas become beans or copra cake
becomes something else is otherwise dangerous. Mr Wedderburn (as he then was) explains:
“There is no ‘definite answer’ to the ‘question how many parts a thing can have or how
much it can change without altering its identity.’”99
Without the support of construction of
the contract, the outcome would become arbitrary.100
If a term was to be considered
fundamental in one situation then, it would be considered fundamental in all.101
The
consequence of this was that however trivial the consequences of a breach, the injured party
was entitled to all remedies. For example, roadworthiness became considered as a “core”
contractual element in the sale and purchase of vehicles. Under this principle, the provision
of an unroadworthy car costing a small amount to repair may be caught,102
while a
roadworthy car costing a large amount to be repaired might not.103
Further, determining
breach by reference to some core of the contract would present draftsmen the opportunity
to avoid liability by simply “shrinking the core of the contract to minute proportions.”104
Such an outcome would render the whole operation futile.
97
98
99
KW Wedderburn, above n 6, at 18.
100
Brian Coote, “The First Rise and Fall of Fundamental Breach” (1967) 40 ALJ 336 at
338; and SJ Stoljar, “Conditions, Warranties and Descriptions of Quality in Sale of
Goods” (1952) 15 MLR 425.
101
102
In Unity Finance v Hammond [1953] 1 WLR 1468, a defect costing £14 to repair was
characterised as a fundamental breach.
103
Astley Industrial Trust v Grimley [1963] 1 WLR 584 (CA).
104
KW Wedderburn, above n 6, at 20.

20
VII. Fundamental breach
In the 1960s, there was a growing trend to analyse breach of contract according to the
nature of the breach as opposed to the term broken.105
The dichotomy of terms approach
was suggested to be confusing and misleading.106
Analysis according to the breach held
the merit of avoiding reference to the classification of terms and limited the remedy of
fundamental breach to instances that deserved it.
Fundamental breach posited the effect that upon sufficient breach, the exception
clause becomes a thing writ in water. The underlying logic for this was appealingly simple:
breach of a sufficient character destroys the contract; once the contract is destroyed, the
exceptions clauses are destroyed; and finally, as the exceptions clauses are destroyed, there
is nothing to limit or bar the injured party’s recovery.107
Devlin J alluded to in Alexander v
Railway Executive:108
“[W]here there has been a breach of a fundamental term of a contract giving
the other party the right to rescind it, then, unless and until, with full
knowledge of all the facts, he elects to affirm the contract and not to rescind
it, the special terms of the contract go and cannot be relied upon by the
defaulting party.”
The Justice outlined this principle with reference to Hain Steamship.109
Hain Steamship
provided the impetus for the later development of the doctrine because of its corruption of
the law surrounding discharge by breach. In an attempt to explain the phenomenon of
deviation, the House of Lords had assimilated it with the incidents of discharge by
breach.110
As has been explained, upon deviation in ocean carriage contracts, the carrier
105
Lord Devlin, “The Treatment of Breach of Contract” [1966] CLJ 192; and Hong Kong
Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 per Diplock LJ [Hong
Kong Fir].
106
FMB Reynolds, above n 92, at 534.
107
108
109
Above n 20, at 889.
110
Per Lord Atkin at 601.

21
loses the benefit of exception clauses. In order to achieve this assimilation, termination had
to be immediate from the point of deviation. However, on the facts, the charterer had
reacted to the deviation by affirming the contract and thus waiving the charterer’s breach.
Their Lordships accordingly made affirmation a key part of discharge by breach: if the
injured party treats the contract as ended, he is not bound by the exceptions clauses; on the
other hand, if the injured party affirms the contract, he is bound by the exceptions clause.111
A. Discharge by breach
In order to assess the merit of the decision in Hain Steamship, we must take a step back
and observe its repercussions for discharge by breach. Discharge by breach conceptualises
the situation whereby one party to a contract breaches and provides the other party with the
opportunity to end contractual performance. This area of the law, like fundamental breach,
has been the subject of conceptual and operational uncertainty.112
This section will assess
the central propositions of Hain Steamship according to Professor Coote’s theory of the
doctrine.
1. The election issue
The first issue is whether the contract is automatically discharged or is in the election of
the innocent party.113
In Hain Steamship, it was suggested that the injured party’s
acquiescence was enough to discharge the contract. The language of Devlin J in Alexander
Railway indicated that he supported this: “unless and until… he elects to affirm”.114
To add
further difficulty to this proposition, the English Court of Appeal later held that regardless
of an injured party having affirmed the contract, a hire purchase company in breach could
not rely on an otherwise applicable exception clause.115
There had, however, been strong
111
Per Lord Atkin at 601.
112
Brian Coote, “The Effect of Discharge by Breach on Exception Clauses” [1970] CLJ
221 at 222.
113
Brian Coote, above n 112, at 222.
114
115
[1963] 2 QB 683.

22
suggestions that an election was required to end the contract.116
To do otherwise would
allow the wrongdoer to unilaterally terminate the contract. Further, it makes practical sense
to provide the injured party with the option.
2. The termination issue
To suggest that the contract terminated upon breach was an oversimplification.117
If that
was the case, the injured party would have nothing upon which they could sue for damages.
In Heyman v Darwins Ltd, Lord Porter outlined the operation of discharge by breach when
considering the continuing application of an arbitration clause:118
“Strictly speaking, to say that on acceptance of the renunciation of a contract
the contract is rescinded is incorrect. In such a case the injured party may
accept the renunciation as a breach going to the root of the whole of the
consideration. By that acceptance he is discharged from further performance
and may bring an action for damages, but the contract itself is not
rescinded.”
Professor Coote explains this in greater depth, suggesting that the contract is ‘truncated’ as
opposed to ‘terminated’: “[i]ts function is, notionally at least, to take the parties direct from
the point of termination to the point where completion is due.”119
3. From what point does termination operate?
Assuming that the contract does terminate, we must next consider from what point
termination is effective. Professor Coote outlines four options, including: (1) termination
from the moment the contract was entered into; (2) the moment of breach; (3) the moment
116
Heyman v Darwins [1942] AC 356 (HL); Mason v Clouet [1924] AC 980 (HL); and
Thorpe v Fasey [1949] Ch 649.
117
118
[1942] AC 356 per Lord Porter at 399.
119

23
of election; and (4) the moment of communicating the election.120
Further assuming that
an election is required, it must be retrospective to the point of breach to deprive the
wrongdoing party the benefit of an exception clause. However, this could not be correct as
there was widespread authority to suggest that an election was only prospective in effect.121
The exception clause would thus operate as at the point of termination and protect liability
of the wrongdoing party.
B. What is the function of an exception clause?
To overcome the prospective nature of discharge, the fundamental breach principle had to
rely on the premise that an exception clause was merely ‘procedural’.122
Denning LJ
affirms this in Karsales (Harrow) Ltd v Wallis when he suggested to look at the contract
aside from the exempting clauses when considering fundamental breach.123
Exempting
clauses then operate, if at all, as a defence to breaches of the obligation determined at point
of adjudication. However, Professor Coote proposed that a different approach was required
whereby exception clauses substantively delimited the rights themselves. On this basis
there could be no concept of breach defeating exception clauses as there was no breach of
obligation in the first place.124
2. Deviation distinguished
On the basis of the arguments mentioned above, deviation represents an exception to the
general rule that termination does not retrospectively deprive a party of the benefit of
exception clauses without the need for an election. One of the reasons that the development
fundamental breach was so remarkable was that just four months prior to Devlin J’s
120
121
Brian Coote, above n 112, at 227; Yeoman Credit v Apps [1962] 2 QB 508 (CA); Hirji
Mulji v Cheong Yue SS Co [1926] AC 497 at 510; and Heyman v Darwins [1942] AC
356.
122
Brian Coote, above n 25, 788 at 792.
123
Above n 22.
124
Brian Coote, above n 34, at 7-11.

24
fundamental term pronouncement in Smeaton Hanscomb,125
the Court of Appeal had
confined the phraseology to bailment.126
Closer inspection indicates that this exception can
only apply to service relationships of certain kinds. In the bailment context, the fact of
‘deviation’ or ‘quasi deviation’ may precede the cause of action itself. Consequently, the
wrongdoing party is deprived of the exception clause prior to the cause of action. Professor
Coote suggests this accords with the nature of bailment itself:127
“When a bailee’s authority to hold the bailed goods has been limited in
particular ways and he then fails to observe those limitations, he ceases to
hold the goods within the ambit of the bailment and is reduced to the status
of mere detainor.”
Another explanation of this arises out of the nature of shipping contracts. Historically,
marine insurance was lost from point of deviation, and it was thus viewed as equitable that
the carrier should hold risk from that point.128
This would justify breach operating
retrospectively. Accordingly, Professor Coote argued that “deviation and quasi-deviation
are sui generis and to be kept distinct from discharge by breach.”129
VI. The first fall of fundamental breach
Absence of a clear previous judicial warrant and theoretical shortcomings created
considerable doubt as to the doctrine’s existence and feasibility.130
Pearson LJ131
and
125
Above n 24.
126
Above n 65 at 1030-1032.
127
Brian Coote, above n 112; Brian Coote, above n 15, at 789; and AG Guest, above n
14, at 103.
128
A/S Rendall v Arcos Ltd (1937) 43 Com Cas 1 per Lord Wright at 15.
129
130
M Bridge (ed) Benjamin’s Sale of Goods (9th ed, Sweet & Maxwell, London, 2014) at
[13-045].
131
UGS Finance v National Mortgage Bank of Greece [1964] 1 Lloyds Rep 446 (CA) at
543.

25
Diplock LJ132
were the first to dissent in England, while the High Court of Australia also
refused to apply the doctrine and reaffirmed principles of construction.133
The House of Lords heeded this sentiment in in Suisse Atlantique Société
d’Armement Maritime v NV Rotterdamsche Kolen Centrale, which was their first
opportunity to consider the doctrine.134
The case concerned a two-year consecutive voyage
charterparty. It was alleged that excessive delays beyond lay days amounted to a
fundamental breach and prevented the charterer from relying on the demurrage clause.
Refuting the doctrine of fundamental breach, their Lordships unanimously held that there
was no special rule of law applicable to exception clauses and the matter was one of the
true construction of the contract.135
Lord Wilberforce also appeared to acknowledge
Professor Coote’s suggestion that an exception clause substantively modified primary
obligations.136
Unfortunately, however, their Lordships were far from clear, leaving the
door ajar for the re-emergence of the doctrine.137
None of the earlier cases were overruled,
their Lordships preferring to explain them on the basis of construction. Thus the possibility
of a ‘rule of construction’ was still apparent. Further, there was no denial that there were
such things as “fundamental terms” or “fundamental breaches”. This gave grounds for
thinking that the phrases held continuing relevance. Most importantly, however, their
Lordships appeared to uphold the doctrine according to the conception in Hain
Steamship.138
In terms of the law of discharge by breach, a pivotal point of the case was
the vessel owner’s affirmation of the contract. Lord Reid and Lord Upjohn suggested that
if the injured party had treated the contract as repudiated by the breach, the whole contract
would have ceased to exist, including the exception clause.139
132
Hardwick Game Farm v Suffolk Agricultural and Poultry Producers’ Association
[1966] 1 WLR 287.
133
Council of the City of Sydney v West (1965) 114 CLR 481 at 488.
134
[1967] 1 AC 361 [Suisse Atlantique].
135
JF Wilson, above n 36, at 260; Brian Coote, above n 34, at 793.
136
At 431.
137
Jerry Hubbard, “Deviation in contracts of sea carriage: after the demise of
fundamental breach” (1986) 16 VUWLR 147 at 152.
138
Above n 24.
139
Per Lord Reid at 398 and Lord Upjohn at 419 and 425.

26
VII. The return of fundamental breach
In a series of judgments from the English Court of Appeal, the doctrine was reincarnated
as a rule of construction.140
The court’s willingness to continue applying the doctrine can
be regarded as a result of continuing disquiet at the unfair nature of exception clauses.
In Harbutt’s Plasticine,141
the English Court of Appeal seized upon the
shortcomings of the House of Lords in Suisse Atlantique.142
The effect of this case was to
make the election of the injured party the focal point for application of the exception clause.
If an election was made to discharge the contract, the wrongdoer would lose the benefit of
exceptions clauses, regardless of the nature of the breach. However, where the contract was
affirmed, the exception clause continued to apply as a matter of construction. On the facts,
the Court of Appeal bypassed the issue of election, holding that the nature of the breach
was so severe as to automatically terminate the contract.
While the Court of Appeal admitted to applying a ‘rule of construction’ in Harbutt’s
Plasticine, this rule operated despite the exceptions clause being capable of effective
application.143
It can thus be described as a reversion to the pre Suisse Atlantique rule of
law and contrary to the unanimous finding of the House of Lords that no such rule existed.
Further, although this was consistent with the statements of Lord Reid and Lord Upjohn,
its basis in Hain Steamship demonstrated the doctrine’s continued vulnerability. Those
statements made by their Lordships were based on counsel’s concession that upon breach,
the clauses ceased to apply. Moreover, if Professor Coote’s arguments were upheld, the
law according to fundamental breach would collapse.
In subsequent cases, the courts continued to revert to the pre Suisse Atlantique law
in an increasingly extreme manner.144
In Wathes (Western) Ltd v Austins (Menswear) Ltd,
the Court of Appeal held that the exceptions clause could not apply even in the event of
140
Harbutt’s “Plasticine” Ltd v Wayne Tank & Pump Co [1970] 1 QB 447, [1970] 1 All
ER 225 [Harbutt’s Plasticine]; Farnworth Finance Facilities Ltd v Attryde [1970] 2 All
ER 774, [1970] 1 WLR 1053; Wathes (Western) Ltd v Austins (Menswear) Ltd [1976] 1
Lloyd’s Rep 14; and Photo Production Ltd v Securicor Transport Ltd [1978] 1 WLR 856.
141
Above n 140.
142
Above n 134.
143
Per Widgery LJ at 470 and per Cross LJ at 474.
144
Brian Coote, above n x, at 795.

27
affirmation.145
The court relied upon Charterhouse Credit v Tolly on the ground that it had
not been overruled in Suisse Atlantique.
In this period, there was a continued current in favour of Professor Coote’s thesis.
In accordance with the view in Heyman v Darwins, the English Court of Appeal held that
the contract does not terminate on discharge for breach, in the sense that primary
obligations to perform are replaced by secondary obligations to pay damages.146
Further,
there was increased recognition of the Professor’s conception of exception clauses. In an
attempt to distinguish Harbutt’s Plasticine, Donaldson J distinguished between three types
of exception clause, depending on whether they excluded the primary obligation, excluded
liability or limited liability.147
He held that if the clause qualified the primary obligation, it
must be taken into account in assessing a potential breach. Kerr J went further in The
Angelia, holding that an event covered by an exception of liability was not and could never
be a breach at all, let alone a fundamental breach.148
This meant only a limitation of liability
could be relegated to the status of procedural mechanism.
In 1975, Professor Dawson attempted to lend support to the doctrine as it appeared
in Harbutt’s Plasticine.149
The Professor adopted the three types of exceptions according
to Donaldson J in order to support his proposed doctrine of interdependent promises.150
By
contrast to Professor Coote’s view of exception clauses, Professor Dawson suggested that
the second and third of Donaldson J’s exception clauses could be interpreted as dependent
promises of immunity made to the proferens. Those promises of immunity were
accordingly dependent on substantial performance by the proferens.
With respect, however, it is submitted that this is not the function of an exception
clause. Exception clauses are not promises made to the proferens, but qualifications to what
the proferens promises to undertake. Professor Dawson cited New Zealand Shipping Co
Ltd v AM Sattherwaite & Co Ltd as sole authority in support of the proposition that an
145
[1976] 1 Lloyd’s Rep 14.
146
LEP Air Services Ltd v Rolloswin Investments Ltd [1971] 1 WLR 934 at 943-944.
147
Kenyon, Son & Craven v Baxter Hoare & Co Ltd [1971] 1 WLR 519 at 522.
148
Trade and Transport Inc v Iino Kaiun Kaisha Ltd [1973] 1 WLR 210 [The Angelia] at
228-231.
149
Francis Dawson, “Fundamental Breach of Contract” (1975) 91 LQR 380 at 381.
150
Kenyon, Son & Craven v Baxter Hoare & Co Ltd, above n 147, at 522.

28
exception clause could be a promise. However, Professor Coote distinguishes that case as
arising in tort, not contract.151
VIII. Legislative response
In Suisse Atlantique, Lord Reid had recommended a legislative response to the unfair
nature of exception clauses:152
“This is a complex problem which intimately affects millions of people and
it appears to me that its solution should be left to Parliament. If your
Lordships reject this new rule there will certainly be a need for urgent
legislative action but that is not beyond reasonable expectation.”
This eventuated in the form of the Supply of Goods (Implied Terms) Act 1973 (UK) and
the Unfair Contract Terms Act 1977 (UK) (UCTA). The former provided discriminating
control in contracts of sale and hire-purchase, while the latter held a much wider scope,
vastly reducing the need for such a doctrine.153
The UCTA deals almost exclusively with
exception clauses in contracts; it makes some such clauses ineffective in all circumstances
and others ineffective unless they comply with a requirement of reasonableness. The
UCTA defined and protected persons dealing as consumers, yet did not legislate over
commercial contracts. This left commercial parties of equal bargaining power free to
apportion the risks as they think fit.
It is sometimes suggested that this legislation is a result of the attention that the
doctrine of fundamental breach brought to exception clauses.154
However, it may otherwise
151
Brian Coote, “Discharge For Breach and Exception Clauses Since Harbutt’s
‘Plasticine’” (1975) 40 MLR 31 at 41-42.
152
Above n 134, at 406.
153
Later in Securicor, Lord Wilberforce gave some prominence to the view that the
UCTA had made the doctrine superfluous.
154
LS Sealy, “Contract—Farewell to the Doctrine of Fundamental Breach” [1980] CLJ
252 at 253.

29
have been because of the undesirability of methods employed to bypass the clause being
further developed without parliamentary guidance.155
IX. The superfluous doctrine
In Photo Production Ltd v Securicor Transport Ltd,156
the House of Lords corrected the
previous insolence of the Court of Appeal, holding that no rule of law existed preventing
the application of an exemption clause where there has been fundamental breach. Whether
an exclusion clause was to be applied to any breach of contract was a matter of construction
of the contract.157
In the course of his judgment in the case, Lord Wilberforce gave some prominence
to his view that the passing of the UCTA had made the doctrine of fundamental breach
superfluous.158
A lingering criticism of the doctrine was its failure to distinguish between
consumer and commercial contexts.159
If fundamental breach was a reaction to the
inequality of bargaining power in standard form contracts, there was no reason why it
should apply to a contract entered into by commercial parties of equal bargaining power.
British Parliament evidently shared this view as the discretion afforded to the court under
the UCTA was limited to consumer contracts. In Photo Production Ltd, the parties had
entered into a contract made between business concerns of equal bargaining power, each
able to insure against risk at a modest charge.160
The House of Lords accepted Parliament’s
intention to uphold freedom to contract in such instances.
Lord Diplock confirmed that the effect of electing to terminate a contract for breach
is not to bring the contract to an end. The parties are released from performance of any
future “primary” obligations, but the contract itself continues, including any exception
clauses. It could not retrospectively deprive the defendants of the protection of the clause
with respect to loss suffered before the election had been made. To allow otherwise would
155
David G Pierce, above n 9, at 349.
156
[1980] 2 WLR 283 [Securicor].
157
[1980] 2 WLR 283 in headnote.
158
At 289 and 291.
159
David G Pierce, above n 9, at 353.
160
At 296 and 297.

30
provide for the reintroduction of the substantive doctrine after its rejection in Suisse
Atlantique.
X. Is there scope for fundamental breach to be argued?
The continuing scope for the doctrine in New Zealand will be assessed by reference to (a)
New Zealand’s historical position with regards the doctrine; (b) Parliament’s willingness
to legislate over consumer contracts; and (c) Canada’s continued willingness to reserve
judicial discretion. In addition to the theoretical flaws illustrated in the English context, it
is submitted that the doctrine is incapable of application in New Zealand courts.
A. New Zealand’s position
It seems that New Zealand was never as daring to engage the doctrine as the English courts
were. In Kaniere Gold Dredging Ltd v Dunedin Engineering & Steel Co Ltd, Holland J
doubted if the doctrine had ever been a part of New Zealand law.161
However, there is clear
evidence of application in Cornwall Properties Limited v King162
and at first instance in
Devonport Borough Council v Robins.163
In DHL International (NZ) Ltd v Richmond
Ltd,164
Richmond J adopted the House of Lords’ position in Securicor.165
This position has
since been firmly upheld in cases where fundamental breach has been argued.166
It may
even be said that there is antipathy towards the use of the phrase ‘fundamental breach’.167
161
(1985) 1 NZBLC 102,223.
162
[1966] NZLR 239 at 245-246.
163
[1979] 1 NZLR 1 at 16.
164
DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 at 17.
165
Above n 157.
166
Victor Hydraulics Ltd v Engineering Dynamics [2006] 2 NZLR 235 at 240-241;
Seaview Marina Ltd v Burgess DC Lower Hutt CIV-2008-032-386, 17 December 2008 at
[43]-[46]; Dorchester Finance Ltd v Deloitte [2012] NZCA 226 at [27]; and i-Health Ltd
v Isoft NZ Ltd [2011] NZCA 575, [2012] 1 NZLR 379 per Asher J at [18].
167
i-Health Ltd v Isoft NZ Ltd, above n 160, per Asher J at [18].

31
B. Legislative development
Previously, in the absence of a statutory equivalent of the UCTA, an argument existed for
reserving judicial discretion via the doctrine.168
The New Zealand Law Commission
considered whether reform was needed in its 1990 paper Unfair Contracts, deciding not to
pursue the initiative.169
However, it is submitted that New Zealand consumers now hold
sufficient legislative protection to meet the rigidity first envisaged by fundamental breach.
Consumers hold the protection of statutory guarantees as to quality where goods and
services were provided in trade.170
Further, New Zealand now holds a statutory equivalent
to the UCTA. The Commerce Commission may thus apply to the court for a declaration
that a term in a “standard form consumer contract” is an “unfair contract term”.171
In June
2010, the Ministry of Consumer Affairs considered the appropriateness of implementing
legislative protection for consumers against such unfair terms.172
In September a second
paper was issued, recommending that provisions should be added to the Fair Trading Act
1986 declaring such provisions void.173
Consequently, the Fair Trading Act Amendment
Act 2013 was passed, reflecting these recommendations.174
C. Canadian reserve of judicial discretion
Of the Commonwealth courts, Canadian judges have been the most reluctant to disengage
the doctrine. Up until 2010, the doctrine continued to exist in Canada.175
However, in
168
Kaniere Gold Dredging Ltd v Dunedin Engineering & Steel Co Ltd, above n 162, per
Holland J at 102,228; and F Dawson “Contract” [1991] NZ Rec Law Rev 19 at 33.
169
Unfair Contracts (NZLC PP11, 1990); McLachlan [1991] NZ Rec Law Rev 311.
170
Consumer Guarantees Act 1993, s 41.
171
Fair Trading Act 1986, ss 46H-46M.
172
Ministry of Consumer Affairs Consumer Law Reform – A Discussion Paper (June
2010) (www.consumeraffairs.govt.nz/legislation-policy/policy-reports-and-papers) at
[6.2.1].
173
Ministry of Consumer Affairs Consumer Law Reform Additional Paper –Unfair
Contract Terms (September 2010).
174
John Burrows, Jeremy Finn and Stephen Todd, above n 9, at 246
175
Hunter Engineering Co Inc v Syncrude Canada Ltd [1989] 1 SCR 426; and Alexander
J Black “Enforceability Following the Decline of Fundamental Breach” (2015) 44(2) The
Advocates’ Quarterly 139 at 139.

32
Tercon Contractors Ltd v British Columbia (Ministry of Transport and Highways), the
Canadian Supreme Court attempted to “shut the coffin on the jargon associated with
‘fundamental breach’”.176
Perhaps as a result of the conceptual uncertainty with the
doctrine, Binnie J explained that classifying “a contractual breach as ‘fundamental’ or
‘immense’ or ‘colossal’ is not particularly helpful”.177
The court also recognised residual
discretion in the court to refuse to enforce exclusion clauses. The court adopted Justice
Binnie’s three step approach. The first step is to construct the contract. If the clause applies,
the second step is to assess whether it was unconscionable at the point it was made. If the
clause was valid, the third step might undertake a third inquiry, as to whether an overriding
public policy could justify a refusal to enforce the terms of the contract. While the Supreme
Court moved away from notions of fundamental breach to focus on concerns of policy, the
exercise “necessarily entails a wide discretion” with issues of certainty and consistency
remaining.178
Burrows, Finn and Todd suggest that this decision could prove to be
influential in New Zealand.179
However, with respect, Canada is a federal country of 14
jurisdictions, with little prospect of uniform consumer legislation.180
By contrast, New
Zealand has dealt with the issue by the legislation mentioned. Consequently, Canada is an
exception where the court’s discretion is necessary to remedy injustice.
XI. Conclusion
To revisit the doctrine of fundamental breach in the twenty first century is to engage in a
post-mortem examination. The doctrine illustrates the court’s practical willingness to
reserve judicial discretion in the face of injustice. Reflecting on the doctrine in 2001, Lord
Hoffman opined:181
176
[2010] 1 SCR 69, (2010) 315 CLR (4th) 385 at [82].
177
At [82].
178
McInnes (2010) 126 LQR 365 at 368.
179
John Burrows, Jeremy Finn and Stephen Todd, above n 5, at 244.
180
Hunter Engineering Co Inc v Syncrude Canada Ltd [1989] 1 SCR 426 at [154] per
Justice Wilson; and McInnes (2010) 126 LQR 365 at 365.
181
Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at [60].

33
“My Lords, the lesson which I would draw from the development of the
rules for construing exemption clauses is that the judicial creativity,
bordering on judicial legislation, which the application of the doctrine of
fundamental breach involved was a desperate remedy, to be invoked only if
necessary to remedy widespread injustice.”
While the doctrine was capable of achieving this outcome, its crude manner of doing so
must be remembered. The process through which it overlooked construction of the contract
lacked coherent principle. It corrupted the law of discharge by breach. However, with
legislative assistance, the doctrine has been rendered superfluous. With that in mind the
doctrine may be observed but not reincarnated.

34
Appendix 1: Bibliography
A Cases
1 New Zealand
A M Bisley & Co Ltd v Thompson [1982] 2 NZLR 696 (CA).
Attorney-General v Seven Electrical ltd HC Wellington CIV-2000-485-787, 8 October
2003.
Brennan International Transport Hong Kong Ltd v Blue Q Corporation [2009] NZCCLR
21.
Cornwall Properties Ltd v King [1966] NZLR 239.
DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 (CA).
Dorchester Finance Ltd v Deloitte [2012] NZCA 226.
Graham v Attorney-General [1966] NZLR 946.
Harper v South Island Holdings Ltd [1959] NZLR 629.
Kaniere Gold Dredging Ltd v Dunedin Engineering & Steel Co Ltd (1985) 1 NZBLC
102,223.
Livingstone v Roskilly [1992] 3 NZLR 230 (HC).
Richmond Ltd v DHL International (NZ) Ltd (1991) 3 NZBLC 102,118.
SGS (NZ) Ltd v Quirke Export Ltd [1998] 1 NZLR 52 (CA).
The McKenzie Institute International v ARCIC (1997) 8 TCLR 329.
Victor Hydraulics Ltd v Engineering Dynamics Ltd [1996] 2 NZLR 235.
2 Canada

35
Hunter Engineering Co Inc v Syncrude Canada Ltd [1989] 1 SCR 426; 57 DLR (4th)
321.
Tercon Contractors Ltd v British Columbia [2010] 1 SCR 69.
Tor Line AB v Alltrans Group of Canada Ltd [1984] 1 WLR 48 (HL) [The TFL
Prosperity].
3 England and Wales
Alderslade v Hendon Laundry [1945] KB 189 (CA).
Alexander v Railway Executive [1951] 2 KB 882.
Andrews Brothers (Bournemouth) Ltd v Singer Ltd [1934] 1 KB 17.
Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251.
Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240.
Chanter v Hopkins (1838) 4 M & W 399.
Charterhouse v Tolly [1963] 2 QB 683.
Davis v Garrett (1830) 6 Bing 716, 130 ER 1456.
Farnworth Finance Facilities Ltd v Attryde [1970] 2 All ER 774, [1970] 1 WLR 1053.
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284.
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803.
Gibaud v Great Eastern Railway Company [1921] 2 KB 426 (CA).
Hain Steamship Co Ltd v Tate and Lyle Ltd (1936) 155 LT 177 (HL).
Harbutt’s “Plasticine” Ltd v Wayne Tank & Pump Co [1970] 1 QB 447, [1970] 1 All ER
225.

36
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; [1962] 1
All ER 474.
J Spurling Ltd v Bradshaw [1956] 1 WLR 461.
Joseph Thorley Ltd v Orchis SS Co [1907] 1 KB 660
Karsales (Harrow) Ltd v Wallis [1956] 2 All ER 866.
L’Estrange v Graucob [1934] 2 KB 394.
Lilley v Doubleday (1881) 7 QBD 510.
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, [1980] 1 All ER 556.
Photo Production Ltd v Securicor Transport Ltd [1978] 3 All ER 146 (CA).
Pinnock Brothers v Lewis & Peat Ltd [1923] 1 KB 690.
Rose and Frank v Crompton and Bros [1925] AC 445 (HL).
Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son & Co (No 1) [1953] 1 WLR 1468.
Suisse Atlantique Socíeté d’Armement Maritime SA v NV Rotterdmsche Kolen Centrale
[1967] 1 AC 361; [1966] 2 All ER 61.
UGS Finance v National Mortgage Bank of Greece [1964] 1 Lloyds Rep 446 (CA).
Wallis v Pratt & Haynes [1910] 2 KB 1003 (CA).
Wathes (Western) Ltd v Austins (Menswear) Ltd [1976] 1 Lloyd’s Rep 14.
Yeoman Credit Ltd v Apps [1962] 2 QB 508, 517; [1961] 2 All ER 281.
B Legislation
1 New Zealand
Consumer Guarantees Act 1993.

37
Fair Trading Act 1986.
Fair Trading Amendment Act 2013.
2 United Kingdom
Consumer Rights Act 2015.
Sale of Goods Act 1893.
Unfair Contract Terms Act 1977.
C Books and Chapters in Books
Brian Coote Exception Clauses (Sweet & Maxwell, London, 1964).
Bernard Eder and others Scrutton on Charterparties and Bills of Lading (22nd ed, Sweet
& Maxwell and Thomson Reuters, London, 2011).
Edwin Peel Treitel on the Law of Contract (13th ed, Sweet & Maxwell, London, 2011) at
ch 7.
LexisNexis, Wellington, 2016) at ch 7.
Laws of New Zealand Contract at [138].
M Bridge (ed) Benjamin’s Sale of Goods (9th ed, Sweet & Maxwell, London, 2014).
D Journal Articles
AG Guest, “Fundamental Breach of Contract” (1961) 77 LQR 98.
Alfred W Meyer, “Contracts of Adhesion and the Doctrine of Fundamental Breach”
(1964) 50 Va L Rev 1178.
Andrew Nicol and Rick Rawlings, “Substantive Fundamental Breach Burnt Out: Photo
Production v Securicor” (1980) 43 MLR 1980.
Brian Coote, “The Rise and Fall of Fundamental Breach” (1967) 40 ALJ 336.

38
Brian Coote, “The Effect of Discharge by Breach on Exception Clauses” (1970) 28 CLJ
221.
Brian Coote, “Correspondence with Description in the Law of Sale of Goods” (1976) 50
ALJ 17.
Brian Coote, “Discharge for breach and exception clauses since Harbutt’s ‘Plasticine’”
(1977) 40 MLR 31.
Brian Coote, “Unfair Contract Terms Act 1977” (1978) 41 MLR 312.
Brian Coote, “The Second Rise and Fall of Fundamental Breach” (1981) 55 ALJ 788
C Grunfeld, “Reform in the Law of Contract” (1961) 24 MLR 62.
CP Walker, “Substantive Fundamental Breach Burnt Out: Photo Production v Securicor”
(1980) 43 MLR 567.
David G Pierce, “Contract: Of Cabbages and Fundamental Breach” (1982) 24 Mal LR
349.
F Dawson, “Contract” [1991] NZ Recent Law Review 19.
FMB Reynolds, “Warranty, Conditions and Fundamental Term” (1963) 79 LQR 534.
Francis Dawson, “Fundamental Breach of Contract” (1975) 91 LQR 380.
JA Weir, “Nec Tamen Consumebatur— Frustration and Limitation Clauses” [1970] CLJ
189.
Jerry Hubbard, “Deviation in contracts of sea carriage: after the demise of fundamental
breach” (1986) 16 VUWLR 147.
JF Wilson, “Fundamental Breach: The Plot Thickens” (1971) 4 NZULR 254.
JH Baker, “Suisse Atlantique Confounded?” (1970) 33 MLR 441.
JL Montrose, “Contract—Exemption Clauses—Description or Condition” [1957] CLJ 12.

39
KW Wedderburn “Contract – Exemption Clauses – Fundamental Breach – Main Objects
of Contract” [1957] CLJ 16.
KW Wedderburn, “Contract—Exceptions Clause—Fundamental Breach—Agents”
[1960] CLJ 11.
LJ Montrose “Some Problems About Fundamental Terms” [1964] CLJ 60.
Lord Devlin, “The Treatment of Breach of Contract” [1966] CLJ 192.
LS Sealy, “Contract – Farewell to the Doctrine of Fundamental Breach” [1980] CLJ 252.
LW Melville, “The Core of a Contract” (1956) 19 MLR 26.
Michael Wagener, “Fundamental Breach: Has the Baby Gone Out with the Bathwater”
(2004) 29 Tul Mar LJ 45.
Mitchell McInnes "Fundamental Breach in the Supreme Court of Canada" (2010) 126
LQR 365.
PN Legh-Jones & MA Pickering, “Fundamental Breach” (1971) 87 LQR 515.

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