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The Effect of Discharge by Breach on Exception Clauses

Published online by Cambridge University Press:  16 January 2009

Brian Coote
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Extract

It was perhaps never very likely that the proponents of fundamental breach would allow their doctrine to die just because of some obiter dicta on the subject from the House of Lords. In that respect, therefore, the recent decision of the Court of Appeal in Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. need cause no surprise. What had happened in that case, essentially, was that the defendants had agreed to manufacture some equipment and to instal it in the plaintiffs' factory under a contract, clause 15 of which limited the defendants' liability to the amount of the contract price (£2, 330). A small and easily corrected defect in the equipment caused a fire which destroyed the factory and resulted in a loss to the plaintiffs of some £150,000. The Court of Appeal held (Lord Denning M.R. dubitante) that on its true construction clause 15 covered the loss in the events which had occurred. The whole court nevertheless joined in holding that the destruction of the factory and consequent discharge by breach of the contract had the effect of making clause 15 inapplicable. Judgment was given for the full amount of the loss.

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Articles
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The Cambridge Law Journal , Volume 28 , Issue 2 , November 1970 , pp. 221 - 240
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Copyright © Cambridge Law Journal and Contributors 1970

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References

1 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361.Google Scholar

2 [1970] 1 Q.B. 447; [1970] 2 W.L.R. 198. And see note, ante, pp. 189–194.

3 Williams' notes on Pordage v. Cole (1669) 1 Wms.Saund. 319, from which most modern discussion starts, date from the end of the 18th century.

4 Morison, C. B., Rescission of Contracts (1916).Google Scholar The passage occurs in the Preface.

5 Cf. Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha [1962] 2 Q.B. 26, 66Google Scholar (C.A.), per Diplock L.J.

6 A third approach, the nature of the event which results from the breach, was suggested by Diplock L.J. in the Hong Kong Fir case (supra) at pp. 66 et seq., but his point there was to demonstrate the similarity for some purposes of discharge by breach to frustration. As he pointed out (at pp. 69–70), the character of an event as one giving rise to discharge is to be determined by reference to the term in some cases and to the breach in others.

7 Boone v. Eyre (1779) 1 H.B1. 273.

8 Contrast Poussard v. Spiers (1876) 1 Q.B.D. 410 with Bettini v. Gye (1876) 1 Q.B.D. 183.

9 See the Hong Kong Fir case (supra) at p. 69, per Diplock L.J. It is interesting to find Lord Devlin still favours the view that breach of the type which gives rise to discharge is always the breach of a condition or fundamental term: “The Treatment of Breach of Contract” [1966]Google Scholar C.L.J. 192, esp. 200, 202, 204.

10 Harrison v. Knowledge & Foster [1917] 2 K.B. 606, 610Google Scholar, per Bailhache J.; Taylor v. Combined Buyers [1924]Google Scholar N.Z.L.R. 627, 630–640, per Salmond J.

11 Tramways Advertising Pty. Ltd. v. Luna Park (N.S.W.) Ltd. [1938] 38 S.R.(N.S.W.) 632, 641–642, per Jordan C.J.

12 Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha [1962]Google Scholar 2 Q.B. 26 (C.A.).

12a Cf. The Mihalis Angelos [1970]Google Scholar 3 All E.R. 125, 128–129 (C.A.) per Lord Denning M.R.

13 The judgment of Diplock L.J. might appear to suggest that frustration and discharge by breach always arise from the same events, the difference between the two being in the presence or absence of fault (supra, at pp 68, 69).

14 Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha [1962] 2 Q.B. 26Google Scholar (C.A.); Cheshire and Fifoot, The Law of Contract, 7th ed. (1969), pp. 127 et seq.; Chitty on Contracts, 23rd ed. (1968)Google Scholar, Vol. I, pp. 279, et seq.; Trietel, The Law of Contract, 2nd ed. (1966), pp. 571 et seq.

15 Halsbury's Laws of England, Simonds, ed., Vol. 8, p. 205Google Scholar; Chitty, op. cit., Vol. I, p. 633; Sutton and Shannon on Contracts, 5th ed. (1956), pp. 286–287Google Scholar; Salmond and Williams, The Law of Contracts (1945), pp. 534–536.

16 Chitty, op. cit., Vol. I, pp. 631–632; Anson's Law of Contract, 23rd ed. (1969), pp. 491–492; Sutton and Shannon, op. cit., p. 291.

17 Devlin, loc. cit. (supra) at n. 9; Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361Google Scholar (H.L.).

18 Cheshire and Fifoot, op. cit., pp. 531–533; Chitty, op. cit., Vol. I, pp. 626–627.

19 Cheshire and Fifoot, op. cit., pp. 530, 531; Chitty, op. cit., Vol. I, pp. 625–626; Treitel, op. cit., pp. 600–603.

20 Williams, Glanville, Law Reform (Frustrated Contracts) Act, 1943 (1944), pp. 2Google Scholaret seq.; Coote, Exception Clauses (1964), p. 65 and cases there cited.

21 Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha [1962] 2 Q.B. 26Google Scholar (C.A.); Chitty, op. cit., Vol. I, p. 631.

22 Salmond and Williams, op. cit., p. 543; Anson, op. cit., pp. 488–489; Sutton and Shannon, op. cit., p. 315.

23 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361 (H.L.).Google Scholar

24 Wallis v. Pratt [1911]Google Scholar A.C. 394 (H.L.); Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha (supra).

25 Smeaton Hanscomb v. Sassoon I. Setty [1963] 2 All E.R. 1471, 1473.Google Scholar

26 Cheshire and Fifoot, op. cit., p. 531; Heyman v. Darwins [1942]Google Scholar A.C. 356 (H.L.)

27 Glanville Williams, op. cit., pp. 2 et seq.

28 Salmond and Williams, op. cit., p. 560.

29 As in the Hong Kong Fir case (supra).

30 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361Google Scholar (H.L.)

31 Morison, op. cit., p. 18.

32 Heyman v. Darwins [1942]Google Scholar A.C. 356 (H.L.); Mason v. Clouet [1924]Google Scholar A.C. 980 (H.L.); Thorpe v. Fasey [1949]Google Scholar Ch. 649. This is the view found in current English textbooks on Contracts.

33 Heyman v. Darwins (supra) at p. 373.

34 Joseph Constantine Line v. Imperial Smelting Corporation [1942]Google Scholar A.C. 154, 191 (H.L.), per Lord Wright: Salmond and Williams, op. cit., pp. 559–560.

35 Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447Google Scholar; [1970] 2 W.L.R. 198 (C.A.).

36 Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha [1962] 2 Q.B. 26 (C.A.).

37 Berners v. Fleming [1925]Google Scholar Ch. 264 (C.A.).

38 Car & Universal Finance Co. Ltd. v. Caldwell [1965] 1 Q.B. 525Google Scholar (C.A.); though see Macleod v. Kerr, 1965Google Scholar S.C. 253 contra.

39 It seems, for example, to have been taken for granted that there was a literal rescission (at least as to the future) both in the Suisse Atlantique case (supra) and in the Harbutt's “Plasticine” case (supra).

40 Heyman v. Darwins [1942]Google Scholar A.C. 356, 367, 372–374, 399–400 (H.L.); Williston on Contracts, 3rd ed., Vol. 11, §§ 1305, 1306, and see Corbin on Contracts (1951)Google Scholar Vol. 4, § 982.

41 Bastin v. Bidwell (1881) 18 Ch.D. 238, 252.

42 Chitty, op. cit., Vol. I, p. 624; Sutton and Shannon, op. cit., p. 298; Salmond and Williams, op. cit., p. 562; Anson, op. cit., pp. 157, 482; Bines v. Sankey [1958]Google Scholar N.Z.L.R. 886.

43 Heyman v. Darwins [1942]Google Scholar A.C. 356 (H.L.)

44 Cf. The Mihalis Angelas [1970] 1 All E.R. 673, 684Google Scholar, per Mocatta J.

45 General Bill Posting Co. Ltd. v. Atkinson [1909]Google Scholar A.C. 118 (H.L.).

46 Viz. in Heyman v. Darwins (supra) at n 40.

47 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361Google Scholar (H.L.).

48 Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447Google Scholar; [1970] 2 W.L.R. 198 (C.A.).

49 Smith's L.C., 13th ed. (1929), pp. 46–47.Google Scholar Though it holds that rescission ab initio is not necessary to recovery in quasi contract, Fibrosa Spolka Akcyina v. Fairbairn Lawson Combe Barbour, Ltd. [1943]Google Scholar A.C. 32 (H.L.) does not exclude the possibility of a rescission in the full sense.

50 De Bernardy v. Harding (1853) 3 Exch. 822.

51 Cheshire and Fifoot, op. cit., pp. 531, 533; Salmond and Williams, op. cit., p. 565; Yeoman Credit v. Apps [1962] 2 Q.B. 508Google Scholar (C.A.); Hirji Mulji v. Cheong Yue S.S. Co. [1926]Google Scholar A.C. 497, 510 (J.C.); Heyman v. Darwins [1942]Google Scholar A.C. 356, 366, 374, 379, 381, 383, 397–398, 399 (H.L.); Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ltd. (supra) 65; Bostan Deep Sea Co. v. Ansell (1888) 39 Ch.D. 339, 352, 360, 365; Healy v. S.A. Francaise Rubastic [1917] 1 K.B. 946.Google Scholar Australian dicta to the same effect are listed in Coote, op. cit., p. 74, n. 36.

52 Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447Google Scholar; [1970] 2 W.L.R. 198 (C.A.).

53 Coote, op. cit., esp. Chap. I and the Appendix.

54 Grein v. Imperial Airways [1937] 1 K.B. 50Google Scholar (C.A.) 88. Compare Heyman v. Darwins (supra) at p. 368 (submission to arbitration). And see Council of the City of Sydney v. West (1965) 114 C.L.R. 481, 495–496Google Scholar, per Kitto, J. See also Firestone Tyre & Rubber Co. v. Vokins [1951]Google Scholar 1 Lloyd's Rep. 32, 39.

55 Viz., from Lord Wilberforce in the Suisse Atlantique case (supra) 431; Diplock L.J. in Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Assn. [1966] 1 W.L.R. 287, 339Google Scholaret seq. (C.A.), and see also in his judgment in Czarnikow v. Koufos [1966]Google Scholar 1 Lloyd's Rep. 595, 607; Kitto, J. in The Council of the City of Sydney v. West (supra)Google Scholar, 495–496 and Windeyer, J. in Thomas National Transport (Melbourne) Pty. Ltd. v. May & Baker (Australia) Pty. Ltd. (1966)Google Scholar 115 C.L.R. 353, 385–386. In Torquay Hotel Co. Ltd. v. Cousins [1969]Google Scholar 2 Ch. 106, Lord Denning accepted that the effect of an exception clause was to prevent there being a breach of contract. See also Sellers L.J. in the Hardwick Game Farm case (supra) at p. 309 and Winn L.J. in Gillette Industries Ltd. v. W. H. Martin Ltd. [1966]Google Scholar 1 Lloyd's Rep. 57, 68.

56 Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447Google Scholar; [1970] 2 W.L.R. 198 (C.A.).

57 Jenkins, “The Essence of the Contract” [1969] Camb.L.J. 251, 253.

58 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361Google Scholar, 431 (H.L.). On the other hand, the contrary view is implict in the judgment of Lord Denning M.R. in Farmworth Finance Facilities v. Attryde [1970]Google Scholar 1 W.L.R. 1053 (C.A.).

59 Heyman v. Darwins [1942]Google Scholar A.C. 356 (H.L.). See n. 40, supra.

60 Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447Google Scholar; [1970] 2 W.L.R. 198 (C.A.).

61 See note 54, supra.

62 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967]Google Scholar 1 A.C. 361.

63 [1936] 2 All E.R. 597, 601, 608, 614–615 (H.L.).

64 Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447, 466Google Scholar; [1970] 2 W.L.R. 198, 210 (C.A.).

65 Bosma v. Larsen [1966]Google Scholar 1 Lloyd's Rep. 22.

66 At 392, per Viscount Dilhorne; 399, 405, per Lord Reid; 410, per Lord Hodson; 427, per Lord Upjohn.

67 Hain v. Tate & Lyle [1936]Google Scholar 2 All E.R. 597 (H.L.); Heyman v. Darwins [1942]Google Scholar A.C. 356 (H.L.); Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale (supra) at p. 398, per Lord Reid.

68 Cf. the Suisse Atlantique case (supra) at p. 405, per Lord Reid.

69 This ultimately was the emphasis in Heyman v. Darwins (supra), in relation to arbitration clauses.

70 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361.Google Scholar

71 Ibid. 419, per Lord Upjohn. A similar concession was apparently made by counsel for the defendants in Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447Google Scholar ; [1970] 2 W.L.R. 198 (C.A.).

72 Ibid. 372, where counsel for the appellants submitted that fundamental breach and repudiation by breach were the same “animal” as deviation.

73 , Carver, Carriage by Sea, 11th ed. (1963), Vol. 2, p. 593.Google Scholar

74 There is a full discussion of deviation and quasi deviation and their effect upon exception clauses in Coote, op. cit., Chapt. 6.

75 Lilley v. Doubleday (1881) 7 Q.B.D. 510.

76 Story, The Law of Bailments (1839) p. 160.

77 Coggs v. Bernard (1703) 2 Ld.Raym. 909, 915, 917; Shaw v. Symmons [1917]Google Scholar 1 K.B. 799.

78 Ellis v. Turner (1800) 8 T.R. 531; Davis v. Garrett (1830) 6 Bing. 716; Lilley v. Doubleday (1881) 7 Q.B.D. 510.

79 Davis v. Garrett (supra); Morrison v. Shaw Saville [1916] 2 K.B. 783Google Scholar (C.A.).

80 This explanation is discussed more fully in Coote, op. cit., pp. 89–93.

81 Rendall v. Arcos (1937)Google Scholar 43 Com.Cas. 1, 15 (H.L.). per Lord Wright, delivering the opinion of the House. And see also the Suisse Atlantique case (supra) at p. 434, per Lord Wilberforce.

82 They do not occur when a carrier of passengers departs from the contract route, Hobbs v. L.S.W. Railway Co. (1875) L.R. 10 Q.B. 11. See also McMahon v. Field (1881) 7 Q.B.D. 59 for another act which would have been deviation, had there been a bailment.

83 The possible uniqueness of deviation is recognised in Chitty, op. cit., Vol. 1, p. 333 and Anson, op. cit., p. 157. See also The Albion [1953]Google Scholar 1 W.L.R. 1026 (C.A.).

84 Balian v. Joly (1890) 6 T.L.R. 345 (C.A.); Thorley v. Orchis [1907] 1 K.B. 660Google Scholar; Morrison v. Shaw Saville [1916] 2 K.B. 783Google Scholar (C.A.).

85 Hain v. Tate & Lyle [1936]Google Scholar 2 All E.R. 597 (H.L.).

86 Hain v. Tate & Lyle (supra) at p. 612.

87 These devices are discussed in Goff and Jones, The Law of Restitution (1966), pp. 354–355.

88 Cf. Anson, op. cit., p. 156; Suisse Atlantique Société d'Armement Maritime S.A., v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361, 399, 413Google Scholar (H.L.).

89 [1936] 2 All E.R. 597 (H.L.).

90 [1963] 2 Q.B. 683 (C.A.).

91 Similar difficulties were experienced in John Carter v. Hanson Haulage [1965] 2 Q.B. 495Google Scholar (C.A.) and by Windeyer, J. in Thomas National Transport (Melbourne) Pty. Ltd. v. May & Baker (Australia) Pty. Ltd. (1966)Google Scholar 115 C.L.R. 353.

92 The origin of the doctrine can be traced through Chandris v. Isbrandtsen Moller [1951] 1 K.B. 240Google Scholar and Alexander v. Railway Executive [1951] 2 K.B. 882Google Scholar (in both of which Devlin J. referred back to Hain v. Tale & Lyle (supra) ) to Smeaton Hanscomb v. Sassoon I. Setty [1953] 2 All E.R. 1471Google Scholar where it emerged as a distinct new doctrine. In The Albion [1953]Google Scholar 1 W.L.R. 1026 (C.A.) the Court of Appeal tried to confine it to deviation and quasi deviation.

93 Smeaton Hanscomb v. Sassoon I. Setty (supra) at p. 1473.

94 See note 72, supra.

95 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361.Google Scholar Fundamental terms were described as those underlying the whole contract, so that any breach would give rise to a right to elect termination of the contract (see p. 422, per Lord Upjohn). Five kinds of fundamental breach were identified viz. (i) performance totally different from that contemplated by the contract (p. 393, per Viscount Dilhorne, p. 397, per Lord Reid, p. 409, per Lord Hodson, p. 431 per Lord Wilberforce); (ii) breach entitling the injured party to terminate (pp. 397–398, per Lord Reid, p. 410, per Lord Hodson, pp. 418, 422, per Lord Upjohn, p. 431, per Lord Wilberforce); (iii) repudiatory conduct evidencing an intention by the wrongdoer no longer to be bound (p. 394, per Viscount Dilhorne, pp. 397–398, per Lord Reid); (iv) breach going to the root of the contract (p. 397, per Lord Reid, p. 409, per Lord Hodson, p. 418, per Lord Upjohn, p. 431, per Lord Wilberforce; (v) breach amounting to self-induced frustration or impossibility (p. 409, per Lord Hodson.). These are, all of them, readily identifiable examples of the circumstances under which discharge by breach can occur.

96 Compare the decision of the High Court of Australia in The Council of the City of Sydney v. West (1965)Google Scholar 1 C.L.R. 481. And is there, one wonders, any significance in the fact that since the Harbutt's “Plasticine” case, Lord Denning has, in Farmworth Finance Facilities v. Attryde [1970] 1 W.L.R. 1053Google Scholar (C.A.) at least partially returned to a construction approach?

97 One striking example is Webster v. Higgin [1948] 2 All E.R. 127Google Scholar (C.A.).

98 See Coote, op. cit., 114 and cases there cited at n. 75.

99 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361, 432Google Scholar, (H.L.) per Lord Wiberforce.

1 Glynn v. Margetson [1893] A.C. 351 (H.L.); Sze Hai Tong Bank v. Rambler Cycle Co. [1959]Google Scholar A.C. 576 (J.C.); Anglo Continental Holidays v. Typaldos Lines [1967]Google Scholar 2 Lloyd's Rep. 61 (C.A.).

2 Suzuki v. Benyon (1926) 42 T.L.R. 269, 271Google Scholar (H.L.); Forbes v. Git [1922] 1 A.C. 256, 259Google Scholar (J.C.) and see Coote, op. cit., pp. 5, 98.

3 Gibaud v. Great Eastern Ry. [1921] 2 K.B. 426Google Scholar (C.A.); Alderslade v. Hendon Laundry [1945]Google Scholar K.B. 189 (C.A.).

4 Rutter v. Palmer [1922] 2 K.B. 87 (C.A.)Google Scholar; Canada S.S. Lines v. The King [1952]Google Scholar A.C. 192 (J.C).

5 This is the deviation rule discussed supra.

6 Miller v. Australian Oil Refining Ltd. (1968)Google Scholar 117 C.L.R. 288, 293–294 and see also his judgment in Davis v. Commissioner for Main Roads (1968)Google Scholar 117 C.L.R. 529, 533–534.

7 (1967) 41 Aust.L.J. 261, 263.

8 Hillas v. Arcos (1932)Google Scholar 147 L.T. 503 (H.L.); Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361, 432Google Scholar (H.L.), per Lord Wilberforce and see also p. 427, per Lord Upjohn.

9 Stuart v. B. & A. Steam Navigation Co. (1875) 2 Asp.M.C. 497, 501; Wallis v. Pratt [1910] 2 K.B. 1003, 1016Google Scholar (C.A.); Firestone Tyre & Rubber Co. v. Vokins [1951]Google Scholar 1 Lloyd's Rep. 32, 39.

10 Waikato v. N.Z. Shipping Co. [1899] 1 Q.B. 56, 58; Elderslie v. Borthwick [1905]Google Scholar A.C. 93 (H.L.); Weiner v. Wilsons (1910)Google Scholar 15 Com.Cas. 294, 300, 301; Philippson v. Imperial Airways [1939]Google Scholar 1 All E.R. 761 (H.L.) 779.

11 This was the criticism levelled against fundamental breach by Lord Reid in the Suisse Atlantique case (supra) at p. 406.