Photo Production Ltd. Respondents v Securicor Transport Ltd.
[1980] AC 827
House of Lords
Facts:
PP contracted with ST to patrol their factory 4 times a night to prevent fire and theft.
One of ST’s employees lit a fire while on duty. The factory burned down when the fire got out of control.
Standard condition in contract limiting ST’s liability.
PP claimed £648,000 in damages.
Legal Facts / Procedural History:
Trial
Court of Appeal
Legal Issues:
Whether ST could be liable for the damage caused by their employee.
Whether the exclusion clause in the contract limited ST’s liability for their employee’s action.
Appellant (ST) Arguments:
The contract had a term which limited the liability of the company for the actions of their employees unless the action could have been foreseen by the employer. ST argues that it did not expect that the employee would create a fire and it was completely out of their control, so they are covered by the clause.
Respondent (PP) Arguments:
It is necessary to look at the purpose of the contract. The ST were contracted to safeguard the property of PP against theft and fire. The company failed in preventing the fire.
The contract prevented ST’s employees from doing any deliberate act that could damage PP’s property. The employees acts contradicted the contract, so there was a breach.
PP entitled to terminate the contract and claim for damages from the moment that ST’s employee dropped the match.
Judgement (Wilberforce LJ, Diplock LJ, Salmon LJ, Keith LJ and Scarman LJ):
Appeal allowed.
Wilberforce LJ:
ST was contracted to provide a service. Parties were free to apply exclusion clauses to their contracts.
When parties are on equal bargaining terms, they should have the freedom to provision against risk within the contract.
Overrules cases.
Fundamental Breach:
Denning LJ (CA) decision was based on fundamental breach to invalidate the exclusion clause. W undermines fundamental breach.
Fundamental breach is about the construction of the contract. This is difficult to determine from a factual perspective.
No need for fundamental breach doctrine now that there is UCTA (though not applicable in this case since contract signed before enactment).
Termination:
Termination merely means that the innocent party can stop further performance.
C still entitled to damages.
Diplock LJ:
Contract entered into prior to UCTA, so only common law applies. When a contract is terminated, the faulty party cannot rely on an exclusion clause from the contract.
Vicarious liability should be limited to tort, but PP may be able to make a claim under tort.
The primary obligation of ST is modified by the exclusion clause to limit their liability.
Neither ST or PP could have expected or foresaw what the employee was going to do.
Where Damages Are Owed:
Every failure to perform a primary obligation is a breach of contract, which leads to a secondary obligation to pay compensation for damages.
Except in situations where the failure of one party to perform deprives the other party of the whole benefit they are entitled to under the contract. Also except in situations where express or implied terms entitle the breach to allow both parties to no longer perform their obligations.
Salmon LJ:
But for the exclusion clause, ST would have been liable. Clause very clear, especially to business-oriented people. Clause not unfair because ST’s fee is so low.
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