In 1953 an eryops called “deviation” crawled from the sea, growled at some exemption clauses in Smeaton Hanscomb v. Setty ([1953] 2 Lloyd’s Rep. 580) and propagated ashore. Many judicial thought years later, its descendant “fundamental breach” is rumoured to be alive, dangerous and still amphibious. What is the danger to shipping? Does it really exist or is it an invention of the Curator of the Court of Appeal ?

In the cases (see the Suisse Atlantique case [1967] 1 A.C. 361; 1 Lloyd’s Rep. 529) the expression fundamental breach has been used in two different senses. First, it sometimes means a breach, traditionally called a breach of condition, giving the party not in default a right to terminate the contract and a right to damages. Second, it sometimes means a breach that is even more serious, giving the party not in default, not only the right to terminate the contract and claim damages, but in addition and this is the distinctive feature, a right to ask the court to ignore the exemption clauses, if any, otherwise available to the party in breach. It is in this second sense, and in this sense only, that fundamental breach is mentioned in this article.

Fundamental breach Type A occurs when the defendant promises to do something but does nothing. If he has promised to carry my container to Cardiff for shipment, but, through administrative confusion in his office, he fails to collect it until such collection is going to be too late to be of any use to me, he commits fundamental breach Type A ; he will not then be allowed to plead a clause in our contract that he shall “not be liable for omission or default”, even though, in a sense, that is what has happened. In the courts see, for instance, The Cap Palos [1921] P. 458. This type of fundamental breach is easily identified and well established in our law; indeed, it is reflected in s. 3(2) (b) (ii) of the Unfair Contract Terms Act 1977. This and certain other provisions of the Act outlaw exemption clauses unless they are shown to be reasonable. But it should be noted at once that these provisions do not apply to charter-parties (Schedule 1) except in favour of a person dealing as a consumer. A person making a contract in the course of business does not deal as a consumer (s. 12(1)).

Fundamental breach Type B occurs when the defendant promises to do something and does do something, but the wrong something; it occurs where he does not act consistently with the main purpose of the contract, where, for instance, he delivers peas instead of beans. If he has promised to carry my container to Cardiff for shipment, but his lorry delivers it to Bristol by mistake, so that it misses the boat from Cardiff, he has not carried out the essential purpose of the contract, can no longer do so and has committed fundamental breach Type B; he cannot then rely on a clause