Photo Productions v Securicor [1980] 1 All ER 556

An exceptions clause limits or excludes a party's liability for certain events, such as force majeure or other unforeseen circumstances, providing protection from unexpected occurrences.

A fundamental breach occurs when a party's failure to meet an obligation undermines the entire contract, giving the other party the right to terminate and seek remedies.

A clause in the contract protects the security company from liability if employees commit unforeseeable acts, typically excluding intentional misconduct or criminal behavior from the company's responsibility.

An employee deliberately starting a fire that destroys a factory represents intentional misconduct. Due to the severity of the act, this raises questions of liability and potentially overrides exception clauses.

A fundamental breach does not automatically terminate a contract; courts consider context, contract terms, and remedies. The aggrieved party must often explicitly choose to terminate and follow contract guidelines.

An exception clause might not cover deliberate acts, especially if they contradict public policy or promote reckless behavior. Courts scrutinize these clauses to ensure they don't encourage illegal activities.

Photo Production Ltd ("Plaintiffs"), factory owners, contracted with Securicor Transport Ltd ("Defendants"), a security company, for four night patrols at their factory to prevent fire and theft.

• The contract had a clause limiting the company's liability, stating that they wouldn't be responsible for any employee's injurious act unless it could have been foreseen and prevented with due diligence, and they weren't liable for fire-related losses unless due to employee negligence while on duty.

• On a Sunday night, during a routine patrol, a security company employee deliberately started a fire in the factory, which then spread and destroyed the entire building.

• This employee had been employed for three months and had satisfactory references. He claimed he intended to start a small fire, but it got out of control.

The Plaintiffs sued the security company for damages exceeding £648,000, alleging breach of contract and/or negligence.

The trial judge found the security company not liable due to the contract's limitations and ruled that there was no failure in the company's duty as an employer.

However, the Court of Appeal reversed this decision, leading to an appeal by the security company.

The court allowed the appeal and held that doctrine of fundamental breach, which terminated a contract and nullified any exclusion clause, was not valid.

• The question of whether, and to what extent, an exclusion clause applied to a breach of contract depended on the construction of the contract. 

• The court noted that when parties negotiated on equal terms, they were free to allocate risks as they saw fit, based on the terms they mutually agreed upon.

• The court found that the wording of the exclusion clause was clear. Its proper interpretation included deliberate acts as well as negligence, thus freeing the defendants from liability for breaching the implied duty to ensure the safety of the premises.

The court reversed the decision of the Court of Appeal.

This case shows the role and interpretation of exceptions clauses in contracts, focusing on their ability to limit or exclude liability, even in cases involving deliberate acts by employees.

The court noted that when parties negotiate on equal terms, they can allocate risks as they choose, making such clauses enforceable.

• The court also ruled that the wording of the clause was clear enough to include deliberate acts and negligence, absolving the security company from liability for the employee's actions.

• The decision by the Court of Appeal was reversed.

This case shows that clear contract language is required for defining liability, and even deliberate acts can fall within the scope of exceptions clauses if negotiated fairly and explicitly included.

It serves as a reminder of the significance of detailed contract drafting and the need for parties to understand the risk allocation in their agreements.

NB “death knell” for fundamental breach doctrine (doctrine that where a fundamental condition of the contract is breached, no exemption/limitation clauses, no matter how explicitly intended to apply, can reduce/extinguish the damages that would normally be owed).

Also exemption clause not unreasonable under UCTA since Defendant should have had insurance anyway, while a security team might have had more difficulty in finding insurance.