Fundamental breach,
sometimes known as a repudiatory breach, is a
breach so fundamental that it permits the
aggrieved party to terminate performance of the
contract, in addition to entitling that party to
sue for damages.
United
Kingdom
In English law, fundamental breach was first
examined by the House of Lords in the Suisse
Atlantique case [1966] 2 All E.R. 61, wherein
they decided that a contract can be voided if a
breach of a fundamental term can be found. That
is, a breach of a condition that "goes to
the root of the contract". This approach is
known as the Rule of Law doctrine.
At the Court of Appeal level in Photo Productions
Ltd. v. Securicor Transport Ltd. [1978] 1 W.L.R.
856 Lord Denning championed the Rule of Law
doctrine and extended the rule in Suisse
Atlantique case to apply to all exemption
clauses. However on appeal to the House of Lords
Lord Wilberforce effectively overturned the Rule
of Law doctrine and instead maintained a strict
Rule of Construction approach whereby a
fundamental breach is found only through
examining the reasonable intentions of the
parties at the time of the contract.
Canada
The leading case on fundamental breach in Canada
is the case of Hunter Engineering Co. v.
Integrated Metal Systems Ltd. [1989] 3 W.W.R.
385. In it they adopt similar reasoning as the
House of Lords in Photo Productions, ruling that
a fundamental breach is found through rule of
construction only.
The court should not disturb the bargain the
parties have struck, and I am inclined to replace
the doctrine of fundamental breach with a rule
that holds the parties to the terms of their
agreement, provided the agreement is not
unconscionable ... Only where the contract is
unconscionable, as might arise from situations of
unequal bargaining power between the parties,
should the courts interfere with agreements the
parties have freely concluded.'
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