RELIANCE ON EXEMPTION CLAUSE IN A BREACH OF FUNDAMENTAL TERM UNDER COMMON LAW AND NIGERIA: RULE OF LAW OR RULE OF CONSTRUCTION?

     

1. RELIANCE ON EXEMPTION CLAUSE IN A BREACH OF FUNDAMENTAL TERM UNDER COMMON LAW AND NIGERIA: RULE OF LAW OR RULE OF CONSTRUCTION?

1.1 THE RECENT POSITION IN COMMON LAW.

       Before the decision in the House of Lords in Suisse Atlantique society v. Kolen central[1], what existed was rule of law on the breach of a fundamental term. The rule at that time was that a party in a fundamental breach of contract was not allowed to rely on an exemption clause to escape liability no matter how widely expressed the clause was. In the case of Karsales (Harrow) Ltd v. Wallis[2], Lord Denning declared that: 

"It is now settled that exempting clauses, of this kind, no matter how widely they are expressed, only avail the party when he is carrying out the contract in its essential respects. They do not avail him when he is guilty of a breach which goes to the root of the contract".

          However, the above principle was reversed in the Suisse case by the House of Lords. The Court for the first time introduced the rule of construction as opposed to this rule of law, it was a question of construction(interpretation) whether a party in breach of a fundamental term can be allowed to rely on an exemption clause to escape liability. 

It follows that the court will have to construe the exemption clause to determine whether it covers the breach that has occurred. And, if the clause is wide enough to cover the breach, then the party can escape liability; notwithstanding the nature of the breach.

       And, in the case of Photoproduction Ltd v. Securicor Transport Ltd[3], the controversy on the issue of a fundamental breach was laid to rest when the House of Lords, affirming the earlier decision in the Swisse case ruled thus: 

"... that the question whether and to what extent an exclusion clause was to be applied to any breach of contract was a matter of construction of the contract and normally when the parties were bargaining on equal terms they should be free to apportion the risks as they thought fit making provision for their respective risks according to the terms they choose".

1.2 WHAT IS THE POSITION OF NIGERIAN LAW ON THE BREACH OF A FUNDAMENTAL TERM?

          The Supreme Court in Niger Insurance Co. Ltd. V. Abed brothers[4] and Adel Boshalli v. Allied Commercial Exporters Ltd[5] applied the rule of law principle.

        In Niger Insurance co Ltd v. Abed brothers, the Supreme Court per Bello JSC, held thus:

"We accordingly hold that the implied term to repair the motor vehicle within a reasonable time was a fundamental term of the policy and that, having committed a breach of that fundamental term, the appellant cannot rely on the limitation of liability and exceptions clauses under the policy to absolve itself from the consequences of its breach".

       Similarly in Adel Boshalli V. Allied Commercial Exporters Ltd, the Privy Council held that the clause did not avail the respondents any protection in the following words:

"An exemption clause can only avail a party if he is carrying out the contract in its essential respects. A breach which goes to the root of a contract disentitles a party from relying on an exemption clause".

  

         However, the Supreme Court later applied the rule of Construction approach in Akinsaya V. UBA Ltd[6] and Narumal and sons Ltd v. Niger Benue Transport co. Ltd[7].

        In Akinsanya v. UBA Ltd, the Supreme Court held that the bank could rely on this clause despite its negligence because, on the proper construction of the exemption clause, this level of malperformance was covered.

       In the same vein, the Supreme Court went on to hold in Narumal and sons Ltd V. Niger Benue Transport Company Ltd that even if there had been a fundamental breach by the plaintiff, on the construction of the exclusion clause, the plaintiff would still have been protected against the consequences of such breach.

       Furthermore, in IMNL Ltd V. Pergofor Ind. Nig. Ltd[8], the Court of Appeal relied on the judgment in the cases of Akinsanya and Narumal and started as follows:

"Whether an exemption clause was vitiated by a fundamental breach of contract will depend on the terms of the contract".

In arriving at their decision, the Court of Appeal had to examine the terms of the contract to determine whether the party intended the exemption clause to apply in the circumstances of the case.

          Notwithstanding that the Court of Appeal may have been swayed by the Contract Law of Anambra State 1986 to provide for the rule of law in Oceanic Bank Nig. Ltd. V. Chitex Ind. Ltd. thus citing with approval the decision of the Supreme Court in Niger Insurance Ltd V. Abed brothers and Adel Boshalli V. Allied Commercial Exporters Ltd, what is applicable in Nigeria is the rule of construction.

REFERENCES

[1]. [1967] 1AC 361; (1966) 2 All E.R 61

[2]. [1956] 2 E.R. 866 at p. 868

[3]. [1980] A.C. 827

[4]. [1976] 6 U.I.L.R (Pt. 1) 61.

[5]. [1961] 1 All NLR 917

[6]. [1986] 4 NWLR (Pt. 35) P273

[7]. [1989] 2 NWLR (Pt. 106)

[8]. [2005] 39 WRN 1.

(**EXTRACT)- SAGAY: NIGERIAN LAW OF CONTRACT

AUTHOR:

OGO GLADYS 

MAROON INK