Contracts/Fundamental breach

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 constuction 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.'