Pre-secure Ltd v Union Bank Zambia and Anor (Appeal 13 of 2003) [2003] ZMSC 171 (24 April 2003)

IN THE SUPREME COURT OF ZAMBIA APPEAL NO. 13/2003 HOLDEN AT LUSAKA (CIVIL JURISDICTION) BETWEEN: PRE SECURE LIMITED APPELLANT AND UNION BANK ZAMBIA LIMITED 1st RESPONDENT ILAKUMARI GIRISHI DESAI 2nd RESPONDENT CORAM: SAKALA, CJ, LEWANIKA, DC J., CHIRWA, CHIBESAKUNDA, CHITENGI JJS On 24th April, 2003 and............. 2004 For the Appellant: For the Respondent: A. M. WOOD of A. M. Wood and Company M. MUSALUKE of M. S. M. Legal Practitioners JUDGMENT LEWANIKA, DCJ delivered the judgment of the court. AUTHORITIES REFERRED TO: 1. 2. 3. 4. 5. 6. SECURICOR ZAMBIA LIMITED VS WILLIAM JACKS & COMPANY (ZAMBIA ) LIMITED SCZ APPEAL NO. 24/1990 SUISSE ATLANTIQUE SOCIETE D'ARMEMENT MARTIME SA VS N. V. ROTTERDAMSCHE. KOLEN CENTRALE 1967,1. A. C. 361, 393,421 PHOTO PRODUCTION LTD VS SECURICOR TRANSPORT LTD 1980 A. C. 827 GEORGE MITCHELL (CHESTERHALL) LTD. VS FINNER LOCK SEEDS LTD 1983, 2AC.803 HALYSBURY LAWS OF ENGLAND 4th EDITION VOLUME 9 PARA 372 CHITTY ON CONTRACTS, 26th EDITION PARA 958 We wish at the outset to tender our apologies for the delay in the delivery of this judgment but this was occasioned by pressure of work on our part and in particular the on going presidential election petition. This is an appeal against the decision of a Judge of the High Court awarding the 2nd Respondent damages for breach of a contract entered into with the Appellant on 9th September, 1997 for provision of protective security at the 2nd Respondent's residence. The facts which were before the learned trial Judge which were not in dispute were that the 2nd Respondent was employed by the 1st Respondent as Manager, Human Resources and Staff Development and resided at 12 Nsumba Road, Lusaka. On 9th September, 1997 the 1st Respondent and the Appellant concluded a security services contract. The commencement of the contract was backdated to 8th January, 1997 and was for the provision of one night security guard from 1800 hours to 0600 hours at the 2 Respondents residence. Pursuant to this J contract, the Appellant assigned a guard by the name of MBUMWAE SIMANGOLWA to guard at the said premises. It was the same guard who performed duties at the 2nd Respondent's home from January, 1997, although periodically he would be retrieved and a casual one would be posted. On the night of 19th May, 1997, the 2nd Respondent left home together with her husband and daughter at about 1845 hours for dinner at a friend's house. They returned shortly before 2300 hours. On arrival at the gate of their house, they hooted for the guard to open. The guard opened the gate to allow them in and quickly closed it after they had entered. They then saw the guard running towards them with four other men carrying guns who emerged within the yard. The guard took the car keys from the 2nd Respondent's daughter. The 2nd Respondent, her husband and daughter had their hands tied at the back and the guard who was now armed with a gun demanded for money from the 2nd Respondent's husband. He was given K350,000.00 and 300 US dollars in cash. They were then told to lie down while the thieves ransacked the house and took away a number of house hold items including two motor vehicles, one belonging to the 1st Respondent and the other to the 2nd Respondent. The guard disappeared and none of the stolen property was ever recovered. The Appellant company refused to compensate her for the loss and she instituted these proceedings suing to recover K27 million as damages. The Appellant company while not denying liability sought to limit its liability by relying on clause 5© of the contract which provided as follows:- 5. GENERAL PRO VISIONS AS TO AMOUNT OF LIABILITY If pursuant to the provisions set out herein, any liability on the part of the company shall rise (whether under the express or implied terms of this contract or at common law or in any other way) to the customer for any loss or damage of whatever nature arising out of or connected with the provision of purported provision of or failure in provision of the services covered by this contract, such liability shall be limited to the payment by the company by way of damages of a sum: © not exceeding a maximum of K200,000.00 for the consequences of any incident involving theft or any other cause of liability on the company under the terms thereof; and further provided that the total liability of the company shall not in any circumstances exceed the sum of K200,000.00 in respect of all and any incidents arising during any consecutive period of twelve months. The amounts specified under subsection © may be varied from time to time." After considering the evidence adduced before her, the learned trial Judge in the court below considered the question of whether or not the limit in exclusion clause 5© of the contract could limit the Appellant's liability even for failure to promote security services covered by the contract. She noted that the contract itself is for provision of security services. The provision of security services is the whole substratum of the contract and that failure to provide security services is really non-performance of the contract and that in her view, this was a fundamental provision against which the Appellant cannot protect itself by the use of a limiting or excluding clause. She found that there was a fundamental breach of contract and awarded damages to the Respondents. It is against this finding that the Appellant has appealed. Counsel for the Appellant has filed two grounds of appeal namely:- 1. 2. That the learned trial Judge erred in law when she held that the Appellant’s liability exceeded the sum of K200,000.00 set out in clause 5© of the contract. That the learned trial Judge erred in law when she held that the exclusion clauses in the contract were unenforceable at law. These two grounds were argued together and in arguing them counsel for the Appellant said that the limitation clause quite clearly limits liability up to a maximum of K200,000.00. He said that the parties to the contract were equal and they freely entered into the contract without any coercion. That in the circumstance the learned trial Judge should have adopted the reasoning of this court in the case of SECURICOR ZAMBIA LTD VS WILLIAM JACKS & COMPANY (ZAMBIA) LTD (1) when we said:- "A limitation clause is not to be construed as strictly as an exclusion clause and where as in the present case, the limitation clause is expressed in clear and unambiguous language, the court is bound to give effect to it unless it is shown that the clause was not brought to the attention of the other party to the contract" Counsel said that the evidence suggests that the contract was read and later signed by both parties. That there is no evidence to suggest that the clause was not brought to the Respondent's attention. He said further that the learned trial Judge in her judgment held that contents which exclude or limit liability 'strictly construed' that this holding is at variance with the Supreme Court decision cited above. Counsel further referred us to paragraph 372 of HALSBURY'S LAWS OF ENGALND VOLUME 9 OF THE FOURTH EDITION which states as follows on fundamental breach "At one time it was considered that there was a rule of law whereby no exclusion clause could protect a party from liability for a fundamental breach' of the contract It is now clear that no such rule of law exists and that the earlier cases are only justifiable on grounds of construction of the individual contract involved The true principle is that in all cases the question is one of construction and the court must determine whether the exclusion clause is sufficiently wide to give exemption from the consequences of the breach in question. If the clause is sufficiently wide the result may be that the breach in question is reduced in effect or not made a breach at all by terms of the clause, notwithstanding that without the clause it would be a breach of sufficient gravity to allow the other party to be discharged from the contract The doctrine of fundamental breach, however, has survived to this extent, that general words of exclusion will not as a rule be construed so as to cover such a breach unless that breach involves a performance of the contract which can be said to be substantially different in kind from that originally contemplated by the contract" Counsel said that views taken by the learned trial Judge that "failure to provide security services is really non-performance of the agreement and in my considered view, it is a fundamental provision against which the Defendant cannot protect itself by use of a limiting or excluding clause," is not supported by the law cited above. He urged us to allow the appeal and to hold that the Appellant's liability is limited to K200,000.00. In reply Counsel for the Respondents submitted that it is clear from the evidence on record and the judgment of the court below that liability was not denied by the Appellant. That the only contentious issue, which is the subject of this appeal, is the limitation clause on the contract entered into between the Appellant and the Respondents. He submitted that the learned trial Judge directed herself properly in holding that a party cannot by use of a limitation clause excuse itself from performing the contract. He referred us to the SUISSE ATLANTIQUE SOKIETE CASE (2) at pages 91-92 where it was said inter alia that:- " since the contracting parties could hardly have been supposed to contemplate such a mis-performance, or to have provided against it without destroying the whole contractual substratum, there is no difficulty here on holding exception clauses to the be inapplicable..." He said that the court below came to this conclusion after looking at the facts of the case and the use of a limitation clause by a party that fails to perform its part of the contract altogether. He further submitted that in the present case, the Appellant cannot in one breath accept liability that indeed one of its employees whose sole responsibility was to guard the Respondents and their property was in fact the robber and yet on the other breath hid behind the limitation clause to protect itself from any action that would help the poor victims to at least recover something from the emomous loss suffered at the hands of the Appellant. Counsel for the Respondents further said that he was aware of our decision in the case of SECURICOR ZAMBIA LIMITED VS WILLIAM JACKS & COMPANY ZAMBIA LIMITED (1) but invited us to depart from the reasoning given in that case so that the present case can be distinguished in that there was a fundamental breach of contract by the Appellant by failing to provide a security service which was the sole purpose of the contract. He said that the rule of law is that excluding or limiting terms in a contract cannot operate to protect a party that is in fundamental breach of its contract. He urged us to dismiss the appeal. We are indebted to both counsel for the submissions which we have taken into account in arriving at our decision. The learned trial Judge in her judgment considered the question of whether nor not the limiting or exclusion clause contained in clause 5© of the contract could limit the Appellant's liability even for failure to provide security services covered by the contract. She observed that the contract itself was for the provision of security services. That the provision of security services is the whole substratum of the contract and that failure to provide security services is really non performance of the contract against which the Appellant cannot protect itself by the use of a limiting or excluding clause. In other words she found that there was a fundamental breath of the contract on the part of the Appellant. Counsel for the Appellant has urged us to find that this view of the learned trial Judge is not supported by law. The learned authors of CHITTY ON CONTRACTS, TWENTY SIXTH'S edition at paragraph 958 observed that it was at one time supposed that a party to a contract would be precluded from relying on an exemption clause contained in it where he had been guilty of a fundamental breach of contract or the breach of a fundamental term. They observed that statements in certain cases tended to encourage the view that there existed a rule of substantive law preventing a party from relying on an exemption clause in situations of fundamental breach or the breach of a fundamental term, regardless of the wording of the clause. It was predicated that there were certain breaches of contract (fundamental breaches) which were so totally destructive of the obligations of the party in default that liability for such a breach could in no circumstances be excluded or restricted by means of an exemption clause. Similarly there existed a category of terms (fundamental terms) which were narrower than a condition of the contract. A fundamental term, so it was said, "underlies the whole contract so that, if it is not complied with, the performance becomes totally different from that which the contract contemplates." It was part of the ’core’ of the contract, and "however extensive the exception clause may be, it has no application if there has been a breach of a fundamental term" The two expressions "fundamental breach" and "breach of a fundamental term" were used to some extent interchangeably, but formulated in this way they embodied a rule of law to be applied notwithstanding the agreement of the parties as expressed in the exemption clause. The view that the principle of fundamental breach constituted a rule of law was however rejected by the courts in the following cases:- 1. THE SUISSE ATLANTIQUE CASE (2) In this case, shop owners sued the charterers of a ship for damages for delays in loading and unloading the chartered vessel. The charterers relied on the usual demurrage clause in the charter party as establishing the full measure of their liability, but the ship owners contended that this clause did not protect the charterers since the breaches of contract which caused the delays amounted to a fundamental breach of contract. They claimed damages at large. The House of Lords rejected this claim and held as follows (i) (ii) that the demurrage clause was not an exemption clause on agreed damages provision; that, in any event, since the ship owners had not treated the charter as repudiated they were still bound by its provisions; and (Hi) that even if the clause was an exception clause, it plainly covered the breach alleged, whether or not this was 'fundamental' in the sense that it would have entitled the ship owners to be discharged. 2. PHOTO PRODUCTION LIMITED VS SECURICOR TRANSPORT LIMITED (3) In this case, the Defendants agreed to provide a visiting patrol service to the Plaintiffs factory at a charge of £8.15s a week. The contract contained an exemption clause, the most relevant part of which stated "under no circumstances shall the company (the Defendants) be responsible for any injurious act or default by any employee of the company unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of the company as his employer" An employee of the Defendant's deliberately lit a fire in the factory and a large part of the premises was burned down. The Court of Appeal held that the Defendants, having been employed to safeguard the factory, had committed a fundamental breach of their contract with the Plaintiffs and that the exemption clause could not be n construed to cover the act of their employee in setting the premises on fire. It was further held that the destruction of the factory brought the contract to an end by rendering further performance impossible so that the Defendants could not rely on the exemption clause to protect them from the consequences of the breach. The House of Lords reversed the Court of Appeal's decision. Their lordships unanimously rejected the view that a breach of contract by one party, accepted by the other as discharging him from further performance of his obligations under the contract, brought the contract to an end, and together with it, any exemption clause. The House further reaffirmed the principle that the question whether an exemption clause protected one party to a contract in the event of breach, or in the event of what would (but for the presence of the exemption clause) have been a breach, depended upon the proper construction of the contract. They held that, as a matter of construction, the exemption clause in question clearly relieved the Defendants from liability. The Defendants had effectively modified their obligation to one of due diligence in their capacity as employers. 3. GEORGE MITCHEL (CHESTER HALL) LTD VS FINNEY LOCK SEEDS LTD (4) In this case, the Respondents ordered from the Appellants, who were seed merchants, a quantity of Dutch winter white cabbage seeds. The seeds supplied were invoiced as 'finney's late Dutch special.’ Owing to errors by the Appellant's suppliers and employees, the seeds were not of this variety but were autumn cabbage seeds. The resulting crop proved to be worthless and had to be ploughed in. In an action by the Respondents for wasted expenditure and loss of anticipated profits, the Appellants relied on their standard conditions of sale. These provided, first, that in the event of any seeds sold or agreed to be sold not complying with the express terms of the contract of sale, the limit of the Appellants' obligation was to replace the seeds or refund the purchase price; secondly, that the Appellants excluded, 'all liability for any loss or damage arising from use of any seeds...supplied by us and for any consequential loss or damage arising out of such use or any failure in the performance of or any defect in any seeds....supplied by us or for any other loss or damage whatsoever save for at our option, liability for any such replacement or refund as aforesaid; thirdly, that express or implied conditions and warranties not stated were excluded." A majority of the Court of Appeal held that, at common law, this wording was insufficient to limit the Appellants’ liability. Oliver L. J. considered that the first condition applied only to seeds "sold or agreed to be sold" and so could only relate to goods which were actually the subject matter of the contract between the parties i.e. winter white cabbage seeds. The second condition was merely a supplement to the first and did not cover a case where what had been supplied was wholly different from what had been ordered. The House of Lords, however, unanimously held that, at common law, the limitation was effective. The second condition, read as a whole, unambiguously limited the Appellants' liability to replacement of the seeds or a refund of the price. The defective seeds were seeds sold and delivered, just as clearly as they were seeds supplied by the Appellants to the Respondents. The judgment of Oliver, L. J. came, it was said, "dangerously near to reintroducing by the back door the doctrine of fundamental breach' which this house in SECURICOR....had so forcibly evicted from the front." Thus it is not clear to us that there is no longer any rule of law by which exemption clauses are rendered ineffective in the face of a "fundamental breach" or the breach of a "fundamental term." It is also clear, in our view, that there is not now even any presumption that, in inserting a clause of limitation or exclusion in their contract, the parties are not id contemplating its application to a fundamental breach or the breach of a fundamental term. The question is in all cases whether the clause, on its true construction, extends to cover the obligation or liability which it is sought to exclude or restrict. We have examined the limitation clause contained in clause 5© of the contract entered into by the Appellant and the Respondent. It is stated in the widest possible terms and it is clear and unambiguous. There has also been no evidence or even a suggestion that is existence was not drawn to the attention of the Respondents. This clause was binding on the Appellant and the Respondents and the learned trial Judge was in error in holding that the limitation clause was ineffective by virtue of a 'fundamental breach' of contract on the part of the Appellant. We would allow the appeal and set aside the award made by the court below, and hold that the Appellant's liability under the contract is limited to the sum of K200,000.00. We also re-affirm our decision in the case of SECURICOR ZAMBIA LIMITED VS WILLIAM JACKS & COMPANY ZAMBIA LIMITED. We also award costs below and here to the Appellant. The costs are to be taxed in default of agreement. 15