1. Introduction
1.1 Contracts sometimes contain clauses which may exclude or limit the liability of a party that has defaulted in its contractual obligations. The former approach was the rule of law, that where a party has committed a breach of a fundamental term of the contract, that party could not invoke or rely upon any exemption or limitation of liability clauses in the contract. The current position of the common law of contract is that the intention of the parties must be deduced from the construction of the terms of the contract and this will determine whether or not, an exemption or limitation of liability clause would still apply even if a fundamental term of the contract had been breached,

1.2 The earliest Nigerian case on the point is Boshalli v Allied Commercial Exporters (1961). In a contract for the supply of textiles from London to Lagos the goods were found to be inferior in quality to the sample which formed the basis of the agreement. In an action by the buyers, the suppliers tried to rely on an exemption clause to avoid liability. On appeal from the Federal Supreme Court, the Privy Council held that the suppliers could not seek the protection of the exemption clause. The Court held that, “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 contract disentitles a party from relying on an exemption clause.”

2. Insurance
2.1 In Niger Insurance v Abed Brothers (1976), Niger insured a motor vehicle (a tractor coupled with a trailer) belonging to Abed under a comprehensive motor insurance policy. The vehicle, which was under hire purchase, was involved in an accident on a journey from Kano to Lagos and became badly damaged. Abed informed Niger of the accident and elected to have the motor vehicle repaired. The repair of the tractor was completed 11 months after the accident but the repair of the trailer took longer and did not become roadworthy until 38 months after the accident.

2.2 Abed commenced an action inter alia for general damages and loss of profit. Niger sought to avoid liability. The trial court held that Niger and was in breach of their obligation to repair the trailer within a reasonable time and awarded Abed the sum of 27,600 Pounds for loss of profit but dismissed the other claims. On appeal by Niger to the Supreme Court, Bello JSC said,
“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.”

3. Bailment
3.1 In International Messengers v Pegofor (2005), Pegofor, a manufacturing company, urgently needed to send a vital machinery component to Italy for repairs. They handed the package to the defendant (IMNL), a courier company for delivery by air and paid the sum of N2,110. They were issued with a receipt and Airway Bill which contained an exemption/limitation clause which limited the liability of the defendant to the sum of N500 in the event of loss or damage of the goods. The defendant lost the package and the plaintiff had to order for a completely new component. Pegofor commenced an action against IMNL for breach of contract of bailment.

3.2 In defence, IMNL admitted responsibility for the loss of the package but relied on the exemption/limitation clause in the Airway Bill (Exhibit C). The trial court relied upon section 190 of the Contract Law of Anambra State 1991 which stated that, “Nothing in the foregoing shall be construed as to enable a party guilty of fundamental breach of a contract, or a breach of a fundamental term to rely upon an exemption clause so as to escape liability.” The Court then held that IMNL was liable to indemnify Pegofor for the full value of the lost component and the decision was affirmed by the Court of Appeal.

3.3 On further appeal, the Supreme Court held that the defendant could not invoke or rely upon the exemption/limitation clause in the Airway Bill in the event of their fundamental breach of contract. Edozie JSC said,
“The expression ‘fundamental breach’ is used to denote a performance totally different from that which the contract contemplated or a breach of contract more serious than one which would entitle the other party merely to damages and which at least would entitle him to refuse further performance of the contract: Suisse Atlantique case (1967) 1 AC 361 at 392, 399. Since in the instant case, the defendant did not only fail to freight the plaintiff’s package as contracted, but lost same, the defendant was guilty of a fundamental breach of contract and therefore not entitled to be protected by the exemption clause in Exhibit C”.

4. Letters of Credit
4.1 In Eagle Super Pack v African Continental Bank (2006), the plaintiff needed to pay their overseas suppliers in Japan the sum of USD16,180 for the importation of raw materials. It applied to the defendant, with the necessary documents, to issue a letter of credit but the bank failed or neglected to do so. The customer commenced an action against their bankers claiming special and general damages for negligence and breach of contract. The defendant relied upon the exemption clauses in Articles 18 and 20 of the Uniform Customs and Practice for Documentary Credit (UCP/Exhibit S).

4.2 The trial court held that the UCP was inapplicable to the transaction and awarded special and general damages in favour of the plaintiff. On appeal, the Court of Appeal held that the UCP was applicable to the transaction but ordered the bank to refund the sum of USD16,180 to the customer. Both parties were dissatisfied and on further appeal, the Supreme Court held that the UCP was not incorporated into the contract and was not applicable to the transaction. The Court held that a party relying upon an exemption or limitation clause must show that the provision was brought to the notice of the other party. Oguntade JSC said,
“As I observed earlier, Articles 18 and 20 upon which the defendant relied are in the nature of exemption clauses. There was no evidence that the Articles were incorporated in the Forms filled by the plaintiff. (See Exhibits AA4). There was no evidence that the plaintiff’s attention was at anytime during the negotiation directed to Exhibit S. …….. In the instant appeal, the defendant in my view woefully failed to show that the terms of the UCP had been incorporated into the application for letter of credit made by the plaintiff, so as to make the plaintiff bound by the exemption clause contained therein.”

4.3 The Court also held that an exemption or limitation of liability clause in a contract cannot avail a party who has committed a fundamental breach of the contract. Oguntade JSC said,
“This is not so in the instant case where the letter of credit was not established by the defendants as agreed. Having caused a breach of a fundamental term of the agreement namely, to establish/open a letter of credit within three months, the defendants cannot avail themselves of the exemption clause.”

5. Carriage of Goods by Sea
5.1 In Narumal v Niger Benue Transport (1989), Niger Benue Transport (NBT) brought an action claiming the sum of N89,356.45k being the total charter fees owed by Narumal in respect of the tug and barges hired. Narumal alleged that the vessels were not seaworthy and brought a counter-claim for the sum of N407,911.20k for damage to their goods caused by sea water. The trial court gave judgment in favour of NBT for their claim of N89,356.45k and also gave judgment to Narumal on their counter-claim for the sum of N120,256. NBT appealed against the judgment on the counter-claim and the Court of Appeal allowed the appeal. Narumal then appealed to the Supreme Court.

5.2 The Supreme Court relied upon the case of Photo Productions v Securicor (1980), where the House of Lords, affirming the decision in The Suisse Atlantique (1967) held that,
“the doctrine of fundamental breach by virtue of which the termination of a contract brought it, and with it, any exclusion clause to an end was not good law; 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 chose.”
See also, Owners MV Gongola Hope v Smurfit Cases Ltd (2007)

5.3 The Supreme Court held that the vessels were seaworthy and there was no beach of a fundamental term of the contract. Therefore, the exemption clause in the Charter Party was a complete answer to the counter-claim. The Court further held that a proper construction of the contract showed an intention to grant NBT an escape from liability even if there had been a fundamental breach. Delivering the lead judgment of the Supreme Court, Nnamani JSC said,
“The result of the authorities appears to me to be that, while in the earlier cases a fundamental breach of an express or implied warranty would have led to the exclusion of an exemption clause, the latter cases appear to hold that such an intention must be deduced from the construction of the terms of the contract between the parties. In other words, having regard to the terms and circumstances of the contract, was it the intention of the parties that even if a fundamental term of the contract had been breached, the exclusion or exemption clause would nevertheless apply?”

6. Current Position of the Law
6.1 It is important to distinguish and reconcile the above decisions. The decision in Narumal v Niger Benue Transport (1989), represents the current position of the law of contract on the point. However, where there are applicable statutory provisions, as in IMNL v Pegofor (2005), then those provisions would prevail. In Eagle Super Pack v African Continental Bank (2006), the exemption clauses were not incorporated into and therefore not applicable to the transaction. The decisions in Boshalli v Allied Commercial Exporters (1961) and Niger Insurance v Abed Brothers (1976), were decided before the Supreme Court adopted the new position of the law in Narumal (supra) and no longer represent the law on the point.

6.2 The Federal Competition and Consumer Protection Act 2018 (FCCPA) introduced changes by statutory provisions to the law on unfair contract terms. Section 127 of the Act provides that, an undertaking shall not offer to supply or market or enter into any transaction for any goods or services at a price that is manifestly unfair, unreasonable or unjust, or upon terms that are unfair, unreasonable or unjust.

Jide Bodede LLM(Lond)