George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1982] EWCA Civ 5 (29 September 1982)

A farmer bought defective cabbage seed which caused a catastrophic crop failure. The contract limited the seller's liability to the seed's price. The court held this limitation clause failed the 'fair and reasonable' test under statute and was therefore unenforceable.

Facts

The plaintiffs, George Mitchell (Chesterhall) Ltd., were farmers who ordered 30 lbs of ‘Finney’s Late Dutch Special’ cabbage seed from the defendants, Finney Lock Seeds Ltd., for £201.60. An invoice was sent with the seed which contained a limitation of liability clause on the reverse. The clause stated that in the event of any seeds sold being defective, the seller’s liability would be limited to the replacement of the seeds or a refund of the purchase price. The seed supplied was, in fact, an inferior variety of autumn cabbage and was commercially useless, leading to the complete failure of the crop. The farmers claimed damages of £61,513 for their losses.

Issues

The central legal issue was whether the limitation clause, relied upon by the defendant seed merchants, was ‘fair and reasonable’ and therefore enforceable under section 55(4) of the Sale of Goods Act 1979, which incorporated provisions from the Supply of Goods (Implied Terms) Act 1973. The court had to determine the proper application of this statutory reasonableness test.

Judgment

The Court of Appeal unanimously dismissed the appeal from the seed merchants, upholding the trial judge’s decision that the limitation clause was not fair and reasonable. Judgments were delivered by Lord Denning M.R. and Oliver L.J.

Lord Denning M.R.’s Reasoning

Lord Denning reviewed the history of judicial attempts to control exemption clauses, noting the shift from the doctrine of ‘fundamental breach’ to the direct application of the statutory ‘reasonableness’ test. He identified several factors relevant to determining reasonableness in this case:

• Relative Bargaining Power: The parties were not of equal bargaining power. The limitation clause was standard across the seed trade, and farmers had no alternative but to accept it.
• Insurance: The risk could have been insured against by the seed merchants for a small premium, the cost of which could be distributed among all customers. It was not practicable for the farmer to obtain insurance against crop failure due to defective seed.
• Industry Practice: While the clause was common practice, Lord Denning found it highly significant that seed merchants, including the defendants, did not always insist on relying on it. They often negotiated settlements for genuine claims far exceeding the cost of the seed.

Lord Denning concluded that the sellers’ own conduct demonstrated that they did not consider the clause to be fair or reasonable in practice.

This conduct of the seed merchants is the most significant pointer to the fact that the clause is not fair and reasonable. The clause is a shield to protect them when they are not at fault: but it is not a sword to injure the innocent farmer when they are at fault. So long as they conducted their business honourably and well, they would not dream of relying on the clause.

He ultimately stated the test was a simple and broad one:

You must look at all the circumstances of the case, and say ‘is it fair and reasonable?’.

Oliver L.J.’s Reasoning

Oliver L.J. agreed with Lord Denning, undertaking a detailed analysis of the statutory criteria. He emphasised that the reasonableness of the clause must be judged at the time the contract was made. He focused on the allocation of risk, concluding that the seller was in a much better position to bear or insure against the risk of supplying the wrong seed.

It seems to me to be a classic case of a risk which was, as between the two parties, more sensible and more economic for the supplier to bear than for the individual customer. The loss, if it occurs, is a total one for the customer, but when spread over the supplier’s whole business, is a matter for which he can readily make provision.

He concluded that it was unreasonable for the seed merchant to stipulate that the entire risk of a potentially calamitous loss—caused by their own breach—should fall on the farmer.

Implications

This case is a landmark decision on the interpretation of the ‘reasonableness’ test, the principles of which are now enshrined in the Unfair Contract Terms Act 1977 (UCTA). It established that courts should take a broad, common-sense approach, considering the practical realities of the parties’ positions, including their bargaining power, the availability of insurance, and the customary practices within a trade (including how often a clause is actually relied upon). The judgment solidified the move away from the strained judicial construction of ‘fundamental breach’ towards a direct and purposive application of statutory controls over unfair contract terms, particularly limitation and exclusion clauses.

Verdict: The appeal was dismissed. The court affirmed the trial judge’s ruling that the limitation of liability clause was unreasonable and therefore unenforceable.

Source: George Mitchell (Chesterhall) Ltd. v Finney Lock Seeds Ltd. [1982] EWCA Civ 5 (29 September 1982)