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

Farmers ordered cabbage seed but received seed that produced unmarketable plants without hearts due to the supplier's negligence. The seed merchants sought to rely on a limitation clause restricting liability to refunding the purchase price. The Court of Appeal held the clause did not protect against negligence and was unreasonable under statute.

Facts

The plaintiff farmers ordered 30 lbs of Dutch winter cabbage seed from the defendant seed merchants. Due to negligence by the defendants’ employees, autumn seed was wrongly supplied instead, and the seed was also unmerchantable. The crop failed entirely, producing plants without hearts that were commercially useless. The seed cost £192 but the farmers’ loss exceeded £61,000. The defendants sought to rely on a limitation clause in their Conditions of Sale restricting liability to replacement of seed or refund of the price.

The Limitation Clause

The clause purported to exclude all liability for loss or damage arising from the use of seeds supplied, limiting the defendants’ obligation to replacement or refund. It stated that the price was based upon these limitations and would be greater if more extensive liability were required.

Issues

1. Whether the limitation clause, on its true construction, protected the defendants against liability for the breaches that occurred.

2. If so, whether it would be fair or reasonable to allow reliance on the clause under section 55 of the Sale of Goods Act 1979 (as modified by Schedule 1).

Judgment

Lord Denning MR

Lord Denning reviewed the evolution of the law on exemption clauses, noting that the recent House of Lords decisions in Photo Production Ltd v Securicor Transport Ltd and Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd had revolutionised the approach to such clauses. He observed that limitation clauses should be given their natural meaning and not be construed with the same hostility as exclusion clauses. However, applying section 55(4) of the Sale of Goods Act, he concluded it would not be fair or reasonable to allow reliance on the clause given that the defendants could insure against such risks without materially raising seed prices, the clause was not negotiated but unilaterally imposed, and the loss resulted from serious negligence.

Lord Justice Oliver

Oliver LJ held that on its proper construction, the clause did not apply to the breach that occurred. The clause contemplated delivery of the contractual goods which proved defective, not delivery of something wholly different in kind. He stated that to deliver as winter cabbage seed something that was not even vegetable seed in any commercial sense went to the very root of the contract. Even if the clause were applicable, he agreed it would not be fair or reasonable to permit reliance upon it, particularly given the defendants’ negligence.

Lord Justice Kerr

Kerr LJ analysed the post-Securicor position on fundamental breach, concluding that while the doctrine as a rule of law had been abrogated, exemption clauses must still be construed to determine whether they cover the breach in question. He held the clause failed to protect the defendants because it contained no express reference to negligence and was not wide enough to cover negligence-caused loss. Applying the Canada Steamship Lines guidelines, the clause could sensibly be restricted to cases where wrong or unmerchantable seed was supplied without fault. Alternatively, he would hold that reliance on such an unclear clause would be unfair and unreasonable under section 55.

Implications

This decision is significant for several reasons. It illustrates the application of the reasonableness test under the Sale of Goods Act 1979 to limitation clauses in commercial contracts. The case demonstrates that even where parties have equal bargaining power, clauses that are unilaterally imposed without negotiation may be held unreasonable. It confirms that the ability of one party to insure against loss is a relevant consideration in assessing reasonableness. The decision also clarifies that limitation clauses which do not expressly cover negligence will not readily be construed to protect against negligence-caused loss. The case remains an important authority on the interpretation and enforceability of exemption clauses in sale of goods contracts.

Verdict: Appeal dismissed. The seed merchants were held liable for the full loss suffered by the farmers. The limitation clause did not protect the defendants either because it did not, on its true construction, apply to the breach or because it would not be fair or reasonable to allow reliance upon it.

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