J Spurling Ltd v Bradshaw [1956] EWCA Civ 3 (26 March 1956)

The defendant stored goods with the plaintiff warehouseman, which were damaged. The plaintiff successfully relied on an exemption clause contained in documents sent after the contract. The clause was incorporated by a course of dealing and the 'red hand rule' was discussed.

Facts

The defendant, Mr Bradshaw, was a merchant who had dealt with the plaintiffs, J Spurling Ltd, a firm of warehousemen, for many years. In 1953, Bradshaw delivered eight barrels of orange juice to the plaintiffs’ warehouse for storage. A few days after receiving the barrels, the plaintiffs sent the defendant a ‘landing account’, which acted as a receipt and invoice for handling charges. On the face of this document, in printed text, were terms and conditions, including an exemption clause stating that the company would not be liable for any loss or damage unless it was caused by the ‘wilful neglect or default of the company or its servants’. Bradshaw had received many similar documents in previous dealings but had never read the conditions. When he later arranged to collect the barrels, they were found to be damaged; some were empty and others contained dirty water, rendering the juice useless. Bradshaw refused to pay the storage charges, and when the plaintiffs sued him for the money, he counterclaimed for damages for negligence in the storage of his goods.

Issues

The Court of Appeal had to consider three primary legal issues:

1. Whether the exemption clause on the ‘landing account’ was incorporated into the contract, given that the document was sent to the defendant after the contract for storage was concluded (i.e., after the goods were delivered).
2. If incorporated, whether the wording of the exemption clause was sufficient to protect the plaintiffs from liability for their own negligence.
3. Whether the plaintiffs’ actions constituted a fundamental breach of contract which would preclude them from relying on the exemption clause.

Judgment

The Court of Appeal, overturning the decision of the County Court judge, allowed the plaintiffs’ appeal and held that the exemption clause was effective. The judgment was delivered by Lords Justices Denning, Morris, and Parker.

Lord Justice Denning

Lord Justice Denning’s judgment is the most influential. He found that the clause was incorporated into the contract through the parties’ consistent and regular course of dealing over many years. Although the document containing the clause was received after the contract was made on this occasion, the defendant’s prior receipt of similar documents on the same terms meant he was bound by them. He held that a party who receives a document known to have contractual conditions is bound by them, whether he reads them or not.

Most significantly, Denning L.J. laid down the famous ‘red hand rule’ regarding onerous or unusual clauses:

I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.

However, he concluded that this particular clause was a standard type used by warehousemen and was not sufficiently onerous to require such special notice.

Regarding fundamental breach, he reasoned that an exemption clause could not protect a party who was guilty of a breach that went to the very root of the contract. However, he distinguished between a negligent performance of the contract and a non-performance. In this case, the plaintiffs had stored the goods, albeit negligently. This was a bad performance, not a fundamental failure to perform the contract at all. He concluded that the burden was on the plaintiffs to show the loss was not due to their ‘wilful neglect or default’. As the evidence pointed only to negligence, not wilful misconduct, the exemption clause applied and protected them.

Lords Justices Morris and Parker

Both Morris L.J. and Parker L.J. agreed with the outcome. They both emphasised that the regular course of dealing between the parties was sufficient to incorporate the terms. Parker L.J. drew a clear distinction between a fundamental breach (which he described as a breach which the parties did not contemplate would be covered by the clause) and a negligent act in the course of performance. He found that the damage in this case fell into the latter category and was therefore covered by the clause.

Implications

The decision in J Spurling Ltd v Bradshaw has had lasting importance in English contract law. Firstly, it reinforced the principle of incorporation of terms by a consistent course of dealing, confirming that terms can be binding even if not presented at the exact moment a specific contract is made. Secondly, it introduced the ‘red hand rule’, a key concept in assessing the validity of exemption clauses, which asserts that the more unusual or burdensome a term is, the greater the effort the party relying on it must make to bring it to the other’s attention. Finally, the case provided an important clarification on the doctrine of fundamental breach, distinguishing between a breach that negates the contract entirely and a breach in the performance of the contract, with exemption clauses more likely to cover the latter.

Verdict: Appeal allowed. The plaintiffs (J Spurling Ltd) were entitled to rely on the exemption clause. The defendant’s (Bradshaw’s) counterclaim for negligence was dismissed, and he was held liable for the storage charges.

Source: J Spurling Ltd v Bradshaw [1956] EWCA Civ 3 (26 March 1956)