George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd

A fundamental breach does not automatically prevent reliance on an exclusion or limitation clause. The contract must be construed as a whole to determine whether the clause covers the breach. Clear language must receive its natural meaning, although exemption clauses remain subject to restrictive construction.

A clause which does not expressly or unequivocally address negligence will ordinarily not protect a contracting party where another realistic basis of liability exists. Even where a clause covers the breach, a statutory reasonableness requirement asks whether reliance on it is fair and reasonable in the particular circumstances. Relevant matters include bargaining power, fault, insurance, the scale and allocation of risk, the parties’ practical treatment of the clause and the clarity of its wording.

The respondent farmers orally ordered 30 lb of Finneys Late Dutch Special winter cabbage seed from the appellant seed merchants. Conditions habitually used in the trade were incorporated into the contract. They purported to limit the merchants’ obligation to replacement of the seed or refund of its £192 price and to exclude liability for consequential loss.

Through negligence, the merchants supplied seed which was neither the contracted winter variety nor commercially merchantable cabbage seed. The resulting crop was commercially useless and caused losses exceeding £61,000. Parker J awarded those losses, holding that the clause did not protect the merchants: [1981] 1 Lloyd's Law Reports 476.

The merchants appealed. The principal questions were whether the clause, properly construed, covered the breaches and resulting negligence, and, if it did, whether reliance upon it was fair and reasonable under section 55 of the Sale of Goods Act 1979 as modified by Schedule 1.

1. Appeal dismissed unanimously. All three members of the court concluded that the seed merchants could not limit their liability to the price of the seed.

2. Oliver LJ and Kerr LJ held that the doctrine under which a fundamental breach automatically deprived an exemption clause of effect no longer formed part of the law. The contract must instead be construed as a whole to decide whether the clause applies to the particular breach. Clear words cannot be given a strained meaning merely to defeat an exemption. Limitation clauses may more readily accord with the parties’ intentions than clauses excluding all liability, but that distinction remains a guide to construction rather than a rule of law.

3. Oliver LJ held that the clause assumed delivery of goods falling within the contract and addressed defects in those goods. It did not clearly extend to the delivery of something wholly different in kind from the contracted seed. He alternatively agreed with Kerr LJ that the clause did not clearly protect the merchants against their own negligence.

4. Kerr LJ applied the principles derived from Canada Steamship Lines Ltd v The King [1952] AC 192. The clause contained no express reference to negligence. Its language did not unequivocally cover negligently caused loss, and liability could realistically arise from delivery of wrong or unmerchantable seed without negligence. The clause could therefore operate sensibly without extending to the merchants’ negligence.

5. Lord Denning MR construed the clause as naturally wide enough to limit liability. He nevertheless held that reliance upon it was not fair or reasonable. Oliver LJ and Kerr LJ reached the same conclusion as an alternative or additional ground.

6. Under section 55(4) and (5) of the Sale of Goods Act 1979, the question was whether reliance upon the clause was fair and reasonable in the actual circumstances. The clause had been imposed without negotiation; the farmers could neither discover the error nor reasonably insure against it; the merchants could insure without materially increasing seed prices; the loss resulted from the merchants’ negligence; the limitation was grossly disproportionate to the risk; and the trade did not ordinarily enforce the clause literally. The clause’s uncertainty also weighed against permitting reliance.

7. The clause was not void in its entirety merely because it purported to exclude the implied condition as to title. Per Kerr LJ, section 55(3) rendered it ineffective only to the extent that it purported to exclude section 12.

1. Court of Appeal: The seed merchants’ appeal was dismissed unanimously with costs. Leave to appeal to the House of Lords was refused: [1983] QB 284.

2. High Court, Queen's Bench Division: Parker J awarded the farmers damages exceeding £61,000, holding that the limitation clause did not protect the merchants where the goods supplied were not cabbage seed in any accepted commercial sense: [1981] 1 Lloyd's Law Reports 476.