[1983] 2 All ER 737
House of Lords
Finney Lock sold cabbage seed to George Mitchell for £201. The contract contained a clause which stated
'[1] In the event of any seeds... proving defective... we will, at our option, replace the defective seeds... free of charge to the buyer or will refund all payments made to us by the buyer... [2] We hereby exclude all liability for any loss or damage arising from the use of any seeds... supplied by us and for any consequential loss or damage...'
George Mitchell planted 63 acres with the seeds. The crop was useless and had to be ploughed in. George Mitchell brought an action against Finney Lock claiming damages of £61,513 for breach of contract.
The issues before the court were whether the exemption clause applied to the breach in question and if it did was it 'fair or reasonable' within s.55 of the Sale of Goods Act 1979 for Finney Lock to rely on it.
Lord Bridge of Harwich
The Photo Production case gave the final quietus to the doctrine that a 'fundamental breach' of contract deprived the party in breach of the benefit of clauses in the contract excluding or limiting his liability. The Ailsa Craig case drew an important distinction between exclusion and limitation clauses. This is clearly stated by Lord Fraser:
'There are later authorities which lay down very strict principles to be applied when considering the effect of clauses of exclusion or of indemnity: see particularly the Privy Council case of Canada Steamship Lines Ltd v R where Lord Morton, delivering the advice of the Board, summarised the principles in terms which have recently been applied by this House in Smith v UMB Chrysler (Scotland ) Ltd. In my opinion these principles are not applicable in their full rigour when considering the effect of conditions merely limiting liability. Such conditions will of course be read contra proferentem and must be clearly expressed, but there is no reason why they should be judged by the specially exacting standards which are applied to exclusion and indemnity clauses.'
My Lords, it seems to me, with all due deference, that the judgments of the trial judge and of Oliver LJ on the common law issue come dangerously near to reintroducing by the back door the doctrine of 'fundamental breach' which this House in the Photo Production case had so forcibly evicted by the front. The judge discusses what I may call the 'peas and beans' or 'chalk and cheese' cases, i e those in which it has been held that exemption clauses do not apply where there has been a contract to sell one thing, e g a motor car, and the seller has supplied quite another thing, e g a bicycle...
... The relevant condition, read as a whole, unambiguously limits the appellants' liability to replacement of the seeds or refund of the price. It is only possible to read an ambiguity into it by the process of strained construction which was deprecated by Lord Diplock in the Photo Production case and by Lord Wilberforce in the Ailsa Craig case.
... Having once reached a conclusion in the instant case that the relevant condition unambiguously limited the appellants' liability, I know of no principle of construction which can properly be applied to confine the effect of the limitation to breaches of contract arising without negligence on the part of the appellants. In agreement with Lord Denning MR, I would decide the common law issue in the appellants' favour.
The statutory issue turns, as already indicated, on the application of the provisions of the modified s 55 of the Sale of Goods Act 1979...
The relevant subsections of the modified s 55 provide as follows:...
'(4) In the case of a contract of sale of goods, any term of that or any other contract exempting from all or any of the provisions of section 13, 14 or 15 above is void in the case of a consumer sale and is, in any other case, not enforceable to the extent that it is shown that it would not be fair or reasonable to allow reliance on the term.
(5) In determining for the purposes of subsection (4) above whether or not reliance on any such term would be fair or reasonable regard shall be had to all the circumstances of the case and in particular to the following matters - (a) the strength of the bargaining positions of the seller and buyer relative to each other, taking into account, among other things, the availability of suitable alternative products and sources of supply (b) whether the buyer received an inducement to agree to the term or in accepting it had an opportunity of buying the goods or suitable alternatives without it from any source of supply (c) whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any previous course of dealing between the parties)...'
My Lords, at long last I turn to the application of the statutory language to the circumstances of the case. Of the particular matters to which attention is directed by paras (a) to (e) of s 55(5), only those in paras (a) to (c) are relevant. As to para (c), the respondents admittedly knew of the relevant condition (they had dealt with the appellants for many years) and, if they had read it, particularly cl 2, they would, I think, as laymen rather than lawyers, have had no difficulty in understanding what it said. This and the magnitude of the damages claimed in proportion to the price of the seeds sold are factors which weigh in the scales in the appellants' favour.
The question of relative bargaining strength under para (a) and of the opportunity to buy seeds without a limitation of the seedsman's liability under para (b) were interrelated. The evidence was that a similar limitation of liability was universally embodied in the terms of trade between seedsmen and farmers and had been so for very many years. The limitation had never been negotiated between representative bodies but, on the other hand, had not been the subject of any protest by the National Farmers' Union. These factors, if considered in isolation, might have been equivocal. The decisive factor, however, appears from the evidence of four witnesses called for the appellants, two independent seedsmen, the chairman of the appellant company, and a director of a sister company (both being wholly-owned subsidiaries of the same parent). They said that it had always been their practice, unsuccessfully attempted in the instant case, to negotiate settlements of farmers' claims for damages in excess of the price of the seeds, if they thought that the claims were 'genuine' and 'justified'. This evidence indicated a clear recognition by seedsmen in general, and the appellants in particular, that reliance on the limitation of liability imposed by the relevant condition would not be fair or reasonable.
Two further factors, if more were needed, weigh the scales in favour of the respondents. The supply of autumn, instead of winter, cabbage seed was due to the negligence of the appellants' sister company. Irrespective of its quality, the autumn variety supplied could not, according to the appellants' own evidence, be grown commercially in East Lothian. Finally, as the trial judge found, seedsmen could insure against the risk of crop failure caused by supply of the wrong variety of seeds without materially increasing the price of seeds.
... I should conclude without hesitation that it would not be fair or reasonable to allow the appellants to rely on the contractual limitation of their liability.