THE MASTER OF THE ROLLS:
In outline
Many of you know Lewis Carroll's "Through the Looking Glass". In it there are these words:
"'The time has come', the Walrus said, 'to talk of many things - of ships and shoes and sealing wax - of cabbages and kings'".
Today it is not "of cabbages and kings" - but of cabbages and what-nots. Some farmers (called George Mitchell Ltd.) ordered 30 lbs. of cabbage seed. It was supplied. It looked just like cabbage seed. No one could say it was not. The farmers planted it over 63 acres. Six months later there appeared out of the ground a lot of loose green leaves. They looked like cabbage leaves but they never turned in.
They had no hearts. They were not "cabbages" in our common parlance because they had no hearts. The crop was useless for human consumption. Sheep or cattle might eat it if hungry enough. It was commercially useless. The price of the seed was £192. The loss to the farmers was over £61,000. They claimed damages from the seed merchants. The judge awarded them that sum with interest. The total comes to nearly £100,000.
The seed merchants appeal to this court. They say that they supplied the seed on a printed clause by which their liability was limited to the cost of the seed, that is, £192. They rely much on two recent cases in the House of Lords -Photo Production Ltd. v. Securicor Transport Ltd. (1980) AC 827 and Ailsa Craig Fishing Co. Ltd. v. Malvern Fishing Co. Ltd. (unreported at the time), 1982 SLT 377 and Securicor, 26th November, 1981 (not yet reported).
In detail
The farmers' farm land is in the maritime belt of the East Lothian, almost at sea level. The soil is very fertile. It has very mild winters with no frosts. It is about the one place in the country where Dutch winter cabbage can be grown successfully. It is sown in the spring and transplanted in the summer. It grows very slowly and stands throughout the winter in the fields. It is harvested from February onwards. It is a hard, dense, heavy cabbage which captures the market at a time when there is very little other green-stuff available.
For the last 25 years these farmers - and other farmers in the maritime belt - have got their seed from Finneys who get it from Holland. Finneys had a representative, Mr. Wing. He called on the farmers each year. At Christmas 1973 he came. They gave him an order by word of mouth for 30 lbs. of Finneys Late Dutch Special Cabbage Seed. There was no order in writing. In February 1974 the seeds arrived. The invoice gave the date of despatch as the 14th February, 1974.
"30 lb. Cabbage. Finneys Late Dutch Special 2192.00. Important. For Seeds Act, Statutory Declaration, Conditions of Sale etc., see reverse".
Then on the back there were in small print many Conditions of Sale. Included in them was the clause relied upon by Finneys. They say that their liability was limited to the return of the price, £192: and that they are not liable for £61,000 claimed.
Are the Conditions part of the contract?
The farmers were aware that the sale was subject to some Conditions of Sale. All seed merchants have Conditions of Sale. They were on the back of the catalogue. They were also on the back of the invoice each year. So it would seem that the farmers were bound at common law by the terms of them. The inference from the course of dealing would be that the farmers had accepted the Conditions as printed - even though they had never read them and did not realise that they contained a limitation on liability.
But in view of modern developments, it is to be noticed that the Conditions were not negotiated at all between any representative bodies. They were not negotiated by the National Farmers' Union. They were introduced by the seed merchants by putting them in their catalogue and invoice - and never objected to by the farmers.
It is also to be noticed that the farmers never thought of insuring against any breach of contract by the seedsmen. It would be difficult to get any quotation. It might be possible for the seed merchants to insure themselves; something in the nature of a product liability insurance. Some seed merchants do so.
The printed Condition here
The limitation clause here is of long standing in the seed trade. It has been in use for many years. The material part of it is as follows:
"All Seeds, Bulbs, Corms, Tubers, Roots, Shrubs, Trees and Plants (hereinafter referred to as 'Seeds or Plants') offered for sale or sold by us to which the Seeds Act 1920 or the Plant Varieties and Seeds Act 1964 as the case may be and the Regulations thereunder apply have been tested in accordance with the provisions of the same. In the event of any seeds or plants sold or agreed to be sold by us not complying with the express terms of the contract of sale or with any representation made by us or by any duly authorised agent or representative on our behalf prior to, at the time of, or in any such contract, or any seeds or plants proving defective in varietal purity we will, at our option, replace the defective seeds or plants, free of charge to the buyer or will refund all payments made to us by the buyer in respect of the defective seeds or plants and this shall be the limit of our obligation. We hereby exclude all liability for any loss or damage arising from the use of any seeds or plants supplied by us and for any consequential loss or damage arising out of such use or any failure in the performance of or any defect in any seeds or plants supplied by us or for any other loss or damage whatsoever save for, at our option, liability for any such replacement or refund as afordsaid. In accordance with the established custom of the Seed Trade any express or implied condition, statement or warranty, statutory or otherwise, not stated in these Conditions is hereby excluded. The price of any seeds or plants sold or offered for sale by us is based upon the foregoing limitations upon our liability. The price of such seeds or plants would be much greater if a more extensive liability were required to be undertaken by us".
The natural meaning
There was much discussion before us as to the construction of that Condition. I am much impressed by the words I have underlined. Taking the clause in its natural plain meaning, I think it is effective to limit the liability of the seed merchants to a return of the money or replacement of the seeds.
The explanation they give seems fair enough. They say that it is so as to keep the price low: and that if they were to undertake any greater liability, the price would be much greater.
After all, the seed merchants did supply seeds. True, they were the wrong kind altogether. But they were seeds. On the natural interpretation, I think the Condition is sufficient to limit the seed merchants to a refund of the price paid or replacement of the seeds.
The hostile meaning
Before the decisions of the House of Lords in the two Securicor cases, I would have been inclined to decide the case as the judge did. I would been "hostile" to the clause. I would have said that the goods supplied here were different in kind from those that were ordered, and that the seed merchants could not avail themselves of the limitation clause. But in the light of the House of Lords' cases, I think that that approach is not available.
I am particularly impressed by the words of Lord Wilberforce in the second Securicor case where he said:
"One must not strive to create ambiguities by strained construction, as I think the appellants have striven to do. The relevant words must be given, if possible, their natural, plain meaning. Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion: this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives, and possibly also the opportunity of the other party to insure."
To my mind these two cases have revolutionised our approach to exemption clauses. In order to explain their importance, I propose to take you through the story.
The heyday of Freedom of Contract
None of you nowadays will remember the trouble we had -when I was called to the Bar - with exemption clauses. They were printed in small print on the back of tickets and order forms and invoices. They were contained in catalogues or timetables. They were held to be binding on any person who took them without objection. No one ever did object. He never read them or knew what was in them. No matter how unreasonable they were, he was bound. All this was done in the name of "freedom of contract". But the freedom was all on the side of the big concern which had the use of the printing press. No freedom for the little man who took the ticket or order form or invoice. The big concern said, "Take it or leave it". The little man had no option but to take it. The big concern could and did exempt itself from liability in its own interest without regard to the little man. It got away with it time after time. When the courts said to the big concern, "You must put it in clear words", the big concern had no hesitation in doing so. It knew well that the little man would never read the exemption clauses or understand them.
It was a bleak winter for our law of contract. It is illustrated by two cases, Thompson v. L.M.S. (1930) 1 King's Bench 41 (in which there was exemption from liability, not on the ticket, but only in small print at the back of the timetable, and the company were held not liable) and L'Estrange v. Graucob (1934) 2 King's Bench 394 (in which there was complete exemption in small print at the bottom of the order form, and the company were held not liable).
The secret weapon
Faced with this abuse of power - by the strong against the weak - by the use of the small print of the conditions -the judges did what they could to put a curb upon it. They still had before them the idol, "freedom of contract". They still knelt down and worshipped it, but they concealed under their cloaks a secret weapon. They used it to stab the idol in the back. This weapon was called "the true construction of the contract". They used it with great skill and ingenuity. They used it so as to depart from the natural meaning of the words of the exemption clause and to put upon them a strained and unnatural construction. In case after case, they said that the words were not strong enough to give the big concern exemption from liability: or that in the circumstances the big concern was not entitled to rely on the exemption clause. If a ship deviated from the contractual voyage, the owner could not rely on the exemption clause. If a warehouseman stored the goods in the wrong warehouse, he could not pray in aid the limitation clause. If the seller supplied goods different in kind from those contracted for, he could not rely on any exemption from liability. If a shipowner delivered goods to a person without production of the bill of lading, he could not escape responsibility by reference to an exemption clause. In short, whenever the wide words - in their natural meaning - would give rise to an unreasonable result, the judges either rejected them as repugnant to the main purpose of the contract, or else cut them down to size in order to produce a reasonable result. This is illustrated by these cases in the House of Lords: Glynn v. Margetson & Co. (1893) AC 351; London & North Western Railway Co. v. Neilson (1922) 2 AC 263; Cunard Steamship Co. v. Buerger (1927) AC 1; and by these in the Privy Council: Canada S.S. Lines v. The King (1952) AC 192; Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd. (1959) AC 576: and innumerable cases in the Court of Appeal, culminating in Levison v. Patent Steam Carpet Cleaning Co. Ltd. (1978) QB 69. But when the clause was itself reasonable and gave rise to a reasonable result, the judges upheld it; at any rate, when the clause did not exclude liability entirely but only limited it to a reasonable amount. So where goods were deposited in a cloakroom or sent to a laundry for cleaning, it was quite reasonable for the company to limit their liability to a reasonable amount, having regard to the small charge made for the service. These are illustrated by Gibaud v. Great Eastern Railway Co. (1921) 2 King's Bench 426; Alderslade v. Hendon Laundry Ltd. (1945) KB 189; and Gillespie Bros, v. Roy Bowles Ltd. (1973) 1 Queen's Bench 400.
Fundamental breach
No doubt has ever been cast thus far by anyone. But doubts arose when in this court - in a case called Karsales (Harrow) Ltd. v. Wallis (1956) 1 WLR 936 - we ventured to suggest that if the big concern was guilty of a breach which went to the "very root" of the contract -sometimes called a "fundamental breach" - or at other times a "total failure" of its obligations - then it could not rely on the printed clause to exempt itself from liability. This way of putting it had been used by some of the most distinguished names in the law. Such as Lord Dunedin in Pollock & Co. v. Macrae (1922) SC (HL) 192; by Lord Atkin and Lord Wright in Hain Steamship Co. Ltd. v. Tate & Lyle Ltd. (1936) 41 Com. Cas. 350 at page 354; and by Mr. Justice Devlin in Smeaton Hanscomb & Co. v. Sassoon I. Setty & Co. (No. 1) (1953) 1 WLR 1468 at page 1470. But we did make a mistake - in the eyes of some - in elevating it - by inference - into a "rule of law". That was too rude an interference with the idol of "freedom of contract". We ought to have used the secret weapon. We ought to have said that in each case, on the "true construction of the contract" in that case, the exemption clause did not avail the party where he was guilty of a fundamental breach or a breach going to the root. That is the lesson to be learnt from the "indigestible" speeches in Suisse Atlantique v. Rotterdamsche Kolen Centrale (1967) 1 AC 361. They were all obiter dicta. The House were dealing with an agreed damages clause and not an exemption clause and the point had never been argued in the courts below at all. It is noteworthy that the House did not overrule a single decision of the Court of Appeal. Lord Wilberforce at page 433 appears to have approved them. At any rate, he cast no doubt upon the actual decision in any case.
The change in climate
In 1969 there was a change in climate. Out of winter into spring. It came with the first report of the Law Commission on exemption clauses (Commd. 403) which was implemented in the Supply of Goods (Implied Terms) Act 1973. In 1975 there was a further change. Out of spring into summer. It came with their second report on exemption clauses (Commd. 605) which was implemented by the Unfair Contract Terms Act 1977. No longer was the big concern able to impose whatever terms and conditions it liked in a printed form - no matter how unreasonable they might be. These reports showed most convincingly that the courts could and should only enforce them if they were fair and reasonable in themselves and it was fair and reasonable to allow the big concern to rely on them. So the idol of "freedom of contract" was shattered. In cases of personal injury or death, it was not permissible to exclude or restrict liability at all. In consumer contracts any exemption clause was subject to the test of reasonableness.
These reports and statutes have influenced much the thinking of the judges. At any rate, they influenced me as you will see if you read Gillespie Bros, v. Roy Bowles Ltd. (1973) 1 Queen's Bench 400 at page 416 and Photo Production Ltd. v. Securicor Ltd. (1978) 1 WLR 856 at page 865D:
"Thus we reach, after long years, the principle which lies behind all our striving: the court will not allow a party to rely on an exemption or limitation clause in circumstances in which it would not be fair or reasonable to allow reliance on it: and, in considering whether it is fair and reasonable, the court will consider whether it was in a standard form, whether there was equality of bargaining power, the nature of the breach, and so forth".
The effect of the changes
What is the result of all this? To my mind it heralds a revolution in our approach to exemption clauses; not only where they exclude liability altogether and also where they limit liability; not only in the specific categories in the Unfair Contract Terms Act 1977, but in other contracts too. Just as in other fields of law we have done away with the multitude of cases on "common employment", "last opportunity", "invitees" and "licensees" and so forth, so also in this field we should do away with the multitude of cases on exemption clauses. We should no longer have to go through all kinds of gymnastic contortions to get round them. We should no longer have to harass our students with the study of them. We should set about meeting a new challenge. It is presented by the test of reasonableness.
The two Securicor cases
The revolution is exemplified by the recent two Securicor cases in the House of Lords. In each of them the Securicor company provided a patrolman to keep watch on premises so as to see that they were safe from intruders. They charged very little for the service. In the first case it was a factory with a lot of paper in it. The patrolman set light to it and burnt down the factory. In the second case it was a quay at Aberdeen where ships were berthed. The patrolman went off for the celebrations on New Year's Eve. He left the ships unattended. The tide rose. A ship rose with it. Its bow got "snubbed" under the deck of the quay. It sank. In each case the owners were covered by insurance. The factory owners had their fire insurance. The ship-owners had their hull insurance. In each case the Securicor Company relied on a limitation clause. Under it they were protected from liability beyond a limit which was quite reasonable and their insurance cover was limited accordingly. The issue in practical terms was: Which of the insurers should bear the loss? The question in legal terms in each case was whether Securicor could avail themselves of the limitation clause. In each case the House held that they could.
In the first case the House made it clear that the doctrine of "fundamental breach" was no longer applicable. They replaced it by the test of reasonableness. That was the test applied by the trial judge Mr. Justice MacKenna which I myself quoted with approval, see Photo Production Ltd. v. Securicor (1978) 1 WLR 856 at page 865 G-H. He said:
"Condition 1, as I construe it, is, I think, a reasonable provision ... Either the owner of the premises, or the person providing the service, must bear the risk. Why should the parties not agree to its being borne by the owners of the premises? He is certain to be insured against fire and theft, and is better able to judge the cover needed than the party providing the service ... That is only another way of shifting the risk from the party who provides the service to the party who receives it. There is, as I have said, nothing unreasonable, nothing impolitic, in such a contract".
His judgment was approved by the House of Lords who themselves held that the limitation clause was valid because it was a reasonable way of apportioning the risks - as between the insurers on either side. I would set out two passages to prove it. Lord Wilberforce said, see Photo Production Ltd. v. Securicor (1980) AC 827 at page 846B:
"Securicor undertook to provide a service of periodical visits for a very modest charge which works out at 26p. per visit. It did not agree to provide equipment. It would have no knowledge of the value of the plaintiffs' factory: that, and the efficacy of their fire precautions, would be known to the respondents. In these circumstances nobody could consider it unreasonable, that as between these two equal parties the risk assumed by Securicor should be a modest one, and that the respondents should carry the substantial risk of damage or destruction". And Lord Diplock said at page 851E:
"For the reasons given by Lord Wilberforce it seems to me that this apportionment of the risk of the factory being damaged or destroyed by the injurious act of an employee of Securicor while carrying out a visit to the factory is one which reasonable businessmen in the position of Securicor and the factory owners might well think was the most economical. An analogous apportionment of risk is provided for by the Hague Rules in the case of goods carried by sea under bills of lading".
I do hope, however, that we shall not often have to consider the new-found analysis of contractual obligations into "primary obligations", "secondary obligations", "general secondary obligations" and "anticipatory secondary obligations". No doubt it is logical enough but it is too esoteric altogether. It is fit only for the rarified atmosphere of the House of Lords. Not at all for the chambers of the practitioner. Let alone for the student at the university.
In the second case the House made a distinction between clauses which excluded liability altogether, and those which only limited liability to a certain sum. Exclusion clauses were to be construed strictly contra proferentem, whereas limitation clauses were to be construed naturally. This must be because a limitation clause is more likely to be reasonable than an exclusion clause. If you go by the plain natural meaning of the words (as you should do) there is nothing to choose between them. As Lord Sumner said fifty years ago in Atlantic Shipping v. Dreyfus (1922) 2 Appeal Cases at page 260:
"There is no difference in principle between words which save them from having to pay at all and words which save them from having to pay as much as they would otherwise have to pay".
If you read the speeches in the second Securicor case, it does look as if they were relying on the reasonableness of the limitation clause. They held it was applicable even though the failure of the Securicor company was a "total failure" to provide the service contracted for. They also said - obiter -that they would construe an exclusion clause much more strictly -just as was done in the old cases decided in the winter time. But I would suggest that the better reason is because it would not be fair or reasonable to allow the propounder of them to rely on them in the circumstances of the case.
The Supply of Goods (Implied Terms) Act 1973
In any case the contract for these cabbage seeds was governed by section 55(4) of the 1973 Act. It says that in the case of a contract of sale of goods any term
"is ... not enforceable to the extent that it is shown that it would not be fair or reasonable to allow reliance on the term".
That provision is exactly in accord with the principle which I have advocated above. So the ultimate question, to my mind, in this case is just this: To what extent would it be fair or reasonable to allow the seed merchants to rely on the limitation clause?
Fair and reasonable
There is only one case in the books so far on this point. It is Green v. Cade Bros. Farms (1978) 1 Lloyd's Law Reports 602. There Mr. Justice Griffiths held that it was fair and reasonable for seed potato merchants to rely on a limitation clause which limited their liability to the contract price of the potatoes. That case was very different from the present. The terms had been evolved over twenty years. The judge said (at page 607):
"They are therefore not conditions imposed by the strong upon the weak; but are rather a set of trading terms upon which both sides are apparently content to do business".
The judge added (at page 608):
"No moral blame attaches to either party; neither of them knew, nor could be expected to know, that the potatoes were infected".
In that case the judge held that the clause was fair and reasonable and that the seed merchants were entitled to rely upon it.
Our present case is very much on the borderline. There is this to be said in favour of the seed merchants. The price of this cabbage seed was small: £192. The damages claimed are high: £6l,000. But there is this to be said on the other side. The clause was not negotiated between persons of equal bargaining power. It was inserted by the seed merchants in their invoices without any negotiation with the farmers.
To this I would add that the seed merchants rarely, if ever, invoked the clause. Their very frank director said:
"The trade does not stand upon the strict letter of the clause ... Almost invariably when a customer justifiably complains, the trade pays something more than a refund".
The papers contain many illustrations where the clause was not invoked and a settlement was reached.
Next, I would point out that the buyers had no opportunity at all of knowing or discovering that the seed was not cabbage seed: whereas the sellers could and should have known that it was the wrong seed altogether. The buyers were not covered by insurance against the risk. Nor could they insure. But as to the seed merchants, the judge said (see Mitchell v. Finney Lock Seeds (1981) 1 Lloyd's Law Reports 476 at page 480):
"I am entirely satisfied that it is possible for seedsmen to insure against this risk. I am entirely satisfied that the cost of so doing would not materially raise the price of seeds on the market. I am entirely satisfied that the protection of this clause for the purposes of protecting against the very rare case indeed, such as the present, is not reasonably required. If and in so far as it may be necessary to consider the matter, I 'am also satisfied that it is possible for seedsmen to test seeds before putting them on to the market".
To that I would add this further point. Such a mistake as this could not have happened without serious negligence on the part of the seed merchants themselves or their Dutch suppliers. So serious that it would not be fair to enable them to escape responsibility for it.
In all the circumstances I am of opinion that it would not be fair or reasonable to allow the seed merchants to rely on the clause to limit their liability.
I would dismiss the appeal accordingly.
LORD JUSTICE OLIVER: I agree that this appeal fails. Before the learned judge and on the hearing of the appeal the plaintiff argued that the exclusion clause, which forms the bedrock of the defendant's defence, forms no part of the contract between the parties either because, having regard to the fact that the contract was negotiated orally and without any express reference to the clause, it could not be implied so as to qualify an express term (namely that the seed sold was "Finney's Late Dutch Special") or because, since the clause purports to exclude (inter alia) the statutory implied condition as to the seller's title, the effect of section 55(3) of the Sale of Goods Act 1979 and the Schedule to the Sale of Goods Act 1979 is to render it void in toto. Although the learned judge found it unnecessary to deal specifically with these arguments, they are fully dealt with in the judgment of Lord Justice Kerr which I have had the advantage of reading in draft. For myself I need only say that I wholly concur in the reasons which he gives for rejecting both arguments. I turn therefore to the principal point at issue - namely that of the construction of the relevant clause.
At the trial the learned judge dealt with the case en the basis of a concession made by counsel then appearing for the defendants that they could not rely upon the limitation clause in the contract if what had been delivered was seed quite other than that contracted for - for instance, beetroot seed or carrot seed - and that it was a sine qua non of his successful reliance upon the clause that what the defendants had delivered was cabbage seed. On this footing, the issue was simply one of fact - was this or was it not cabbage seed? The learned judge's finding of fact, which was based on the evidence of the defendant's own witnesses, was that this seed was not cabbage seed in any accepted sense of the term. It was not, in any commercial sense, even vegetable seed, and accordingly it followed that the clause conferred no protection on the defendant.
In this court, Mr. Waller, Q.C. for the defendant makes no such concession. He accepts that what was delivered was not, in any commercial sense, cabbage seed but, he argues, it was literally seed - useless seed, but nevertheless seed - and accordingly the protecting clause is, as a matter of construction, sufficiently wide to protect the defendant from any claim beyond the return of the price which, it is common ground, has never been paid.
Now it is clear that the breach of contract which admittedly occurred was a breach of such a nature as to constitute, using the expression used in the authorities prior to the Suisse Atlantique case, "a fundamental breach". To deliver as winter cabbage seed something that was not even vegetable seed in any commercial sense clearly went to the very root of the contract, and Mr. Twigg argues that, even in the light of Suisse Atlantique and the two subsequent decisions of the House of Lords in Photo Production Ltd. v. Securicor Transport Limited (1980) AC 827 and Ailsa Craig Fishing Co. Ltd. v. Malvern Co. Ltd. (unreported at the time), 1982 SLT 377 that remains a fatal objection to the application of the clause. It is therefore necessary to analyse those cases in order to see whether, as Mr. Twigg contends, there still remains anything of what used to be termed "the fundamental breach rule". The propositions which emerge from the trilogy of cases mentioned appear to me to be the following:
(1) There is no rule of law that the effect of a fundamental breach of contract, whether or not accepted by the innocent party as a repudiation, is to preclude reliance upon an exclusion clause in the contract inserted for the protection of the party in breach.
(2) The effect of an exclusion clause has to be ascertained simply by construing the contract as a whole. What has to be determined is whether, as a matter of construction, the clause applies to excuse or limit liability for the particular breach which has occurred, whether "fundamental" or otherwise.
(3) There is a presumption that any breach of the primary obligations of the contract will result in continuing secondary obligation on the party in breach to pay compensation for the breach. A clause in the contract excluding, modifying or limiting that secondary obligation is, therefore, to be construed restrictively and contra proferentem. (I add in parenthesis that, with deference to my Lord the Master of the Rolls, I find the analysis adopted by Lord Diplock in the Photo Production case a helpful one, so long as it is borne in Mind that the purpose of a contract is performance and not the grant of an option to pay damages).
(4) The contract has to be construed as a whole, for the exclusion clause is part of an entire contract and may, as a matter of construction, be an essential factor in determining the extent of the primary obligation. Thus, for instance, the Photo Production case was not a case of a clause excluding liability for a fundamental breach of the contract but of a clause which, on its true construction, demonstrated that there had been no breach at all of the primary obligation, which was simply to exercise reasonable care.
(5) Since such clauses may not only modify or limit the secondary obligation to pay damages for breach but may also show the extent of the primary obligation, a clause totally excluding liability tends to be construed more restrictively than a clause merely limiting damages payable for breach, for a total exclusion of liability, if widely construed, might lead to the conclusion that there was no primary obligation at all and thus no contract. This is to say no more than that, when it is called upon to construe a commercial document clearly intended by both parties to have contractual force, the court will lean against a construction which leads to an absurdity.
(6)Where the language used is unclear or susceptible fairly of more than one construction, the court will construe it in the manner which appears more likely to give effect to what must have been the common intention of the parties when they contracted. But where, even construing the contract contra proferentem and allowing for the presumption of the continuance of a secondary obligation to pay damages for breach of the primary contractual duty, the language of the contract is clear and is fairly susceptible of only one Meaning, the court is not entitled to place upon an exclusion clause a strained construction for the purpose of rejecting it.
The contractual document in the instant case consists simply of the invoice which described the subject matter of the sale as "Finney's Late Dutch Special" and the conditions appearing on the reverse side which contained a number of terms most of which are immaterial in this case. The only material condition for present purposes is the exclusion clause the terms of which have already been referred to in the judgment of my Lord the Master of the Rolls. It begins with a representation that all seeds, etc. offered or sold by the defendants and to which the provisions of the Seeds Act 1920 or the Plant Varieties & Seeds Act 1964 apply have been tested in accordance with the statutory provisions. Thereafter the clause, so far as material, divides into three sections. The first of these limits the liability of the vendors to replacement or refund of the price in the event of any seeds "sold or agreed to be sold by us" (a) not complying with the express terms of the contract, (b) not complying with any representation made, or (c) proving defective in varietal purity. Mr. Waller argues that this is a clear and unambiguous limitation on liability for exactly the type of breach which has occurred here. It was an express term of the contract - see the invoice - that the seed sold should be Finney's Late Dutch Special. The seed delivered was not Finney's Late Dutch Special. It was something else and therefore did not comply with an express term of the contract. This is attractively simple but it is not, in my judgment, correct. The clause applies only to seeds -"sold or agreed to be sold" and, however this is approached, it seems to me that it can only relate to goods which actually were the subject matter of a contract between vendor and purchaser. What was delivered to the plaintiff simply was not a fulfilment of the contract, even a defective fulfilment, any more than delivery of a motor bicycle would be a fulfilment of a contract for the sale of a car. When the clause refers to "express terms" of the contract it is, in my judgment, referring to express terms applicable to those goods to which the contract relates, and I, for my part, find it impossible to read the clause sensibly as if it said "in the event of the goods sold or agreed to be sold by us not being the goods agreed to be sold by us".
The clause, in other words, assumes that the primary obligation has been fulfilled to the extent of delivering the goods which the vendor has agreed to sell, but seeks to limit the vendor's liability under the secondary obligation which arises if those goods prove, in breach of an express term or representation, to be defective. The discharge of that obligation is limited to replacing "the defective seeds or plants" or to refunding payments made in respect of "the defective seeds or plants". A motor bicycle delivered in purported fulfilment of a contract to sell a car is not a defective car. It is simply something which does not fall within the contract at all. For my part, therefore,^! do not find that what I may call section 1 of the condition assists the defendant.
The matter does not, however, end there. Section 2 is directed to the total exclusion of any liability for consequential loss arising from the use of the goods sold. Now one starts from the position that the parties can hardly be thought rationally to have been contracting on the footing that a farmer about to dedicate a substantial acreage of land to the commercial growing of seed supplied by a seedsman assumes the risk that the seedsman will supply him with something bearing no resemblance at all to what he is contracting to buy. If, therefore, the contract is to lay that risk upon him, it can only do so if it is clearly expressed in terms which compulsively lead to the conclusion that what prima facie is an irrational intention was nevertheless the true intention of the parties. One has, therefore, to ask the question whether the words used so clearly exclude liability for the type of breach that has occurred here that they are not fairly susceptible of any other meaning. In so far as there is any "rule" applicable here it is simply a rule of construction that a provision intended to give exemption from the consequences of a fundamental breach of the contract must, if it is to be accorded the effect intended, be expressed in clear and unambiguous terms (see the speech of Viscount Dilhorne in Suisse Atlantique (1980) Appeal Cases at page 392). Is there anything on the face of this document which clearly indicates that the seller was excluding not just liability for loss arising from the use of Finney's Late Dutch Special which proves in some way to be defective but all liability arising from the use of something delivered as Finney's Late Dutch Special but which is not in fact even vegetable seed in any commercial sense? Speaking for myself, I do not consider that the words used in this clause are sufficiently clear and unambiguous to exclude such a liability. Section 2 of the Conditions are, as it seems to me, merely a supplement to section 1. Section 1 having limited the liability in respect of the matters there mentioned, section 2 goes on, by way of clarification, to exclude any liability for any consequential damage in respect of the same matters beyond the amount of the limited liability. Mr. Waller relies on the words "any seeds or plants supplied by us" as words of sufficient width to cover not only seeds and plants of the type agreed to be sold but any seeds or plants of any type which may in fact be delivered to and used by the purchaser so long as they are literally "supplied by us". I agree that the words are capable of being so construed, but in the context of the contract as a whole I do not consider that that is the only meaning of which they are fairly susceptible. Anyone reading the clause would, I think, relate those words to the seeds and plants which were the subject matter of the contract for sale and would greet with some surprise the news that they were intended to cover a case where what had been supplied was wholly different in kind from what had been ordered.
In my judgment, therefore, the learned Judge was right when he said that it would be making commercial nonsense of the contract to suggest that either party can have intended that it was to operate in the circumstances of this case, and I would dismiss the appeal for this reason.
If, however, this be too bold a view of construction, then in any event I entirely agree with the analysis of my Lord, Lord Justice Kerr. I can find nothing in the clause which clearly protects or could have been intended to protect the sellers against the consequences of their own negligence. Such a bargain is, of course, possible if the parties are content to use words which clearly point to such a conclusion but it would, in my judgment, require something very much more precise and unequivocal than we have here before such a conclusion could be justified.
On the view that I take it is not strictly necessary to decide the further point which arises as regards the fairness and reasonableness of the clause, if enforceable. For the sake of completeness I should refer to the third section of the exclusion clause, which provides:
"In accordance with the established custom of the Seed Trade any express or implied condition, statement or warranty, statutory or otherwise, not stated in these Conditions, is hereby excluded".
It is common ground that, the contract having been entered into prior to the 1st February, 1978, it is subject to the substituted section 55 contained in the First Schedule to the Sale of Goods Act 1979, subsection (4) of which provides (so far as material):
"In the case of a contract of sale of goods, any term of that ... contract exempting from all or any of the provisions of section 13, 14 or 15 above ... is ... not enforceable to the extent that it is shown that it would not be fair or reasonable to allow reliance on the term".
Subsection (9) extends this to terms which, whilst not referring in terms to the exclusion of the provisions of sections 13, 14 and 15, have a similar operation.
The learned judge found as a fact that it would have been possible for the vendors to insure against the risk of loss in the circumstances of this case without materially raising the price of seed and he expressed himself as satisfied that the protection of this clause for the purpose of protecting against the very rare case such as the present was not reasonably required. The appellants attack the learned judge's finding of fact because, they say, the evidence showed only that a very limited form of cover had been inquired for, restricted to a relatively small amount in total for all claims in any one year. They also rely upon the decision of Mr. Justice Griffiths (as he then was) in Green v. Cade (1978) 1 Lloyd's Law Reports 602 where a similar exclusion clause was held to be reasonable in the case of potato seed which, through an undetectable defect, failed to crop properly. That case, however, although valuable as an exemplar of the sort of circumstances which need to be considered, was a case on its own facts, and there are here a number of facts which seem to Me to point strongly to the conclusion that it would not be reasonable to permit the appellants to rely upon the clause. I mention only a few. In the first place, whilst it may be true that the evidence did not show that the insurance market had been tested beyond the point of a policy to provide a limited protection, it was clear that some insurance was possible which would have covered the relevant risk. It has to be borne in mind that what the clause was seeking to do was not to limit the risk to an amount conveniently insurable but to exclude liability altogether. Secondly, it was a clause unilaterally imposed. Thirdly, the loss for which the protection of the clause was being invoked, was not one which, as in Green v. Cade, involved no fault on the part of the vendor. There was here no significant risk of the wrong seed being delivered except for negligence on the part of someone in the appellant's organisation and such negligence was admitted by the evidence of the appellant's own witness.
The question is net whether there are not circumstances in which a clause such as this may be fair and reasonable but whether, in the circumstances, it would be fair and reasonable to allow reliance upon it. It may well be - I do not know -that in this trade it may be reasonable for a vendor so to protect himself against undiscoverable defects, arising without fault, in the material which he supplies. But even assuming this to be so, it does not at all follow that it would be fair and reasonable to permit such a clause to be relied upon in order to protect a vendor against a claim by the purchaser arising out of the vendor's own negligence. The learned judge left the point open. For my part I would be prepared, were it necessary to do so, to hold that reliance upon the clause in the Instant case would not be fair and reasonable.
LORD JUSTICE KERR: The facts have already been fully stated, and T therefore only summarise them briefly for the purpose of defining the issues which arise on this appeal.
The contract, made orally in February 1974, was for the supply of 30 lbs. of cabbage seed described as "Finneys Late Dutch Special". It was common ground that this was "winter" and not "autumn" cabbage seed. Subject to the effect of the exemption clause in the Conditions of Sale as discussed hereafter, the contract accordingly incorporated the following material express and implied terms. First, an express term that the seed supplied would be Dutch winter cabbage seed. Secondly, a number of conditions implied by what is now the Sale of Goods Act 1979, subject to certain qualifications which were not yet in force in 1974 and which appear from Schedule 1 to that Act. For present purposes it is sufficient to summarise these as (i) a condition implied by section 13(1) that the seed supplied would correspond with its contractual description, and (ii) a condition implied by section 14(2) that the seed supplied would be of merchantable quality.
As events turned out, all of these terms were broken, due to a combination of the following circumstances. First, the defendants' Dutch suppliers delivered to the defendants what was described as, and purported to be, autumn seed, but - due to negligence on the part of employees of the defendants -this delivery was wrongly entered in the defendants' books under a description denoting winter seed, and was supplied to the plaintiffs as winter seed in purported fulfilment of the contract. At that point there was accordingly a breach of the express term, and of the implied condition that the seed supplied would correspond with its contractual description. Secondly? due to some unexplained act or omission on the part of the Dutch suppliers, the seed was in fact unmerchantable even as autumn seed. It was cabbage seed of a sort, in the sense that it was capable of germination, transplantation, and of growing plants of a cabbage variety. But the resulting plants were not merchantable as cabbages, or even fit for animal consumption, and ultimately had to be ploughed in.
Against this background I then turn to the exemption clause on which everything depends. The relevant part consists of six sentences which have already been set out in the judgment of Lord Denning, M.R., and I therefore do not repeat them. The two issues which arise on this appeal are (a) whether on its true construction the clause protects the defendants against liability for the breaches summarised above, and (b) if so, whether it would nevertheless not be fair or reasonable to allow them to rely upon the clause, having regard to section 55 of the Act as modified by paragraph 11 of Schedule 1.
Before discussing both of these issues it is necessary to mention two preliminary points. First, it was common ground that the contract was made against the background of the exemption clause in the sense that, subject to its legal effect, the clause formed part of the bargain made by the parties. The plaintiffs agreed that they knew of its existence, and that it had for many years been accepted in the trade that all sales of seed were made subject to its terms, without the need for any express stipulation to this effect. However, Mr. Twigg on behalf of the plaintiffs made two submission in this regard. First, that since the clause was not expressly mentioned between the parties, it could only form part of the terms of the contract by implication; but that - on this basis it fell to be ignored, since its effect was to contradict the express terms of the contract. In support of this argument he relied on the decision of this court in J. Evans & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd. (1976) 1 WLR 1078. But that case has no application here; it concerned an express and specific oral promise whose effect could not be cut down by subsequently incorporated inconsistent printed terms. This has nothing to do with the situation in the present case. Secondly, Mr. Twigg submitted that the clause was wholly void by virtue of section 55(3) in Schedule 1, because its fourth sentence (beginning "In accordance with the established custom of the Seed Trade ...") purported to exclude all conditions implied by statute, including section 12 of the .. Act concerning the implied condition as to the seller's title. I cannot accept this submission either. Even allowing for the fact that we are dealing with an exemption clause which has to be strictly construed, it seems to me that a reasonable and businesslike construction, which gives full effect to section 55(3), is that the clause is void to the extent that it purports to exempt the defendants from the condition implied by section 12, but no further.
I then turn to the construction and effect of the clause. In this connection it is first necessary briefly to summarise the present state of the law on "fundamental breach" in the light of the recent decisions of the House of Lords in Photo Production Ltd. v. Securicor Transport Ltd. (1980) AC 327 and Ailsa Craig Fishing Co. Ltd. v. Malvern Fishing Co. Ltd. and Securicor, (decided on 26th November, 1981 on appeal from Scotland and as yet unreported). I will refer to these for convenience as the "Securicor" and "Ailsa" cases, and the crucial question concerns their effect on various dicta on "fundamental breach" which are to be found in the speeches in Suisse Atantique v. M.V. Rotterdamsche Kolen Centrale (1967) AC 361. In that case, it should be remembered, the House of Lords was (perhaps unfortunately) discussing "fundamental breach" in general terms, and not by reference to any specific exempting provision. (I use the term "exempting" throughout in the wide sense of section 55(9) as set out in paragraph 11 of Schedule 1 to the Sale of Goods Act 1979).
Beginning with the Securicor case, it is in my view perfectly clear that this has wholly laid to rest the doctrine of "fundamental breach" in one respect at least. It has abrogated the supposed rule, exemplified most signally by the decisions of this court in Harbutt's "Plasticine" Ltd. v. Wayne Tank and Pump Co. Ltd. (1970) 1 Queen's Bench 447, and Wathes (Western) Ltd. v. Austins (Menswear) Ltd. (1976) 1 Lloyd's Law Reports 14, that a breach which can be described as fundamental, or a breach of one of the terms of the contract which can be so described, causes any exemption clause to cease to be applicable and capable of being relied upon; and - further - that this is so whether the innocent party treats the breach as a repudiation of the entire contract or whether it affirms the contract. It is now clear law that, whatever the nature of the breach, an exemption clause can never "terminate" or "cease to have effect", but remains to be construed in order to decide whether or not the parties intended that its terms should apply to the breach in question. Thus, such commonly used expressions as
"the defendants cannot rely on the clause" must now be treated as suspect, unless they mean no more than that the clause, on its true construction, does not apply to the breach in question. Further, as pointed out by Lord Diplock in the Securicor case at page 849D, if the expression "fundamental" is to be retained in any context whatever, it should be confined to cases of anticipatory breach, i.e. to breaches which entitle the innocent party to treat the contract as at an end and to absolve him from any further performance of its terms; but not in any context which bears on the continuing effect of an exemption clause.
However, while it is clear that to this extent the doctrine of "fundamental breach" was unsound and has disappeared, it is less clear whether it still survives in some sense as a rule of construction. In my view this is not so. Rules of construction are not rules of law; they are merely guidelines to the presumed Intention of the parties in the light of the events which have occurred. Provided that the words used do not go so far as, in effect, to absolve one party from any contractual obligation whatever, so as to reduce a so-called contract to a mere declaration of intent without imposing any binding obligation, all provisions of a contract, including all exemption clauses however wide, fall to be construed and to be applied if, on their true construction, it is clear that the parties Intended them to apply to the situation in question. Thus, to take an example which has virtually become a cliché: if there is a contract for the sale of apples or of cheese, but the contract goes on to provide, clearly and expressly, that the seller is to be under no liability in damages if he delivers pears or chalk instead, then there is in my view no rule of law or of construction which disentitles the seller from relying on that provision if he in fact delivers pears or chalk. The buyer's only remedy in such cases, as it seems to me, is to invoke the new statutory provisions, if they are applicable, which enable the court to hold that such a provision, or the seller's reliance upon it, would not be fair or reasonable; e.g. section 55 in Schedule 1 to the Sale of Goods Act 1979 or the Unfair Contract Terms Act 1977. The only principle, though in my view it is also no more than a guide to construction, which the Ailsa case has engrafted upon the decision in Securicor, is that exemption clauses which provide for a limitation, as opposed to a total exclusion, of liability are more likely to be construed to protect the party in default, because an agreed limitation of liability may well be more likely to be consonant with the Intention of the parties in the event of a breach than an exclusion of all liability. However, this again is only a guideline to construction.
On behalf of the plaintiffs, Mr. Twigg has strenuously contended that any analysis on the lines indicated above flies in the face of almost innumerable authorities. But I am in no way persuaded that this is so. I do not propose to go through all the cases cited to us, but merely to refer briefly to five decisions of the House of Lords on which he mainly relied. First, Glyn v. Margetson (1893) AC 351, one of the deviation cases, where the speech of Lord Halsbury, L.C. included the oft-quoted dictum (at page 357):
"Looking at the whole of the instrument, and seeing what one must regard ... as its main purpose, one must reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract".
This, as it seems to me, lays down no rule of law but merely a guideline to construction. Furthermore, the decisions in the deviation cases were all based in part on extra-contractual obligations, stemming from the law of bailment, underlying and additional to the express obligations undertaken by a bailee, with the result that the express terms of the contract have usually been held incapable of qualifying such underlying obligations. This is illustrated, for instance, by the remarks of Lord Atkinson in London and North Western Railway Co. v. Neilson (1922) 2 AC 263 at page 273 on which Mr. Twigg also relied. Similar considerations apply to the implied obligation of seaworthiness in a contract of affreightment, as illustrated by Atlantic Shipping and Trading Co. Ltd. v. Louis Dreyfus & Co. (1922) 2 AC 250, the next decision of the House of Lords on which Mr. Twigg relied. It was there held that an express exemption clause in a charter party could not impinge upon the implied underlying obligation of seaworthiness. However, it is also to be noted that the House of Lords there upheld a similar provisions which, on its true construction, was effective to qualify an express undertaking of seaworthiness, by approving the decision of this court in Bank of Australasia v. Clan Line Steamers Ltd. (1916) 1 King's Bench 39. So, again, it was a question of construction; not the application of any rule of law. Next, Mr. Twigg relied on the decision of the House of Lords in Pollock v. Macrae (l922) S.C. (H.L.) 192, but in the Ailsa case both Lord Wilberforce and Lord Fraser of Tullybelton made it clear that that decision was no authority contrary to what I have sought to indicate above. Finally, Mr. Twigg relied on various passages in the Suisse Atlantique case, in particular on a passage in the speech of Lord Wilberforce at page 433 under the heading "Supply of a different article". This passage was quoted by Mr. Justice Parker in his judgment in the present case and formed its main basis. However, for the reasons already stated, in my view this also did no more than to indicate a guideline for construction, not a rule of law, which must now be viewed in the light of the speeches of Lord Wilberforce himself and of Lord Diplock in the Securicor case.
I then turn to the present exemption clause against this background. Mr. Justice Parker did not consider or analyse its terms in any way in his judgment, because he treated the clause as being ipso facto incapable of application to a breach which involved the double gravamen of a supply of (a) the wrong kind of seed, and (b) of seed which was unmerchantable. In my judgment, and for the reasons already explained, I respectfully consider that this approach must now be regarded as wrong in principle. Thus, a clause on the following lines would clearly have protected the defendants: "In the event of our supplying seed which, due to the negligence of our suppliers or of our own employees, turns out to be seed of the wrong kind and/or to be unmerchantable, we shall be under no liability other than to refund the contract price".
The real difficulty, as it seems to me, and on which my mind has wavered a great deal, is whether the actual terms of this clause are sufficiently clear to have this effect. Its provisions certainly go a very long way. The defendants' limitation of liability, by restricting this to a refund of the price of the seed, appears to me at first sight to cover the following breaches in toto: (i) A breach of the express obligation to supply Dutch winter cabbage seed: see the second sentence of the clause beginning "In the event of any seeds or plants ..." (ii) A breach of the condition implied by section 13(1) of the Sale of Goods Act that the seed supplied should correspond with its contractual description: see the fourth sentence to which I have already referred. And (iii), a breach of the condition implied by section 14(2) of the Act that the seed supplied should be of merchantable quality; also by virtue of the fourth sentence. As to these, I am doubtful about (i) for the reasons stated by Lord Justice Oliver. However, the point which has finally tipped the balance of my mind in any event is that all these breaches could have arisen without negligence on the part of the defendants, but there is nothing in the clause which protects the defendants against the consequences of their own negligence. Despite the width of the third sentence (beginning "We hereby exclude ...")I do not think that this can be construed as having this effect. In this connection I would apply the well-known passage from the judgment of the Privy Council delivered by Lord Morton of Henryton in Canada Steamship Lines Ltd. v. The King (1952) AC 192 at page 208 to which Lord Fraser of Tullybelton also made reference in the Ailsa case.
This passage can be paraphrased as follows. (1) If the contract contains an express exemption from the consequence of negligence for which the party in default would otherwise be responsible, then effect must be given to it. (2) If there is express reference to negligence, then the court must consider whether the words used are nevertheless wide enough, in their ordinary meaning, to cover loss or damage due to negligence; but any doubt in this connection must be resolved against the defaulting party. (3) However, even if the words used are wide enough for this purpose, the court must consider whether liability for the loss or damage in question may arise on some ground other than that of negligence, which ground is not so fanciful or remote that the party in default cannot be supposed to have desired protection against it.
Applying these guidelines to the present clause, it clearly does not satisfy (1), since negligence is nowhere mentioned. In my view it also fails to satisfy (2); in this regard the position might well have been different if the magic words "howsoever caused" had qualified the words "loss or damage" in the third sentence: see e.g. Joseph Travers & Sons Ltd. v. Cooper (1915) 1 King's Bench 73 at page 101 and Gibaud v. Great Eastern Railway Co. (1921) 2 King's Bench 426 at page 437. However, even if this be wrong, I think that guideline (3) would still apply, since it seems perfectly consistent with the intention of both parties that the sellers should be protected if, but only if, the delivery of the wrong and/or of unmerchantable seed should occur without negligence on their part. It is true that, in the Ailsa case, Lord Fraser of Tullybelton appears to have qualified these guidelines to some extent where an exemption clause limits, but does not wholly exclude, liability, particularly in a context such as the fifth and sixth sentences of the present clause which draw attention to the business reasons for the inclusion of the clause. But his remarks were made in relation to a clause worded in unusually strong terms, covering "any loss or damage of whatever nature arising out of or connected with the provision of or purported provision of, or failure in provision of, the services covered by this contract". In my view the wording of the present clause does not go as far as this. Since the type, nature and characteristics of any seeds may be wholly unascertainable by a supplier (unless he himself tests them to full growth), it seems to me that the present clause can perfectly sensibly be restricted to cases where the seed supplied turns out to be of the wrong kind, and/or to be unmerchantable, without any fault on the part of the seller; but that the parties are not to be taken to have intended that its wording should also apply if, as in the present case, the buyer's losses would not have occurred if the seller had not been negligent.
I would accordingly hold that the defendants are not protected by the clause in the present case, because the plaintiffs would not have suffered this disaster if there had not been negligence on the part of the defendants' staff, and because the clause does not require to be construed so as to cover cases where the buyer's loss has been caused, at any rate In part, by the seller's negligence.
However, even if this be wrong, I would unhesitatingly also decide this case in favour of the plaintiffs on the ground that it would not be fair or reasonable to allow the defendants to rely on this clause, by applying section 55(4) and (5) in Schedule 1 to the Sale of Goods Act 1979. In this regard the balance of fairness and reasonableness appears to me to be overwhelmingly on the side of the plaintiffs, and I will only mention some of the most material facts in this connection.
The plaintiffs have suffered a loss of some £61,000 in terms of money; and in terms of time and labour the productivity of over 60 acres has been wasted for over a year. There was nothing whatever which the plaintiffs could have done to avoid this. As between them and the defendants all the fault lay admittedly on the side of the defendants. Further, farmers do not, and cannot be expected to, insure against this kind of disaster; but suppliers of seeds can. We were referred to a "Wrong Variety of Seed Indemnity Insurance Scheme", set up under the auspices of the United Kingdom Agricultural Supply Trade Association Ltd. (UKASTA), which provides an annual cover of £20,000. Although this particular scheme stipulates the exercise of due diligence on the part of the supplier, I am not persuaded that liability for rare events of this kind cannot be adequately insured. Nor am I persuaded that the cost of such cover would add significantly to the cost of the seed. Further, although the present exemption clause has been in existence for many decades, the evidence shows that it was never negotiated. In effect, it was simply imposed by the suppliers, and no seed can in practice be bought otherwise than subject to its terms. To limit the suppliers' liability to the price of the seed in all cases, as against the Magnitude of the losses which farmers can incur in rare 'disasters of this kind, appears to me to be a grossly disproportionate and unreasonable allocation of the respective risks. Furthermore, the evidence clearly shows that the clause not relied upon "to the letter" in practice, and that neither the suppliers nor the farmers expect it to be applied literally. Its existence merely provides a basis for the negotiation of mutually acceptable settlements. Thus, we were told that there had been some inconclusive negotiations in the present case, though no figures were mentioned. However, these negotiations do not matter, since the defendants are now seeking to uphold the clause to the letter. It is on this basis that we have to decide whether reliance on the clause would be fair or reasonable, and in my view the answer is clearly that it would not be.
Furthermore, to my mind there is another, overriding, consideration. It seems to me that this new legislation - the modified version of section 55 of the Sale of Goods Act and the Unfair Contract Terms Act - was designed for exempting provisions whose meaning is clear. Thus, one of the matters to be taken into account in judging fairness and reasonableness (under section 55(5)(c)) is "whether the buyer knew or ought reasonably to have known of the ... extent of the term". But we have had several days of argument about the meaning and effect of the present clause, and it is already clear to what extent opinions may differ about it. I do not think that this is the kind of situation for which this legislation was designed. It was designed for exempting provisions whose meaning is plain. Thus, if the present clause had been headed, for instance: "Supply of wrong or unmerchantable seed, whether by negligence or otherwise", the defendants' case in relation to fairness and reasonableness would to that extent be strengthened. The effect of the parties' bargain would then be plain. But businessmen do not choose make plain the meaning of the "small print" which they use, and often do not themselves know what it really means. In that event they must take the consequences of the uncertainty which their "small print" has created; and uncertainty involves unfairness to the other side. Perhaps the effect of this new legislation will bring about a welcome change in this respect. But so long as the meaning and effect of such provisions remains shrouded in obscurity unless and until determined by the courts (and to many minds even thereafter), I think that the courts should hold that reliance on such provisions would in any event be unfair and unreasonable.
Finally, I must briefly refer to R.W. Green Ltd. v. Cade Brothers Farms (1978) 1 Lloyd's Law Reports 602 on which Mr. Waller, Q.C. strongly relied on behalf of the defendants. In that case, seed potatoes had been sold subject to the standard form of conditions of the National Association of Seed Potato Merchants. These included a time limit for claims, and they also limited the supplier's liability to refunding the contract price. The potatoes were suffering from a virus which was undetectable by either party. Mr. Justice Griffiths (as he then was) held that the exempting provision protected the sellers and that it was neither unfair nor unreasonable for them to rely upon it. In the latter regard he used language suggesting that he was merely exercising a discretion, but I do not think that this was his intention. As stated by this court in Conemsco Ltd. v. Contrapol Ltd. (15th December I; unreported), a determination under section 55 or under the Unfair Contract Terms Act constitutes a decision, of mixed fact and law, and not merely the exercise of a discretion. But that case was very different from the present. In particular no blame attached to either party, and the standard condition had been negotiated within the trade. There was also no basis for argument about its meaning and effect. Further, there was evidence that the buyers could have purchased seed certified by inspectors from the Ministry of Agriculture at a small extra charge, whereas it was accepted on behalf of the defendants in the present case that there was nothing equivalent which the plaintiffs could have done. I therefore do not think that that case assists the defendants here in any way.
Accordingly, I would dismiss this appeal. I should add that since writing this judgment I have seen the report in the July issue of Lloyd's Law Reports of the decision of this court in Lamport & Holt Lines v. Coulro & Scrutton (M. & I.) Ltd. ("The Rafael") (1982) 2 Lloyd's Law Reports 42 in which the Canada Steamship Lines case was discussed in relation to a different exemption clause. However, it does not seem to me that this affects the analysis of the present clause as explained above.
(Order: Appeal dismissed with costs. Application for leave to appeal to the House of Lords refused)
