Exercise 2C. Reading a Case

Of course, judges do exactly the same thing as we have been doing in the previous exercise in deciding a case. Where the only law applicable to a given case is judge made law, the judge has to come to a view as to what that area of law says. The only way he can do this is to look at the previous decisions relevant to that area of law and come to a view as to what rule provides a good enough explanation of those decisions. So reading cases is the best way of learning how lawyers reason their way towards a conclusion as to what the law in a particular area says, and also exposes you to a wonderful storehouse of ideas and suggestions as to what the law says in a particular area.

Learning how to read cases is therefore an important part of a law student’s education. This exercise is simply about reading. Below is a copy of a judgment by Lord Denning, the Master of the Rolls, in one of the last cases he decided before retiring – George Mitchell (Chesterhall) Ltd v Finney Lock Seeds (1982). Lord Denning was the greatest English judge of the second half of the 20th century. While he would irritate many by seeming to play fast and loose with previously decided cases, with the result that he would seem to decide cases in the way he thought was ‘fair and just’ rather than in a way that was consistent with or coherent with the existing authorities, he was a master of weaving together multiple cases into stories and patterns that would support particular views of the law. This ability to knit together multiple authorities in a way that makes sense of them was the subject of the last exercise. This exercise is simply about seeing, and appreciating, a master of the art at work. So for this exercise, simply read the following judgment with an eye on how Lord Denning uses the existing authorities to create a compelling argument in favour of deciding the case in the way he did.

LORD DENNING M.R.

In outline

Many of you know Lewis Carroll’s ‘Through the Looking Glass.’ In it there are these words (Ch. IV):

‘The time has come,’ the Walrus said,

‘To talk of many things:

Of shoes – and ships – 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 (Chesterhall) 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] A.C. 827 and Ailsa Craig Fishing Co. Ltd. v. Malvern Fishing Co. Ltd. and Securicor (Scotland) Ltd., 1982 S.L.T. 377.

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 Finney’s 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 February 14, 1974. ‘30 lbs. Cabbage. Finney’s Late Dutch Special £192.00… 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 aforesaid. 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 emphasised. 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, Photo Production Ltd. v. Securicor Transport Ltd. [1980] A.C. 827 and Ailsa Craig Fishing Co. Ltd. v. Malvern Fishing Co. Ltd. and Securicor (Scotland) Ltd., 1982 S.L.T. 377, I would have been inclined to decide the case as the judge did. I would have 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, 1982 S.L.T. 377 where he said, at p. 380:

‘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. London, Midland and Scottish Railway Co. [1930] 1 K.B. 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. F. Graucob Ltd. [1934] 2 K.B. 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] A.C. 351; London and North Western Railway Co. v. Neilson [1922] 2 A.C. 263; Cunard Steamship Co. Ltd. v. Buerger [1927] A.C. 1; and by Canada Steamship Lines Ltd. v. The King [1952] A.C. 192 and Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd. [1959] A.C. 576 in the Privy Council; and innumerable cases in the Court of Appeal, culminating in  Levison v. Patent Steam Carpet Cleaning Co. Ltd. [1978] Q.B. 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 K.B. 426; Alderslade v Hendon Laundry Ltd. [1945] K.B. 189 and Gillespie Bros. & Co. Ltd. v Roy Bowles Transport Ltd. [1973] Q.B. 400 .

Fundamental breach

No doubt has ever been cast thus far by anyone. But doubts arose when in this court – in Karsales (Harrow) Ltd. v. Wallis [1956] 1 W.L.R. 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 W. & S. Pollock & Co. v. Macrae, 1922 S.C.(H.L.) 192; by Lord Atkin and Lord Wright in Hain Steamship Co. Ltd. v. Tate & Lyle Ltd. (1936) 41 Com.Cas 350, 354 and 362–363 respectively and by Devlin J. in Smeaton Hanscomb & Co Ltd. v. Sassoon I. Setty, Son & Co. (No. 1) [1953] 1 W.L.R. 1468, 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 Société d’Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 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 p. 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 Law Commission’s Exemption Clauses In Contracts, First Report: Amendments to the Sale of Goods Act 1893 (Law Com. No. 24, H.C. 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 the Law Commission’s Exemption Clauses, Second Report (Law Com. No. 69, H.C. 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. & Co. Ltd. v. Roy Bowles Transport Ltd. [1973] Q.B. 400, 416 and Photo Production Ltd. v. Securicor Transport Ltd. [1978] 1 W.L.R. 856 , 865:

‘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 ([1980] A.C. 827 and 1982 S.L.T. 377) 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 shipowners 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 ([1980] A.C. 827) 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, MacKenna J., which I myself quoted with approval: see Photo Production Ltd. v. Securicor Transport Ltd. [1978] 1 W.L.R. 856, 865. 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 in Photo Production Ltd. v. Securicor Transport Ltd. [1980] A.C. 827 , 846:

‘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 p. 851:

‘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 newfound 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 (1982 S.L.T. 377) 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 50 years ago in Atlantic Shipping and Trading Co. v. Louis Dreyfus and Co. [1922] 2 A.C. 250 , 260:

‘There is no difference in principle between words which save them from having to pay at all the words which save them from paying as much as they would otherwise have had to pay.’

If you read the speeches in the second Securicor case, 1982 S.L.T. 377, 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 Sale of Goods Act 1893 (as substituted by section 4 of the Supply of Goods (Implied Terms) Act 1973: see now section 55 (3) of and Schedule 1, paragraph 11, to the Sale of Goods Act 1979). It says:

‘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 R. W. Green Ltd. v. Cade Bros. Farms [1978] 1 Lloyd’s Rep. 602 . There Griffiths J. 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 20 years. The judge said, at p. 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 p. 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: £61,000. 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 [1981] 1 Lloyd’s Rep. 476, 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 onto 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.

Next page: Exercise 2D. Reading a Statute