Case note - Mallonland Pty Ltd & Anor v Advanta Seeds Pty Ltd

The High Court of Australia, in Mallonland Pty Ltd & Anor v Advanta Seeds Pty Ltd [2024] HCA 25, has confirmed the principles governing when a common law duty to take reasonable care to avoid pure economic loss will arise.

Background

In the summer of 2010/2011 a number of commercial sorghum growers (Farmers) purchased grain sorghum seed (Sorghum Seed) manufactured by Advanta Seeds Pty Ltd (Advanta) from third party distributors.  

At the time of purchase, it was unknown that the Sorghum Seed was contaminated with shattercane.  Shattercane is a form of grass that appears physically similar to sorghum, is not useable for grain crops, and shatters at the head, spreading the seeds widely. Shattercane competes vigorously with sorghum, and its effect is felt over many seasons. Eradication requires fields to be sprayed and left uncultivated or switched to crops that generate lower profits for multiple growing seasons.

The Sorghum Seed bags contained a disclaimer in large bold print:

“ATTENTION
CONDITIONS OF SALE AND USE

Upon purchasing this product and opening the bag, the purchaser (‘you’) agrees to be bound by the conditions set out below. Do not open this bag until you have read and agreed with all the terms on this bag. If, before opening the bag, these conditions are not acceptable to you, the product should be returned in its original condition to the place of purchase immediately, together with proof of purchase, for a refund. The product contained in this bag is as described on the bag, within recognised tolerances.

CONDITIONS

You agree that:

• ….except to the extent of any representations made by [Advanta’s] labelling of the product in this bag….it remains your responsibility to satisfy yourself that the product in the bag is for its intended use;
• If the product in this bag dos not comply with its description, within recognised tolerances, the liability of [Advanta] will be limited… solely to the cost of replacement of the product or the supply of equivalent goods or the payment of the cost of replacing the goods or of acquiring equivalent goods;
• [Advanta] will not be liable to you or any other person for any injury, loss or damage caused or contributed to by [Advanta]… directly or indirectly arising out of or related to the use of the product in this bag, whether as a result of their negligence or otherwise;….”

(Disclaimer)

As a result of the contamination, the Farmers incurred the cost of applying insecticides and herbicides to the crops, and loss of revenue due to leaving the fields unsown for a number of seasons or returning less lucrative crops.

Farmers’ claim - Supreme Court and Court of Appeal

The Farmers pursued a class action against Advanta in the Supreme Court of Queensland, alleging it breached a duty to take reasonable care in manufacturing the Sorghum Seed to avoid the risk that the Farmers would suffer pure economic loss.

Both the trial judge[1] and the Court of Appeal[2] found that Advanta was not liable to the Farmers in negligence because Advanta did not owe them a duty of care.

The Court of Appeal upheld the decision of the trial judge, and relevantly found:

1. The inclusion of the disclaimer on the Sorghum Seed bags supported Advanta’s position that it had not assumed direct responsibility to the Farmers:
   1. a lack of assumption of responsibility indicates a lack of duty of care and can be negated by an express disclaimer of responsibility
   2. the objective test for determining whether a disclaimer negated an assumed responsibility is that it “must be of such clarity and prominence to convey that the manufacturer is not accepting responsibility for the product supplied in the event it causes relevant loss”[3]
   3. the use of the headlines “ATTENTION” and “CONDITIONS OF SALE AND USE” drew the end user’s attention
   4. the disclaimer was in plain English, used words and phrases that were understandable to people without legal knowledge and the headings caught the reader’s attention and signified importance, and
   5. the size of the disclaimer on the Sorghum Seed bags were clear and prominent.
2. Although the trial judge was correct in finding some vulnerability on behalf of the Farmers, that did not on its own justify the recognition of a duty of care. Additionally, the use of the disclaimer on the Sorghum Seed bags allowed the end user to make an informed decision about the purchase and therefore was not an appropriate argument in the circumstances. Bond JA also criticised the Farmers argument noting the law of tort should not be used as a remedy for inequality of bargaining power in the cases of commercial consumers.
3. Additionally, by reference to the ACL, statutory protections are specifically provided for domestic consumers against manufacturers, and do not extend to commercial consumers, such as the Farmers. Therefore, the Court of Appeal was hesitant to make a finding that would extend the protections afforded by the ACL to commercial consumers.

High Court of Australia

The Farmers appealed to the High Court of Australia (High Court), which dismissed the appeal.

The High Court confirmed the general rule that damages are not recoverable in negligence for pure economic loss[4] as a person does not ordinarily owe a duty to take reasonable care to avoid causing reasonably foreseeable pure economic loss to another.[5] However:

• a duty may be established where a defendant has assumed a responsibility towards the plaintiff to take reasonable care to avoid economic loss
• the entirety of the relationship must be assessed to determine whether this responsibility has been assumed, and
• the duty may be negated or limited by words or conduct.

The key findings related to Advanta’s knowledge, and the presence of the Disclaimer on the Sorghum Seed bags.

As to knowledge, the High Court found:

• Advanta knew that if it did not take reasonable care in its production processes, there was a risk that any persons who would purchase and plant the Sorghum Seed would suffer economic loss if the seed contained an off-type seed with a shattering characteristic.
• However, Advanta did not know:
  • the Sorghum Seed was contaminated
  • of the risk of economic loss to the Farmers specifically, because Advanta did not know that they would purchase and plant the contaminated seed, and
  • that want of care in the production of the contaminated seed would or could cause economic loss of the magnitude that was suffered by the Farmers.
• The most that can be said of Advanta’s knowledge is that:
  • when the contaminated seed was produced, Advanta knew that future purchasers would have more difficulty controlling or eradicating a sorghum off-type with a shattering characteristic if it was present amongst the seed, and
  • if it was planted and it germinated, matured and dropped seed, such purchasers would probably have more difficulty controlling a sorghum off-type with a shattering characteristic in a sorghum crop than an off-type without that characteristic.
• The High Court noted that this kind of knowledge is far distant from the kind identified in other cases as supporting the case for finding a duty of care to avoid economic loss.

The presence of the Disclaimer was important because it supported the finding that the Farmers were not vulnerable to the type of economic loss that eventuated.  The Disclaimer allowed the Farmers to protect themselves as it meant that they:

• could inform themselves that the Sorghum Seed might not be free from contamination
• were able to make an informed choice to plant or not to plant seed that might not be free from contamination
• could have returned the Sorghum Seed if they did not want to accept the risk of impurity.

Implications

Claims for pure economic loss can be complex, with careful consideration required of the entirety of the relationship. The High Court’s decision provides useful guidance as to the principles to be applied. This decision also emphasises the critical importance of clear and obvious disclaimers on packaging.

[1]     Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2021] QSC 74   

[2]     Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2023] QCA 24 

[3]     Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2023] QCA 24 [at 115]

[4]     Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 (Caltex), Perre v Apand Pty Ltd (1999) 198 CLR 180 (Perre v Apand) and Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 (Woolcock)

[5]     Caltex, Perre v Apand, Woolcock and Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241