The High Court applies the present law regarding a duty of care to avoid pure economic loss, but it’s “unsatisfactory”:
Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25

By Jason Symons, Partner, Max Feng, Lawyer and Laura Vitagliani, Paralegal

 

Executive Summary

On 7 August 2024, the full court of the High Court of Australia (HCA) handed down its much-anticipated decision in Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] (Mallonland)[1] concerning a negligence claim for pure economic loss brought by a class action group of sorghum growers (the Growers) against Advanta Seeds (Advanta), a seed producer.

The HCA unanimously found Advanta did not owe the Growers the alleged duty of care and the appeal was dismissed with costs.  Joint reasons were given by Gageler CJ, Gordon, Steward, Gleeson, Jagot and Beech-Jones JJ.  Edelman J agreed with the other members of the Court, but further addressed two matters, emphasising the “highly unsatisfactory state of the present law”.[1]

Mallonland reiterates Australian courts’ reluctance to recognise that reasonable foreseeability is on its own sufficient to demonstrate the existence of a duty of care to avoid causing pure economic loss.  The HCA affirmed the general rule that damages are not recoverable in negligence for pure economic loss in Australia unless there is an assumption of responsibility by the defendant to the plaintiff or ‘salient features’ point to a relationship in which such a duty of care should be owed.[2]

Moreover, the judgement can be read as an invitation by the HCA to challenge the viability of the ‘salient features’ approach in identifying the existence of any relationship between the parties to afford the plaintiff a duty of care by the defendant in matters of pure economic loss.

However, while Mallonland did not provide the much-needed clarity regarding when a duty of care arises in claims for pure economic loss, the case is an endorsement to the principles of freedom of contract and the role a prominently displayed and clearly worded disclaimer can have in delimiting or eliminating any assumption of responsibility.

Lower Court History

The class action was first brought before the Supreme Court of Queensland by the Growers who had purchased sorghum seed produced by Advanta. Unknown to both parties, the bags of sorghum seeds were contaminated with shattercane seeds.[1]

The Growers sued for pure economic loss for the costs involved in removing the shattercane crop and leaving the contaminated land lie fallow for a number of new seasons. The Growers alleged Advanta breached a duty to take reasonable care in its production process to avoid the risk that the Growers would sustain pure economic loss by reason of a hidden defect in the seed.

At first instance, Jackson J found that Advanta was not liable to the Growers in negligence because Advanta did not owe them a duty of care. His Honour concluded that Advanta had positively denied any assumption of responsibility for the supply of uncontaminated seed.[2]

The Queensland Supreme Court of Appeal reaffirmed the lower court’s decision and agreed that the labels on the seed bags “operated as a disclaimer of an assumption of responsibility that the seed supplied would be free of contamination” and thereby “negated the existence of a duty of care to avoid causing economic loss”.[3]

Issue

The Growers appeal meant the sole issue before the HCA was:[1]

1. Whether Advanta owed the Growers a duty to take reasonable care in its production process of the seed to avoid the risk that the Growers would sustain pure economic loss by reason of a hidden defect in the seed.

Reasoning & Decision

(1) Reasonable foreseeability

The general rule is damages are not recoverable in negligence for reasonably foreseeable pure economic loss, that is where there is no injury to person or property.[1]  In a previous case, former Chief Justice Gleeson considered it “intolerable” any general rule that one person owes to another a duty to take reasonable care not to cause reasonably foreseeable financial harm.[2]

Importantly, in Mallonland, the HCA has maintained the general rule that reasonable foreseeability, while necessary, is not sufficient on its own to demonstrate the existence of a duty of care to avoid causing pure economic loss. [1] The Court found “it was reasonably foreseeable that the growers would suffer economic loss if reasonable care was not taken in the production process of the grain sorghum seed supported the existence of the duty of care, but only as a necessary and not as a sufficient condition”.[2]

In other words, damages for pure economic loss requires more than the defendant’s negligence being a cause of loss that was reasonably foreseeable.

In addressing what more is required, the HCA has essentially confirmed that a duty to take reasonable care to avoid causing pure economic loss will arise:

• out of an assumption of responsibility by a defendant, unless effectively disclaimed; or
• by application of the ‘salient features’ approach in finding such a duty of care, including consideration of the plaintiff’s vulnerability.[3]

(2) Assumption of responsibility / disclaimer

While recognising the term “assumption of responsibility” may lack precision and has been subject to criticism, the HCA indicated that the required assumption of responsibility is best understood as an expressed or implied undertaking by the defendant to take on a task for another person and they would take reasonable care in engaging in that task.[1]

Edelman J confirmed “the “position in Australia” is that an assumption of responsibility … is sufficient for the law of torts to recognise a duty to take reasonable care when that is what had been expressly or impliedly undertaken”.[2]  His Honour noted such an assumption can arise without any consideration[3], but the duty is owed only to those provided, or reasonably expected to be provided, the undertaking[4].

However, where a duty to take reasonable care to avoid causing pure economic loss arises out of such an assumption of responsibility, the defendant can negate or limit that assumption by words or conduct by the defendant.  For example, a defendant may deny an assumption of responsibility by an effective disclaimer.[5]

In this case, the Court found the disclaimer on the bags of seeds produced by Advanta had the effect of delimiting the nature of the product that it made available to the market. Specifically, the wording of the disclaimer had the effect of informing prospective buyers that:[6]

• the seeds were contaminated with other seeds within ‘recognised tolerances’; and
• Advanta is not assuming responsibility for production beyond the specifications on the packaging.

Edelman J found “no basis” for implying Advanta gave the required undertaking, but to the contrary, considered that “the “Conditions of Sale and Use” printed on the bags disclaimed any undertaking that could form the basis of an assumption of responsibility to ultimate consumers”.[7]

Notably, the HCA emphasised the role a relevantly worded and placed disclaimer to an unidentified class of potential users can play.

The Court clarified that the lower court’s decision “should not be understood to have meant that a duty of care arose, was breached, and was subsequently negatived by the opportunity that the growers

had to read the packaging”[1].  The Court further emphasised that “Contrary to the submissions for the growers, this was not a case of the producer merely attempting to disclaim its legal liability by agreement”.

Rather, the HCA found that consideration of the disclaimer on the packaging formed part of the “critical aspects of the objective features of the relationship between the producer and the growers”, and in turn, found “No duty of care could arise … because an integral part of the process of producing seed … included the warnings on the packaging about the very matter, the potential for impurities (including other seeds), that eventuated and caused the economic loss”.[2]

In doing so, Mallonland is authority for the limitation or negation of any assumption of duty in matters of pure economic loss by carefully confined words or conduct.

(3) The ‘salient features’ approach

In cases other than those involving an assumption of responsibility, the HCA indicated that determining whether a duty of care to avoid causing pure economic loss should be recognised, the nature and scope of the relationship between the parties must be evaluated through the ‘salient features’ approach as it is now known.[1]

The Court recognised this approach has also been the subject of significant academic and judicial criticism.[2]  Nonetheless, neither party argued the approach should not be followed in this case[3], and it was effectively forced to apply the approach.  Consequently, Edelman J said that given “the highly unsatisfactory state of the present law … a duty of care based upon “salient features” must be confined as narrowly as possible”.[4]

Accordingly, the HCA considered six matters (being the salient features of this case) the Growers relied on to support the alleged duty of care relating to the reasonable foreseeability of the relevant risk of economic loss, Advanta’s knowledge of the risk and ability to control it, the Growers’ vulnerability, and whether recognising the alleged duty would give risk to legal incoherence.[5]

The Court first considered the type of knowledge held by Advanta and their role in mitigating the risk of contaminated seed. Critically, the Court was satisfied that Advanta did not have knowledge of the types of contaminated seeds or the classes of persons who would suffer an economic loss if it contained the shattercane variety.[6]

Moreover, the Court found that Advanta’s wording of the disclaimer communicated to any future classes of persons that it could not absolutely control the risk of seed contamination by its production process. [7]

Having concluded that Advanta did not attain the requisite knowledge supporting the existence of a duty of care, the HCA proceeded to carefully examine the plaintiff’s “vulnerability” to the economic loss that eventuated.[8] In this, the Court affirmed that the mere likelihood of suffering economic loss if reasonable care is not taken does not amount to vulnerability.[9]

In assessing the relevant vulnerability, the HCA found the Growers were able to protect themselves.[10]  In fact, the wording of the disclaimer meant:

• future purchasers could inform themselves of the contamination risks;
• the Growers were free to decide whether to plant or not to plant the seed on that basis; and
• the product could be returned unopened if any prospective buyers did not want to accept the impurity risks.

Ultimately, the HCA found that the Growers’ arguments failed as the “facts fall far short of identifying a relationship between the producer and the growers that would lead to the existence of a duty to take reasonable care when producing the grain sorghum seed to avoid causing the growers pure economic loss of the type claimed”.[11] 

Edelman J considered that the ‘salient features’ approach is “little more than an insistence that each case will turn upon its own facts”.[12]  Applying the narrow approach to the facts of this case, His Honour found the Growers’ case with regard to its “two central salient features” relating to control and vulnerability as too weak to impose the alleged duty of care.[13]

Comments & Further Considerations

Not surprisingly, Mallonland reaffirmed the HCA’s hesitation to impose liability in negligence cases involving pure economic loss. However, while our highest court continues to entertain the ‘salient features’ approach, the HCA, or at least Edelman J, has signalled a willingness to re-examine Australia’s jurisprudence on negligence matters involving pure economic loss in the next case.

In the meantime, where a party has assumed responsibility for taking reasonable care to avoid causing pure economic loss to another party, Mallonland is authority that a carefully worded disclaimer can play a role in limiting or negating the assumption and the damages arising from the pure economic loss suffered.  This is helpful while the “unsatisfactory” state of the law is addressed.

Footnotes:

[1] Mallonland v Advanta Seeds Pty Ltd [2024] HCA 25 (Mallonland).

[2] Mallonland at [59].

[3] Mallonland at [36].

[4] Mallonland Pty Ltd v Advanta Seeds Pty Ltd (2021) 7 QR 234 (Mallonland 2021).

[5] Mallonland 2021 at 284 [205].

[6] Mallonland Pty Ltd v Advanta Seeds Pty Ltd (2023) 13 QR 492 (Mallonland 2023) at [110].

[7] Mallonland at [2].

[8] Mallonland at [30].

[9] Mallonland at [82] referring to Gleeson CJ in Perre v Apand Pty Ltd (1999) 198 CLR 180 at 192 at [4].

[10] Mallonland at [32].

[11] Mallonland at [50].

[12] Mallonland at [36].

[13] Mallonland at [33].

[14] Mallonland at [65].

[15] Mallonland at [61].

[16] Mallonland at [66].

[17] Mallonland at [34].

[18] Mallonland at [45].

[19] Mallonland at [67].

[20] Mallonland at [48].

[21] Mallonland at [48].

[22] Mallonland at [36].

[23] Mallonland at [36] and [94]-[95].

[24] Mallonland at [36].

[25] Mallonland at [59] and [104].

[26] Mallonland at [42] and [49].

[27] Mallonland at [51].

[28] Mallonland at [52].

[29] Mallonland at [39].

[30] Mallonland at [39].