High Court decides seed producer does not owe a duty to farmers to take care in avoiding contamination
On 7 August 2024 the High Court of Australia handed down its decision in Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25 (Mallonland). The Court[1] held that a party will not be liable in negligence for causing pure economic loss where they have not assumed a responsibility to the relevant person or class of persons and there are no other special circumstances that warrant a finding of liability.
Background
The dispute in Mallonland arose out of a relationship between a producer, distributor, and growers of sorghum, a grain farmed for animal feed and biofuel. Advanta Seeds produced and sold sorghum seed to distributors around Australia. The seed was packaged in bags bearing prominent labels, including a disclaimer with the words “[the producer] will not be liable to you or any other person for any injury, loss or damage caused or contributed to by [the producer]… arising out of or related to the use of the product in this bag”.
Mallonland purchased bags of Advanta sorghum seed from a distributor (who was not a party to the proceeding). Some months after planting the seed, growers discovered that the seed had been contaminated with a different subspecies (shattercane) that produced a less valuable crop. The growers commenced proceedings against Advanta alleging breach of a duty to take reasonable care in the production process to avoid the risk of hidden defects in the bags of seed.
Types of harm
Common law claims in negligence differ depending on the type of harm suffered by the plaintiff. The three principal categories of harm are personal injury, property damage and pure economic loss. The House of Lords recognised pure economic loss as actionable in negligence in Hedley Byrne& Co v Heller & Partners Ltd [1964] AC 465. However, the requirements for establishing a duty of care to avoid pure economic loss are generally more onerous than in cases of personal injury or property damage. This has reflected a reticence of Australian Courts to award damages to plaintiffs that have not suffered any physical harm to property.
At first instance, Jackson J found that the contaminated seed had not caused damage to property as neither the soil nor the crop were damaged per se by the shattercane.[2] Rather, the harm suffered was purely economic, being the reduced value of the harvested crop and the increased cost of harvesting the impure crop.
This reasoning was not disturbed by either the Court of Appeal[3] or the High Court, and was critical to the High Court’s conclusion on duty. While the risk posed to the growers was found to be reasonably foreseeable, the High Court decision reflects that pure economic loss cases require ‘something more’ than reasonable foreseeability for a duty of care to be found. While the relevance of the “salient features”, including the knowledge producers had of the risk and the vulnerability of the growers, was considered, the High Court concluded that any knowledge the producer had of the risk was not sufficiently specific to support the existence of a duty of care, including because the producer was not aware of the identity of particular growers that eventually purchased the contaminated seed. Similarly, the growers were not found to be especially vulnerable given the disclaimer on the labels on the bags.
The effect of a disclaimer
Another element of the Court’s decision was whether the producer had assumed responsibility to ultimate purchasers of its seed products, including Mallonland, to take care to avoid risks to the end users of the grain it produced. The Court found the disclaimer to be determinative – while a party may well owe a duty to avoid causing economic loss to a person where they assume that responsibility, it is entitled to limit that assumption of responsibility by words or conduct directed to that person (which the producer had done here by the words on the label).
Importantly, the disclaimer did not create a contract with end users of the product. Rather, it simply demonstrated that the producer had not assumed responsibility for avoiding contamination. An assumption of responsibility by the producer to take care to avoid contamination may be implied in a contract with its direct customers (ie the distributor), but the disclaimer was sufficient evidence to conclude that the producer had not assumed responsibility for third parties, including the growers.
Takeaways
Mallonland is a useful reminder of the high threshold for establishing liability in cases involving claims of negligence for pure economic loss. In such cases, it is clear that plaintiffs must prove something more than the reasonable foreseeability of harm to prove the existence of a duty.
A disclaimer may not be an easy fix for commercial producers to avoid liability for negligence in every case but in the context of considering whether a duty of care exists, a disclaimer can at least weigh against an assumption of responsibility. Without specific knowledge of a risk and the party who is affected by the risk, and in an absence of vulnerability, Mallonland suggests that a producer is not likely to be found liable for pure economic losses suffered by an end user of its products.
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Gageler CJ, Gordon, Steward, Gleeson, Jagot and Beech-Jones JJ gave a joint judgment in favour of the respondent; Edelman J agreed with the plurality’s conclusion and orders but gave a separate judgment.
Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2021] QSC 74 at [511].
Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2023] QCA 024.
