15 April 2021

Further seeds of doubt in relation to duty of care for pure economic loss

This article was written by Emma Lawrence, Emma Costello, Peta Stevenson, Scott Bouvier, Rhys Casey and Heath Lewis

Contamination allegedly caused by agricultural products is a fast-growing area for plaintiff class action lawyers.  Last week, the Queensland Supreme Court dismissed a class-action against Advanta Seeds (Advanta), in a decision which revisits the factors required to establish a duty of care and the challenges faced by plaintiffs in bringing pure economic loss claims. The decision also highlights the potential importance of disclaimers in commercial dealings and serves as a reminder to agricultural businesses to be cognisant of industry practices, particularly those standards that may minimise or prevent contamination impacting a large number of businesses. 

Background

The defendant, Advanta, specialised in seed production and agricultural research and development.

In 2010, a number of farming businesses (the plaintiffs) purchased Advanta’s sorghum MR43 seed through a distributor. The seed was used to grow sorghum crops in the summer of 2010/2011 across multiple regions. The plaintiffs primarily alleged (among other claims) that the MR43 seed produced by Advanta was contaminated with seed of another subspecies and that the contamination occurred because of the negligence of Advanta in producing the MR43 seed.

A class action was commenced against Advanta in 2017, alleging both negligence and misleading or deceptive conduct. The plaintiffs (group members whose properties had been actually contaminated by the MR43 seed) sought damages for pure economic loss arising from increased farming expenses and decreased grain production. The plaintiffs did not claim compensation for physical damage to their property to avoid potential limitation defences.   

Duty of care

In circumstances where there was no direct contractual relationship between Advanta (producer of the seed) and the plaintiffs (end users of the seed), the key question before the Court was whether Advanta owed a duty of care to the plaintiffs or any of the group members to avoid the risk of economic loss in relation to the supply of the contaminated product. A duty to avoid pure economic loss is generally much more challenging to establish as opposed to a duty to avoid personal injury or property damage, mainly due to the difficulties with establishing reasonable foreseeability of the harm claimed and the indeterminate nature of the potentially affected group.

Justice Jackson accepted Advanta’s argument that the terms of sale on the bags of seed operated as a disclaimer of an assumption of responsibility and dismissed the plaintiffs’ negligence claims. Because of the fine print on the labels, the defendant did not owe a duty to take reasonable care to avoid the risk of economic loss. While the finding was very fact specific, manufacturers of agricultural products that have the potential to cause contamination should carefully consider disclaimers that are made on their products.

If the plaintiffs had been able to establish that a duty of care was owed, the Court confirmed that Advanta would have breached that duty.

The misleading and deceptive conduct claim was also dismissed on the basis that the plaintiff failed to establish that certain representations were made or that Advanta had the requisite state of knowledge to support the misleading or deceptive case.  There was no discussion as to whom within Advanta was the directing mind and will and had the requisite knowledge that was to be attributed to Advanta.

Key takeaways from the decision

While this decision is very fact specific, in exploring whether a duty was owed to the plaintiffs, his Honour provided some helpful general commentary both in relation to the ‘salient features’ relevant to establishing a duty of care and also in relation to Australian consumer law claims in the context of contamination and product liability.

Some of the key takeaways from the decision are:

  • The onus is on the plaintiff to allege and prove the relevant facts necessary to give rise to a duty of care against pure economic loss.
  • Courts are traditionally reluctant to impose a duty to avoid pure economic loss (due to the risk of indeterminate liability) and this decision confirms that the pathway for establishing liability for pure economic loss is a difficult one, compared to establishing a duty to avoid property damage (for example).
  • To overcome the limitation issue that existed, his Honour was prepared to accept that as the claim was for loss of profits (as opposed to compensation for damage to land) that the damage did not arise until the loss was crystallised by way of impact on profits. That is, when loss is actually suffered to cash flows as opposed to when the property damage occurred by way of contamination to the property.
  • Vulnerability remains a key salient feature in determining whether a duty of care exists. However, his Honour noted that in certain consumer-like transactions, when the goods are being sold by a retailer or distributor and are supplied in a packaged condition as new goods that are not examinable before purchase, it may be unrealistic to say that the end purchaser is in a position to protect itself against economic loss caused by the negligence of the producer by an appropriate contractual warranty obtained from the retailer or distributor.
  • Assumption of responsibility is an important feature in determining the existence of a duty of care to avoid economic loss. Assumption of responsibility can be negated by an express disclaimer of responsibility.  In this case, the existence of the sale terms printed on the bags of seed was critical in determining that the defendants did not owe the plaintiffs a duty of care.
  • The plaintiff sought to make an aggregated group damages claim under s103V of the Civil Proceedings Act 2011 (QLD). While his Honour did not consider it necessary to decide whether aggregate damages can be awarded in a representative proceeding involving operational lost crop profits arising out of a breach of duty case, he highlighted that the fact the quantum of damage in each group member’s case is individual meant that no reasonably accurate assessment of the total amount could be made. This suggests that for mass tort liability claims in which each claimant’s loss will be bespoke, the ability to rely on s103V will be challenging.

Full judgment here.

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