Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25

Andrew Orford  |  Petrina Macpherson  |  Connor Wright

Key takeout

The High Court has dismissed a class action appeal and held that a seed producer did not owe growers a duty to take reasonable care in its seed production, to avoid the risk that the growers would sustain pure economic loss due to a hidden defect in the seed.

Significance

Pure economic loss arises where financial loss occurs without injury to a person or damage to property. This decision affirms the position that a person does not owe a duty to take reasonable care to avoid causing reasonably foreseeable pure economic loss to another.  If a defendant assumes a responsibility to a plaintiff to take reasonable care to avoid causing economic loss to the plaintiff, a duty of care may be established. 

Although this is a case about seed production, it is relevant in the construction context as claims for economic loss are commonly made against builders and consultants by subsequent purchasers of property where latent defects manifest after purchase. It is consistent with the decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 (Brookfield) where the High Court held that a builder did not owe an owners corporation of a building a duty of care to avoid pure economic loss resulting from latent defects in the common property. However, in Brookfield, the High Court identified a lack of vulnerability as determinative of the absence of a duty of care.  In the present case, the fact that the producer did not assume responsibility for any economic loss suffered by the growers was central to the High Court’s decision

Facts

The appellants, Mallonland Pty Ltd (growers) were farmers of grain sorghum. The respondent, Advanta Seeds Pty Ltd (producer) produced grain sorghum seed for distribution and sale to Australian growers. Each of the growers purchased bags of grain sorghum seed for planting, from a distributor authorised by the producer. The bags were contaminated with shattercane seed, the presence of which is detrimental to grain sorghum cultivation.

After the growers planted the seed, they became aware of the contamination. The growers had no way of detecting the contamination prior to planting. To prevent the shattercane from disrupting their grain sorghum businesses, the growers stopped growing sorghum and remediated the affected fields. The growers’ consequential losses comprised the costs of removing the shattercane plants or seedlings, applying insecticides and herbicides, and leaving the affected fields to lie fallow for several seasons or planting less remunerative crops in those fields.

The producer did not sell the contaminated seed directly to growers. Rather, the producer supplied the seed to distributors in labelled 20kg bags. In turn, the distributors supplied the seed to growers in the labelled bags. At the time the seed was supplied to the market, and later, when it was planted by the growers, the producer did not know that the seed was contaminated with shattercane.

Importantly, the bags bore prominent labels on the back and front (packaging) that informed prospective buyers that the risk of using the product lay with the buyer and that the producer did not accept any responsibility for damage or loss caused by negligence on its part. The packaging included clear statements that the bag could contain up to 1% of other plant matter, that the bag must only be opened if the buyer had read and agreed with the conditions on the bag and that the buyer should return the bag for a refund if the conditions were not acceptable.

The growers commenced a class action in the Supreme Court of Queensland, in which they alleged that they purchased contaminated grain sorghum seed from a distributor authorised by the producer and consequently suffered pure economic loss in the form of reduced income and increased expenditure. The growers did not allege that the shattercane caused them property damage or that their economic loss was consequential on property damage.

Both the Supreme Court and the Court of Appeal found the producer was not liable to the growers in negligence because the producer did not owe the growers a duty to take reasonable care in its production process to avoid the risk that the growers would sustain purely economic losses by reason of a hidden defect in the bags of seed. The growers appealed to the High Court of Australia.

Decision  

The growers’ arguments failed.  In their joint judgment, Chief Justice Gageler and Justices Gordon, Steward, Gleeson, Jagot and Beech-Jones found that the facts did not identify a relationship between the producers and the growers that would lead to the existence of a duty to take reasonable care when producing the grain to avoid the causing the growers pure economic loss of the type claimed.

There were seven reasons why the producer did not owe the growers a duty of care.

1. The producer, through the packaging on the seed bags, intended that a future purchaser would be able to make an informed choice to plant the seed. No duty of care could arise where warnings on the packaging about the potential for impurities went to the very matter that eventuated and caused the economic loss.
2. While 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, this was by itself insufficient to support existence of the duty of care.
3. The producer did not know that that the seed was contaminated. Rather, it only knew that if it did not take reasonable care in its production processes, there was a risk that persons who would purchase and plant the seed would suffer economic loss if the seed was contaminated. However, that was not knowledge of the risk of economic loss to the growers specifically, because the producer did not know that those growers would purchase and plant the contaminated seed. Furthermore, the producer did not have knowledge 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 growers.
4. The producer’s capacity to control the risks of seed contamination by careful production was not absolute, as communicated by the packaging of the seed. There was no indication on the packaging that the contaminated seed was uncontaminated or different from its description on the labelled bags.
5. The growers were able to protect themselves from the risk of shattercane in their crops and the economic loss that would result if that risk materialised. The packaging enabled the growers to inform themselves that the seed might not be free from contamination and to decide whether or not to plant the seed. On receipt of the seed in the packaging, the growers were able to make an informed choice to plant seed that might not be free from contamination.
6. The fact that the growers fell within an ascertainable class of persons likely to be affected by the producer’s careless production of contaminated seed did not support the existence of the duty of care. Rather, it excluded the possibility that an indeterminate class of person would be liable, which generally denies the existence of a duty of care.
7. Imposing the duty argued by the growers on the producer would be contrary to principles decided in previous cases with respect to a person owing a duty of care for pure economic loss. 

In a separate concurring judgment, Justice Edelman agreed with the majority’s decision and reasoning. His Honour held that the producer did not owe a duty for an additional two reasons.

The growers were not vulnerable to the risk of contaminated seed because the growers had methods by which they could reduce the extent of their vulnerability to the risk which was controlled by the producer.

The producer did not assume responsibility for the manufacture of the seed because there was no evidence that the producer gave any undertaking to third parties that care would be taken to ensure that the grain sorghum seed was free from contamination. Rather, the text printed on the packaging disclaimed any undertaking that could form the basis of an assumption of responsibility to ultimate consumers.