It’s all in the detail: Written disclaimer safeguards producer in Australia

Refinement of duty of care owed by producers for pure economic loss. A written disclaimer provides protection to a producer. No duty of care owed.

High Court Decision in Mallonland Pty Ltd ACN 051 136 291 & Anor v Advanta Seeds Pty Ltd ACN 010 933 061 [2024] HCA 25

Background

In a significant product liability case, on 7 August 2024, the High Court dismissed an appeal from a decision of the Supreme Court of Queensland (Court of Appeal). The appeal was a class action which addressed the principles governing when a common law duty to take reasonable care to avoid causing pure economic loss can arise.

This case involved the appellants (referred to as “the growers”), who sought damages for pure economic loss in the form of reduced income and increased expenditure. This was allegedly caused by the respondents (“the producer”) whose negligent production of commercial hybrid grain sorghum seed was contaminated with the seed of another plant known as shattercane. As a result of the contamination, the growers incurred losses comprised of the costs of roguing the affected fields, applying insecticides and herbicides to the crops, and a loss of revenue due to leaving the affected fields unsown for several seasons or planting less remunerative crops in the fields.

The decision is to be distinguished from an earlier landmark High Court decision on the duty of care owed for pure economic loss sustained in similar agriculture circumstances in Perre v Apand Pty Ltd (1999) 1978 CLR 180. In that case an importer of diseased potato seed sold to potato growers was found to owe the growers a duty of care for the economic loss they suffered from the use of that seed.

Issues

There were three issues identified within this case:

1. Whether the producer 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,
2. Whether the producer had assumed a responsibility towards the growers to take reasonable care to avoid causing them pure economic loss, and
3. Whether the salient features of the relationship between the producer and the growers established a duty of care to avoid causing pure economic loss.

Decision

Both the primary judge and the Court of Appeal had held that the producer was not liable for negligence, as no duty of care was owed to the growers.

The High Court upheld this decision, finding that the producer did not owe the growers a duty of care to take reasonable care in its production process to prevent the risk of pure economic loss by reason of a hidden defect in the seed.

Typically, a duty of care for pure economic loss may arise if the defendant/respondent has assumed responsibility to the plaintiff/appellant. In this case, no such assumption of responsibility was established. Moreover, the facts did not indicate a relationship between the producer and growers that would create a duty of care in producing the grain sorghum seed to avoid the type of economic loss claimed.

When the producer has not been found on the facts to have accepted responsibility for any economic loss that the growers may suffer, a "salient features" analysis may be used as an alternative to assess whether a duty of care should be imposed. In previous decisions, the High Court has identified those salient features, but there has commonly been some controversy around the importance and weight each feature should bear in the analysis.  Those salient features will include knowledge of the defendant that their action or inaction may cause economic loss to an identified class of plaintiff, and the “vulnerability” of those plaintiffs, characterised as an inability of plaintiffs to protect themselves from economic harm.  

In this case, although the risk of loss to the growers was deemed reasonably foreseeable, the High Court emphasised that this has never been sufficient for the recognition of a duty of care to avoid causing pure economic loss to another. Moreover, the court considered the knowledge producers had of the risk of economic harm and factors of the growers’ control and vulnerability. It was concluded that the producer’s knowledge was too general to support a duty of care, particularly because the growers were unidentified members of a class of potential users of the producer’s product that purchased the contaminated seed. Additionally, the growers were not found to be particularly vulnerable, due to the disclaimer on the seed packaging which warned about the possibility of defective or impure seed.

Key Findings

The Disclaimer on Seed Packing

A key aspect of the High Court’s decision was the disclaimer on the seed bag, which reflected the producer’s awareness of the possibility of defective or impure seed.

The rear of the bag was printed with a disclaimer which stated “[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] … directly or indirectly arising out of or related to the use of the product in this bag.” By opening the bag, the growers (as consumers) accepted these conditions, with the risk of using the product falling on them, and thereby relieving the producer of any responsibility for damage or loss caused by negligence on their part. The disclaimer allowed the growers to “make an informed choice, in it’s own interests, to plant or not to plant the seed”.

The High Court determined that the disclaimer, using simple language, effectively communicated that the producer had not assumed responsibility for contamination. While there might be an implied responsibility for the producer to avoid contamination in its dealings with its direct customers (such as the distributor), there was no basis in any evidence that the producer gave any undertaking to third parties (the growers) to ensure that the grain sorghum seed was free from contamination. The disclaimer provided sufficient evidence that the producer had not assumed responsibility for the growers.

Recommendations

In the right circumstances and with respect to the supply of products, a producer, manufacturer or distributor may be able to effectively negate any assumption of responsibility for economic loss suffered by including a well-drafted disclaimer on their product (as mentioned by the primary judge and the Court of Appeal). This strategy allows companies to safeguard themselves from liability for claims arising for pure economic loss, particularly when the disclaimer uses simple language to convey that the product may carry the risk of “injury, loss or damage” to the consumer. By doing so, the producer transfers the responsibility to the consumer, who must decide whether to proceed with using the product, fully aware of the potential risks involved. This legal protection enables producers to limit their responsibility by ensuring that consumers are informed and understand that any negative consequences from using the product are at their own risk. The disclaimer must be unambiguous and comprehensive to effectively prevent liability for future claims related to product defects which can cause economic loss.

Impact of challenges in the construction industry and building professionals and their insurers  

Construction companies and building professionals often face similar disputes regarding whether they owed a duty of care for economic loss suffered by subsequent building owners, in the absence of a contractual relationship with a plaintiff, especially in regard to the use of defective materials or negligent building practices leading to economic losses.  Contractual relationships between the parties in such projects have always been a key factor in determining if a party has accepted responsibility for economic loss or if a plaintiff was “vulnerable”.

In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288, the Court ruled that the builder did not owe the owners corporation a duty of care to prevent pure economic loss arising from hidden defects in the common property. The Court found that the contracts between the developer and the original purchasers, which provided rights for addressing defects in the common property, eliminated the owners corporation’s vulnerability to any negligence by the builder in fulfilling its contractual duties.

This High Court ruling appears to further refine the circumstances in which a court should find a party has assumed a duty of care to avoid economic loss to another and supports an analysis that contractual terms, waivers and disclaimers if used in building projects and the sale of property will continue to be relevant to determining the relationship between the parties and if a builder or building professional has assumed responsibility for economic loss and the question of whether a duty of care will be owed.

Takeaways

Establishing liability for pure economic loss in negligence cases can be challenging, as courts often take a narrow approach in determining whether a duty of care exists, based on the "salient features”.

As always, the decision in Mallonland, turns on its own facts, particularly as it relates to the courts analysis of the relationship between the buyer and seller of a defective product. Nevertheless, the decision provides comfort to producers and their insurers who wish to seek limit their exposure to claims for economic loss, which losses can often be crippling in magnitude.

The general rule reflects the well-established position at common law that the infliction of economic loss does not, by itself, infringe any right or legally protected interest of the plaintiff. In such cases, pure economic loss is not sufficient to recover damages, where the loss is not consequential upon injury to person or property. Ordinarily, a person does not owe a duty to take reasonable care to avoid causing reasonably foreseeable pure economic loss to another.

Further, the judgment highlights the importance of the appellant providing compelling evidence to justify each “salient features” they rely on. The Court will analyse the strength of each feature individually, and collectively, when deciding whether to impose a duty of care. Ultimately in this case, the weaknesses of the two central salient features relied upon by the appellant growers were fatal to their submission that the respondent producer owed them a duty of care, to take reasonable care to “avoid causing them economic loss that was not consequent upon infringement of any of their rights to person or property”.