Mallonland Pty Ltd v Advanta Seeds Pty Ltd

• Jurisdiction: Australia Federal only
• Judge: Gageler CJ,Gordon,Steward,Gleeson,Jagot,Beech-Jones JJ,Edelman J.
• Judgment Date: 07 August 2024
• Neutral Citation: [2024] HCA 25
• Court: High Court
• Docket Number: B60/2023

Mallonland Pty Ltd & Anor

Appellants

and

Advanta Seeds Pty Ltd

Respondent

[2024] HCA 25

Gageler CJ, Gordon, Edelman, Steward, Gleeson, Jagot and Beech-Jones JJ

B60/2023

HIGH COURT OF AUSTRALIA

Negligence — Duty of care — Where the appellants (“the growers”) purchased contaminated grain sorghum seed from a distributor authorised by the respondent (“the producer”) — Where the growers consequently suffered pure economic loss in the form of reduced income and increased expenditure — 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 — Whether the producer had assumed a responsibility towards the growers to take reasonable care to avoid causing them pure economic loss — Whether the salient features of the relationship between the producer and the growers established a duty of care to avoid causing pure economic loss.

Words and phrases — “assumption of responsibility”, “control”, “disclaimer of responsibility”, “duty of care”, “indeterminacy”, “intention”, “knowledge”, “proximity”, “pure economic loss”, “reasonable foreseeability”, “salient features”, “vulnerability”.

Representation

W A D Edwards KC with B A Hall and T A Rawlinson for the appellants (instructed by Creevey Horrell Lawyers)

P J Dunning KC with E J Goodwin KC and M Y Barnes for the respondent (instructed by Herbert Smith Freehills)

ORDER

Appeal dismissed with costs.

On appeal from the Supreme Court of Queensland

Gageler CJ, Gordon, Steward, Gleeson, Jagot and Beech-Jones JJ.

Introduction

1 This case concerns whether a producer of commercial hybrid grain sorghum seed, sold in bags contaminated with the seed of another plant known as shattercane, is liable in negligence to commercial farmers who planted the seed and were subsequently required to take costly action to eliminate the contaminant. Shattercane is a plant genetically related to grain sorghum, but not itself useable for grain crops. Its seed-head shatters, spreading seed widely and growing vigorously to the detriment of grain sorghum cultivation.

2 The sole issue in this Court is whether the respondent (“the producer”) owed the appellants (“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 (namely, the presence of shattercane seed).

3 For the following reasons, the producer did not owe the growers the alleged duty of care. Accordingly, the appeal should be dismissed.

Facts

4 The growers were farmers who conducted businesses involving the cultivation and sale of grain sorghum, which is a crop farmed for animal feed and biofuel. They commenced a class action in the Supreme Court of Queensland, in which they alleged that they purchased contaminated grain sorghum seed (labelled “MR43 Elite”) from a distributor authorised by the producer and consequently suffered pure economic loss in the form of reduced income and increased expenditure. 1 The growers did not allege that the shattercane caused them property damage, or that their economic loss was consequential on property damage.

5 Each of the growers purchased bags of the contaminated seed for planting in the summer of 2010/2011. Some months after they planted the seed, the growers became aware of the contamination.

6 The growers had no way of detecting the contamination prior to planting. To prevent the shattercane from disrupting their grain sorghum growing businesses, the growers were required to stop growing sorghum and remediate the affected fields. The growers' consequential losses comprised the costs of roguing the affected fields (that is, removing inferior or defective plants or seedlings; in this case, 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.

7 The producer was one of two producers of grain sorghum seed for distribution and sale to Australian growers. The producer did not sell the contaminated seed directly to growers. Rather, the producer supplied the seed to distributors in labelled 20kg bags. These supplies were made by sale or on consignment. In turn, the distributors supplied the seed to growers in the labelled bags. At the time that the seed was supplied to the market, and later, when it was planted, the producer did not know that the seed was contaminated with shattercane.

8 The bags bore prominent labels on the front and the back (“the packaging”). The label on the front of the bags that contained the contaminated seed was branded “Pacific Seeds”, the former business name of the producer. The front of the bag highlighted the type of seed and the net weight of the bag, and set out the following data:

“Minimum Germination: 85%

Minimum Purity: 99%

Maximum Other Seeds: 0.1%

Minimum Inert Matter: 0.5%”

Any suggestion that the contaminated seed did not conform to these specifications was rejected by the primary judge.

9 Reflecting the producer's awareness of the possibility of defective or impure seed, the rear of the bag was printed with what the primary judge described as a “disclaimer”. The disclaimer comprised the word “WARNING”, next to the headings “ATTENTION” and “CONDITIONS OF SALE AND USE”, which were prominently displayed in large bold type and in a font much larger than the conditions themselves. The rear of the bag relevantly included:

“ATTENTION

CONDITIONS OF SALE AND USE

Upon purchasing this product and opening the bag, the purchaser (‘you’) agrees to be bound by the conditions set out below. Do not open this bag until you have read and agreed with all the terms on this bag. If, before opening the bag, these conditions are not acceptable to you, the product should be returned in its original condition to the place of purchase immediately, together with proof of purchase, for a refund. The product contained in this bag is as described on the bag, within recognised tolerances.

CONDITIONS

You agree that:

– You acknowledge that, except to the extent of any representations made by [the producer's] labelling of the product in this bag or made in [the producer's] official current … literature, it remains your responsibility to satisfy yourself that the product in the bag is fit for its intended use;

– If the product in this bag does not comply with its description, within recognised tolerances, the liability of [the producer] will be limited, at [the producer's] option, solely to the cost of replacement of the product or the supply of equivalent goods or the payment of the cost of replacing the goods or of acquiring equivalent goods;

– [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] (or its servants or agents), directly or indirectly arising out of or related to the use of the product in this bag, whether as a result of their negligence or otherwise;

…”

10 It was found that the packaging referred to simple concepts in “plain words” to convey “several clear propositions”, including that the risk of using the product lay with the buyer and that the producer was not accepting any responsibility for damage or loss caused by negligence on its part. The text included clear statements 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 producer's knowledge about the risks of damage and loss from contaminated seed

11 In this Court, the producer acknowledged that, prior to the contamination, “off-types” (that is, plants that deviate from the characteristics of another type in certain respects) were common in its production of grain sorghum seed but were easily controlled and did not have a significant impact upon commercial grain sorghum production.

12 Furthermore, in the courts below the producer admitted that before supplying the contaminated seed to the market, it knew of facts that gave rise to risks of economic loss to growers posed by contaminated grain sorghum seed, including that: (1) contamination of the seed by an off-type sorghum with shattering characteristics may cause damage to the growers or to the owners of land upon which the seed was planted; (2) the production of grain sorghum seed required processes to: (a) minimise the risk of contamination of the seed by reason of “outcross” occurring, that is, by the creation of off-type seeds; (b) identify off- type contamination by reasonable testing; and (c) as far as reasonably practicable, prevent the supply of contaminated seed; (3) in 2009 sorghum off-types had been identified in three varieties of commercial grain sorghum that the producer had produced and sold, including MR43; (4) a sorghum off-type with a shattering characteristic would be more difficult to control or eradicate if such a plant germinated, matured and dropped seed; and (5) a grower was likely to have greater difficulty in controlling a sorghum off-type with a shattering characteristic in a sorghum crop.

13 The producer also admitted that it knew or ought to have known that, if it did not take reasonable care in its production process including by roguing during that process, this would give rise to a risk of harm to growers who purchased and planted the producer's grain sorghum seed because that seed might be contaminated with shattercane seed. The producer further admitted that it was reasonably foreseeable that the eradication of shattercane would mean that the land on which it was located could not be used to its full commercial potential during the eradication period.

14 Ultimately, it was accepted by the producer that the growers' losses...