In the decision of Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25, the High Court considered whether a seed producer, Advanta Seeds Pty Ltd, owed a duty of care in its production process to avoid the risk that growers using the seed, Mallonland Pty Ltd and others, would sustain economic loss due to contamination in the seed bags.

The High Court affirmed the general position in negligence claims that a person does not owe a duty of care to avoid causing another reasonably foreseeable pure economic loss. The High Court’s finding has implications for the construction sector, confirming that damages for pure economic loss, for example suffered by subsequent building owners for defective work, are not ordinarily available unless a party assumes responsibility to another or the salient features of the relationship between the parties indicate otherwise.

Background

Mallonland purchased bags of a commercial hybrid grain sorghum seed from a distributor authorised by Advanta to sell the seed. Months after planting the seed, Mallonland discovered the bags purchased were contaminated with a shattercane seed. Consequently, Mallonland brought a claim in negligence seeking damages in the form of reduced income and increased expenditure as a result of ceasing to grow the sorghum and remediating the affected fields.

At first instance the Supreme Court of Queensland held that Advanta did not owe Mallonland a duty of care to avoid the risk of economic loss and Advanta was therefore not liable in negligence. Mallonland appealed to the Court of Appeal which upheld the Supreme Court’s finding. Mallonland subsequently appealed this decision to the High Court.

High Court Decision

Six justices of the High Court (Gageler CJ, Gordon, Steward, Gleeson, Jagot and Beech-Jones JJ) delivered a joint judgment and Edelman J delivered a separate judgment in agreement. The High Court unanimously upheld the Queensland Supreme Court and Court of Appeal’s findings that Advanta did not owe a duty of care in its production process of the seed to avoid the risk of causing pure economic loss to Mallonland.

In reaching this decision, the High Court reiterated the well-established common law principles concerning the scope of the duty of care not to cause economic loss, including:

• A person does not ordinarily owe a duty of care to avoid causing another person reasonably foreseeable pure economic loss.
• A duty of care may be established where a person expressly or impliedly assumes responsibility towards another to take reasonable care to avoid pure economic loss, however, this assumption may be negated or limited by words or conduct directed to that person or class.
• In the absence of an assumption of responsibility, a duty of care may arise due to the salient features of the parties’ relationship, including, for example, the plaintiff’s vulnerability to suffer the loss, and a defendant’s actual knowledge of the risk of the particular type of economic loss suffered and the magnitude of the loss.

A key aspect of the High Court’s decision concerned the “plain words” on the seed packaging which specified that the product had a minimum purity of 99% and included a disclaimer that by opening the package, the purchaser agrees with the conditions contained on the packaging. The Court considered that this wording provided future purchasers with clear information about the nature of, and scope for impurities in, the seed product which meant a future purchaser could make an informed choice as to whether or not to plant the seed. Advanta therefore did not assume any responsibility for the risk in using the seed.

Further, having regard to the salient features of this case, the High Court also found:

• Whilst it was reasonably foreseeable that Mallonland would suffer economic loss if reasonable care was not taken in the production process of the seed, the common law makes clear that this of itself is not sufficient to establish a duty of care.
• Advanta did not know that the seed was contaminated, only that if it failed to take reasonable care in its production process there was a risk that those purchasing and planting the seed would suffer economic loss due to contamination. This, however, was not knowledge of the risk of economic loss to Mallonland specifically, as Advanta did not know that Mallonland would purchase and plant the contaminated seed.
• The text on the packaging made clear that Advanta did not have the capacity to control the risk of seed contamination by careful production.
• Notwithstanding that Mallonland and the other appellants comprised an ascertainable class, potential indeterminate liability for financial loss ordinarily negated a duty of care and this remained the case in the sense that the potential liability for economic loss could not be “realistically calculated”.

This decision affirms the High Court’s approach to confine recovery of pure economic loss in negligence claims to circumstances where the parties’ relationship involves an assumption of responsibility or other ‘salient features’ that establish a duty of care.

The full decision can be found here.