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Pure Economic Loss and the Power of a Good Disclaimer

On 7 August 2024, the High Court of Australia refused to find that a commercial producer of grain owed a duty of care to farmers to avoid causing pure economic loss in Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25.

Facts of the case

The appellants (farmers) purchased bags of a grain known as sorghum seed manufactured by the respondent (commercial producers).

The seed packaging displayed a disclaimer using words such as “WARNING” and “ATTENTION” and stipulating, amongst other things, that 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, whether as a result of their negligence or otherwise’.

Months after planting the seeds, the appellants discovered that the seeds had been contaminated with another seed, known as shattercane. The shattercane seeds looked identical to the sorghum seeds which the appellants believed they were planting. Unfortunately, however, the shattercane was not useable for crops and the appellants had to remove all of the shattercane from their fields. The appellants could not farm sorghum seeds for several seasons and, as a result, incurred significant economic losses.

The appellants commenced a class action in the Supreme Court of Queensland. At first instance, the Court found that the producers were not liable for pure economic loss because the appellants could not establish that the producers owed them a duty of care. This decision was affirmed in the Queensland Court of Appeal.

The High Court’s findings

Despite acknowledging that the contamination was the result of the producers’ failure to exercise reasonable care and that the failure caused the appellants’ economic loss, the High Court of Australia dismissed the appeal.

The High Court found that the respondent would be liable for breach of a duty of care to avoid pure economic loss to the appellants only if:

  1. The respondent assumed responsibility to take reasonable care to avoid causing the appellants pure economic loss; or
  2. The ‘salient features’ test was satisfied

The joint judgment of Gageler CJ, Gordon, Steward, Gleeson, Jagot and Beech-Jones JJ held that the respondent did not assume any responsibility for the appellants so as to avoid causing them pure economic loss. The court found that the ‘significance of the [disclaimer on the] packaging is not that it merely disclaims legal liability’, rather, the disclaimer served as a warning to prospective purchasers that the respondent would not assume any responsibility for the purchasers’ potential losses. To this effect, the disclaimer negated the possibility of any duty of care arising.

The six justices also agreed that the ‘salient features’ test was not satisfied to establish a duty of care. Although it was reasonably foreseeable that failure to take reasonable care in the production of the sorghum seed would cause the appellants economic loss, this was not in itself sufficient. The respondent had no knowledge that their sorghum seed was contaminated or that the appellants would purchase and plant the contaminated seed. The respondent did not have ‘absolute’ control over the production of the grain so as to prevent any contamination and this was evidenced by the disclaimer on the packaging. The appellants were not vulnerable to suffering pure economic loss because the disclaimer allowed them to make an informed decision as to whether they should purchase and plant the seed.

Notably, in a separate judgment, Edelman J expressed his disapproval of the ‘salient features’ test and affirmed that the test must be ‘confined as narrowly as possible’.

What does this mean for you?

Novel claims involving a duty of care to avoid causing pure economic loss may be difficult to make out. Mallonland Pty Ltd v Advanta Seeds Pty Ltd has proven that such claims are particularly difficult to prove when, inter alia, the other party has disclaimed their liability.

The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.

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