High Court confirms narrow approach to pure economic loss claims in negligence

In its recent decision of Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25, the High Court of Australia reviewed the scope of a duty of care arising from assumed responsibility and provided a useful reminder on the Court’s narrow approach to determining the existence of a duty to take reasonable care to avoid causing pure economic loss by analysis of various “salient features”.

Background

A group of farmers in the business of cultivating and selling grain sorghum (growers) purchased grain sorghum seed from a distributor authorised by the producer of that seed, Advanta Seeds Pty Ltd (producer).

Relevantly, each bag of seed was clearly labelled with a “disclaimer”, which provided an exclusion of liability in favour of the producer, warnings as to potential impurities in the seed and conditions of use, including that unopened bags could be returned for a refund if the potential buyer did not accept the terms outlined on the seed bags.

Each of the growers accepted and planted the seed, which was later found to be contaminated.

The growers commenced class action proceedings in the Supreme Court of Queensland, in which they sought to recover pure economic loss, in the form of reduced income and increased expenditure, from the producer. No claims for damage to property or personal injury were made.

Decision at first instance and on appeal

Both at first instance, and on appeal, the Court found that no duty of care was owed by the producer to the growers. Particular weight was placed by the Court on the labels on the seed bags which, “operated as a disclaimer of an assumption of responsibility that the seed supplied would be free of contamination”, and therefore negated the “the existence of a duty of care to avoid causing economic loss”.

High Court decision

The High Court dismissed the appeal and found that the producer owed no relevant duty of care to the growers, stating that the facts “fell far short” and did not justify departure from the general rule that pure economic loss is not ordinarily recoverable in negligence.

The Court rejected the growers’ assertion that the producer owed them a duty of care as:

• the producer had assumed a responsibility towards them; or
• the duty of care is one that must be imposed by law.

Assumed responsibility

Assumed responsibility is an express or implied undertaking made to a person or group of people. The extent to which the producer assumed any responsibility to the growers depended on the facts, and involved an assessment of the entirety of the relationship.

The High Court drew a distinction between the distributor and the growers, indicating that an assumption of responsibility by the producer might be implied from the producer’s dealings with the distributor, being the producer’s customer.

Conversely, the growers were “unidentified members of a class of potential users of the producer’s product”, which the Court found to be an “insurmountable hurdle” for the growers’ case. The Court was not prepared to infer that any undertaking had been given by the producer to the growers, particularly where the producer could not reasonably foresee whom may ultimately purchase the seed from the distributor.

Accordingly, the Court upheld the existing principle that “an undertaking that founds an assumption of responsibility is to a person or group of people. No undertaking will be implied if it is not reasonably expected that it would be made to that person or group in those circumstances.”

‘Salient features’ approach

Absent an assumption of responsibility, the Court analysed the relationship between the producer and the growers by reference to the “salient features” approach, previously outlined in the decision in Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529.

The Court reiterated that each case turns on its facts, and highlighted the inherent uncertainty in determining and applying a non-exhaustive list of “salient features” with “sufficient force” to determine whether the requisite relationship exists for a duty of care to be imposed.

In this case, the Court focused on two central “salient features”, being knowledge and vulnerability. The growers’ case failed on these features. Based on the facts, the Court relevantly found that:

• the producer’s knowledge of the risk of economic harm was limited to nothing more than knowledge that potential buyers of the seed would have difficulty controlling the consequences of contaminated seed. Critically, the producer did not know that the seed was, in fact, contaminated, and did not know that the growers would purchase it from the distributor; and
• the growers were able to protect themselves from the risk of contaminated seed by choosing not to plant the seed, or by choosing to return the unopened bags of seed after reading the label on the bags.

The Court did not find sufficient force in the balance of the “salient features” advanced by the growers to impose a duty of care on the producer by law.

Implications

This decision is a reminder that establishing assumed responsibility will turn on the facts, including the relationship between the parties, their conduct and the reliance of one party on another.

In the present case, the label containing the “disclaimer” was displayed clearly on the seed bags, in plain language, which allowed the growers to “make an informed choice, in [their] own interests, to plant or not to plant the seed”. It remains to be seen whether the decision might have been different had the disclaimer been conveyed some other way, or in the absence of the conditions of sale allowing return of the unopened product.

Where remedies under the Australian Consumer Law and contract might not be available, this decision is a reminder of the narrow approach taken by the Court when deciding whether to recognise a duty of care based on “salient features”. The judgment highlights the necessity for a plaintiff to serve sufficient evidence proving facts which justify each of the “salient features” for which they contend, as the Court will analyse the strength of each feature individually, and collectively, when deciding whether to impose a duty of care by law.