High Court reins in negligence recovery for pure economic loss

Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25

What you need to know

• The High Court has held that the producer of a product did not owe its end users a duty of care in negligence to avoid causing them pure economic loss by reason of a hidden product defect.  That was so even though not only were the losses suffered reasonably foreseeable, but the producer knew or ought to have known of the risks if it did not take reasonable care.   
• Pure economic loss refers to economic loss that is not consequential on personal injury or property damage.  Aside from the well accepted situation of a duty of care arising from an assumption of responsibility, Australian courts have accepted a duty of care to avoid reasonably foreseeable pure economic loss can arise from salient features, such as knowledge, control and vulnerability.  Questions raised by the High Court about that approach suggest the Court would be willing to reconsider it, with the result that in negligence cases for pure economic loss, unless there is an assumption of responsibility by the defendant, there is now a question whether the High Court would find a duty of care.  In the meantime, the salient features approach remains the law in Australia.  This will lead to a period of uncertainty until this issue comes before the High Court again.
• In this case, the existence of a carefully worded disclaimer was crucial to establishing that the producer had not assumed responsibility to the end user for the product being of a particular type or quality.
• The decision suggests judicial reluctance to:
  1. expand the law of tort so that end users are able to "leapfrog up the contractual chain" and seek compensation directly from a producer (rather than the distributor); and
  2. extend the benefit of the guarantee of acceptable quality available to some end users under the Australian Consumer Law in ways that the legislature did not envisage.

What you need to do

• Australian law as to the right to recover pure economic loss on the basis of negligence, other than by an assumption of responsibility, is ripe for further High Court consideration.  In the meantime, lower courts can be expected to take a more cautious approach to finding a duty of care on a "salient features" basis. 
• When preparing disclaimers, manufacturers and producers should refer to simple concepts in "plain words" that are "prominently displayed" especially if it is the intention of the disclaimer not to assume responsibility for the nature of the product beyond the specifications on the packaging.
• Individuals or businesses lacking remedies in contract, or under the ACL, should proceed carefully before purchasing, or using, products and goods. Attention should be paid, in particular, to relevant terms and conditions, including any purported disclaimers of liability.

Background

For some time, Australian negligence law has diverged from other common law jurisdictions on the question of whether a duty of care, which is essential for any negligence claim, arises where there is no assumption of responsibility by the defendant to the plaintiff (putting aside cases where the defendant has actual knowledge of the matter which gave rise to the harm).  In a series of cases since 1976 the High Court has developed an approach dubbed the "salient features" approach, which provides an additional, and oft-criticised, basis for imposing a duty of care in pure economic loss cases. 

Mallonland Pty Ltd is a Queensland sorghum grower who, along with other commercial growers (the Farmers), commenced a class action proceeding in the Supreme Court of Queensland seeking damages from a seed supplier for pure economic loss.

The loss was held to have been caused by the Farmers planting a quantity of sorghum seeds produced by the defendant, Advanta Pty Ltd (Advanta) which were contaminated with shattercane (an invasive weed which was costly to eradicate). Advanta did not sell its sorghum seed directly to the Farmers, rather, the seed was supplied to distributors and then on-sold.  Advanta's seed bags were marked with a specific disclaimer of responsibility for loss suffered by the ultimate consumer, and made statements which disclosed there was a possible level of impurity in the seeds.

The only issue was whether Advanta owed the Farmers a duty of care.

Key negligence issue

Given that there was no contractual relationship between the Farmers and Advanta, and they did not purchase the seed as consumers under the Australian Consumer Law (ACL) (because the seeds were to be used in commercial production), the Farmers based their claim in negligence, seeking damages only for pure economic loss. 

Significantly, it was not in issue in the High Court that the risk of economic loss if the producer, Advanta, did not take reasonable care was foreseeable. Nor was it in issue that the producer had failed to act with reasonable care, and that failure to act with reasonable care had caused the Farmers economic loss (although Advanta did not know the seed was contaminated with the shattercane seeds). The sole issue was whether Advanta owed the Farmers a duty of care. Both Justice Jackson at first instance ([2021] QSC 74) and the Court of Appeal of the Supreme Court of Queensland (Morrison and Bond JJA and Williams J) found there was no duty of care.

Arguments before the High Court

The Farmers argued that:

a. the relevant salient features were such that a duty of care was owed to them by Advanta, particularly having regard to the High Court's decision in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529; and

b. the disclaimer printed upon the seed bags did not negate any duty of care owed to them by Advanta, because it did not "intersect" with it (in the sense that it did not warn of particular risks known to Advanta at the time of production).

Advanta argued that the Queensland Court of Appeal was correct to uphold the finding that no duty of care was owed by Advanta to the Farmers because:

a. the disclaimer offered the Farmers an opportunity to control and avoid their exposure to the risk of the product containing a small amount of non-sorghum seed by returning the bag for a refund (therefore negating any suggestion of vulnerability); and

b. the relevant salient features did not otherwise warrant the recognition of a duty of care owed by Advanta to the Farmers.

The High Court's decision

The High Court unanimously dismissed the Farmers' appeal.  All of the Court considered there was no duty of care owed by Advanta to the Farmers.  

In their joint reasons, Gageler CJ, Gordon, Steward, Gleeson, Jagot and Beech-Jones JJ, said that the ordinary position is that a person does not owe a duty of care to avoid causing reasonably foreseeable economic loss to another. There is an accepted exception to this where a person assumes a responsibility to another – an "assumption of responsibility" being an undertaking, whether express or implied, to take on a task or job for another person, from which it can be inferred the first person accepted he or she would take reasonable care.  While an assumption of responsibility may create such a duty of care to particular persons or classes of person, that assumption, and thus the duty of care, can be negated by words or conduct directed to that person or class of persons.  In this case, the clear wording on packaging negated any assumption of responsibility, and so no duty of care arose through any assumption of responsibility. 

Where there is a no assumption of responsibility, whether there is a duty of care in pure economic loss cases involves an evaluation of the "salient features" (factors such as knowledge of the risks to the plaintiff and the plaintiff's vulnerability to the particular type of loss that eventuated).  

Here, their Honours held that "[t]he facts fall far short of identifying a relationship between the producer [Advanta] and the growers that would lead to the existence of a duty to take reasonable care when producing the grain sorghum seed to avoid causing the growers pure economic loss of the type claimed" (at [44]). They emphasised the insufficiency of reasonable foreseeability in establishing a duty of care.

The clear disclaimers on the packaging meant that there was no express or implied assumption of responsibility by Advanta to end users.  Nor did a duty of care arise by application of the salient features approach.  One aspect of this was that the  Farmers were not relevantly vulnerable. Their Honours held that "[t]he packaging enabled potential future purchasers, including [the Farmers] … to inform themselves that the seed might not be free from contamination and to decide whether or not to plant the seed on that basis" (at [53]).  The Farmers were also able to return the seed if they did not wish to take the risks of impurity, which were clearly identified in the packaging. 

Salient features approach is still the law – but for how long? 

The broader significance of the case is that it throws into question the application of the salient features approach at all.  All members of the Court referred to academic criticism of the salient features approach.  It was not argued the approach should not be applied and so the approach was applied by the Court, and remains the current position, albeit with clear indications by the Court the approach should not be applied expansively. 

It is in Edelman J's separate (concurring) judgment that the strongest criticism of the salient features approach to imposing a duty of care for pure economic loss is to be found. His Honour analysed in detail the conceptual difficulties in having to consider the "salient features" of a business relationship when determining whether a duty of care exists in negligence not to expose a person to economic loss. In a judgment replete with zoomorphic metaphors, his Honour compared elements of the law in this area to mules and rats.  Notably, his Honour characterised the "salient features" approach as a mule, from which one should not breed:  in other words, his Honour strongly cautioned against any expansion of the approach.  He also highlighted the conceptual difficulties of this uniquely Australian approach to a duty of care for pure economic loss. The joint judgment would not suggest the rest of the Court necessarily disagreed. 

Nevertheless, the High Court continues to have "regrettable resort" to this "mule" in Australia's jurisprudence, even whilst at the same time signalling (expressly in the case of Edelman J, and perhaps implicitly in the joint judgment) that a duty of care based on the salient features approach "must be confined as narrowly as possible" (at [59]); that is to say, there should be no attempt to "breed" from the mule (at [58]). As Edelman J said, this is "in the absence of any challenge to an analysis based upon salient features". While lower courts will have to continue to apply the salient features approach as best they can, particularly on the reasoning of Edelman J, parties can now only be confident in a future pure economic loss negligence case that the High Court would find a duty of care to take reasonable care to avoid a reasonably foreseeable risk of harm, where there is an assumption of responsibility.  

For practical purposes, this means that businesses and individuals seeking to prove the existence of a novel duty of care in negligence for pure economic loss face an uphill battle, and that product disclaimers will continue to play a role in limiting suppliers' and distributors' liability, notwithstanding the rise of statutory consumer protections.

Authors: Andrew Carter, Partner; Peter Richard, Expertise Counsel; Elijah Png, Lawyer.