…pure economic loss – torts – negligence – whether manufacturer owed end user duty of care – limitations of actions
Between 2010 and 2014, a group of commercial sorghum farmers purchased sorghum seeds manufactured by Advanta (the respondent) from a variety of different suppliers and intermediaries.
These particular sorghum seeds were packaged in a bag which contained a printed label with terms and conditions, including a disclaimer of liability.
Consequently, these sorghum seeds were found to have a contaminating seed, known as shattercane, which is a weed that effectively spreads through an entire crop and destroys the pasture for many seasons. To repair the pasture, a farmer would be required to take expensive measures such as letting the land lie fallow, using herbicides, remediating the field or growing other, less remunerative crops.
Mallonland Pty Ltd & Anor (the appellant) brought representative proceedings on behalf of the sorghum farmers impacted by these contaminated seeds. The claim was based in negligence and sought only pure economic loss.
At first instance, the claim failed as the appellants had not established that the respondents owed a duty of care to protect them against pure economic loss. The primary judge placed significant weight on the respondent’s disclaimer of liability on the seed packaging.
This decision was appealed.
The Court of Appeal was required to consider whether a manufacturer of a product owed a duty of care for pure economic loss, where the loss was caused by negligence to an end user who purchased the product through a supplier.
Additionally, the Court of Appeal considered whether the time period started when the farmers planted the crops or when the damage was first discovered.
- The appeal was dismissed as the respondents did not owe the appellants a duty of care.
- The appellants were ordered to pay the respondent’s costs on the standard basis.
According to the Australian Consumer Law, in certain circumstances, it is permitted for an end user to seek a common law remedy through an action in negligence against a product manufacturer (with whom the end user would typically have no contractual remedy when the product was purchased through an intermediary). Additionally, the case Brookfield Multiplex held at :
“Economic interests are protected by the law of contract and by those torts that are usually described as the economic torts, such as deceit, duress, intimidation, conspiracy, and inducing breach of contract.”
Therefore, the appellants had a right to commence an action in negligence.
Duty of care
The primary judge considered a number of salient features to establish whether the respondent, as a manufacturer of a product, owed a duty of care to the farmers. These features included:
(a) whether the particular loss was reasonably foreseeable
(b) the type of relationship between the manufacturer and an end user
(c) whether liability would be indeterminate
(d) the protection of individual autonomy, and
(e) the extent to which the respondent knew of the particular risk and its magnitude.
In relation to the first salient feature, the primary judge did not make an express finding as to whether the loss was reasonably foreseeable – because the central reason for finding there was no duty was due to the negation of any assumption of responsibility. The Court of Appeal did not believe this feature had to be considered further.
For the second feature, there was no close physical relationship between the appellant and respondent which would support the existence of a duty of care.
Thirdly, the Court of Appeal acknowledged that the primary judge did not err in failing to consider the feature of indeterminate liability, as there was no utility in discussing this – the farmers were a limited class of claimants with the same relationship to the respondent.
The most critical issue for the Court of Appeal was the fourth feature, particularly whether the appellants were vulnerable due to a lack of care from the respondent.
The appellant argued the farmers were vulnerable for five reasons:
- The respondent had means to prevent the contaminated seed from going to market.
- It was unrealistic for the farmers to negotiate for, or obtain a relevant warranty of, indemnity from the respondent for these kinds of losses.
- If the seed was contaminated, it would likely damage the fundamental income producing asset upon which the business depended.
- In terms of timing, because the seed was planted shortly after purchase (but the shattering qualities did not emerge for some time), by the time the contamination emerged, it was too late for farmers to readily, or cheaply, reverse its effects on the land.
- There was a known reliance on the respondents and an assumption of responsibility.
The respondents submitted that the farmers were not vulnerable, as the packaging clearly and prominently displayed the terms and conditions, including a disclaimer of responsibility.
The primary judge observed the concept of ‘vulnerability’ can be applied in two senses. Firstly, it is used to refer to the plaintiff’s exposure to the risk of damage if the defendant does not exercise care. Alternatively, it can apply to the inability of the plaintiff to protect itself against exposure to the risk of economic loss caused by the defendant’s failure to take care.
The primary judge found that in the first sense, the appellants were vulnerable. However, in the second sense (which is more applicable), the primary judge reasoned that an everyday commercial transaction for the sale of goods, such as the purchase of seeds, may negate the existence of a duty of care in consumer-like cases.
On appeal, Judge Morrison took the view that there was a finding of the relevant vulnerability on the part of the appellants, whereas Judge Bond did not accept that proposition.
Despite this, the Court of Appeal accepted that an assumption of authority can be negated by an express disclaimer of responsibility. On the facts, the judges were satisfied that the terms and conditions on the packaging were a clear and prominent disclaimer of the respondent’s liability. It was noted that the particular disclaimer was just as much a characteristic of the product, affecting the end users’ choice to purchase that product over another product.
For the fifth salient feature which addressed the extent to which the respondent knew of the risk, the appellant applied the case of Dovuro Pty Ltd v Wilkins, which also involved a farmer who purchased contaminated seeds from a manufacturer. The appellant, relying on this case, argued there was strong evidence to conclude that a duty of care was owed.
This was rejected by the Court of Appeal as the facts of Dovuro could be distinguished – there were no terms of conditions on Dovuro’s packaging, unlike the respondents in this matter. Further, Dovuro had factual knowledge that the seeds contained contaminated seeds, whereas the respondents only knew there was risk that contaminated seeds might be present. Moreover, recent developments in case law have overruled Dovuro.
In conclusion, the present case did not provide justification to expand the protection available to commercial actors – in this instance, the farmers – beyond that which they might have obtained in contract or under applicable statute law. Judge Bond outlined in :
“The law of tort should not be turned into a remedy for inequality of bargaining power, not least because, again, that area of commercial unfairness has been the subject of legislative regulation and any increased protection for persons in such a position is best done by legislative extension of such protection.”
The Court of Appeal outlined there is a reluctance to expand the general concepts of duty of care to novel cases, especially when the claim is only for pure economic loss. Therefore, considering the five salient features, the disclaimer in the terms and conditions on the packaging negated the existence of a duty of care.
Moreover, the respondent went to significant lengths to add a disclaimer to the packaging, which distinguished this case from other decisions whereby a duty of care was held to exist where the loss was pure economic loss. Therefore, the appeal was dismissed and no duty of care existed.
For completeness, although the evidence did not allow the primary judge to make findings as to the contracts’ terms (by which the farmers purchased the seeds from the distributors), it was noted that, in theory, the farmers might have been able to protect themselves from the risk of the loss or damage – by an appropriate contractual term – in the contract under which they purchased the seeds from the relevant supplier.
The respondent argued that, from the time of its planting, the contaminated seed caused immediate and inevitable damage to the appellants’ farming interests. As a result the appellant’s claim would be statute barred, as the claim commenced outside the six-year time limit under section 10(1) of the Limitation of Actions Act 1974 (Qld), and section 14(1) of the Limitation Act 1969 (NSW).
Both the primary judge and the Court of Appeal rejected this argument, as there was no evidence to suggest the appellants had suffered any loss or damage at the time of planting the seeds. Instead, it was found that proceedings were not statute barred because the damage was simply not discoverable until after the seed had grown. Therefore, the time started to accrue from the date the contaminated seeds “first became known or manifested”, and the appellant was not statute barred.
This compensation law casenote appears courtesy of Travis Schultz & Partners (TSP), where the author, Shelby Bennett, is a law student and an Administration Assistant. As part of the firm’s commitment to providing ongoing legal education, TSP practitioners review relevant judgments and prepare case summaries for the legal profession. A free searchable catalogue of compensation law casenotes is available at schultzlaw.com.au/case-summaries (registration required). The full version of the judgments can be found at austlii.edu.au.