The High Court affirms the utility of disclaimers and the limits of pure economic loss claims following action brought by farmers against producer of contaminated seeds. The seed producer respondent had not assumed responsibility toward the plaintiffs to take reasonable care to avoid causing economic loss.
In issue
- Whether an end user of a product, in this case seed growers, were able to bring a claim against a seed producer for pure economic loss when the seed product purchased was contaminated with undesirable byproduct called shattercane.
The background
The appellants were farmers engaged in the businesses of cultivating and selling sorghum (for animal feed and biofuel.) The respondent was the producer of hybrid sorghum grain seed. The appellants commenced a class action in the Supreme Court of Queensland alleging that:
- they purchased contaminated sorghum seed (MR42 Elite) for planting from a distributor authorised by the respondent,
- MR43 Elite was contaminated with the seed of another plant known as shattercane,
- they had no way of detecting the contaminant prior to planting, and
- they suffered loss and damage when they had to take action to eliminate the contaminant (i.e. removing inferior or defective plants or seedlings, applying insecticides and herbicides, and leaving the affected fields to lie fallow for several seasons or planting less lucrative crops in those fields).
The respondent admitted at trial that:
- it was aware that 'off-types' (plants that deviate from the characteristics of another) were common in the production of grain sorghum seed but were easily controlled;
- it was aware of the risks to commercial growers if the respondent’s sorghum seed should become contaminated by an off-type; and
- the appellants’ losses were reasonably foreseeable in the absence of due care.
The trial judge found that the reason for the shattercane becoming intermixed in the relevant batch of MR43 Elite was due to a lack of proper care being taken in the processing and packaging stage.
However, the respondent argued that it did not owe the appellants a duty of care.
The decision at trial
The trial judge dismissed the appellants’ claim, finding that the terms affixed to the seed bags operated as a 'disclaimer of an assumption of responsibility' that the MR43 Elite seed supplied would be free of contamination by shattercane or grassy off-types to 'negate' the existence of a duty of care to avoid causing economic loss.
The decision on appeal
The Court of Appeal of the Supreme Court of Queensland found that the respondent producer was not liable to the appellant growers in negligence because the producer did not owe them a duty of care. It rejected all five reasons advanced by the appellant growers as to why a duty of care was owed in the circumstances.
The High Court decision
A majority of the High Court of Australia (Gageler CJ, Gordon, Steward, Gleeson, Jagot and Beech-Jones JJ) unanimously found that the respondent did not owe a duty of care to the appellants.
The High Court started from the legal proposition that '[w]here a duty to take reasonable care to avoid causing pure economic loss is said to arise out of an assumption of responsibility by a defendant to a particular person or class of persons, the defendant can negate or limit that assumption and thus the duty by words or conduct directed to that person or class.'
The High Court found that the respondent had not assumed any responsibility to persons in the class of the appellants because:
- The warning on the label was sufficient to warn the appellants not only that the respondent did not assume a responsibility towards them for pure economic loss resulting from any contamination of the seed, but the fact that MR43 Elite was described as being 99% minimum purity was an implicit warning that contamination was possible.
- There was a lack of proximity between the appellants and the respondent in circumstances where the appellants purchased the seed from a distributor without first having an agreement to purchase in advance of the purchase from distributors. At most, the appellant growers were potential end users of the producer's seed-they were unidentified members of a class of potential users of the producer's product (as packaged).
- The respondent producer did not know that the seed it placed into the market for sale was contaminated. The producers did not have knowledge of the risk of economic loss to the appellant growers specifically, because the producer did not know that those growers would purchase and plant the contaminated seed. Also, the producer did not have knowledge that want of care in the production of the contaminated seed would or could cause economic loss of the magnitude that was suffered by the growers.
- The growers could have protected themselves from risk. They were aware that MR43 Elite was not guaranteed as being free from contamination, and could have decided whether or not to plant the seed in the first place.
Implications for you
The key takeaway for manufacturers of products, and their insurers, is that carefully worded disclaimers and warnings (i.e. even down to product descriptions, such as where purity of product can be important) can ultimately protect those manufacturers from potential claims by end users, even if the harm, and risk of harm, ultimately suffered by the end user was entirely foreseeable as in this case. In addition, the decision serves as a reminder that a duty to take reasonable care to avoid causing reasonably foreseeable pure economic loss to another is not ordinarily owed, and a claimant must establish to a court’s satisfaction that there has been an assumption of responsibility, that any potential liability is not indeterminate, that actual knowledge of a risk to a person of the particular type of economic loss exists, and the vulnerability to the economic loss by a claimant. None of these factors were established to the High Court’s satisfaction and the appeal failed.
