A recent Queensland Court of Appeal decision shows the continuing utility of disclaimers on products despite legislative reforms narrowing the scope of their effectiveness.
In Mallonland Pty Ltd & Anor v Advanta Seeds Pty Ltd[1] a class action was brought on behalf of commercial farmers against the manufacturer of sorghum seed. The farmers had bought the seed from distributors and had no contractual relationship with the manufacturer. The seeds were contaminated by shattercane seeds resulting in economic loss to the farmers. The farmers used the sorghum as animal feed or biofuel. The shattercane weed competed with the sorghum and the effects were felt over many seasons as the mature weed contains a head that shatters, releasing further seeds that grow vigorously. The only way to prevent it from disrupting the sorghum growing business was to stop growing sorghum and remediate the fields.
The issue of interest in the appeal was whether a manufacturer of a product owed a duty of care for pure economic loss, where that loss was caused by negligence in the manufacture of the product, and the loss was sustained by an end user who purchased the product from intermediaries but was not in a direct contractual relationship with the manufacture.
It is worth noting at the outset that this was not a case where the farmers purchased as consumers under the Australian Consumer Law (ACL). Generally speaking, goods are purchased by individuals or businesses as consumers if:
- bought for personal domestic or household use;
- they cost less than $100,000; or
- they are vehicles used to carry goods on roads;
except if the goods are purchased:
- for resupply;
- for use or transformation in production or manufacturing; or
- to repair or treat other goods.
In this case the farmers were not ‘consumers’ under the ACL because the goods were purchased for use in production. Accordingly the consumer guarantees arising under the ACL did not apply and the case was run as a negligence claim for pure economic loss.
If the farmers were able to establish a duty of care then they would have succeeded in the proceeding as the trial judge found in their favour regarding negligence, causation and loss.
In the development of the law of negligence the Courts have been cautious about permitting a remedy for cases of ‘pure economic loss’, as distinct from personal injury or property damage. In a competitive commercial environment firms seeking to maximise their own profit will inevitably cause economic loss to other firms, both as competitors or suppliers or acquirers. If the law permitted a general remedy for persons suffering economic loss from commercial activity then commerce would grind to a halt. Accordingly the cases have established limits to recovery for this kind of loss, sometimes by finding no duty of care and sometimes by finding that loss was not sufficiently proximate.
A remedy for pure economic loss was first allowed in Australia by the High Court in Caltex Oil (Aust) Pty Ltd v The Dredge Willemstad[2]. That case involved damage to a pipeline carrying oil which the plaintiff had a contractual right to use but did not own. The plaintiff was able to recover for the cost of arranging an alternative supply of oil while the pipeline was out of service.
Perhaps the ‘high water mark’ for economic loss in the High Court was Perre v Apand Pty Ltd[3]. In that case diseased potatoes were imported and infected land in the vicinity of the plaintiff’s farm but not the farm itself. Because of such infection the plaintiff was unable to export potatoes to Western Australia. A majority in the High Court held that the plaintiff/appellant could recover for pure economic loss due to the reasonable foreseeability of damage and because the appellant fell into an ascertainable class of person vulnerable to the respondent’s actions.
In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288[4] the High Court refused recovery for the costs of repair of latent defects in the common property incurred by an Owner’s Corporation due to negligent design and construction. Brookfield was the builder of the apartment complex and did not have a contractual relationship with the Owner’s Corporation. Although there was provision in the building contract for purchasers of apartments to have rights against Brookfield those provisions did not extend to the Owner’s Corporation. The High Court found that Brookfield did not owe a duty of care to the Owner’s Corporation.
In the Mallonland case the Court of Appeal (per Morrison JA)[5] emphasised the following passage from the judgment of French CJ in Brookfield [6]:
“Abstracting the reference to proximity in Bryan v Maloney[7], the decision adverted to factors adverse to the recognition of a duty of care for pure economic loss other than in special cases. The special cases would commonly, but not necessarily, involve an identified element of known reliance or dependence on the part of the plaintiff, or the assumption of responsibility by the defendant, or a combination of the two.”
In Mallonland the Court found that a disclaimer negated an assumption of responsibility by the manufacturer and a duty of care did not arise. Assumption of responsibility has been a salient feature in findings that a duty of care existed since Hedley Byrne & Co Ltd v Heller & Partners Ltd [8]. Because of the disclaimer the seed was not sold as free of any weeds, but was sold only on the basis of a minimum purity.
The Court of Appeal noted (per Morrison JA) the following features of the disclaimer:
“[129] The wording of the conditions was not phrased in an archaic or overly legalistic way; rather, it used relatively plain words to convey several clear propositions. Those stated clearly were:
(a) the bag must only be opened if the buyer had read and agreed with the conditions;
(b) return the bag if the conditions are not acceptable;
(c) if the product in the bag did not comply with its description, within recognised tolerances, Pacific Seed’s [the former name of Advanta] liability would be limited to the cost of replacement of the product; and
(d) Pacific Seeds would not be liable for loss and damage caused by the use of the product, including by its negligence.
[130] The reference to ‘tolerances’ would have been readily understood by buyers. The evidence from buyers, as outlined in paragraphs [75] to [88] above, showed that they concentrated on the germination data which was contained on its own label. But that data also contained three statements as to the contents of the bag:
(i) the ‘Minimum Purity’ was 99%;
(ii) the ‘Maximum Other Seeds’ was 0.1%; and
(iii) the ‘Maximum Inert Matter’ was 0.5%.
[131] All of those paragraphs referred to simple concepts and were delivered in plain words without any complicated syntax or legalistic terms. All were, in my view, easy for a lay person to understand. All of them stated plainly that the risk of using the product lay with the buyer and that Pacific Seeds was not accepting any responsibility for loss and damage caused by negligence on its part.
[132] These paragraphs do not fall to be tested as though they were part of a contract between the buyer and Pacific Seeds. As the learned trial judge recognised, it was no part of the case advanced by Advanta that ‘by a plaintiff or group member opening the bag and using the seed, a contract was made between the plaintiff or group member and the defendant under which the plaintiff or group member agreed to those terms’…
[133] Rather, they are to be examined for whether they reveal a clear disclaimer of an assumption of responsibility. In my view, they do so.”
Conversely both the trial judge and the Court of Appeal found that the farmers were vulnerable to the manufacturer. Vulnerability in this sense is concerned with whether the farmers were able to protect themselves from economic loss or damage caused by the manufacturer’s failure to take care.
“[209] His Honour said that it may be unrealistic to expect a consumer in the appellants’ position to extract a warranty from the seller against a defect in the quality of the goods purchased that would protect against economic loss. Factors such as the consumer’s limited bargaining position, the retailer’s inability to obtain a similar warranty from its supplier, and the fact that the goods may not be examinable before purchase, were relevant to that conclusion.”
This case demonstrates how Courts of Appeal are likely to approach claims for pure economic loss post Brookfield and the continuing usefulness of product disclaimers.
Pointon Partners can assist in drafting or advising about product disclaimers. Please contact Michael Bishop, David Mazzeo or Andrew Cox.
[1] [2023] QCA 24
[2] [1976] HCA 65
[3] [1999] HCA 36
[4] [2014] HCA 36
[5] [2023] QCA 24 at [225]
[6] [2014] HCA 36 at [22]
[7] [1995] HCA 17
[8] [1964] AC 465
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