Selected Seeds Pty Ltd v QBEMM Pty Limited [2010] HCA 37

HIGH COURT OF AUSTRALIA

FRENCH CJ,

HAYNE, CRENNAN, KIEFEL AND BELL JJ

SELECTED SEEDS PTY LTD APPELLANT

AND

QBEMM PTY LIMITED AND ORS RESPONDENTS

Selected Seeds Pty Ltd v QBEMM Pty Limited [2010] HCA 37

3 November 2010

B16/2010

ORDER

1. Appeal allowed with costs.

2. Set aside the order of the Court of Appeal of the Supreme Court of Queensland made on 22 September 2009 and, in lieu thereof, order that the appeal to that Court be dismissed with costs.

On appeal from the Supreme Court of Queensland

Representation

B W Walker SC with R S Ashton and L S Reidy for the appellant (instructed by Carne Reidy Herd Lawyers)

G A Thompson SC with K F Holyoak for the respondents (instructed by Barry & Nilsson)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Selected Seeds Pty Ltd v QBEMM Pty Limited

Insurance – Product liability insurance – Insurance policy – Indemnity – Exclusion clause – Appellant seed merchant sold contaminated seed – Planting of seed by third party resulted in damage to property – Exclusion of liability caused by or arising from "the failure of any Product to correctly fulfil its intended use or function" – Proper construction of exclusion clause – Whether liability for damage arose out of failure of product to fulfil its intended use or function – Distinction between product failing to fulfil intended use or function and causing positive harm.

Words and phrases – "intended use or function".

1. FRENCH CJ, HAYNE, CRENNAN, KIEFEL AND BELL JJ. The appellant, Selected Seeds Pty Ltd, is a grain and seed merchant carrying on business in Queensland. In December 2002 it purchased seed from a merchant in the Northern Territory, which was represented to be Jarra grass seed. At that time, the seed was substantially Summer grass seed or substantially contaminated with Summer grass seed, but the contamination was not identified in a certificate of analysis issued by an independent laboratory. 2. The appellant sold some of the seed to S and K Gargan and they supplied a portion of the seed to Michael Gargan. With each progressive harvest, the presence of Summer grass seed increased. By the time Michael Gargan sold some of the seed to Landmark Operations Limited ("Landmark"), a farming merchandise supplier, the seed was almost entirely Summer grass seed. Landmark sold a quantity of the seed to R and J Shrimp as Jarra grass seed in about December 2004. They grew only Summer grass. 3. Jarra grass is extremely palatable to all types of stock as green feed, dry feed or hay and is grown for these purposes. It is a perennial grass. Summer grass is fit only as low-quality stock feed and not for the production of commercial grass seed. Although an annual grass, Summer grass may be durable in subsequent seasons. It is regarded as a weed when present in commercial hay and seed crops. 4. The Shrimps brought proceedings claiming damages against Landmark in the Federal Court in April 2006. That part of the Shrimps' claim relevant to the appellant's policy of insurance, here in question, related to the damage to their land caused by planting the Summer grass seed. They claimed the costs of eradicating it from their land and the loss of use of the land during that period. Michael Gargan was joined to the proceedings by Landmark and he, in turn, joined the appellant to the proceedings. The appellant was subsequently given leave to defend the Shrimps' claim. 5. The proceedings were settled in March 2008. The appellant contributed $150,000 to the settlement of the Shrimps' claim. It was not disputed that the settlement was reasonable, but the appellant's insurers, the respondents, refused to indemnify the appellant for that loss. 6. The appellant had a Broadform Liability Policy ("the Policy") of insurance with the respondents, providing indemnity against public liability and product liability. The Policy schedule contained endorsements which formed part of the Policy. Endorsement 3 was an "Efficacy Clause", which had the effect of excluding liability arising from particular defined events. It is that clause which is the focus of this appeal. 7. The insuring clause (cl 2.1) relevantly provided that the respondents agreed to pay to the appellant: