Should a contract include protections from “gross negligence”?

The concepts of negligence and gross negligence

Under Australian tort law, there is no judicial distinction between negligence and gross negligence. At common law, the term “negligence” generally describes a party’s failure to fulfil its duty of care owed to another party, to the standard of care legally required. The fact that a person’s conduct might have involved a gross departure from the standard of care required is not relevant. Once a negligent breach is established, the defendant is liable whether the negligent conduct was seriously, slightly, or to any other degree, negligent. Therefore, in civil tortious proceedings, the traditional view is that there is no distinction between negligence and “gross negligence” and the prefix “gross” is superfluous. 

Gross negligence as an exclusionary term in contracts

An exclusionary term in a contract operates to exclude, or limit, a party’s liability in specific circumstances.

Although the view is that there is no difference between negligence and gross negligence in tort law, the concept of gross negligence is developing outside the law of torts. In particular, use of the concept of gross negligence has become increasingly common as an exclusionary term. As such, Australian courts are showing a greater willingness to give exclusion clauses their plain meaning and are likely to find a distinct meaning for “gross negligence” when it has been included in a contract or deed as a result of a negotiation process.

Case law

The operation of an exclusion clause in commercial contracts depends on the intention of the parties. The intention is to be determined by construing the clause according to its natural and ordinary meaning and giving due weight to the context in which the clause appears, including the nature and object of the contract.

In the English case of Red Sea Tankers Ltd v Papachristidis (Hellespont Ardent), the High Court held that the distinction between negligence and gross negligence was potentially material, as the contractual term was clearly intended to represent something more than a failure to exercise the standard of care that would ordinarily constitute “mere” negligence. The Court found that “gross” negligence includes conduct undertaken with actual appreciation of the risks involved, but also serious disregard of, or an indifference to, an obvious risk.

A recent Australian case, GR Engineering Services Ltd v Investmet Ltd [2019] WASC 439, approved the approach of Mance J in Hellespont Ardent in considering the meaning of ‘gross negligence’ in the context of exclusion and indemnity clauses. Tottle J said:

“… I consider that [gross negligence]…means something more than mere negligence and involves a serious or significant departure from the standard of care required…For the purposes of this case, at least, in my view the difference between mere negligence and gross negligence is best expressed as simply being one of degree.”

Summary

Under Australian law, exclusion clauses included in a contract will be afforded their plain and ordinary meaning. Where commercial parties use the term ‘gross negligence’, this will be interpreted according to normal rules of construction and given a meaning according to the context of the contract in question.

It is also likely that where well-resourced commercial parties use these words in an exclusion clause, an Australian court will provide an objective interpretation according to traditional rules of contractual construction. That is, what did the parties mean by these words at the time of contracting? While the meaning of the term in other jurisdictions may guide the court as to the meaning of the term “gross negligence”, ultimately it will be a matter of objectively assessing what the parties intended when they included the term as a result of their negotiation.

It seems that according to current Australian law, gross negligence applies to conduct that causes damage on a level of liability somewhere between ordinary negligence (where the risks were reasonably foreseeable) and recklessness (where the risks are consciously acknowledged). According to Hellespont Ardent, this would occur where the risks of damage are high and obvious, such that failure to avert the damage goes beyond a mere failure to take reasonable care.

If the phrase “gross negligence” is used in a contract, it would be prudent to consider the parties’ intention in using that term. In particular, it should be considered whether it is satisfactory that the term is undefined, having regard to its judicial interpretation as outlined above, or whether the definition should be more prescriptive. 

By Tony Symons, Millie Clayton and Zara Treacy