Did you know... what gross negligence is?

In many types of contracts it is standard industry practice for the party performing the services or carrying out the work (the Contractor) to request and obtain from the other party (the Principal) a clause limiting or excluding the Contractor's liability for, as an example, indirect or consequential losses.

If the Principal accepts this, the Principal will, in turn, require the exclusion clause to exclude certain situations where it would be unjust for the Contractor to obtain the benefit of the exclusion or limitation. Typically, these situations include liability for fraud or deliberate criminal acts or omissions or for wilful default.

The Principal will want the exception to be as wide as possible and may require that "negligence" be excepted from the exclusion clause. Invariably, the Contractor's response is to say that "negligence" is too wide and that this should be restricted to "gross negligence".

What should the Principal's response to this be? Both the Principal and Contractor will need to consider:

• Does the term "gross negligence" have any recognised meaning? If so, what is it?
• Is there any intelligible difference between ordinary negligence and gross negligence?

Background: The concepts of negligence and gross negligence

At common law, the term "negligence" generally describes damage causing conduct that arises because of the defendant's carelessness or failure to take reasonable care.

A person will be liable in negligence only where they breach a duty of care that the law has imposed upon them by failing to avoid a risk of damage or injury in circumstances where a reasonable person would have done so.

The fact that a person's conduct might have involved a gross departure from the standard of care expected by the law is simply not relevant to an action for breach of a duty of care.

The traditional view therefore, as far as civil proceedings in negligence are concerned, is that there is no distinction between negligence and gross negligence.

What does gross negligence mean?

On various occasions in Australia (and particularly overseas in the US and Canada) courts have had to consider the meaning of gross negligence. From these cases, it would appear that gross negligence:

• Is substantially greater in magnitude and more culpable than ordinary or mere negligence - it is "very great" negligence, to be determined according to the specific circumstances of the case.
• Involves a failure to exercise even a slight degree of care or diligence.
• Includes, at the very least, serious disregard to an obvious risk - that is, it arises without intent to cause (serious) injury.
• Does not equate to actions which are wilful or intentional. It is not necessary that conduct be deliberate or taken in contumelious disregard of anyone's rights, provided it is sufficiently thoughtless or unprofessional.

When considering gross negligence as an exception to an exclusion clause it may be useful to consider gross negligence on a spectrum of liability from the broadest concept (most favourable to the Principal) to the narrowest (most favourable to the Contractor) as follows:

1. Negligence (failure to exercise reasonable care/risks were reasonably foreseeable).
2. Gross negligence (failure to exercise any care/serious disregard to an obvious risk).
3. Recklessness (risks are consciously acknowledged).
4. Wilful or intentional default or damage.

Where gross negligence is used in a contract, its meaning will be a matter of construction - what was the intention of the parties? In the absence of any indications to the contrary, it is likely to be interpreted by a court in a manner consistent with previous cases.

Including gross negligence in the contract

Where the parties are to use gross negligence in their contract, for example as an exclusion to a limitation of liability clause, the following points should be noted:

1. The parties should be aware that the meaning of the term "gross negligence" is unclear. A court is likely to interpret the term in a manner consistent with previous cases (as referred to above), but having regard to the particular contract and the likely intention of the parties.
2. Given the uncertainty of the meaning of gross negligence, the parties may wish to use the term only on the basis that it is defined. This will also give the parties an opportunity to propose a definition which is more appropriate to the particular contract than the manner in which the term is likely to be defined at common law.
3. As a last resort, the parties could agree to a definition consistent with the way the term is likely to be interpreted at common law. The definition used in the Fair Trading Act 1999 (Vic) may be appropriate for this purpose, namely "an act or omission done with reckless disregard, whether consciously or not, for the consequences of the act or omission". While this may not be significantly different than the common law position, at least it provides greater certainty than if the term were undefined.