The difference between negligence and gross negligence is one of degree and not of kind. The concept is more fundamental than failure to exercise proper care but that additional dimension can only be determined by context. Recently, the SCC readdressed the important issue of the enforceability of LOL clauses. You cannot exclude liability in negligence for death or personal injury; You cannot exclude liability for the supply of defective goods under the Consumer Protection Act 1987; You cannot exclude liability for breach of all contractual duties; you cannot leave the other party to the contract with no meaningful remedy in the event a breach of contract. Alberta Environment brought the deficiency to the operator's attention and granted a one-month extension. Ordinary negligence is usually okay. By using our website, you acknowledge the use of essential cookies and consent to the use of non-essential cookies, as described in our Cookie Policy. However, one of the most common exclusions of the limitation on liability are damages caused by gross negligence or willful misconduct. The Joint Operating Agreement provided for managing operator liability only in cases of gross negligence or wilful misconduct. In the wake of the Deepwater Horizon blow-out in the Gulf of Mexico, the legal term gross negligence has achieved prominence in the mainstream media. One example given by the SCC involved a case where a supplier knowingly sold defective products, rather than telling customers about the defects. In Canada over the past few years, more than one company was surprised (and dismayed) when the LOL provision in its standard online agreement was found to be ineffective by a judge. You usually can't indemnify yourself against your own gross negligence as that would too severely reduce your incentive to be cautious, offending public policy. Check with a lawyer if you need specific advice. a clause exculpating a party from liability for its own future actions or omissions. ii) such wanton and reckless conduct or omissions as constitutes in effect an utter disregard for harmful, foreseeable and avoidable consequences…. While ordinary negligence involves the failure to provide an adequate level of care or caution, gross negligence is far more severe in its level of apathy or indifference. The employees dealing with the issue determined, wrongly, that the required map was not available and let the leases lapse. The other two definitions set a higher bar for gross negligence, combining it with wilful misconduct and requiring a mental element of either intent or disregard/indifference. No particular internal process was triggered when Alberta Energy advised that the original application was deficient; the employees dealing with the matter did not know what was required to continue the leases; there was no automatic process to refer the issue to knowledgeable people. And again, the clause (in this case, a warranty disclaimer) was upheld to shield a supplier from liability when the equipment proved defective. While the trial court refused to enforce this LOL clause (and awarded damages of $50,000 to the small town jewellery store plaintiff when thieves made off with its inventory because of the negligence of the security service supplier), the Ontario Court of Appeal reversed, upholding the LOL clause that limited the compensation of customer to $890 (being one year’s services fee). The supplier’s strategy was to rely on the ostensible shield provided by an LOL clause in customer contracts to block any product liability claims (rather than be forthright with customers). The term is also used in the United States and Canada. The specific facts and findings in cases decided by reference to those statutes can be difficult to translate to the operation of a well or management of a gas plant. For example, the SCC points out that conduct approaching "serious criminality or egregious fraud" are but two examples where a court might override the public policy of freedom to contract, and not permit a party to rely on an LOL clause. Most Canadian agreements providing for operatorship of oil and gas assets (other than contract operatorship) require all participants in the project to contribute to the costs and liabilities incurred by the operator except in cases of gross negligence. First, provisions featuring gross negligence or featuring both negligence and gross negligence can be used as a sword—as a basis for terminating a contract, as grounds for being indemnified by the other party, or to circumvent a waiver of liability or … The failure to heed a warning or address a known problem seems to be a particular trigger for a finding of gross negligence. On the other hand, if properly drafted, the contractual LOL can even be crafted in a way to limit liability not only for breach of contract but also in respect of tort/negligence claims. It is common practice for parties entering outsourcing contracts to limit their liability to each other. Gross negligence is not a separate tort and does not have a precise meaning at common law. This provides parties with certainty at least as to what the standard will be and it allows them to adopt a more or less rigorous standard than developed by the courts or under statute. The Court may consider factors such as the likelihood of harm and the magnitude of potential damage when assessing whether conduct is grossly negligent. A personal injury lawyer can review the facts of the accident and explain whether negligence or gross negligence was involved. If the term "gross negligence" is used in a contract … Of course, this is always subject to a statutory or contractual definition of gross negligence that expressly or implicitly imposes a mental element (see below) or otherwise to the context in which the phrase is used. In a Supreme Court of Canada (SCC) decision that was the leading case on contractual LOL clauses until recently, the supplier of gear boxes for large conveyor belt equipment in Alberta’s tar sands had an LOL in its sales contract with customers. If a party reasonably proves … While both of these factors will be persuasive indicators of gross negligence, the current predominant view in Canadian law is that gross negligence does not require a mental intention element. Article 1.36 of the 2002 AIPN (Association of International Petroleum Negotiators) Model Form International Operating Agreement also combines gross negligence with wilful misconduct, defining them collectively as follows: Gross Negligence / Wilful Misconduct means any act or failure to act (whether sole, joint or concurrent) by any person or entity which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences such person or entity knew, or should have known, such act or failure would have on the safety or property of another person or entity. If you are facing a potential lawsuit with significant economic consequences that turns on a breach of contract/negligence analysis, you would be well advised to seek the guidance of a lawyer that is intimately familiar with this area of the law. Gross negligence (guess I should have spelled it out in legal terms). gross negligence.4 This applies equally to contract clauses purporting to exonerate a party from liability and clauses limiting damages to a nominal sum.5 The negligence/gross negligence debate in the context of exceptions to releases from liability may therefore be … Can I Lose My Right to Sue for Gross Negligence By Signing a Contract? To understand more about how we use cookies or to change your preference and browser settings, please see our Cookie policy. March 6, 2015 Leslie Marell. An individual cannot contract away their right to sue for gross negligence. In contract disputes, the concept of gross negligence normally comes into play in connection with risk-shifting provisions, such as: a limitation of liability clause; an indemnity obligation. The rationale for the LOL in most situations is understandable. The court in that decision refused to allow the supplier to rely on the LOL clause, and the SCC indicated that it is a good example of the type of scenario where the courts would decline LOL enforcement in order to protect the public interest. It is difficult to know exactly which conduct will amount to gross negligence in any particular situation. Barry pays Tom the agreed amount of money and expects Tom to duly deliver the car. In colourful language, the SCC in Tercon has now proclaimed the death of the doctrine of fundamental breach: "We should again attempt to shut the coffin on the jargon associated with ‘fundamental breach.’" In its stead, the SCC provides that, essentially, a court can always decide to decline to enforce a LOL clause if there is a compelling public policy rationale to do so. While signing an agreement is typically a defense to actions for ordinary negligence, this defense will not be available to use for avoiding a lawsuit involving gross negligence . Toronto, which held that gross negligence does not need to be wilful, wanton, or flagrant conduct, and that the determination of gross negligence is highly fact-specific. It is becoming increasingly common for parties to include a definition of gross negligence in their contracts. Gross negligence is the "lack of slight diligence or care" or "a conscious, voluntary act or omission in reckless disregard of a legal duty and of the consequences to another party." It is possible for a finding of gross negligence to be based on a series of acts or failures to act that, alone, would not constitute gross negligence. The plaintiff was also found to be 50% liable because she was wearing running shoes instead of winter Consequently, I submit that, even in cases not subject to the CPA, neither a depositee nor a carrier should be permitted to contract out of liability for gross negligence or wilful misconduct, including such gross negligence or wilful misconduct on the part of the servants of such parties. In United Canso Oil & Gas Ltd. v. Wash Northern, Inc. (Alberta Q.B. First, contracts refer to gross negligence in two different ways: they release Acme from liability for gross negligence, or they carve out gross negligence from provisions (a release, or indemnification provisions) that benefit Acme. In making a finding of gross negligence, the Court focused on the fact that when each of these managing operators took over operatorship, they were aware that the carried party was claiming that payout had been achieved and that there was an unresolved accounting dispute. There is a third ground under which a court can find an LOL clause to be unenforceable. The recent case of Camarata Property v Credit Suisse Securities [2011] EWHC 479 suggests that gross negligence means more than simple negligence but the difference is not easy to define or even describe. One Stop Rental Tool and Party, et al. In Tercon, the court also decided that an LOL clause could be invalid if it was unconscionable at the time it was entered into. In a similar vein, the next edition will consider a couple of cases that illustrate further limits to these LOL provisions. It is an open question. The Court said: “The outstanding issues were either ignored or else a calculated risk was taken that the Husky [previous operator] accounting was correct or that the plaintiff would not pursue the issues. On the other hand, if properly drafted, the contractual LOL can even be crafted in a way to limit liability not only for breach of contract but also in respect of tort/negligence claims. ), two successive managing operators of a gas plant undertook the joint venture accounting, but did not include any carried interest or production payment accounting. It is extremely rare for the supplier of IT equipment, software and services to a customer not to limit supplier’s liability in the contract between supplier and customer. In some jurisdictions a person injured as a result of gross negligence may be able to recover punitive damages from the person who caused the injury or loss.. Negligence is the opposite of diligence, or being careful. and the international legal practices and consulting activities of various entities which are associated with Bennett Jones LLP, John Weekes on Re-Engaging the World on Trade, Darrel Pearson on Trade and Cross-Border Transactions, Bennett Jones Highly Recommended in Global Competition Review 100, Twenty-Five Bennett Jones Lawyers in Lexpert/ALM 500 Directory, David Dodge: Canada Slow to Invest to Boost Productivity, Anne McLellan on Canada's Energy Transformation, Bennett Jones Once Again a Chambers Canadian Fintech Leader, John Manley on Rebuilding the Capacity of the Canadian Economy. In applying the carve-out, the Court endorsed the lower court's approach which "assumed that the parties intended the clause to have meaning and, indeed, a meaning which would have business efficacy". You can, however, seek to exclude or limit certain … Then, for some reason, Tom gets drunk before driving the car to deliver it to its new owner, which results in wrecking it before delivery. It is always open to the parties to introduce a definition of gross negligence for the purposes of their contract. • A party cannot exclude or limit its liability for its intentional or gross fault (including gross negligence, recklessness, or carelessness). Therefore, several recent cases that address LOL contract matters discussed below (and next edition) will be of keen interest to companies buying or selling tech products and services. Rather, the "Limitation of Liability" clause is of central importance in any agreement for the acquisition of tech-related products or services. In this instance, Tom didn't only breach his contract with Barry, but also did so by negligence, which constitutes a breach of contract and negligence. That is, when a supplier fails to perform under an agreement, in addition to a contract claim, customer may well also be able to bring a negligence claim if the supplier’s conduct fell below the requisite standard of care. The former can fall foul of a state’s rule that such releases are unenforceable as against public policy. The difficulty is compounded in the oil and gas context because the original use of the term gross negligence in Canada was in statutes dealing with issues such as motor vehicle liability, municipal responsibility or Good Samaritan rescuers. First, it is necessary that the LOL speak clearly, and that as a matter of interpretation, it clearly applies to the relevant scenario of liability. It is certainly being discussed by energy players on both sides of the border and around the world. CA 2016-03-004) illustrates one major caveat to the maxim: parties to a contract can agree to hold the other party harmless for negligence, nonetheless, “contract clauses that relieve a party from its own negligence, while generally upheld, are not favored by the law and are to be strictly construed.” This is particularly so in situations where a small breach of contract can result in very significant ... 9 Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309 at para. The firm that businesses trust with their most complex legal matters. The PJVA (Petroleum Joint Venture Association) October 2003 model Unit Operating Agreement includes: “Gross Negligence” means: However, judges have established general principles of gross negligence that will apply to energy industry disputes. Contact by email at [email protected], In a leading Ontario Court of Appeal decision, for instance, Navigating New Realities and Possibilities beyond the COVID Crisis  - A Hub for Business Leaders. Gross Negligence Relating to Oil and Gas Operations Given the prevalence of industry contracts in which liability or limits on liability depend on whether there was gross negligence, there are surprisingly few reported cases addressing the topic in … To illustrate breach of contract and negligence, let's say Tom agrees to sell a car to Barry. The SCC however, years ago, held that so long as the LOL is properly worded, it can serve as an effective shield against negligence claims as well. Parties choosing a definition should note that the PJVA definition comes closest to mirroring the Canadian case law. Bennett Jones refers collectively to the Canadian legal practice of Bennett Jones LLP Yeah. You’re not alone. It is a very different story, however, in the "consumer space," where businesses usually present take-it-or-leave-it contracts of adhesion to their customers, particularly in "click consent" agreements concluded over the Internet. Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both. © Bennett Jones LLP 2020 All rights reserved. It is possible for a finding of gross negligence to be based on a series of acts or failures to act that, alone, would not constitute gross negligence. However, because the definition concerns a type of conduct any resolution will be highly fact sensitive and, therefore, necessarily involving some measure of uncertainty. Some of the commonly referenced Canadian judicial definitions of gross negligence include: There have been a few cases suggesting that a party will only be grossly negligent where there is some conscious wrongdoing or conscious indifference to consequences. This second basis on which LOL clauses can be found to be unenforceable generally turns on whether there was an inequality of bargaining power between the respective parties at the time of contract formation. "Gross negligence" is a term often used in agreements, where one party seeks to exclude liability for breach unless liability arises directly as a consequence of “gross negligence" or the like. This results in part from the inherently fact-driven nature of the exercise and in part from the absence of an independent tort of gross negligence at common law. Further, the Adeco ruling suggests that gross negligence will be easier to prove where there is a failure to institute a reasonable system as opposed to just an individual error within an otherwise acceptable system. Traditionally this centred around the doctrine of "fundamental breach"; namely, that if a supplier’s breach of performance was so fundamental as to go to the very heart of the bargain between the parties, a court could elect not to let the supplier take advantage of the protection afforded by the LOL clause. In addition, the court pointed out that the trial court erred when it held that the speedway did not commit gross negligence because this is a determination for the jury. While the managing operators made some effort to resolve the dispute, when that did not happen, they simply continued on as if payout had not been achieved. North Carolina Courts have determined that a ski area operator and a motorcycle safety instructor fall within the “highly regulated” classification and are unable to waive ordinary negligence by contract. TPN Blogger 4:21 PM Disclaimer Notices (sometimes also referred to as “indemnities” or “exemptions”) are a common feature of shopping centres, office blocks, residential complexes, parking areas, sports stadiums, concert … Yikes, that paints you really into an unprotected corner. Corporate Canada would do well to aim for a middle-of-the-road clause that serves to adequately protect suppliers, while at the same time providing some scope of redress for the user as well. LOL language, however, can also be found in a range of other commercial agreements. The operator submitted a continuation application to Alberta Energy but did not include interpretive mapping. t. If you offer activities for which participants should sign waivers, the following tips can help ensure your waiver holds up in Court. This approach to enforcing contractual LOL clauses, however, was made subject to three very important exceptions in the Tercon decision. In Tercon, the SCC generally affirmed the ability of business counterparties to agree in advance, in a contract, to limit their respective liabilities to one another in the event activity under the agreement was to give rise to a damages claim. Pursuing a negligence claim. A marked departure from the applicable standard of care; some older cases refer to a very marked departure from the applicable standard of care; Positive or affirmative negligence rather than passive negligence; Conduct so arbitrary it reflects complete disregard for the consequences. The extent to which such indemnifications are honored depends on jurisdiction and public policy. This resulted in revenues that ought to have gone to a carried party being distributed to the non-carried parties. If your contract says that you are not liable in cases of gross negligence, it effectively renders the contract unenforceable and some judges will throw out the entire contract as invalid. Given the prevalence of industry contracts in which liability or limits on liability depend on whether there was gross negligence, there are surprisingly few reported cases addressing the topic in the context of oil and gas operations. This website uses cookies for a range of purposes to help us understand your interests and improve the website. For example, the 2007 CAPL (Canadian Association of Petroleum Landmen) Operating Procedure includes: “Gross Negligence or Wilful Misconduct” means any act, omission or failure to act (whether sole, joint or concurrent) by a person that was intended to cause, or was in reckless disregard of, or wanton indifference to, the harmful consequences to the safety or property of another person or to the environment which the person acting or failing to act knew (or should have known) would result from such act, omission or failure to act…. While it is difficult to generalize, most LOL provisions look something like this: "direct" damages are limited to some percentage of the revenue paid by customer to supplier; there is a general exclusion of "indirect and consequential" damages; and there are a few exceptions to both of these limitations. Negligence isn't clear-cut. It is noteworthy that, in both these cases, the operators had knowledge that there was at least some issue that required attention. If you’ve been hurt in an accident and you believe that your injuries were caused by the reckless or negligent actions of someone else, you should speak with a lawyer as soon as possible. It is clear that if a construction contract contains a cap on the contractor’s liability but does not “carve-out” liability for losses, damages and so on arising as a result of gross negligence and/or wilful misconduct, then the contractor will not be liable for such losses over and above the cap, even if caused by its gross negligence or wilful misconduct. "Gross Negligence" means: (i) a marked and flagrant departure from the standard of conduct of a reasonable person acting in the circumstances at the time of the alleged misconduct, OR (ii) such wanton and reckless conduct or omissions as constitutes in effect an utter disregard for harmful, foreseeable and avoidable consequences, provided that Gross Negligence shall not include any act or omission, insofar as it was done or omitted … Accusations of breach of contract or professional negligence can result in lawsuits. In a similar vein, if the court finds that the LOL is ambiguous, the court may well decline to enforce the clause. The lesson from these cases is that, especially in the consumer environment, LOL clauses have to be drafted very, very carefully and even-handedly. The Court placed particular emphasis on the fact that the operator did not appear to have any reliable system in place for dealing with lease renewals. That is, when a supplier fails to perform under an agreement, in addition to a contract claim, customer may well also be able to bring a negligence claim if the supplier’s conduct fell below the requisite standard of care. As a small business owner, you may have come across “contract negligence” and found it confusing. In short, whenever the particular product or service presents specific legal risks to the underlying customer, suppliers are keen to limit their liability contractually. Auto-redemption notes. This area of the law can prove especially tricky, and is not for novices. This article provides readers with a review of the law of gross negligence in Canada, with particular focus on its application in the energy business. When these contracts contain LOL clauses, they can run the real risk of being held unenforceable, especially if they are drafted in an overbearing, difficult-to-understand manner. i) a marked and flagrant departure from the standard of conduct of a reasonable Person acting in the circumstances at the time of the alleged misconduct, or The end result is that the City of Kitchener was found to be 50% liable. The Court found it significant that the parties had agreed to a standard of gross negligence as opposed to negligence … Proof of gross negligence can negate a limitation of liability or an indemnity clause. For example, if a supplier sells a customer a laptop computer for, say, $1,500, and the customer installs the laptop as the key control device in a nuclear plant, then in return for the $1,500 in revenue, the supplier does not want to take on the huge liability that may ultimately result if the laptop does not work properly. This was a conscious indifference to the rights or welfare of United Canso and its predecessors.” The Court went on to state that the operators should have sought direction from the Court on the outstanding issues rather than pressing on as if they did not exist. There was an exception to the limitation of liability for, among other things, damages arising out of the developer’s willful acts or gross negligence. Contract negligence combines language from two separate legal concepts: breach of contract and professional negligence.. Even in cases where a victim cannot bring sue someone for regular negligence, he can still bring a case for gross negligence. +1 416-601-7662 The trend is evident in a number of the model agreements commonly used by Canadian energy companies. The Fundamental Death of Fundamental Breach. ... For example, a clause of limitation or exclusion of liability in a consumer contract or a contract of adhesion could be declared null in its entirety if … For most situations involving two (or more) corporate entities, each with professional management, and typically represented by legal counsel, it would be difficult to vitiate the LOL clause for reasons of unconscionability. In Adeco Exploration Company Ltd. v. Hunt Oil Company of Canada Ltd., the Alberta Court of Appeal found an operator under a Joint Operating Agreement governed by the 1990 CAPL operating procedure grossly negligent in failing to renew Crown leases for two non-producing parcels. The core lesson on LOL clauses provided by the SCC in Tercon is that these important liability-limiting provisions can indeed serve a central objective to the parties to a contract (particularly to the company charged with supplying products and services that may be inherently risky), but they must be drafted and negotiated with care, and they will not save the defaulting party in all circumstances. While the term "LOL" in an Internet chat environment denotes a jocular sentiment (i.e., "laugh out loud"), in the context of legal contracts an "LOL" clause is no laughing matter. Yes, you can contract out of Gross Negligence! The practice of suppliers of goods and services limiting their liability contractually has spread to a number of non-IT-related industries. The court found that parties to the agreement did not intend for the developer’s discontinuation of services to constitute a willful act or gross negligence and, therefore, upheld a decision to enforce the limitation of liability clause. Most Canadian agreements providing for operatorship of oil and gas assets (other than contract operatorship) require all participants in the project to contribute to the costs and liabilities incurred by the operator except in cases of gross negligence. As such, gross negligence claims are not barred by the release. In a leading Ontario Court of Appeal decision, for instance, the supplier of a remote security system monitoring service stated in its customer subscription agreement that regardless of the breaches in performance by the supplier, the customer could not recover damages in an amount greater than 12 months of fees paid by the customer to the supplier. I find this to be gross negligence as defined as a very marked departure from the standards by which reasonable and competent companies in a like position to that of Asamera and Lasmer as Managing Operators in charge of joint ventures or accounting should habitually govern themselves. Moreover, by limiting its liability for such a scenario, the supplier is signalling to the customer that the customer should take appropriate measures to "de-risk" the situation as much as possible, including: procuring more than one unit of the hardware to ensure that adequate redundancy/back-up is built into the design of the control system; instituting other back-up mechanisms; and buying enough appropriate insurance to cover the risks of non-performance of the equipment. Both these cases, the court may well decline to enforce the clause state ’ rule. Of liability '' clause is of central importance in any Agreement for the LOL is ambiguous, the next will. 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