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Source: Insurance Law Journal, published by LexisNexis
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Gross negligence in exclusion clauses: is
there an intelligible difference from ordinary
negligence
Liam Brown*
Despite frequent commercial use of the term ‘gross negligence’ to delimit
where liability for damage lies under contracts and trust deeds there has
been little recent judicial or academic discussion about what these words
mean. The accepted wisdom, at least insofar as torts are concerned, is that
there are no categories of negligence and hence the addition of the word
‘gross’ adds nothing to the concept of negligence. Contemporary courts are
increasingly willing to give full expression to exclusion clauses and, as such,
will endeavour to uncover what the parties meant objectively when they used
the term ‘gross negligence’ to limit liability for damage. Gross negligence has
long been used in other jurisdictions and areas outside the law of torts.
These uses may colour the meaning an Australian court gives to the concept
when constructing an exclusion clause, but ultimately it will determine
objectively what the parties meant when they included the term as a result
of their bargaining. Since the parties chose the words, they will be given full
meaning. Hence the use of the epithet ‘gross’ will significantly alter a party’s
liability for damage under a contract or trust deed when added to ordinary
negligence.
I Introduction
The question of whether, according to Australian law, a distinction exits
between ordinary negligence and gross negligence is generally answered in
the negative,1 or answered without certainty.2 Gross negligence is said to be
merely descriptive of serious negligence, but an indistinguishable sub-set of
negligence nonetheless. That is, gross negligence is used to describe conduct
that is of particularly egregious negligence and nothing turns on the use of the
adjective ‘gross’. Despite this position, gross negligence is frequently used in
contract or trust exclusionary terms, even though there has been little judicial
or academic consideration of what such words mean when used in this
context. This article shows, that whilst the view that there is no difference
between ordinary and gross negligence might be correct according to tort law,
it is now unlikely to hold true in the context of exclusion clauses in
commercial contracts or settlement deeds.
Part 2 of this article will elucidate the background to the issue by looking
at traditional views of negligence and gross negligence. Parts 3 and 4 will then
analyse accepted uses of a concept of gross negligence in Australian and North
* BPhysio (Hons) (Melb) LLB (Hons) (Latrobe). The author is currently a Solicitor at
Mallesons Stephen Jaques in Melbourne.
1 See, for example, R P Balkin and J L R Davis, The Law of Torts, 3rd ed, LexisNexis, Sydney,
2004, p 294; J Fleming, The Law of Torts, 9th ed, Law Book Company, North Ryde, 1998,
p 136.
2 See, for example, S Clark and R McInnes, ‘Gross Negligence’ (2001) 12 ILJ 250.
1
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American jurisdictions. Part 3 looks at uses of the phase under Australian law
with particular illustrations from criminal, property, and state statute law. This
is followed by a brief illustration of gross negligence in North America in part
4. Part 5 then examines how a concept of gross negligence is relevant to
exclusion clauses. Finally, this article concludes that gross negligence does
have a meaning distinct from ordinary negligence, especially in the context of
exclusion clauses in commercially negotiated contracts or deeds of settlement.
The use of a concept of gross negligence is becoming increasingly common
in domains such as criminal law, state statute law, and as an exclusionary term.
Australian and English courts are showing a greater willingness to give
exclusion clauses their plain meaning.3 A willingness to give full meaning to
negotiated terms means that a court is likely to find a distinct meaning for
‘gross negligence’ when it has been placed in a contract or trust deed as a
result of a bargaining process between the parties. Great care needs to be
taken, as a consequence, when considering what words are used when
negotiating exclusion clauses. Australian courts are likely to define liability
for excluded damage in accordance with the words used by the parties and
when these words are ‘gross negligence’ the analysis will extend beyond a
simple dichotomy of negligent versus wilful conduct. This means that the use
of the word ‘gross’ before negligence will undoubtedly alter the extent of a
party’s liability for damage caused under the contract or trust deed.
2 Background: the concepts of negligence and gross
negligence
Traditionally a defendant will be liable for damage where this is the intended
outcome of his or her acts.4 However, in some circumstances liability will also
arise where the conduct that causes the harm is merely negligent. Intention
and negligence refer to differing states of mind. An intentional act is one done
with the desire or purpose of achieving a particular outcome,5 whereas a
negligent act involves no desire but the consequent result arises through
carelessness or indifference.6 In the case of tortious liability for negligence,
while the outcome of the defendant’s actions is not intended, liability for the
harm caused arises anyway because of a policy of the law to compensate a
victim who suffers damage due to another’s failure to take care.7
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. On this subject Alderson B famously said:
3 See, for example, J W Carter and D J Harland, Contract Law in Australia, 4th ed,
Butterworths, Chatswood, 2002, at [750].
4 For example according to the following torts: conspiracy: Lonrho Plc v Fayed [1992] 1 AC
448; [1991] 3 All ER 303; intimidation: Sid Ross Agency Pty Ltd v Actors and Announcers
Equity Assn of Australia [1971] 1 NSWLR 760; assault: Hall v Fonceca [1983] WAR 309.
5 Gollins v Gollins [1964] AC 644; [1963] 2 All ER 966 at AC 663–4 per Lord Reid.
6 Kettlewell v Watson (1882) 21 Ch D 685 at 706.
7 Donoghue v Stevenson [1932] AC 562 at 618–22.
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Gross negligence in exclusion clauses
3
Negligence is the omission to do something which a reasonable man, guided upon
those considerations which ordinarily regulate the conduct of human affairs, would
do, or doing something which a prudent and reasonable man would not do.8
Liability for damage caused by negligence only arrises in an objective sense
— where there is a breach by the defendant of a duty to take care. This duty
can be imposed by either common or statute law. The most significant
statement of this principle being that of Lord Macmillan in Donoghue
v Stevenson as he formulated the modern tort of negligence:9
The law takes no cognisance of carelessness in the abstract. It concerns itself with
carelessness only where there is a duty to take care and where failure in that duty has
caused damage. In such circumstances carelessness assumes the legal quality of
negligence . . . The cardinal principle of liability is that the party complained of
should owe to the party complaining a duty to take care, and that the party
complaining should be able to prove that he has suffered damage in consequence of
that duty.
Therefore a defendant will be liable to compensate a plaintiff where they have
failed to observe a legally recognised duty of care to another party and
material damage results. The standard of care that must be exercised to satisfy
this duty is measured objectively:
In deciding whether there has been a breach of the duty of care the tribunal of fact
must first ask itself whether a reasonable man in the defendant’s position would have
foreseen that his conduct involved a risk of injury to the plaintiff or to a class of
persons including the plaintiff. If the answer be in the affirmative, it is then for the
tribunal of fact to determine what a reasonable man would do by way of response
to the risk.10
Therefore 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 the risk of
damage or injury in circumstances where a reasonable person would have
done so.
The fact that the defendant’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 a breach of a duty of care. Once a negligent breach is established
(and the other ingredients of the tort or action have been met) the defendant
is liable whether the negligent conduct was seriously, slightly, or to any other
degree, negligent.
The traditional view, therefore, as far as civil proceedings are concerned is
that there is no distinction between negligence and gross negligence. This
view was famously enunciated by Lord Denman when he said: ‘it may well
be doubted whether between gross negligence and negligence merely any
intelligible distinction exists’.11 And so Rolfe B was lead to remark that he
‘could see no difference between negligence and gross negligence — that it
8 Blyth v Birmingham Waterworks Co (1856) 11 Ex 781 at 784 as approved by Windeyer J in
Munnings v Hydro Electric Commission (1971) 125 CLR 1 at 21; [1971] ALR 609.
9 Donoghue, above n 7, at 618–9.
10 Wyong Shire Council v Shirt (1980) 146 CLR 40 at 47 per Mason J; (1980) 29 ALR 217.
11 Hinton v Dibbin (1842) 2 QB 646 at 661.
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was the same thing, with the addition of a vituperative epithet’.12 Much later
Lynskey J went so far as to say that:
Epithets applied to negligence, so far as the common law is concerned, are really
meaningless. Negligence is well known and well defined. A man is either guilty of
negligence or he is not guilty of negligence. Gross negligence is not known to the
English common law . . .13
But despite this apparent judicial aversion to a concept of gross negligence it
is of prolific use throughout Australian, English, and United States (hereafter,
US), common and statute law. ‘It is an expression in regular use among
lawyers, and to deny it a meaning would be pedantic. It is intended to denote
a high degree of careless conduct . . .’14 When used in the context of a breach
of a legally imposed duty, gross negligence simply has no relevance. A
defendant’s conduct may in fact be grossly negligent but this has no bearing
on the curial proceeding. However this is not the same as saying that the
expression has no meaning, it just has no utility in this context. In part 3 this
article will examine several uses of gross negligence in Australian common
and statute law. This analysis will demonstrate the meaning and acceptance
that gross negligence has within Australian legal discourse.
3 Defining gross negligence: uses of gross
negligence in Australian law
A concept of gross negligence is not new to Australian law. In this part it will
be demonstrated that gross negligence has a long and developing use in
Australian law outside the law of torts, contract, or trusts. Particular examples
from criminal law, property law, and state statute law are used to illustrate a
developing acceptance of gross negligence as a way of delineating liability for
damage-causing conduct.
Manslaughter by criminal negligence
Negligent conduct of a defendant that causes the death of another will amount
to manslaughter if it can be characterised as grossly negligent.15 This is
normal negligence, in the sense of a failure by the defendant to observe
reasonably a legally imposed duty of care, but the breach by the defendant is
of such a serious nature that it is subject to criminal sanction. The test for this
kind of manslaughter involves the prosecution proving that the acts of the
accused were performed voluntarily:
12 Wilson v Brett (1843) 11 M & W 111 at 115–16. Approved by Willes J in Grill v General
Iron Screw Collier Co (1866) LR 1 CP 600 at 612.
13 Pentecost and Anor v London District Auditor and Anor [1951] 2 KB 759 at 764.
14 R A Percy and C T Walton, Charlesworth & Percy on Negligence, 9th ed, Sweet & Maxwell,
London, 1997, p 9.
15 R v Osip (2000) 2 VR 595 at 602; Nydam v R [1977] VR 430 at 445.
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5
in circumstances which involve such a great falling short of the standard of care
which a reasonable person would have exercised, and which involve such a high risk
that death or serious bodily injury would follow, that the doing of the act or acts
merits criminal punishment.16
The general presumption is that before criminal guilt can be found, subjective
intention to commit the crime on the part of the perpetrator must be proved.17
However, manslaughter by gross negligence retains the objective test
described previously for negligence and the accused need not have any
cognisance of, or indifference to, the danger attached to his or her actions.18
Whether the failure to observe a duty of care is of such severity to warrant the
title ‘gross’, and therefore criminal penalty, is a matter of fact for the jury to
determine according to the context in which the defendant was placed.19 And
although it is arguably purely a question of degree of negligence for the trier
of fact, there is some support for the notion that ‘there is a difference in kind
between the negligence which gives rise to a right to compensation and the
negligence which is a crime’.20
Manslaughter by gross negligence retains the essential features of mere
negligence, yet for guilt to be found it demands that the trier of facts delineate
conduct that involves a gross departure from the standard of care expected in
the circumstances from conduct that simply, or merely, departs from the
standard of care expected in the circumstances. This is articulated as ‘a great
falling short of the standard of care’21 that is reasonably and objectively
expected according to the facts. What amounts to a great falling short will
always be highly specific to a particular context, and may be more easily
articulated by description of what sort of conduct would fail this standard. In
essence a great falling short of the standard of care in these cases can be
determined by weighing the high risk of death or grievous bodily harm
involved in the defendant’s acts or omissions with the action required to avert
these consequences. Therefore, where there is a high and obvious risk, and the
defendant fails to implement a simple strategy of amelioration, they will be
guilty of gross negligence. For example in R v Osip22 the defendant was using
a highly powered hunting rifle in a populated area. He shot at what he thought
was a dear but instead killed a man walking a dog. Shooting a highly powered
hunting rifle in an inhabited area without first carefully verifying the target
involves an obvious and serious risk of death and the action to avert this
outcome simply involved refraining from shooting before more careful
examination of the target.
Gross negligence has a long and accepted use in the criminal law. The crime
involves all the essential elements of mere tortious negligence, yet the failing
by the defendant is so severe that the conduct merits criminal punishment by
the state, even in the absence of intention. In such cases the trier of facts is
16 R v Osip, above n 15, at 600, 605.
17 Sherras v De Rutzen [1895] 1 QB 918 at 921.
18 R v Lavender (2004) 41 MVR 492; [2004] NSWCCA 120 at [121] per Giles JA; [221] per
Hulme J; R v Osip, above n 15, at 606; R v Adomako [1995] 1 AC 171 at 187.
19 Akerele v R [1943] AC 255 at 261–4; R v Adomako, above n 18, at 187–9.
20 Akerele v R, above n 19, at 261–4; R v Adomako, above n 18, at 187–9.
21 R v Osip, above n 15, at 602; Nydam v R, above n 15, at 445.
22 R v Osip, above n 15.
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asked to determine what amounts to gross or criminal negligence. While this
is difficult to define in the abstract, it universally involves conduct of the
defendant that has a severe and obvious risk of death, and yet the action
required to prevent this outcome is not only obvious, but also simple. Where
this is the case and death is the result, the defendant will be guilty of gross
negligence.
Purchaser for value postponed
Courts in England and Australia have held that the legal owner of real property
may have their interest postponed to a prior or subsequent equitable interest
holder if the inconsistent interest arose due to the owner’s gross negligence.23
For example, a purchaser may have their interest postponed where, by gross
negligence (and in the absence of fraud or actual knowledge), they fail to
acquire knowledge of a prior interest.24 It is also the case that a prior legal
estate may be postponed to a subsequent equitable one where there has been
gross negligence on the part of the legal estate holder that allowed the creation
of the subsequent interest.25 In these cases postponing the vigilant party’s
rights to the rights of the grossly negligent party would be unjust.26
In Davidson v O’Halloran27 a mortgagee of general law land failed to
request the title deeds from the mortgagor and acquiesced in the
non-registration of the mortgage. The mortgagor subsequently mortgaged the
property to another party who acted bona fide and without knowledge of the
first mortgagee and registered the mortgage. The court held that non-inquiry
for the title deeds and failure to register the mortgage amounted to gross
negligence because these were such important and obvious step to be taken in
a real property transfer in order to protect one’s legal interest.28 In a case such
as this there is no intention or knowledge on the part of the legal owner to
allow the new (or existing) interest to be created. But it is the owner’s gross
negligence that allows the situation to occur because the risk to his or her
interest is obvious and substantial and the action required to prevent this
consequence is simple. Such a failure is therefore beyond mere negligence, or
a failure to take reasonable care; it is a failure to take even the slightest care
and in this regard is analogous to manslaughter by gross negligence.
State statute law
State legislatures have, especially over recent years, used the words ‘gross
negligence’ to delineate where liability for certain conduct falls. Consequently
Australian courts may be asked to interpret what was meant by a parliament
when it chose to use these words. Some examples of statutes that use this term
include:
23 See, for example, Oliver v Hinton [1899] 2 Ch 264; Walker v Linom [1907] 2 Ch 104 at 114;
Davidson v O’Halloran [1913] VLR 367; (1913) 19 ALR 305.
24 Oliver, above n 23.
25 Walker, above n 23, at 114; Davidson, above n 23.
26 Davidson, above n 23; Walker v Linom, above n 23, at 114.
27 Davidson, above n 23.
28 Ibid, at 378–9.
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• Law Reform Act 1995 (Qld), s 16: Protection of medical
practitioners and nurses. This provision gives protection from
liability for injury for doctors and nurses when rendering medical aid
to an injured person in an emergency, when done without payment,
in good faith, and without gross negligence.
• Plumbers and Gas-fitters Registration Act 1951 (Tas), s 13:
Suspension and cancellation of registration. The Board may suspend
or cancel any certificate of registration if after inquiry it is satisfied
that the holder of the certificate is ‘guilty of gross negligence . . .’
• Conveyancing and Law of Property Act 1898 No 17 (ACT), s 111:
Relief against forfeiture for breach of covenant to insure. The
Supreme Court can order relief against forfeiture for breach of such
a covenant where the breach has ‘been committed . . . without fraud
or gross negligence . . .’
• Housing Societies Act 1976 (WA), s 70A: Appointment of
administrator of society. An administrator of a society is not liable for
any loss sustained by the society during his term of office unless this
is due to his ‘wilful misconduct or gross negligence . . .’
• Gaming Machines Act 2001 (NSW), s 81: A person is guilty of an
offence if they dishonestly, or by their gross negligence, cause an
illegal advantage to be gained by the operators of a gaming machine
during the design, manufacture etc of a machine.
• All Australian states (except NSW) have a defence that closely
resembles s 2 of Lord Campbell’s Libel Act.29 For example the
equivalent Victorian provision is in the Wrongs Act 1958 (Vic), s 7:
In an action for libel it is a successful defence if the defendant
publishes an apology, pays into court a sum of money by way of
amends for the injury caused, and demonstrates that the libellous
material was printed ‘without actual malice and without gross
negligence . . .’
These examples demonstrate the preparedness of Australian legislatures to use
the concept of gross negligence to delimit liability for damage caused by
particular conduct. The Australian judiciary has not yet conclusively
explicated the meaning that is to be given to gross negligence under these acts.
However the state parliaments have all chosen to use the words ‘gross
negligence’ rather than mere negligence. The parliaments are therefore
explicitly endorsing the view that there is a difference between the two
concepts and it is a difference that the courts should be able to identify when
this is argued before them on the facts.
4 Gross negligence in the US and Canada
In contradistinction to Australian law, US and Canadian law has a more
established history of use of a concept of gross negligence. Northern
American tort law retains the traditional view that degrees of negligence are
not relevant to examining a breach of a duty of care, however specific
circumstances have lead to the development of a principle of gross negligence.
29 Libel Act 1843 (6 & 7 Vict c 96).
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These include particular cases where a defendant will not be liable for damage
caused by ordinary carelessness but only that caused by gross, or extreme,
carelessness. For example in many jurisdictions gross negligence is used to
limit the liability of car drivers to injured gratuitous passengers,30 gross
negligence is usually sufficient for an award of exemplary damages,31 and in
many jurisdictions damage caused by gross negligence (unlike ordinary
negligence) cannot be excluded by contract, as this is contrary to public
policy.32
Despite the frequency of its use, a settled meaning of gross negligence
under US or Canadian law has remained a vexed issue. Gross negligence has
been commonly thought to involve a want of slight or scant care,33 such that
Evans JA quoted with approval the following definitional passage:34
. . . conduct in which, if there is not conscious wrong doing, there is a very marked
departure from the standards by which responsible and competent people in charge
of motor cars habitually govern themselves.35
However, other courts in North America have required an element of
recklessness, wantonness or wilfulness.36 For example, it was suggested
recently that:
gross negligence differs in kind, not only degree, from claims of ordinary
negligence. It is conduct that evinces a reckless disregard for the rights of others or
‘smacks’ of intentional wrongdoing.37
But this does not mean the gross negligence involves consciousness of
wrongdoing or the potentially harmful consequences of an action or inaction,
as the phrase ‘evince a reckless disregard for the rights of others’ is capable
of applying to an objective state of mind.38
In the US and Canada it seems that despite frequent use there is not a settled
meaning to the concept of gross negligence. Professor Keeton explains that
gross negligence probably falls short of reckless disregard or conscious
indifference to the consequences, but is more than ordinary inadvertence or
inattention.39 That is, gross negligence straddles a spectrum of liability
between liability for damage due to carelessness and liability for damage due
to consequences of actions that are contemplated but ignored. In general, for
conduct to be described as grossly negligent it must therefore involve a
30 Jackson v Millar [1973] 31 DLR (3rd) 263; See also the discussion in Professor W Page
Keeton, Professor Keeton on the Law of Torts, 5th ed, West Publishing Co, St Paul,
Minnesota, 1984, p 215.
31 B Garner, Black’s Law Dictionary, 7th ed, West Group, St Paul, Minnesota, 1999, p 1057.
32 See, for example, David Gutter Furs Ltd v Jewelers Protection Services 584 NYS 2d 430;
79 NY 2d 1027 (1992).
33 Food Pageant Inc v Consolidated Edision Co 54 NY 2d 167 (1982); Mclenagan v Karnes
27 F 3d 1002 at 1019 (1994).
34 Jackson, above n 30.
35 McCulloch v Murray [1942] 2 DLR 179 at 180.
36 For example, Williamson v McKenna 223 Or 366; 354 P 2d 56 (1960); Ryan v Foster
& Marshall Inc 556 F 2d 460 (1977); Boyce v Greenway 71 F 3d 1177 at 1188 (1996).
37 David Gutter Furs Ltd, above n 32.
38 Red Sea Tankers Ltd and Others v Papchristidis [1997] 2 Lloyds Rep 547 at 584–5 (The
Hellespont Ardent).
39 Keeton, above n 30, pp 211–12.
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conscious choice of conduct involving an obvious and high degree of risk of
serious ramifications. These risks, while not actually comprehended by the
defendant, were only thus because of a serious heedlessness or indifference to
the consequences of the intended actions or inactions. And whether actions or
inaction were grossly negligent is an objective fact for determination by the
jury in light of the proved facts of the case.40
5 Gross negligence and exclusion clauses
Exclusion clauses are clauses in settlements or contracts that seek to restrict
or limit the liability of a contracting party. In the past courts were generally
restrictive in their interpretation of these clauses, however with modern
legislative protection of weaker contracting parties courts have been more
balanced in their approach to construction.41 Where commercial parties have
dealt at arms’ length there is no reason why a court should interpret an
exclusion clause otherwise than according to its plain meaning.42 But it
remains the case that where there is ambiguity surrounding an exclusion
clause it will be constructed contra proferentem so as to benefit the party who
has suffered the damage.43 In general therefore (at least in commercial
contracts), subject to statutory requirements,44 the operation of an exclusion
clause depends on the presumed intention of the parties at the time of
contracting and is a normal question of construction:45
. . . the interpretation of an exclusion clause is to be determined by construing the
clause according to its natural and ordinary meaning, read in the light of the contract
as a whole, thereby giving due weight to the context in which the clause appears
including the nature and object of the contract . . .46
On the basis of a public policy argument exclusion clauses cannot apply to
conduct done fraudulently or in bad faith47 and it has been recently argued that
a clause that excludes damage caused by a party’s gross negligence should
also be invalid for the same reason.48 Armitage v Nurse49 involved a clause in
a settlement that provided that the trustee would not be liable for any loss or
damage to the fund or its income ‘unless such loss or damage shall be caused
by his own actual fraud’.50 The court held that the clause was effective, no
40
41
42
43
44
45
46
47
48
49
50
Lester v Atchison, Topeka and Santa Fe Railway Co 272 F 2d 42 at 47 (1960).
Carter and Harland, above n 3, at [750].
Van der Sterren v Cibernetics (Holdings) Pty Ltd [1970] ALR 751 at 760–1.
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510.
Examples of statutory interference with exclusion clauses include: Trade Practices Act 1974
(Cth) ss 68, 68A and the various State statutes dealing with unfair contractual terms.
Darlington Futures, above n 43; J W Carter, ‘“Commercial” Construction and the Canada
SS Rules’ (1995) 9 JCL 69, p 76.
Darlington Futures, above n 43.
Surban Homes Pty Ltd v Topper (1929) 35 ALR 294; Alexander v Perpetual Trustees WA Ltd
[2001] NSWCA 240 (unreported, Stein JA, Davies and Ipp AJJA, 30 July 2001) as approved
by the High Court in Alexander v Perpetual Trustees WA Ltd (2003) 216 CLR 109; 204 ALR
417.
Armitage v Nurse [1997] 2 All ER 705.
Ibid.
Ibid, at 709.
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matter how indolent, imprudent, lacking in diligence, negligent, or wilful the
trustee might have been, so long as he had not acted dishonestly.51
The court concluded that while there is a difference in kind between fraud
and negligence (however gross), the difference between negligence and gross
negligence is merely a matter of degree.52 Conscious wrongdoing is necessary
for a finding of fraud and this is not an element of negligence, no matter how
gross, and therefore it was not contrary to public policy for a trustee to exclude
liability for gross negligence.53
The High Court of England has previously examined the use of ‘gross
negligence’ in an exclusion clause in a commercial contract.54 In the
Hellespont Ardent55 the clause in question provided an indemnity from
liability for damage except where this was caused by that party’s fraud, bad
faith, gross negligence, or wilful misconduct.56 The plaintiff argued that
damage had resulted from the defendant’s gross negligence. This gave the
court the opportunity to examine what the parties meant when they agreed to
the term ‘gross negligence’.
The agreement in this case was expressed to be subject to New York Law,
however Mr Justice Mance took the opportunity to examine what the clause
would mean under the laws of England. He felt that it was simply a matter of
constructing the contract to find the objective intentions of the parties at the
time of contracting.57 Since the parties had chosen the words to form part of
their contractual relationship these words must be given meaning in light of
the nature of their commercial relationship. When this was appreciated he felt
that the concept of gross negligence when used in this context meant:
serious negligence amounting to reckless disregard, without any necessary
implication of consciousness of the high degree of risk or the likely consequences
of the conduct on the part of the person acting or omitting to act.58
And his Honour expressed the view that the same conclusion would be
reached whether applying English or US law — it was a matter of construction
and in this context the parties intended that gross negligence represented
something more fundamental than simple failure to exercise proper skill or
care.59 It involved conduct that a reasonable person would perceive to involve
a high degree of risk of injury to others coupled with heedlessness or
indifference to or disregard of the consequences.60 Significantly, for the
51 Ibid, at 711.
52 Ibid, at 713.
53 Ibid, at 712–13. The House of Lords refused a petition for leave to appeal this decision of
the Court of Appeal: [1998] 1 WLR 270a. The Court of Appeal’s decision has been cited
with approval in Australia, for example see: ANZ Banking Group Ltd v Intagro Projects Pty
Ltd [2004] NSWSC 1054 (unreported, White J, 11 November 2004) [28]–[29]; Reid
v Hubbard [2003] VSC 387 (unreported, Nettle J, 3 October 2003) at [23]; Reader v Fried
[2001] VSC 495 (unreported, Pagone J, 19 December 2001) at [13]–[14].
54 The Hellespont Ardent, above n 38.
55 Ibid.
56 Ibid, at 580.
57 Ibid, at 586.
58 Ibid.
59 Ibid.
60 Ibid.
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Gross negligence in exclusion clauses
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purpose of this article, the Court of Appeal in Queensland cited his Honour’s
reasons with approval when constructing an indemnity clause that excluded
damage caused by gross negligence.61
It has been shown in this section that under Australian law it is likely that
an exclusion clause inserted into a contract by agreement (at least between
commercial parties bargaining at arms’ length) will be afforded its plain
meaning. Therefore 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. A court will look
at the conduct alleged to have been grossly negligent and determine if the care
exercised by the defendant in the circumstances was so small as to warrant
being defined as ‘gross’ according to the contract.
6 Conclusion
Blind adherence to the commonly accepted wisdom that there is no difference
between ordinary and gross negligence is dangerous, particularly in a
commercial context. It is clear that there is a growing understanding that gross
negligence has a life of its own beyond the law of torts. This is particularly
evident by the increased readiness of state legislatures to use the term to
delineate where liability for certain conduct should lie. 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? Use of the phrase in other
areas of our law and in other jurisdictions may guide the court as to what gross
negligence means, but ultimately it will be a matter of concluding objectively
what the parties intended when they included the term as a result of their
bargaining.
It seems clear that according to 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 or wantonness (where the risks are consciously acknowledged).
According to the Hellespont Ardent this would occur where the risks of
damage were high and obvious such that failure to avert the damage went
beyond a mere failure to take reasonable care.62 However gross negligence is
described it remains an objective test and is highly contextual depending on
the circumstances of the commercial relationship. Therefore lawyers must be
careful when advising their clients on the wording of exclusion clauses as the
use of the term ‘gross negligence’, while of somewhat uncertain definition in
the abstract, will undoubtedly shift their client’s liability for damage caused
under a contract or settlement deed, when compared with an exclusion based
on ordinary negligence.
61 James Thane Pty Ltd v Conrad International Hotels Corp; Conrad International Hotels
Corp v Workers’ Compensation Board; Conrad International Hotels Corp v Jupiters Ltd
[1999] QCA 516 (unreported, per Williams J, with whom McMurdo P and Thomas JA
agreed, 14 December 1999) at [74].
62 The Hellespont Ardent, above n 38, at 586.