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In Australia, gross negligence has no accepted meaning at law. Gross negligence is a term that is often referred to in commercial contracts. Unfortunately, its meaning is not widely understood and therefore its use in commercial contracts is often misunderstood and misapplied.

In this article, Farrah Motley Legal Principal of Prosper Law explains what ‘gross negligence’ means, why it is a problematic term to use in a contract and how you should define gross negligence in commercial contracts.

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Author: Farrah Motley, Legal Principal of Prosper Law and a commercial contract lawyer.

Does gross negligence have a legal definition?

In Australia, that answer is ‘no’. Gross negligence has no accepted definition at law in Australia.

However, it is a term that is often used in commercial contracts. Worryingly, suppliers often agree to limitation of liability clauses that include carve-outs for ‘gross negligence’. This may have the effect of making the limitation of liability clause ineffective because the limit of liability does not apply to the ambiguous and grey realm of gross negligence.

A carve-out for gross negligence from a limitation of liability clause often looks something like this:

The total liability of the Supplier to the Buyer under this Agreement is limited to the Contract Price. This limit does not apply to the liability of the Supplier in in respect of loss or damage arising out of or in connection with:

(a) fraud;

(b) gross negligence; and

(c) illegal or unlawful acts.

In those circumstances, the carve-out for gross negligence can be used by the person (or legal entity) claiming against the supplier by arguing that the alleged conduct (or inaction) amounted to gross negligence.

If you’re not sure how to word a clause, it’s important to talk to a commercial contract lawyer.

GR Engineering Services Ltd v Investmet Ltd [2019] WASC 439

In GR Engineering Services Ltd v Investment Ltd, Justice Tottle of the Western Australian Supreme Court noted that the Australian courts, in considering the common law meaning of ‘gross negligence’ in the context of exclusion and indemnity clauses followed the approach of The Hellespont Ardent, where the court noted:

‘Gross’ negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence. But, as a matter of ordinary language and general impression, the concept of gross negligence seems to me to be capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or an indifference to an obvious risk.

This obviously raises the question – what then, is the difference between negligence and gross negligence?

What is the difference between negligence and ‘gross negligence’?

What is the difference between negligence and ‘gross negligence’?

The answer is – not enough for any lawyer worth their salt to recommend that you include the term at all. At the very least, the term ‘gross negligence’ should not be included in a commercial agreement without a separate definition in the contract!

Negligence

To enable us to define gross negligence, we first need to understand what is meant by ‘negligence’.

Negligence is the failure by a party to fulfil its duty of care owed that is owed to another party, to the standard of care legally required. As a result of that party’s negligence, the other party suffers loss or damage.

The elements of negligence are:

  1. a duty of care arises (because there is a legally recognised relationship of proximity between the parties);
  2. there is a risk of harm, and that risk is foreseeable by a reasonable person; and
  3. the innocent party suffers loss/damage.

The fact that a person’s conduct might have involved a gross departure from the standard of care expected by the law is, however, not relevant to an action in respect of negligence.

In conclusion – at law, there is no distinction between negligence and gross negligence.

What is gross negligence

Gross negligence

Because gross negligence is not a tort that is separate from negligence, and does not have a defined meaning under common law, the term must be separately (and precisely) defined under the relevant commercial contract.

The difference between negligence and ‘gross negligence’ is one of degree and although the concept of gross negligent is more fundamental than simply a failure to exercise proper care, its meaning is only able to be determined by context.

Ultimately, the question of whether conduct constitutes gross negligence must be determined by a court. Because of this, there is a measure of uncertainty associated with using the term ‘gross negligence’.

Can you define gross negligence?

Yes, you can define ‘gross negligence’. In the context of a commercial contract, it is recommended that – if you are going to refer to ‘gross negligence’ – you specifically define that term in the contract.

The following are examples of definitions of gross negligence that may serve to differentiate gross negligence from negligence:

Gross negligence means behaviour that is negligent and is conducted without regard, or with reckless disregard, to the outcome or consequences of that behaviour.

Gross negligence means behaviour that is a serious breach of duty in that it fails to take care with respect to an obvious risk and behaviour that is carried out with reckless indifference to the outcome.

How can Prosper Law help?

Prosper Law is experienced in providing commercial legal advice for businesses seeking to negotiate effective and robust contracts, including limitation of liability clauses.

If you are entering into a commercial contract, talk to our commercial contract lawyer about a bespoke contract to protect your business.

Farrah Motley | Legal Principal

PROSPER LAW – Australia’s Online Law Firm

M: 0422 721 121

E: farrah@prosperlaw.com.au

W: www.prosperlaw.com.au

A: Suite No. 99, Level 54, 111 Eagle Street, Brisbane, Queensland Australia 4000

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