gross negligence – an English concept?
CAMARATA PROPERTY v CREDIT SUISSE SECURITIES [2011]
In this case the meaning of ‘gross negligence’ under a contract governed by English law was considered and whether it is a recognised concept separate from simple negligence. Traditionally, English commercial contract lawyers have not drawn a distinction between negligence and gross negligence. However, that is almost opposite to the position under civil law systems jurisdictions, such as in continental Europe, where there is a difference between the two terms. The distinction is important since some civil law systems do not allow a party to exclude or limit its liability for gross negligence, whereas in England this is possible.
facts:
- CP purchased a 5-year investment note issued by Lehman Brothers (LB) through CS. Following the collapse of LB, CP lost a significant part of this investment.
- CP claimed that CS had been negligent regarding the advice about the investment it given to CP prior to LB’s collapse. Save for that advice, it argued it would have sold the investment prior to the collapse.
- CS denied the claims. It also relied on a clause in its agreement with CP stating that CS would only be liable for advice where the liability arose as a direct consequence of “gross negligence, fraud or wilful default” and not mere negligence alone.
decision:
- The High Court found that CS had not been negligent because it could not have predicted the collapse of LB. However, the Judge then went on to consider whether there was any relevant distinction between negligence and gross negligence.
- Following the existing cases on this point, it was concluded that there was no distinct concept of ‘gross negligence’ in English law. However, where the terms ‘negligence’ and ‘gross negligence’ were both used in an agreement, he decided that they needed to be considered in line with the usual principles of construction of contracts and what the terms meant in the context of the particular agreement within which they were used.
- In this case, it was decided that the parties clearly intended for there to be a distinction between ‘negligence’ and ‘gross negligence’. Gross negligence was intended to represent “something more fundamental than [a simple] failure to exercise proper skill and/or care constituting negligence”. Also, as a matter or ordinary language , it seemed to “embrace not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or indifference to an obvious risk”.
points to note:
- Although there is no English law definition of ‘gross negligence’, the Courts will interpret the term in the context of the agreement in which it is found. This is particularly so where the terms ‘negligence’ and ‘gross negligence’ are contained within the same clause and so must have been intended to be differentiated in some way.
- Applying an ordinary meaning, gross negligence is more culpable and more exceptional than ordinary negligence. So, if a contract excludes all liability except for gross negligence, and for example a supplier was asked to amend this to ‘negligence’, this will usually increase the supplier’s potential liability and reduce the scope of the exclusion.
- To avoid ambiguity and reduce the scope for disputes, the parties should perhaps consider attempting to define ‘gross negligence’ if it is used in a contract rather than simply relying upon the Courts’ judicial interpretation.
- It remains to be seen whether those drafting contracts acting for suppliers/service providers begin to adopt and use the term ‘gross negligence’ more widely as a means of limiting liability and whether the Courts regard it as being less acceptable to limit or exclude liability for gross negligence.