IP Draughts first encountered references to gross negligence in contracts in about 1984. Working as an in-house lawyer for a UK-based research and engineering consultancy, he negotiated some contracts that were based on US templates. Often, those US-style contracts would include clauses that limited liability or provided for indemnities, yet made an exception in the case of liability caused by a party’s gross negligence or wilful misconduct.
In his callow youth, IP Draughts’ reaction to such an exception in negotiations was to point out that gross negligence did not feature as a well-understood concept in English contract law. Sometimes, he would negotiate to remove the exception. On other occasions, he would propose alternative wording, such as “reckless or wilful misconduct”.
Nowadays, in his near dotage, IP Draughts has seen references to gross negligence so many times in contracts that he is inured to them. (Inure: there is another word that features in contracts – in assignment clauses – and is sometimes spell-checked to death; IP Draughts has seen it more than once spelled as insure, which is quite another kettle of fish).
He hopes that an English court today, given the slew of recent cases in which the courts have bent over backwards to give effect to the parties’ commercial intentions, would find a sensible way of interpreting gross negligence in a contractual liability clause.
These thoughts are prompted by a case in the Irish Supreme Court that has come to IP Draughts’ attention today. The case is called ICDL GCC Foundation FZ-LLC v. European Computer Driving Licence Foundation Ltd  IESC 55. The case report was published on 14 November 2012 and can be found here. One of the issues that the court considered was the meaning of the phrase “wilful act or gross negligence” in the following contract clause:
The Licensee’s exclusive remedy and the total liability of ECDL-F in respect of any cause of action relating to or arising out of this Contract will, to the extent that it is not caused by a wilful act or gross negligence by ECDL-F, not exceed 10 per cent of the total amounts paid to ECDL-F by the Licensee, or €50,000.00, whichever is the lesser amount.
Irish law has, of course, been completely independent of English law for nearly a century. Nevertheless, they share a common heritage and English court judgments are often cited in Irish cases. This case is no exception; the judge cites a number of old and recent English cases, including the important speech of Lord Hoffmann in the West Bromwich case in 1998, on the principles to be followed when interpreting contracts. This Irish case is therefore very interesting to this English contract lawyer.
One of the older cases cited in the present case is Grill v General Iron Screw Collier Company (1866) LR 1 CP 600 @ 612, where Willes J remarked that “gross negligence is ordinary negligence with a vituperative epithet”. Rightly, in IP Draughts’ view, the Irish Supreme Court rejected this as an accurate statement of Irish (or for that matter, English) contract law in 2012.
In the Supreme Court in the present case, Mr Justice Fennelly summarised (see paragraph 59) the trial judge’s interpretation of “gross negligence” as follows:
The learned trial judge emphasised the fact that the term was here being used in a commercial contract. It followed, in his view, that whether it was a term of art used in any particular area of law might not be particularly significant. The words had to be construed by reference to their text but in their context. He concluded that the term “gross negligence” meant a degree of negligence involving a breach of the relevant duty of care by a significant margin. Business efficacy had to be given to the clause. Thus, in order for the exclusion clause to be ineffective, it was necessary to find that any breach of contract established resulted from a significant degree of carelessness by the Foundation.
In other words (and echoing other parts of the Supreme Court judgment), the fact that “gross negligence” might or might not have a particular legal meaning in the context of tort cases, was not relevant to interpreting the term in contract cases. For contract cases, general principles of contract interpretation should be applied to the term.
Mr Justice Fennelly seems to have agreed with this approach. In particular, he comments (at paragraph 134):
The context of the present case is not tort but contract. Where the parties have used the word “gross negligence,” the courts should endeavour to give it meaning. As Clarke J remarked, the difficulty of assigning a meaning to gross, as distinct from ordinary, negligence is compounded by the fact that the liability of the Foundation, which is in contemplation is in contract rather than tort. In my view, he was correct to decide that he should endeavour to give meaning to the term in a context where the parties had agreed to use it in the contract. The general law lays down the liability of parties in tort. Where the parties decide to regulate the relations between them by reference to a particular set of words, the courts should endeavour to give effect to their intentions.
He goes on to discuss how gross negligence should be interpreted. His comments include the following (at paragraphs 139 – 142):
I am persuaded that an agreement such as the present intentionally establishes a distinction between ordinary negligence and gross negligence. Any liability of the Foundation is to be limited in accordance with Clause 25 unless the plaintiff can show gross negligence...
The difficult question is how to define the degree of fault…
Clarke J adopted the term “significant” or “significantly” as a type of quantitative yardstick and I cannot readily see a more appropriate measure…
In my view, therefore, Clause 25 allows the Foundation to limit its liability unless the Dubai company can prove that it has, to a significant extent, been negligent in and about the act of breach of contract which is alleged, namely termination of the agreement.
The judgment also considers the meaning of “wilful act”, and the discussion of this point is also interesting, as are Mr Justice Fennelly’s comments on the application of the contra proferentem rule. But that is enough for a short blog article.
So, in the context of a liability clause in a contract, gross negligence means something “significantly” more than ordinary negligence. In IP Draughts’ view, this interpretation makes good sense from a commercial perspective.