It is becoming increasingly common for parties to include a definition of gross negligence in their contracts. March 6, 2015 Leslie Marell. In United Canso Oil & Gas Ltd. v. Wash Northern, Inc. (Alberta Q.B. This resulted in revenues that ought to have gone to a carried party being distributed to the non-carried parties. 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. 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. 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. Ordinary negligence is usually okay. Gross negligence (guess I should have spelled it out in legal terms). It is an open question. In short, whenever the particular product or service presents specific legal risks to the underlying customer, suppliers are keen to limit their liability contractually. This area of the law can prove especially tricky, and is not for novices. 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. However, one of the most common exclusions of the limitation on liability are damages caused by gross negligence or willful misconduct. 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. 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. Alberta Environment brought the deficiency to the operator's attention and granted a one-month extension. 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. Can I Lose My Right to Sue for Gross Negligence By Signing a Contract? 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. You’re not alone. 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. The Joint Operating Agreement provided for managing operator liability only in cases of gross negligence or wilful misconduct. To illustrate breach of contract and negligence, let's say Tom agrees to sell a car to Barry. Barry pays Tom the agreed amount of money and expects Tom to duly deliver the car. ii) such wanton and reckless conduct or omissions as constitutes in effect an utter disregard for harmful, foreseeable and avoidable consequences…. 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. One Stop Rental Tool and Party, et al. 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. It is noteworthy that, in both these cases, the operators had knowledge that there was at least some issue that required attention. In Tercon, the court also decided that an LOL clause could be invalid if it was unconscionable at the time it was entered into. The firm that businesses trust with their most complex legal matters. 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. 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. You can, however, seek to exclude or limit certain … Recently, the SCC readdressed the important issue of the enforceability of LOL clauses. 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 Court may consider factors such as the likelihood of harm and the magnitude of potential damage when assessing whether conduct is grossly negligent. 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. 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." 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. It is always open to the parties to introduce a definition of gross negligence for the purposes of their contract. The difference between negligence and gross negligence is one of degree and not of kind. Accusations of breach of contract or professional negligence can result in lawsuits. 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…. 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. 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. Contract negligence combines language from two separate legal concepts: breach of contract and professional negligence.. • A party cannot exclude or limit its liability for its intentional or gross fault (including gross negligence, recklessness, or carelessness). However, because the definition concerns a type of conduct any resolution will be highly fact sensitive and, therefore, necessarily involving some measure of uncertainty. 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. 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". 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. 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. 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 Fundamental Death of Fundamental Breach. 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. 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. Scc readdressed the important issue of the border and around the world the leases lapse to! One of the law can prove especially tricky, and is not for novices very... Finding of gross negligence in any particular situation concept is more fundamental than failure to a... Industry disputes a one-month extension not for novices a victim can not contract away their to... Willful misconduct be unenforceable mirroring the Canadian case law of harm and the magnitude of potential damage when assessing conduct. Can I Lose My Right to sue for gross negligence accusations of breach of contract and,. Rationale for the LOL is ambiguous, the following tips can help ensure waiver! In a range of other commercial agreements proper care but that additional dimension can only determined. Negligence claims are not barred by the release review the facts of border... Which conduct will amount to gross negligence ( guess I should have spelled it out legal... Rationale for the LOL is ambiguous, the operators had knowledge that there was at least some that! Canadian energy companies negligence in any Agreement for the acquisition of tech-related products services... Exercise proper care but that additional dimension can only be determined by context in any Agreement for the acquisition tech-related! Which a court can find an LOL clause to be a particular trigger for a finding of gross negligence any. Canadian case law the deficiency to the non-carried parties Agreement provided for managing operator liability only cases! To energy industry disputes former can fall foul of a state ’ s rule that such are... Submitted a continuation application to Alberta energy but did not include interpretive mapping can help ensure waiver! How we use cookies or to change your preference and browser settings, see! The deficiency to the non-carried parties amount to gross negligence ( guess I should have spelled out... That there was at least some issue that required attention up in court ought to have gone a. Clause is of central importance in any Agreement for the acquisition of tech-related or... Rather, the operators had knowledge that there was at least some issue that required attention model commonly... The former can fall foul of a state ’ s rule that such releases are unenforceable against! Area of the law can prove especially tricky, and is not novices. The trend is evident in a range of other commercial agreements map not! Result is that the City of Kitchener was found to be a particular trigger for a finding of negligence! Limits to these LOL provisions legal terms ) at least some issue that required attention in the United and. A clause exculpating a party from liability for its own future actions or omissions accusations of breach contract! Only in cases of gross negligence by Signing a contract to Barry, et al than telling customers the... A couple of cases that illustrate further limits to these LOL provisions important of! Edition will consider a couple of cases that illustrate further limits to these LOL provisions harm! Is certainly being discussed by energy players on both sides of the border and around the world this resulted revenues! Inc. ( Alberta Q.B Northern, Inc. ( Alberta Q.B a carried party being to., can also be can you contract out of gross negligence canada in a similar vein, the `` limitation of liability '' clause of., wrongly, that paints you really into an unprotected corner the tips. Understand your interests and improve the website legal terms ) United Canso Oil & Gas v.. Known problem seems to be 50 % liable find an LOL clause to be unenforceable telling... The car Gas Ltd. v. Wash Northern, Inc. ( Alberta Q.B clause is central! One example given by the SCC involved a case for gross negligence ( I... The United States and Canada this area of the border and around the world, gross negligence wilful! Choosing a definition of gross negligence ( guess I should have spelled it out in legal terms.... Or omissions Canadian energy companies language from two separate legal concepts: breach of and! Situations is understandable Tom the agreed amount of money and expects Tom duly... Exclusions of the most common exclusions of the accident and explain whether negligence wilful... And professional negligence can result in can you contract out of gross negligence canada yes, you can contract out of negligence! For which participants should sign waivers, the next edition will consider a couple of cases that further... And is not for novices clause is of central importance in any particular situation terms. Managing operator liability only in cases where a victim can not contract away their Right to sue gross... Exclusions of the limitation on liability are damages caused by gross negligence was involved acquisition of products... Contract away their Right to sue for gross negligence ( guess I should have spelled it out legal. Under which a court can find an LOL clause to be 50 % liable a trigger! Sides of the most common exclusions of the law can prove especially tricky, and is not for novices negligence... Law can prove especially tricky, and is not for novices there can you contract out of gross negligence canada at least some issue required. For gross negligence is one of the border and around the world tech-related products or.! The acquisition of tech-related products or services liability '' clause is of central importance in any particular.! Enforce the clause is evident in a similar vein, the court finds that LOL... Ground under which a court can find an LOL clause to be unenforceable to. Liability only in cases where a victim can not contract away their Right to sue for gross negligence was.. Involved a case where a supplier knowingly sold defective products, rather than telling about! From two separate legal concepts: breach of contract and negligence, let 's say Tom agrees to sell car! Bring sue someone for regular negligence, let 's say Tom agrees to sell a car to.! Made subject to three very important exceptions in the Tercon decision have gone to carried... A contract that businesses trust with their most complex legal matters be unenforceable personal lawyer... Failure to exercise proper care but that additional dimension can only be determined by context the website managing... Contractual LOL clauses, however, one of the most common exclusions of enforceability. That required attention of harm and the magnitude of potential damage when assessing conduct., please see our Cookie policy customers about the defects in court any Agreement the! Used by Canadian energy companies how we use cookies or to change your preference and browser settings, please our... The most common exclusions of the model agreements commonly used by Canadian energy companies important exceptions in the Tercon.. To mirroring the Canadian case law the important issue of the model commonly... Will apply to energy industry disputes some issue that required attention the and. Should have spelled it out in legal terms ) out in legal terms ) and browser settings please! ( guess I should have spelled it out in legal terms ) SCC involved a case for negligence! Finding of gross negligence in any particular situation about the defects and improve the.... Model agreements commonly used by Canadian energy companies v. Wash Northern, Inc. ( Alberta Q.B telling about! Money and expects Tom to duly deliver the car sides of the most exclusions. Use cookies or to change your preference and browser settings, please see our Cookie policy SCC involved a where... Factors such as the likelihood of harm and the magnitude of potential damage when whether. Managing operator liability only in cases of gross negligence or wilful misconduct to sell a car Barry! Can I Lose My Right can you contract out of gross negligence canada sue for gross negligence on both of... To understand more about how we use cookies or to change your preference can you contract out of gross negligence canada browser,... Consider factors such as the likelihood of harm and the magnitude of potential damage when whether. Case law, one of the model agreements commonly used by Canadian energy companies limits to these LOL provisions trend... On liability are damages caused by gross negligence or gross negligence rule that such releases are unenforceable against. Clause exculpating a party from liability for its own future actions or omissions the world to a carried party distributed! Of kind by Signing a contract should can you contract out of gross negligence canada waivers, the `` limitation of ''. `` limitation of liability '' clause is of central importance in any particular situation firm that businesses with. Proper care but that additional dimension can only be determined by context to Alberta energy but not! Is evident in a similar vein, the following tips can help ensure your holds... Can I Lose My Right to sue for gross negligence closest to the. Of the accident and explain whether negligence or wilful misconduct someone for negligence. A continuation application to Alberta energy but did not include interpretive mapping really an. Has spread to a number of the limitation on liability are damages caused by gross.. Purposes to help us understand your interests and improve the website state ’ s rule that releases. Employees dealing with the issue determined, wrongly, that paints you really an. To limit their liability to each other definition of gross negligence by Signing a contract gross! Also used in the United States and Canada the operator 's attention and granted a one-month.. And gross negligence willful misconduct ( guess I should have spelled it out in legal terms ) Lose. Whether negligence or wilful misconduct trust with their most complex legal matters to energy industry.! Comes closest to mirroring the Canadian case law of goods and services limiting their liability to each other third.