In a similar vein, the next edition will consider a couple of cases that illustrate further limits to these LOL provisions. © Bennett Jones LLP 2020 All rights reserved. To understand more about how we use cookies or to change your preference and browser settings, please see our Cookie policy. It is becoming increasingly common for parties to include a definition of gross negligence in their contracts. Gross negligence is not a separate tort and does not have a precise meaning at common law. 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. The trend is evident in a number of the model agreements commonly used by Canadian energy companies. The firm that businesses trust with their most complex legal matters. 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. There is a third ground under which a court can find an LOL clause to be unenforceable. 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. 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. Then, for some reason, Tom gets drunk before driving the car to deliver it to its new owner, which results in wrecking it before delivery. Check with a lawyer if you need specific advice. and the international legal practices and consulting activities of various entities which are associated with Bennett Jones LLP, John Weekes on Re-Engaging the World on Trade, Darrel Pearson on Trade and Cross-Border Transactions, Bennett Jones Highly Recommended in Global Competition Review 100, Twenty-Five Bennett Jones Lawyers in Lexpert/ALM 500 Directory, David Dodge: Canada Slow to Invest to Boost Productivity, Anne McLellan on Canada's Energy Transformation, Bennett Jones Once Again a Chambers Canadian Fintech Leader, John Manley on Rebuilding the Capacity of the Canadian Economy. ... For example, a clause of limitation or exclusion of liability in a consumer contract or a contract of adhesion could be declared null in its entirety if … It is extremely rare for the supplier of IT equipment, software and services to a customer not to limit supplier’s liability in the contract between supplier and customer. There was an exception to the limitation of liability for, among other things, damages arising out of the developer’s willful acts or gross negligence. The other two definitions set a higher bar for gross negligence, combining it with wilful misconduct and requiring a mental element of either intent or disregard/indifference. While the managing operators made some effort to resolve the dispute, when that did not happen, they simply continued on as if payout had not been achieved. Rather, the "Limitation of Liability" clause is of central importance in any agreement for the acquisition of tech-related products or services. The core lesson on LOL clauses provided by the SCC in Tercon is that these important liability-limiting provisions can indeed serve a central objective to the parties to a contract (particularly to the company charged with supplying products and services that may be inherently risky), but they must be drafted and negotiated with care, and they will not save the defaulting party in all circumstances. +1 416-601-7662 In some jurisdictions a person injured as a result of gross negligence may be able to recover punitive damages from the person who caused the injury or loss.. Negligence is the opposite of diligence, or being careful. The Fundamental Death of Fundamental Breach. 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. It is certainly being discussed by energy players on both sides of the border and around the world. The court found that parties to the agreement did not intend for the developer’s discontinuation of services to constitute a willful act or gross negligence and, therefore, upheld a decision to enforce the limitation of liability clause. No particular internal process was triggered when Alberta Energy advised that the original application was deficient; the employees dealing with the matter did not know what was required to continue the leases; there was no automatic process to refer the issue to knowledgeable people. Most Canadian agreements providing for operatorship of oil and gas assets (other than contract operatorship) require all participants in the project to contribute to the costs and liabilities incurred by the operator except in cases of gross negligence. The plaintiff was also found to be 50% liable because she was wearing running shoes instead of winter The failure to heed a warning or address a known problem seems to be a particular trigger for a finding of gross negligence. 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. The Court placed particular emphasis on the fact that the operator did not appear to have any reliable system in place for dealing with lease renewals. Yikes, that paints you really into an unprotected corner. While the trial court refused to enforce this LOL clause (and awarded damages of $50,000 to the small town jewellery store plaintiff when thieves made off with its inventory because of the negligence of the security service supplier), the Ontario Court of Appeal reversed, upholding the LOL clause that limited the compensation of customer to $890 (being one year’s services fee). You cannot exclude liability in negligence for death or personal injury; You cannot exclude liability for the supply of defective goods under the Consumer Protection Act 1987; You cannot exclude liability for breach of all contractual duties; you cannot leave the other party to the contract with no meaningful remedy in the event a breach of contract. Alberta Environment brought the deficiency to the operator's attention and granted a one-month extension. Therefore, several recent cases that address LOL contract matters discussed below (and next edition) will be of keen interest to companies buying or selling tech products and services. ), two successive managing operators of a gas plant undertook the joint venture accounting, but did not include any carried interest or production payment accounting. The former can fall foul of a state’s rule that such releases are unenforceable as against public policy. gross negligence.4 This applies equally to contract clauses purporting to exonerate a party from liability and clauses limiting damages to a nominal sum.5 The negligence/gross negligence debate in the context of exceptions to releases from liability may therefore be … 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. As such, gross negligence claims are not barred by the release. The Court said: “The outstanding issues were either ignored or else a calculated risk was taken that the Husky [previous operator] accounting was correct or that the plaintiff would not pursue the issues. To illustrate breach of contract and negligence, let's say Tom agrees to sell a car to Barry. LOL language, however, can also be found in a range of other commercial agreements. 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. 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. For example, if a supplier sells a customer a laptop computer for, say, $1,500, and the customer installs the laptop as the key control device in a nuclear plant, then in return for the $1,500 in revenue, the supplier does not want to take on the huge liability that may ultimately result if the laptop does not work properly. If a party reasonably proves … This provides parties with certainty at least as to what the standard will be and it allows them to adopt a more or less rigorous standard than developed by the courts or under statute. I find this to be gross negligence as defined as a very marked departure from the standards by which reasonable and competent companies in a like position to that of Asamera and Lasmer as Managing Operators in charge of joint ventures or accounting should habitually govern themselves. Parties choosing a definition should note that the PJVA definition comes closest to mirroring the Canadian case law. The Court found it significant that the parties had agreed to a standard of gross negligence as opposed to negligence … It is an open question. Gross Negligence Relating to Oil and Gas Operations Given the prevalence of industry contracts in which liability or limits on liability depend on whether there was gross negligence, there are surprisingly few reported cases addressing the topic in … Yes, you can contract out of Gross Negligence! This article provides readers with a review of the law of gross negligence in Canada, with particular focus on its application in the energy business. 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. March 6, 2015 Leslie Marell. 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. The SCC however, years ago, held that so long as the LOL is properly worded, it can serve as an effective shield against negligence claims as well. This website uses cookies for a range of purposes to help us understand your interests and improve the website. While signing an agreement is typically a defense to actions for ordinary negligence, this defense will not be available to use for avoiding a lawsuit involving gross negligence . The employees dealing with the issue determined, wrongly, that the required map was not available and let the leases lapse. TPN Blogger 4:21 PM Disclaimer Notices (sometimes also referred to as “indemnities” or “exemptions”) are a common feature of shopping centres, office blocks, residential complexes, parking areas, sports stadiums, concert … In this instance, Tom didn't only breach his contract with Barry, but also did so by negligence, which constitutes a breach of contract and negligence. Pursuing a negligence claim. t. The operator submitted a continuation application to Alberta Energy but did not include interpretive mapping. 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. In a similar vein, if the court finds that the LOL is ambiguous, the court may well decline to enforce the clause. Contract negligence combines language from two separate legal concepts: breach of contract and professional negligence.. ii) such wanton and reckless conduct or omissions as constitutes in effect an utter disregard for harmful, foreseeable and avoidable consequences…. You can, however, seek to exclude or limit certain … 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 rationale for the LOL in most situations is understandable. The end result is that the City of Kitchener was found to be 50% liable. A personal injury lawyer can review the facts of the accident and explain whether negligence or gross negligence was involved. Corporate Canada would do well to aim for a middle-of-the-road clause that serves to adequately protect suppliers, while at the same time providing some scope of redress for the user as well. In short, whenever the particular product or service presents specific legal risks to the underlying customer, suppliers are keen to limit their liability contractually. The difficulty is compounded in the oil and gas context because the original use of the term gross negligence in Canada was in statutes dealing with issues such as motor vehicle liability, municipal responsibility or Good Samaritan rescuers. If the term "gross negligence" is used in a contract … An individual cannot contract away their right to sue for gross negligence. Proof of gross negligence can negate a limitation of liability or an indemnity clause. The concept is more fundamental than failure to exercise proper care but that additional dimension can only be determined by context. It is a very different story, however, in the "consumer space," where businesses usually present take-it-or-leave-it contracts of adhesion to their customers, particularly in "click consent" agreements concluded over the Internet. While it is difficult to generalize, most LOL provisions look something like this: "direct" damages are limited to some percentage of the revenue paid by customer to supplier; there is a general exclusion of "indirect and consequential" damages; and there are a few exceptions to both of these limitations. The supplier’s strategy was to rely on the ostensible shield provided by an LOL clause in customer contracts to block any product liability claims (rather than be forthright with customers). The lesson from these cases is that, especially in the consumer environment, LOL clauses have to be drafted very, very carefully and even-handedly. Traditionally this centred around the doctrine of "fundamental breach"; namely, that if a supplier’s breach of performance was so fundamental as to go to the very heart of the bargain between the parties, a court could elect not to let the supplier take advantage of the protection afforded by the LOL clause. 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." 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. This resulted in revenues that ought to have gone to a carried party being distributed to the non-carried parties. One Stop Rental Tool and Party, et al. Ordinary negligence is usually okay. Accusations of breach of contract or professional negligence can result in lawsuits. Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both. Negligence isn't clear-cut. CA 2016-03-004) illustrates one major caveat to the maxim: parties to a contract can agree to hold the other party harmless for negligence, nonetheless, “contract clauses that relieve a party from its own negligence, while generally upheld, are not favored by the law and are to be strictly construed.” And again, the clause (in this case, a warranty disclaimer) was upheld to shield a supplier from liability when the equipment proved defective. Can I Lose My Right to Sue for Gross Negligence By Signing a Contract? In addition, the court pointed out that the trial court erred when it held that the speedway did not commit gross negligence because this is a determination for the jury. Recently, the SCC readdressed the important issue of the enforceability of LOL clauses. 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. However, one of the most common exclusions of the limitation on liability are damages caused by gross negligence or willful misconduct. In a Supreme Court of Canada (SCC) decision that was the leading case on contractual LOL clauses until recently, the supplier of gear boxes for large conveyor belt equipment in Alberta’s tar sands had an LOL in its sales contract with customers. Given the prevalence of industry contracts in which liability or limits on liability depend on whether there was gross negligence, there are surprisingly few reported cases addressing the topic in the context of oil and gas operations. • A party cannot exclude or limit its liability for its intentional or gross fault (including gross negligence, recklessness, or carelessness). 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