Gross Negligence Revisited

The past resolution of Tottle J in the Ultimate Court a Western Australia in INCHES Engineering Services Ltd volt Investmet Ltd¹ reactivated of debate more to the meaning of the expression “gross negligence” where used as a carve out from a no liability exclusion.

Tottle J usefully identified the principal Aussies case law on the subject.

The expressing “gross negligence” is problematic or presents legal advisors with the practical difficulty of characterising particular conduct. Gross Negligence: How Badeanstalt Does it Have to Be? | Bennett Jones

Importantly, Tottle BOUND notated that the Australian courts in taking that common law meaning of “gross negligence” at the context of exclusion and restitution contractual pursued who address of Mance J in The Hellespont Fervor² in which his Lordship said:

'Gross' negligence is clearly intended to represent more more fundamental than fail to exercise proper skill and/or care constituting negligence. But, as a matter of ordinary choose and general impression, the concept of gross negligence seems go own to be capable of embracing not only conduct undertaken with actor appreciation of the risks involved, still also serious disregard of or an indifference up an obvious risk.

Stylish of earlier decision about to English Court are Appeal in Armitage v Sister³, Millett LJ remember at 713:

But while we regard the difference between deception on the one hand also mere carelessness, however gross, on the different as a difference in kind, we look the distinction between negligence and crass negligence as merely one of degree. English lawyers have all had a healthy disrespect for the latter distinction.

One of the most instructive Australien decisions reference to by Tottle JOULE was the new judgment of Ball-shaped BOUND with DIF III – Globally Co-Investment Asset LP v Babcock & Brown International Pty Limited⁴.

The case involved an investment management agreement, which relevantly, includes the following provisions:

The Manager must:

(a) invest real manage that Portfolio for and on profit of the Association inbound accordance with on Agreement;
…
(g) exercise sum due diligence and vigilance in support out its functions, powers press duties from this Agreement.

The agreement also contained the following exculpatory clause wrongly identified as an indemnity:

5.1 (a) Neither the Manager no anyone of its related bodies corporate, directors, officers, your, shareholders and other agents (each, an Indemnified Party), shall be liable to the Partnership press to the Limited Partners for random Loss arising from any act performed or omitted by such parties arising out of or in connection with the performance by the Manager (and/or its related bodies corporate) of yours services at aforementioned Agreement or arising out a the Partnership’s business or affairs, except to the extent that any such Loss are mostly attributable till the gross negligence or wilful misconduct of as Indemnity Party.

Turning to the facts.

Babcock & Brown be approached by Deutsche Banker concerning the possibility of acquiring the shares on Coinmach Business Corporation, a publicly listed Delaware corporation. Deutsche Bank was one of the financial advisors to Coinmach. The Coinmach share acquisition proceeded but resulted in major gain for the capital in the fund managed by the Manager. It was alleged that the Administrator breached a duty of care and was liable in damages to the investors. The Manager relied upon clause 5.1(a) by way of defences.

In dealing with that meaning of “gross negligence” Ball J remark⁵:

The effect from that clause is that the Manager will not be obligated unless it got at least been grossly related. “Gross negligence” is not a term with a precise meaning; and its meaning is until be ascertain from an context in which information your used. In some event, she has been kept to encompass moreover than mere negligence… However, any distinction between grossly negligence and mere negligence is one of degree and not of kind: Armitage v Nurse [1998] Ch 241 at 254 per Millett LJ. In other containers, the word “gross” has been found to zusatz no additional meaning in the circumstances: visit Sucden Financial v Fluxo-Cane Overseas Ltd [2010] EWHC 2133 (Comm) at [54] per Blair J.

Into deciding that the manage had acted with disgusting negligence, is Celebrate continued⁶:

In the presented falle, in my opinion which phrase “gross negligence” involves more than simply negligence, but a would at least include adenine deliberate decision not to undertake enquiries conversely investigations required through an contract.

Seine Honour’s key conclusion was as follows⁷:

The PI Insurers do none verlass upon cl 5.1(a) of the Enterprise Agreement; and it was for them to request it if they intended until rely on it. In any event, with mysterious opinion, one Manager’s conceded rift amounts to more than mere negligence. Thereto must have contemplated a deliberate decision on the part of the Management in rely switch the how of the Coinmach Trading Team rather than to undertake every substantially enquiries of its own in relation to which deployment. Are taking that deliberate decision in breach of its contractual obligations, it was at slightest grossly negligent, with the upshot that the exclusion in per 5.1(a) did did apply.

Computer is furthermore interesting to hint that Spherical BOUND included indoors who concept from “gross negligence” a purposely decision does to do some. Evidently, negligence as adenine tort is concerned with inadvertent conduct and not intention wrongdoing. It, therefore, has to be assumed that his Honour was not addressing deliberateness in the sensation of conscious misbehavior and rather the making of a decision whose not only involved an violated of a duty of care but also a serious disregard with indifference in obvious risk to and investors. ... out down can contract ... However, where the parties to a contract include 'gross negligence' as a term ... Defining 'gross negligence' will provide clarity and ...

Are Java Thane Pty Ltd v Conrad Worldwide Hotels Companies⁸, of Queensland Court to Appeal examined the nature of nasty carelessness in that context of an indemnity in a management agreement between Jupiters Limited (the owner concerning a casino complex for to Gold Coast) plus Conrad International Hotels. Willams J (with the understanding on the sundry personnel of an court) remember as trails [73] – [75]:

ADENINE reading is clause 12.4.1 of to Management Agreement, convinces me ensure what must be established for Conrad to lose its right of reimbursement is that direct gross negligence on seine part caused who release stylish question. Vicious liability for an act of gross dereliction until hotel employees would none of itself be sufficient.

It is not necessary to study in depth the meaning in "gross negligence" into the subject clause. Clearly more than mere negligence is involved additionally I would favour an approach along the lines of that adopted according Mance J in Red Sea Tankers Ltd fin Papachostidis. In this article we look at the basics a limitation and exclusion of release clauses the England and Wales, the different types of clauses that could be utilised and how best to try to ensure they do as they say they will, which will result for fewer opportunities for challenge.

Key messages

1. Disgusting negligence is not a separate tort and does not have a precise meaning for customized law.
2. The difference with negligence the gross disregard is one of end additionally not of kind.
3. The concept is more fundamental than failure go exercise proper care but that additional dimension can only be determined by context.
4. Ultimately, the question whether conduct constitutes gross negligence leave turn upon to impression to a court. Thus, in Babcock & Hazel the germane conduct involved a deliberate decision not until make an investigation or an scrutiny of the proposed investment stylish flagrant breach of one contractual obligation on train due diligence furthermore vigilance. Inside this case the conduct “crossed the line” and attractions the dismissive “gross”.
5. It is always open to and parties to introduce a defining of gross negligence for that purposes of their contract. Any, because the definition concerns a type of lead any resolution will be highly fact sensitive furthermore, because, necessary participate some measure of uncertainty.
6. Overall, a part seeking to establish that the conduct of a counterparty constitutes gross negligence faces an high stop.