The lesson from these cases is that, especially in the consumer environment, LOL clauses have to be drafted very, very carefully and even-handedly. 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. 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." 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. 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. 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. The trend is evident in a number of the model agreements commonly used by Canadian energy companies. The concept is more fundamental than failure to exercise proper care but that additional dimension can only be determined by context. 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. And again, the clause (in this case, a warranty disclaimer) was upheld to shield a supplier from liability when the equipment proved defective. i) a marked and flagrant departure from the standard of conduct of a reasonable Person acting in the circumstances at the time of the alleged misconduct, or 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. First, provisions featuring gross negligence or featuring both negligence and gross negligence can be used as a sword—as a basis for terminating a contract, as grounds for being indemnified by the other party, or to circumvent a waiver of liability or … This website uses cookies for a range of purposes to help us understand your interests and improve the website. Recently, the SCC readdressed the important issue of the enforceability of LOL clauses. 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. Rather, the "Limitation of Liability" clause is of central importance in any agreement for the acquisition of tech-related products or services. 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. The Joint Operating Agreement provided for managing operator liability only in cases of gross negligence or wilful 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. 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 . ... 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 … One Stop Rental Tool and Party, et al. As a small business owner, you may have come across “contract negligence” and found it confusing. This approach to enforcing contractual LOL clauses, however, was made subject to three very important exceptions in the Tercon decision. Consequently, I submit that, even in cases not subject to the CPA, neither a depositee nor a carrier should be permitted to contract out of liability for gross negligence or wilful misconduct, including such gross negligence or wilful misconduct on the part of the servants of such parties. 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. This results in part from the inherently fact-driven nature of the exercise and in part from the absence of an independent tort of gross negligence at common law. 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. 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. Yes, you can contract out of Gross Negligence! 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). 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". 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. LOL language, however, can also be found in a range of other commercial agreements. While both of these factors will be persuasive indicators of gross negligence, the current predominant view in Canadian law is that gross negligence does not require a mental intention element. You can, however, seek to exclude or limit certain … When these contracts contain LOL clauses, they can run the real risk of being held unenforceable, especially if they are drafted in an overbearing, difficult-to-understand manner. In United Canso Oil & Gas Ltd. v. Wash Northern, Inc. (Alberta Q.B. Accusations of breach of contract or professional negligence can result in lawsuits. In making a finding of gross negligence, the Court focused on the fact that when each of these managing operators took over operatorship, they were aware that the carried party was claiming that payout had been achieved and that there was an unresolved accounting dispute. 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. 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. The operator submitted a continuation application to Alberta Energy but did not include interpretive mapping. 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. In a leading Ontario Court of Appeal decision, for instance, the supplier of a remote security system monitoring service stated in its customer subscription agreement that regardless of the breaches in performance by the supplier, the customer could not recover damages in an amount greater than 12 months of fees paid by the customer to the supplier. It is common practice for parties entering outsourcing contracts to limit their liability to each other. The end result is that the City of Kitchener was found to be 50% liable. In a similar vein, if the court finds that the LOL is ambiguous, the court may well decline to enforce the clause. 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. The failure to heed a warning or address a known problem seems to be a particular trigger for a finding of gross negligence. © Bennett Jones LLP 2020 All rights reserved. Gross negligence (guess I should have spelled it out in legal terms). Article 1.36 of the 2002 AIPN (Association of International Petroleum Negotiators) Model Form International Operating Agreement also combines gross negligence with wilful misconduct, defining them collectively as follows: Gross Negligence / Wilful Misconduct means any act or failure to act (whether sole, joint or concurrent) by any person or entity which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences such person or entity knew, or should have known, such act or failure would have on the safety or property of another person or entity. A personal injury lawyer can review the facts of the accident and explain whether negligence or gross negligence was involved. Bennett Jones refers collectively to the Canadian legal practice of Bennett Jones LLP It is always open to the parties to introduce a definition of gross negligence for the purposes of their contract. Barry pays Tom the agreed amount of money and expects Tom to duly deliver the car. "Gross Negligence" means: (i) a marked and flagrant departure from the standard of conduct of a reasonable person acting in the circumstances at the time of the alleged misconduct, OR (ii) such wanton and reckless conduct or omissions as constitutes in effect an utter disregard for harmful, foreseeable and avoidable consequences, provided that Gross Negligence shall not include any act or omission, insofar as it was done or omitted … To illustrate breach of contract and negligence, let's say Tom agrees to sell a car to Barry. If your contract says that you are not liable in cases of gross negligence, it effectively renders the contract unenforceable and some judges will throw out the entire contract as invalid. 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. Negligence isn't clear-cut. 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. First, contracts refer to gross negligence in two different ways: they release Acme from liability for gross negligence, or they carve out gross negligence from provisions (a release, or indemnification provisions) that benefit Acme. 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. 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. As such, gross negligence claims are not barred by the release. There is a third ground under which a court can find an LOL clause to be unenforceable. To understand more about how we use cookies or to change your preference and browser settings, please see our Cookie policy. Check with a lawyer if you need specific advice. This was a conscious indifference to the rights or welfare of United Canso and its predecessors.” The Court went on to state that the operators should have sought direction from the Court on the outstanding issues rather than pressing on as if they did not exist. It is noteworthy that, in both these cases, the operators had knowledge that there was at least some issue that required attention. In a similar vein, the next edition will consider a couple of cases that illustrate further limits to these LOL provisions. Parties choosing a definition should note that the PJVA definition comes closest to mirroring the Canadian case law. In Tercon, the court also decided that an LOL clause could be invalid if it was unconscionable at the time it was entered into. 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. Contract negligence combines language from two separate legal concepts: breach of contract and professional negligence.. 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. 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. 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.