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. 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. In a similar vein, the next edition will consider a couple of cases that illustrate further limits to these LOL provisions. This area of the law can prove especially tricky, and is not for novices. 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. 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. a clause exculpating a party from liability for its own future actions or omissions. If you offer activities for which participants should sign waivers, the following tips can help ensure your waiver holds up in Court. 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. 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 … 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. 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. +1 416-601-7662 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. 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. 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. ii) such wanton and reckless conduct or omissions as constitutes in effect an utter disregard for harmful, foreseeable and avoidable consequences…. It is difficult to know exactly which conduct will amount to gross negligence in any particular situation. 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. 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. 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 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 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. 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 Fundamental Death of Fundamental Breach. March 6, 2015 Leslie Marell. Negligence isn't clear-cut. 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 … The PJVA (Petroleum Joint Venture Association) October 2003 model Unit Operating Agreement includes: “Gross Negligence” means: 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 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. 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. It is certainly being discussed by energy players on both sides of the border and around the world. The end result is that the City of Kitchener was found to be 50% liable. Accusations of breach of contract or professional negligence can result in lawsuits. "Gross negligence" is a term often used in agreements, where one party seeks to exclude liability for breach unless liability arises directly as a consequence of “gross negligence" or the like. However, judges have established general principles of gross negligence that will apply to energy industry disputes. If you’ve been hurt in an accident and you believe that your injuries were caused by the reckless or negligent actions of someone else, you should speak with a lawyer as soon as possible. Auto-redemption notes. 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 difference between negligence and gross negligence is one of degree and not of kind. 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. 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 employees dealing with the issue determined, wrongly, that the required map was not available and let the leases lapse. 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. 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. And again, the clause (in this case, a warranty disclaimer) was upheld to shield a supplier from liability when the equipment proved defective. Recently, the SCC readdressed the important issue of the enforceability of LOL clauses. Rather, the "Limitation of Liability" clause is of central importance in any agreement for the acquisition of tech-related products or services. 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. As a small business owner, you may have come across “contract negligence” and found it confusing. This website uses cookies for a range of purposes to help us understand your interests and improve the website. The plaintiff was also found to be 50% liable because she was wearing running shoes instead of winter 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. Even in cases where a victim cannot bring sue someone for regular negligence, he can still bring a case for gross negligence. 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. The former can fall foul of a state’s rule that such releases are unenforceable as against public policy. This resulted in revenues that ought to have gone to a carried party being distributed to the non-carried parties. 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. In colourful language, the SCC in Tercon has now proclaimed the death of the doctrine of fundamental breach: "We should again attempt to shut the coffin on the jargon associated with ‘fundamental breach.’" In its stead, the SCC provides that, essentially, a court can always decide to decline to enforce a LOL clause if there is a compelling public policy rationale to do so. 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." 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. As such, gross negligence claims are not barred by the release. 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