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Published in Dechert's Commercial Matters March
2012
Contracts often contain exclusion clauses which seek to exclude
or limit liability. It is common for the benefit of exclusion
clauses to be removed if the circumstances are such that the
conduct of the party claiming benefit of the clause can be called
into question – such as "no liability .... other
than for .... gross negligence".
There is uncertainty in the UK as to exactly what amounts to
'gross negligence', in particular whether as a matter of
law "gross negligence" is any different from ordinary
"negligence". The Camarata case below highlights the need
for clarity when using the term 'gross negligence',
particularly in the context of an exclusion clause.
Camarata Property v Credit Suisse Securities
Camarata Property (Camarata) invested in a
five-year note (the Note) issued by Lehman
Brothers for US$12 million which was purchased based on the advice
of Credit Suisse Securities (Europe) (CSSE). After
Lehman Brothers collapsed in September 2008, Camarata lost its
investment.
Camarata claimed that CSSE had been grossly negligent, and
failing that, negligent, under the investment advisory service
agreement (Agreement) between the two parties.
Camarata alleged that in investing in the Note they received
negligent advice from CSSE, in breach of the Agreement.
The Agreement excluded CSSE's liability for Camarata's
loss stemming from their advice, unless the loss was caused by
gross negligence. Thus, the court addressed the distinction between
"negligence" and "gross negligence".
With regard to the meaning of "gross negligence"
Camarata argued that previous case law had not distinguished (or
had found it difficult to distinguish) 'simple' and
'gross' negligence – and that, therefore, there
is no relevant distinction. Indeed, recent case law suggested that
gross negligence was not a distinct concept. However, the court
concluded that it was not so much a question of an English legal
concept, but rather the meaning of the term in the Agreement. The
specific language used in the Agreement referred both to
"negligence" and "gross negligence". As a
result, the court concluded that the parties' intention was for
gross negligence to have a separate meaning in the Agreement.
Acknowledging that it was not easy to define or describe with any
precision, the court's view was that gross negligence was
intended to represent "something more fundamental than failure
to exercise proper skill and/or care" (constituting
negligence). It embraces "any conduct undertaken with actual
appreciation of the risks involved, but also serious regard or
indifference to an obvious risk".
On the facts, the Court held that CSSE was not negligent (or
grossly negligent) since the advice sought by Camarata was not
sufficiently focused. It did not specifically ask whether or not
Camarata's investments were safe from the risk of counterparty
default. The Court agreed that CSSE did not have grounds to
investigate Lehman Brothers' creditworthiness. Although it was
agreed that, had Camarata received information from CSSE about
Lehman Brothers' default, they would have sold the Note, CSSE
could not have predicted the collapse of Lehman Brothers and so
were not negligent.
Comment
The case suggests that a distinction can be made between gross
negligence and negligence. However, the distinction is one "of
degree" and not "of kind" suggesting that gross
negligence is not entirely independent from ordinary negligence. It
is also likely that, given the inherent difficulty in defining
gross negligence on a generic basis, the term will need to be
considered on a contextual basis, depending on the facts and the
contract of each particular case.
Not surprisingly, the case of Camarata does not give us a clear,
all encompassing definition of 'gross negligence'. If the
term gross negligence is used in a commercial contract, the parties
should be aware that it implies a greater degree of culpability
than simple negligence and, if at all possible, affix a clear
meaning to the term identifying the sort of action / inaction which
will prevent the party in question from relying on its exclusion or
limitation of liability.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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