Negligence versus gross negligence: what oil & gas lawyers need to know

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Summary: The expression “gross negligence” is used frequently in the oil & gas industry, but does it differ from “negligence” in the eyes of English law and, if so, do oil & gas companies need to take note? In this short article, BLP oil & gas expert Tim Sumner provides answers to these questions, provides useful references to key cases and explains why this is a point not to be overlooked by the oil & gas industry.

Is gross negligence the same as negligence?

As oil and gas lawyers, we negotiate liability and indemnity provisions every day and are no strangers to the concept of “gross negligence”. It is always coming up - in joint operating agreements, concession agreements and across a whole range of commercial agreements.

Yet, while gross negligence comes up so frequently and is the focus of much negotiation, there remains a lack of clarity as to what it actually is. Some would even assert that it is no different to plain old “negligence”. Indeed, just last week a contemporary lent across the table and firmly told me: “Negligence is negligence under English law. There’s no such thing as gross negligence!”.

This is a view that is not without support in the case law (Wilson v Brett (1843) 11 M&W 113; Pentecost v London District Auditor [1951] 2 KB 759). BUT, is it right? Particularly in the context of the oil and gas industry where “gross negligence” is used so frequently and deliberately?

All things considered, the answer to this question must be “no, they are not the same” and for two very good reasons:

First, recent judgements in England have given meaning to the term “gross negligence” as distinct from mere or simple “negligence”. As such, there does not appear to be any basis to assert that, as a matter of law, “gross negligence” is always the same as “negligence”.

Second, giving a separate and distinct meaning to gross negligence, in the oil and gas context, is consistent with key principles of contractual interpretation, including that

  • contracts should be interpreted having regard to all the background knowledge which would reasonably have been available to the parties (Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28); and
  • interpretations consistent with business common sense should generally be preferred (Rainy Sky SA and others v Kookmin Bank [2011] UKSC 50). 

In our experience, the reality is that contracting parties in the oil and gas sector do believe there is a distinction between negligence and gross negligence and do intend to achieve different outcomes when they use the terms in their contracts. The fact that commercial managers and their lawyers argue about the use of the terms bears this out. If it were common ground that negligence and gross negligence were one and the same, there would be no reason to take the point. Moreover, no one would bother using the term gross negligence at all. We would simply use negligence.

Put another way, the interpretation that negligence and gross negligence have separate and distinct meanings is, in the oil and gas context, the only interpretation consistent with business common sense.

So if gross negligence is not the same as negligence, what is it?

Like so many legal questions, the answer is that the meaning of “gross negligence” in any particular case will be a matter to be determined having regard to the general principles of contractual interpretation.

That said, there have been recent cases in England and other common law jurisdictions where judges have sought to give meaning to the term “gross negligence” and these cases provide useful guidance as to how the term may be interpreted in the future.

  • In Camarata Property v Credit Suisse Securities [2011] EWHC 479, Andrew Smith J looked past previous cases concerning whether or not gross negligence is recognised under English civil law and instead focused on what the words meant in the context of the relevant agreement. One factual matter considered important by His Honour was the use of both “negligence” and “gross negligence” in the contract, indicating an intention by the parties to draw a distinction. Ultimately, His Honour formed the view that the distinction between negligence and gross negligence is one of degree and not of kind and noted that it is not easy to define or even to describe with any precision, before going on to endorse the interpretation of gross negligence given by Mance J in The Ardent (see below).
  • In Great Scottish & Western Railway Co Ltd v British Railways Board, unreported, 10 February 2000, Court of Appeal, Beldam LJ said "in the context of [this clause], the words “gross negligence” take their colour from the contrast with “wilful neglect” and refer to an act or omission not done deliberately, but which in the circumstances would be regarded by those familiar with the circumstances as a serious error. The likely consequences of the error are clearly a significant factor. Thus, whether negligence is gross is a function of the nature of the error and the seriousness of the risk which results from it."
  • In The "Ardent" [1997] 2 Lloyd's Rep 547, a case decided under New York law, Mance J said "If the matter is viewed according to purely English principles of construction ... "Gross" negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence ... as a matter of ordinary language and general impression, the concept of gross negligence seems to me capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or indifference to an obvious risk."
  • In the Irish Supreme Court Case of ICDL GCC Foundation FZ-LLC v European Computer Driving Licence Foundation Ltd  [2012] IESC 55, the court agreed with a lower court’s conclusion that gross negligence meant "a degree of negligence where whatever duty of care may be involved has not been met by a significant margin".

Ultimately, all of these cases indicate that gross negligence is likely to be interpreted as something more exceptional and involving greater culpability than mere negligence.

Negligence v Gross Negligence - do I need to take the point?

The short answer is “yes”.

Until such time as there is a definitive ruling on the point, it would seem reasonable to assume that references to “gross negligence” in English law governed contracts are likely to be interpreted by the courts as requiring something more than mere negligence. As such, an exclusion of “gross negligence” rather than “negligence” is likely to be less far reaching while equally an indemnity for “gross negligence” rather than “negligence” is likely to be less onerous.

Alternatively, rather than taking the binary “negligence” v “gross negligence” point, it may make sense in some cases to discuss and agree a definition of “gross negligence”. This is often (although not always) done in oil and gas contracts, including the AIPN Joint Operating Agreement. When doing so it is important to consider how the definition is likely to affect you and whether it makes sense to propose a broad or narrow definition. Simply reaching for the nearest available piece of boilerplate may not get the job done.

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