Many liability provisions of commercial agreements use the expression "gross negligence" yet there has been little guidance from the courts as to the meaning of that term.  A recent Irish High Court case considered the expression and, while not binding in New Zealand, is a useful guide to the necessary degree negligence must be to constitute "gross negligence".

The High Court held that gross negligence "is a degree of negligence where whatever duty of care may be involved has not been met by a significant margin."

In context, the case (ICDL GCC Foundation FZ-LLC v The European Computer Driving Licence Foundation Ltd [2011] IEHC 343) revolved around a licence to use a computer training program in Saudi Arabia.  The defendants terminated the plaintiffs' licence on the basis that they were in breach of their obligation to have all necessary licences or consents to carry on business as required by a term in the licence agreement.  The defendants believed that the plaintiffs were in breach due to information they had been provided by a third party in Saudi Arabia who had an interest in the licence being terminated.  The court held that the defendants had no basis to terminate the agreement as there was no licence that was required by law that the plaintiffs did not have.

Having found for the plaintiffs the question then arose as to whether the limitation of liability clause applied.  The clause limited the liability of the defendants to €50,000 unless there was wilful conduct or gross negligence.  The court held "that business efficacy must be given to the clause" and that the clause would have little effect in this contract unless the courts were able to consider that a breach of contract that resulted from a "significant degree of carelessness" was gross negligence.  Accordingly, the termination of the licence in breach of contract had "resulted from a significant degree of carelessness" and therefore met the test for gross negligence.  The limitation of liability clause did not apply and the defendants were liable to the plaintiffs for the total sum of their loss.