Commercial contracts often contain a “limitation of damages clause” capping any potential liability under the contract at a particular amount. The High Court recently considered the meaning of such a clause which provided that a limit on liability did not apply where damage was “caused by a wilful act or gross negligence”.
It was argued by the plaintiff that Irish law makes no distinction between negligence and gross negligence and that gross negligence is established where there is a failure to exercise reasonable care, skill and diligence. The defendant argued to the contrary that negligence and gross negligence are distinguishable, with gross negligence representing something more fundamental than a failure to exercise proper skill and/or care constituting negligence.
The High Court found that in the context of the contract in question “gross negligence” meant “a degree of negligence where whatever duty of care may be involved has not been met by a significant margin”. There is no concept of “gross negligence” in tort law. The Court had to consider whether the concept of negligence, which ordinarily applies to torts and is founded on breach of a duty of care, could be reconciled with a claim based on breach of contract. The Court considered that the parties must have intended the clause to have a meaning which would have business efficacy and, in such circumstances, it interpreted the clause to mean that the limit on liability did not apply where the defendant’s breach of contract resulted from “a significant degree of carelessness”.
On the facts of the case, the Court found that the defendant acted with a significant degree of carelessness such as to amount to gross negligence so that the cap on liability would not apply. The damages limitation clause was therefore inapplicable and the plaintiffs were entitled to whatever damages arose from the defendant’s breach of contract.
* William Fry acted for the plaintiffs in the above case: ICDL GCC Foundation FZ-LLC & Anor v European Computer Driving Licence Foundation Ltd IEHC 343. The High Court judgment has been appealed to the Supreme Court.
Contributed by Fergus Doorly & Marguerite Dooley.
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