Gross negligence

How BC law treats it

Canadian courts have long described gross negligence as very great negligence, or a very marked departure from the standard of care (McCulloch v Murray, [1942] SCR 141). There is no single settled definition, and the line between ordinary and gross negligence depends on the facts. For that reason, a contract that uses the term should define it. In contracts, gross negligence most often appears in limitation of liability and exclusion clauses, which commonly cap or exclude liability except for losses caused by gross negligence, wilful misconduct or fraud. Under Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4, a court first interprets whether the clause applies to the conduct, then asks whether it was unconscionable when made, and finally whether an overriding public policy justifies refusing to enforce it. A well drafted carve-out for gross negligence can therefore decide whether a cap applies at all. In tax, section 163(2) of the Income Tax Act, RSC 1985, c 1 (5th Supp) imposes a penalty where a person knowingly, or in circumstances amounting to gross negligence, makes a false statement or omission in a return. The CRA bears the burden of proving the facts that justify the penalty. Gross negligence is a civil concept. Criminal liability requires criminal negligence under section 219 of the Criminal Code, RSC 1985, c C-46, which means wanton or reckless disregard for the lives or safety of others, a separate and higher standard.

What it means for your business

Commercial contracts, service agreements and software licences in BC routinely use gross negligence to decide when a liability cap stops protecting a supplier. Because the term has no fixed meaning, an undefined carve-out invites a costly dispute about whether a serious mistake was merely negligent or grossly negligent. Suppliers want the term narrowly defined; customers want it broad. Business owners should also know that careless tax filings can attract gross negligence penalties, not just interest. Example: A Victoria software vendor's licence caps its liability at fees paid, except for gross negligence. After a backup failure wipes a client's data, the parties dispute whether ignoring repeated alerts was gross negligence, which decides whether the cap applies.

Risks and common mistakes

Using "gross negligence" in a liability carve-out without defining it. Assuming gross negligence automatically leads to criminal charges. Treating every serious error as gross negligence when the cap still applies to ordinary negligence. Forgetting that a court will interpret the exclusion clause before deciding whether it is enforceable. Ignoring the risk of gross negligence penalties when filing corporate or personal tax returns without proper review.