Tradigrain SA & Ors v Intertek Testing Services (ITS) Canada Ltd. & Anor

A contractual waiver of recourse clause referring to directors, executives and equivalent representatives is construed according to its agreed contractual meaning. Under German insurance law, it covered persons formally appointed to those corporate offices, not employees who merely exercised comparable functions. Gross negligence required both an objectively serious breach of ordinary care and a subjectively inexcusable breach. The board’s delegation of operational management to suitable managers did not satisfy that test. The claim therefore failed. Obiter, a broadly worded limitation clause covering improper or negligent performance would have applied even to gross negligence.

Tradigrain and its insurers claimed damages from CBI in conversion after an employee dishonestly released stored vegetable oil without authority or payment. The storage arrangements arose under a Collateral Management Agreement between Tradigrain and Intertek. The insurers’ recourse was subject to a German-law waiver clause excluding recourse except for wilful misconduct or gross negligence by defined representatives.

The issues were whether CBI’s directors and Mr Rackham, its chief executive officer in India, were representatives; whether any relevant representative was grossly negligent; and, if liability remained, whether the contractual limitation clause applied and how the fee multiplier was calculated.

1. The waiver clause covered persons formally appointed as executives, directors or their corporate equivalents. It did not extend to an informal or functional director. Mr Rackham was not a director of CBI; the board members were within the definition.
2. German law required both an objectively serious violation of ordinary care and a subjectively inexcusable violation. Illness could provide a subjective excuse. The objective assessment included the immediacy and obviousness of the risk and whether steps were taken to address it.
3. The board had been entitled to delegate operational management to suitable managers and had no reason to doubt their honesty or competence. The allegations did not satisfy the objective or subjective requirements. Mr Rackham was also not grossly negligent.
4. Although unnecessary to the result, the limitation clause would have applied to gross negligence. “The work” meant the work giving rise to liability, namely storage of the oil, and the applicable fee was US$3,500 per month. The resulting limit would have been US$2.023m.

The claim failed in its entirety. Ancillary orders were to be addressed separately.