Net contribution clauses confirmed as effective

Net contribution clauses are designed to limit the liability of a party. They state that where two or more parties are jointly liable for the same loss or damage, the liability of each party will be limited to the amount it would be fair and reasonable to apportion between them.

The case

Mr and Mrs West appointed Ian Finlay Associates (“IFA”) as architects for extensive renovation works at their London home. The appointment included a ‘net contribution clause’ which stated:
“Our [IFA’s] liability for loss or damage will be limited to the amount that it is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by you.”

Mr and Mrs West then engaged a main contractor and several specialist contractors.

The project was completed but significant defects were discovered which required extensive corrective works.

Proceedings

The Wests started proceedings against the architects saying that the architects were jointly and severally liable for the defects with the main contractor. However, by this time the main contractor had become insolvent so no proceedings were able to be taken against it.

The architects denied liability and also sought to rely on its net contribution clause as limiting its liability.

The Court of Appeal (reversing the earlier decision of the Technology and Construction Court) held that the net contribution clause was both clear and effective, and would be enforced meaning that IFA’s liability was limited taking into account the building contractor’s fault.

The future of net contribution clauses

Before the decision in West and Another-v-Ian Finlay Associates (a firm) [2014] it was widely believed there was a real and significant risk that net contribution clauses were unenforceable as they ran contrary to statutory provisions (Unfair Contract Terms Regulations 1999). This judgment confirms the Courts will robustly enforce them if they are clear.

To be enforceable, the Court reiterated the need for careful and clear drafting of the clauses.

If you have any queries about net contribution clauses or need advice on any other construction issue contact Julian Kirkpatrick in our Construction & Engineering team on 01225 730 161 or [email protected]