Casting Your Net (Contribution Clause) Into The Sea Of Liability

When there is a problem in a project resulting in loss, it may be the fault of more than one party. It is becoming increasingly common for consultants to request limits on liability, such as net contribution clauses, within their professional appointments. This is partly due to the increasing pressure from insurers to do so.

What is a net contribution clause?

A net contribution clause seeks to limit the liability of each consultant to the amount, which would be fair and reasonable having regard to each consultant's responsibility for the loss caused. This is distinct from the law of contribution which in the absence of a net contribution clause can mean that a party responsible for say 10% of the loss can be held 100% liable.

Take care when casting your "net"

Earlier this year in the case of West v Finlay,1 the Court of Appeal considered the effect of a net contribution clause in an architect's appointment, which resulted in the reversal of the first instance judge's decision: that the particular clause did not operate to limit the Architect's liability.

This case provided a useful insight into the Court's approach to net contribution clauses.

Mr and Mrs West (the Wests) engaged, Maurice Armour (Contracts) Limited (Armour) as its main contractor, and Ian Finlay & Architects (Finlay) as its architect, to carry out renovation and improvement works to their home.

Various problems arose with the building work including the waterproofing, mechanical services and electrical installations; which resulted in the Wests blaming both Armour and Finlay for poor workmanship and design. Unfortunately Armour became insolvent, so the Wests were left to pursue the entire claim against Finlay, relying upon the principle of joint and several liability.

Finlay argued that it was not solely responsible and that Armour was also to blame. They relied on a net contribution clause within their appointment. The net contribution clause provided that Finlay's:

"...liability for loss or damage will be limited to the amount that is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by [the Wests]."

The Court had to consider whether the reference to "other consultants, contractors and specialists" included Armour, or whether it was limited to specialist contractors. In doing so, the judge at first instance made the following points:-

The net contribution clause was ambiguous. He emphasised...