Net Contribution Clauses: Are They Unreasonable And/Or Unfair?

In the case of West & West v Ian Finlay & Associates (a firm), [2014] EWCA Civ 316, the Court of Appeal had to review the effect of a net contribution clause.

The Facts

In June 2005 Mr and Mrs West ('the Wests') purchased a property in Putney, London for £1.7 million. The Wests planned major refurbishment works engaged Ian Finlay & Associates ('IFA') as architect to redesign the property and administer the building contract.

IFA's terms of engagement included a net contribution clause ('the NCC') in the following terms:

"Our 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 you." The Wests engaged Maurice Armour (Contracts) Limited ('Armour') to carry out the building works and Armour took possession on 19 June 2007.

Following completion of the works during May 2007 the Wests moved in but within a month significant defects were discovered. In order to facilitate the extensive remedial works required the Wests vacated the property and did not return until June 2009.

Armour became insolvent during April 2010.

In September 2011 the Wests issued court proceedings against IFA alleging negligence due to IFA's failure to notice or remedy the various defects. The Wests claimed the remedial works costs and damages for distress and inconvenience.

IFA denied liability and alternatively relied upon the NCC contending that any award for damages should be reduced to take into account the liability of Armour.

In a first instance decision dated 16 April 2013 Edwards-Stuart J held that IFA was liable and awarded the Wests over £800k including interest and damages for distress. The judge found that the NCC did not cover any potential liability on the part of Armour. Having decided that the wording of the clause was uncertain per se the Judge applied the Unfair Terms in Consumer Contracts Regulations 1999 ('UTCCR'), to give the clause the meaning most favourable to the Wests as the consumer i.e. that the words "other consultants, contractors and specialists" excluded the main contractor.

IFA appealed. In a Respondent's Notice the Wests submitted that contrary to regulations 5 – 8 of the UTCCR the NCC was unfair as it gave rise to a significant imbalance in the parties' rights that was detrimental to their interests and had not been drawn to their attention. The Wests also submitted that NCC was unreasonable...