Don’t Fall Into The Net Contribution Clause

If you are appointing an architect or any other consultant to undertake services, and... (also happen to be a banker (or are just savvy),) you will need to watch out for a Net Contribution Clause (NCC) in the consultant's appointment. If you sign up to an unamended 'industry standard' consultant appointment as the consultant will call it, beware, it is very likely to have an NCC, and this will affect what you can recover from that consultant in the event of a breach. A new case has just confirmed this.

A client enters into a contract with an architect for carrying out works in their property worth £1.7 million (new stairwell, woodwork, conservatory etc). The client makes various appointments and appoints the architect using a RIBA contract form with some amendments. The architect and the client have a friendly relationship, and the architect also assists the client in appointing a contractor. This situation is a familiar one for residential projects, and came under scrutiny in the case of Stephen West, Carol West v Ian Finlay & Associates (IFA) [2014] EWCA Civ 316.

IFA's appointment included a Net Contribution Clause (NCC). This meant that IFA's liability for loss or damage suffered by the Wests was to be limited to the amount that it was reasonable for it to pay having regard to the contractual responsibilities of other consultants, contractors and specialists also appointed for the project.

The property had serious damp issues and the Wests had to move out. Soon after the remedial works, the contractor (Armour) went into administration. The first instance judge ruled against IFA and found that it had breached its professional duties in respect of the damp although to some extent the breach was also due to Armour. IFA appealed successfully to the Court of Appeal relying on the NCC to limit its liability.

When does a NCC become important? Due to the operation of the NCC, IFA pays only what is just and equitable having regard to that person's responsibility for the damage in question. The commercial effect of the NCC is that it requires the Wests to take the insolvency risk of the contractor and any others being unable to pay their contribution, so reducing the likelihood that the Wests can recover the whole of their losses. The Court of Appeal thought this was reasonable.

Why does it matter how the NCC is drafted? The NCC limited...