The First UK Court Decision On Net Contribution Clauses
The recent Scottish Court of Session case of Langstane v
Riverside & Others [2009] CSOH52 is the first case in the UK to
question whether net contribution clauses are effective.
The case looked specifically at whether a Housing Association
(Langstane) had appointed a consulting engineer (Ramsay &
Chalmers, who were the second defendant) on the ACE conditions, and
if so, which version (1988 or 1998). The distinction is
important, as the 1998 version contains a net contribution
clause. The court found, on the facts, that Ramsey was
appointed on the 1998 version – so the court then turned
to look at the applicability of the net contribution clause
itself.
What Is A Net Contribution Clause?
A net contribution clause (also known as a proportional
liability clause) is a common feature in many standard form
contracts used in the construction and engineering industry, such
as the Appointment of an architect or an engineer published by RIBA
or ACE, for example.
If there is a problem with a construction project resulting in a
loss, this may well be the fault of more than one of the parties
designing or constructing the project. The party suffering the loss
can sue any of the parties at fault and each will be 100% liable
for damages, whatever their share of the blame. A net
contribution clause tries to change this position – it
generally states that the liability of each party will be limited
to the amount which would be apportioned to that party by a court
and/or which it is just and reasonable for them to pay.
Instead of the party who suffered the loss suing one party at
fault, and leaving it to them to claim against any other people
jointly liable, a net contribution clause also puts the onus on the
party who has suffered a loss and who wishes to recoup all his
losses to claim against all parties potentially at fault.
It has in the past been argued that where a net contribution
clause is included in a standard form contract the
"reasonableness test" found in the Unfair Contract Terms
Act 1977 would apply, resulting in the net contribution clause
being rendered invalid. This case considered that
argument.
The Facts Of The Case
Langstane was seeking to recover from Ramsey losses suffered as
a result of the partial collapse of a property on which Ramsey had
been involved in renovation works and which arose from an alleged
breach of contract and/or negligence. The net contribution
clause purported to restrict the damages that Langstane could
recover...
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