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...