Net Contribution Clause Is Crystal Clear

In Stephen and Carol West v Ian Finlay & Associates [2014] EWCA Civ 316, a case involving the interpretation of a net contribution clause, the Court of Appeal have overturned a first instance decision and held that the architect could rely on the net contribution clause to limit its liability.

What is net contribution clause? A net contribution clause is designed to limit a party's liability. A typical clause would contain words along the following lines:

"The Consultant's liability for loss or damage suffered by the Employer in the event of any breach of this Appointment is limited to the proportion of such loss or damage that it would be just and equitable to require the Consultant to pay having regard to the extent of responsibility of the Consultant for the same..."

In the absence of such a clause, where two or more parties are responsible for the same damage the claimant can choose to sue any one of them for the entirety of the damage (all defendants liable for the same damage are joint and severally liable). It will then be up to the defendant to bring the other parties into the claim, by suing them for a contribution. Of course, this will not be possible where the other defendants are insolvent and the entirety of the claim will be left with one of the parties. A net contribution clause seeks to address this position by limiting the defaulting party's loss to that which is just and equitable having regard to others' responsibility for the loss.

The facts Mr and Mrs West (the 'Wests') appointed Ian Finlay & Associates ('Finlay') to act as their architect and contract administrator in relation to the refurbishment of a £1.7m residential property in London. The contractor was Maurice Armour (Contracts) Limited ('Armour'). On completion of the works the Wests discovered serious damp and other defects which required significant remedial works (including the replacement of floor slabs).

Both Finlay and Armour were responsible for the damage, but Armour became insolvent prior to proceedings being issued. The Wests therefore directed their entire claim against Finlay and Finlay sought to limit their liability by relying on the following net contribution clause:

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

As well as directly contracting with Armour, the Wests had also...