Net Contribution Clauses - Do They Work?

What is a net contribution clause?

A net contribution clause seeks to limit the proportion of any loss or damage payable to the negligent party's "fair share". Such clauses are now common in collateral warranties and are being requested more often in consultants' appointments.

In the construction world, if there is a loss then it is likely that there is more than one party who can be blamed for that loss, for example, two or more consultants, the architect and engineer, may have both contributed to a defective design, or a defect may be partly attributable to defective design and partly attributable to defective workmanship and so is the fault of the contractor and the architect. Each party who has been involved in causing the loss has joint and several liability and is liable for the entire loss, regardless of their share of blame. So, for example, a defect might be 90% attributable to defective workmanship and 10% attributable to defective design, but the designer will be 100% liable for the losses which flow from the defect as will the contractor.

Under the Civil Liability (Contribution) Act 1978, a person who is liable to a claimant for a loss may recover an equitable contribution from another person who is liable in respect of the same loss. However, this does not offer sufficient protection to a party where the other liable parties are either insolvent or no longer exist.

The effect of a net contribution clause is that the consultant is liable only for the proportion of the loss caused by his actions. Joint and several liability does not apply.

Do they work?

Net contribution clauses have not yet been properly tested in court and no one really knows how effective they are. However, two Scottish cases do indicate that net contribution clauses are effective and that they do work.

Glasgow Airport Limited –v- Messrs Kirkman & Bradford [2007]

In this case, Glasgow Airport Limited wanted to recover damages of £2million from Messrs Kirkman & Bradford (structural engineers) for a breach of a collateral warranty. The collateral warranty contained a net contribution clause. The case centred on what losses were governed by the clause and, in the judgement, Lord Clarke acknowledged that the proper liability of the engineers was, under the warranty, subject to a net apportionment having regard to the responsibility of others.

Langstane Housing Association Limited –v- Riverside Construction (Aberdeen) Limited and Others [2009] CSOH52

In this case, a...