Net Contribution Clauses: Unusual And Unduly Onerous?

Net contribution clauses are often a bone of contention in

contract negotiation. Although they frequently crop up,

surprisingly there has been little case law - until very recently -

on their legal effect.

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Net contribution clauses are often a bone of contention in

contract negotiation. Although they frequently crop up,

surprisingly there has been little case law - until very recently -

on their legal effect.

How Does a Net Contribution Clause Work?

A net contribution clause usually says something like

"X's liability for breach of contract or negligence shall

not exceed such amount as would be just and equitable for X to pay

having regard to X's responsibility for the particular loss or

damage".

The idea is that a contractor or consultant isn't left to

shoulder the entire loss suffered by an employer where other

parties were also responsible for the loss.

Under common law, where a party's breach of obligation

causes another to suffer a loss, that is usually enough to render

that party liable to compensate the innocent party for its entire

loss, even if another person's actions contributed to the

loss.

Taking a simple example: if a building defect, that costs

£10,000 to rectify, results from a combination of:

an error in design made by the architect; and

poor workmanship by the builder

the employer may be able to sue the architect or the builder

individually for the full reasonable cost of repair (i.e.

£10,000). This can produce real advantages to employers, as

it means that they only need to sue one person, and not everyone

who may have been responsible for the employer's loss.

If, however, the architect were sued, and had to pay

£10,000 to the employer, it would be entitled under statute

law to claim contribution from the builder for an amount that is

"just and equitable" for the builder to pay, having

regard to its responsibility for the defect. If the builder and the

architect were equally responsible for the defect, the architect

should be able to recover £5,000 from the builder.

The potential difficulty for the architect, in this example, is

if the builder has gone broke. The architect would then be required

to pay £10,000 to the employer, without recouping anything

from the builder.

However, with a net contribution clause the architect's

liability to the employer is only for a "just and

equitable" amount, having regard to the architect's

responsibility for the defect. In our...