Using A Net Contribution Clause

Any member of a project team can rely on the Civil Liability (Contribution) Act 1978 to share the losses with anyone else on the project team who is responsible for the same damage [read more].

However, it has become common in the UK construction industry to use a specific clause (a net contribution clause). It divides the compensation between the project team based on their responsibility. The cases show how complex this is to do legally!

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In West v Finlay, an architect had written his own appointment and included this net contribution clause:

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

The intention was that the court apportioned the compensation claimed by the home-owner between the architect and various others (including the contractor who was by now insolvent).

Lesson 1: Understand your contract. The court noted that the architect took no steps to explain what the clause meant “if indeed, he understood it himself” (paragraph 31). It is highly unprofessional and embarrassing to tell a court that you have no idea what your clause means, so make sure you only use clauses you understand!

Lesson 2: Make it clear. The case was appealed because of competing interpretations of ‘other consultants, contractors and specialists‘. On even the simplest project there are often 10+ members of the project team. List them!

Design and build

On a project in Edinburgh, the structural engineer provided a collateral warranty to a tenant (to allow the tenant to bring a claim if there were problems with the project). Structural defects emerged in the floor slab, and the tenant brought a claim against the engineer for the cost of works to repair the floor. The engineer argued that the design and build contractor was also partly responsible:

The Consultant’s liability arising as a result of any breach of this Agreement shall be limited to that proportion of the Tenant’s losses which it would be just and equitable to require the Consultant to pay having regard to the extent of the Consultant’s responsibility for the same and on the basis that all Other Consultants shall be deemed to have provided [warranties] to the Tenant on terms no less onerous than this Agreement in respect of their services…

However as the clause defined ‘Other Consultants’ did not include the contractor then its claim failed. The court refused to include the D&B contractor as a consultant as that would effectively require them to rewrite the warranty.

Lesson 3: Remember, what you think a clause means or ought to means is irrelevant. A clause means what the court says it means.

What should you do?

In my opinion it is simpler to limit your liability than it is to include a net contribution clause.

Cases: The Royal Bank of Scotland Plc v Halcrow Waterman Ltd [2013] CSOH 173, West & Anor v Ian Finlay & Associates (A Firm) [2013] EWHC 868.

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