As a supplier on a construction project, English law allows you to use The Civil Liability (Contribution) Act 1978 to pass on some of the losses claimed against you. You can ask for a contribution from any other contractor, supplier or consultant who is responsible for the same damage [see contributing to the damage for how this works in practice].
It is common in the UK construction industry to add a net contribution clause to collateral warranties to reinforce this sharing of losses. A net contribution clause has a number of purposes, one of which is to divide any damages or compensation awarded between the project team based on their share of responsibility for the losses.
Whilst this might seem simple in theory, in legal practice it is very complex!
Share and share alike
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! Never copy and paste if you don’t know what it means.
Lesson 2: Make it clear. The case was appealed because of competing interpretations of ‘other consultants, contractors and specialists‘. Make it really clear who you think should be sharing the burden of any claims ideally using an umbrella term rather than a list.
Design and build contracts
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 contractor (who was working under a design and build contract) 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, the court said ‘Other Consultants’ did not include the contractor (as defined) then the engineer’s claim for a contribution from the contractor failed. The design and build contractor was not a consultant – and to include it would effectively require the court 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?
A net contribution clause has a number of potential pitfalls – as these two cases demonstrate, it may not refer to all members of the project team who are responsible for the losses. It can also leave a client out-of-pocket if one of the responsible parties has since become insolvent.
In my opinion, because of the difficulties with enforcing these clauses, it is often better to rely on a limit on your liability. Such a limit also provides a useful ceiling (or anchor point) for negotiating a settlement, something which a net contribution clause rarely improves.
For more case law on and my view on net contribution clauses, see Chapter 11 of How to Write Simple and Effective Collateral Warranties in Just 500 Words, available from Amazon in paperback and kindle. 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.
Post updated November 2023
