Net contribution clauses – an important decision


Author: Gillian Birkby


In a recent court case the judge made an important finding on the wording of a “net contribution” clause, and awarded significant damages for distress and inconvenience arising out of the repair of defective work.

The project was a fairly standard one. Mr and Mrs West purchased a five floor house close to the Thames and engaged IFA as their architects to design changes to the layout and administer the building contract. The contractor, Armour, was introduced by IFA, the works were carried out and the Wests moved in. Shortly afterwards they found extensive damp in the lower ground floor. The waterproofing had to be completely redone, together with the plumbing, electrical works and kitchen fit out. The Wests had to move out of the house for 20 months while the remedial works were carried out. The contractor became insolvent and the Wests sued the architect for negligence.

The judge found that IFA had been negligent in both its design and administration of the construction works. The normal rule is that if an architect is only partly liable for a defect, he may still have to pay 100% of the cost of fixing it if the contractor is no longer worth suing. IFA argued that the damages it had to pay should be reduced because of a 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.”

IFA argued that it did not have to pay for the full cost of the remedial works because Armour had “contractual responsibilities” for those works and in those circumstances it was not “reasonable” for IFA to pay 100% of the costs of the remedial works just because Armour was insolvent.

The Wests argued that the wording referred to the contractual responsibilities of “other contractors” i.e. other than the main contractor, Armour, whose work IFA was inspecting. The Wests had engaged some contractors directly, in order to save costs, and IFA was of course aware of this.

The judge said that the Wests’ interpretation was correct: if the wording of the net contribution clause was ambiguous, the Unfair Terms in Consumer Contracts Regulations required the court to give the clause an interpretation which was most favourable to the Wests. This interpretation will come as a surprise to many people, as it is usually expected that a net contribution clause will protect an architect or other consultant against the risk of paying 100% of the remedial works in this kind of situation.

Another unexpected part of the judgment was that £14,000 was awarded to the Wests for inconvenience, distress and discomfort in having to live in a house where building works were going on, and then in alternative accommodation while the remedial works were carried out. Traditionally, the courts have awarded a fairly nominal sum for inconvenience etc. It will be interesting to see whether future cases follow this one in awarding a significant sum for loss.

One other point to note is that IFA had obviously taken a dislike to its clients and sent emails to the contractor making rude comments about them, in one email referring to Mr West as “fancy pants”. Although it may have been thought amusing at the time, this type of language is really not a good idea in commercial correspondence, if only because when it is read out in court it sounds very unprofessional and is likely to mean that the person who wrote it will lose the sympathy of the court.

Gillian Birkby, Partner, Fladgate LLP (gbirkby@fladgate.com)

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