Douglas Wass gets down to detail on the need for net contribution clauses to be clear
Architects and other professionals often seek to include net contribution clauses in their appointments. By including such clauses architects intend to limit their liability to the proportion of any loss suffered by the employer which it is fair and reasonable for the architect to pay, taking account of any responsibility other persons may have for the loss in question.
Although RIBA appointments have for many years included net contribution clauses, there has been relatively little case law on the validity and effect of such provisions. Helpfully, the courts have recently considered such a clause.
In West v Ian Finlay & Associates, the Wests engaged Ian Finlay & Associates as architect and subsequently appointed a main contractor to carry out the works. In the words of the judge, the project proved a disaster. Once the works had been completed it became apparent that no proper waterproofing had been carried out and that the mechanical and electrical installations would have to be removed and replaced. The Wests sued the contractor and architect but the contractor had become insolvent by the time the case came to trial so the Wests dropped their claim against it.
The court held that the architect was liable for defects in the design and for failing in its inspection duties. The architect sought however to rely on the following clause from its appointment to reduce its liability:
‘Our liability for loss or damage will be limited to the amount that it is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by you.’
Fair or not?
The Wests looked to argue that the clause was unfair under the Unfair Terms in Consumer Contract Regulations and so should be struck out. The regulations aim to protect consumers from unfair standard terms in contracts they enter into with businesses.
The court found that the architect had not been looking to take advantage of the Wests by including this clause and that it was not unfair so was unenforceable under the Regulations.
The judge then had to consider the scope of the clause and, in particular, the question of whether the main contractor fell within the reference to ‘other consultants, contractors and specialists’ in the clause. If so, the architect may have been able to argue that it should not be held liable for losses attributable to defective work by the main contractor.
Under the regulations, if the meaning of a written term is unclear, the term is to be interpreted in the way which is most favourable to the consumer. Here, the judge held that the meaning of the clause was ambiguous and therefore construed the wording in a way that meant the main contractor was not covered by the clause. In reaching this view, the judge referred to certain correspondence between the parties that suggested that the main contractor should not be covered by the provision. The court therefore determined that the architect could not look to rely on the clause to reduce its liability to the Wests.
The case raises two important points:
The inclusion of a net contribution clause in a contract with a consumer is unlikely to be deemed to be unfair, provided that an architect is not looking to take advantage of the consumer by including the provision.
If architects include net contribution clauses in their appointments, the drafting of these needs to be clear and unambiguous. If the meaning is unclear, and the architect is contracting with a consumer, the provision will be construed against the architect and may be found to be of no effect.
Douglas Wass is a partner with Macfarlanes LLP
Unfair Contract Terms: It’s all a question of what’s reasonable
West v Ian Finlay & Associates considered the application of the Unfair Terms in Consumer Contracts Regulations to an architect’s appointment. These only apply to consumer contracts. The Unfair Contract Terms Act 1977 separately applies to contracts between businesses and consumers, and between businesses based on one party’s standard terms. Under this Act, parties cannot in any circumstances exclude or restrict their liability for death or personal injury arising from their negligence; and can only exclude or restrict their liability for other losses if the term is ‘reasonable’.
When deciding whether a term is reasonable, the courts will take into account the circumstances, which are likely to include:
> the parties’ relative bargaining positions;
> the extent to which the loss could have been insured;
> whether the other party had taken legal advice in relation to the contract; and
> whether the term was specifically drawn to the attention of the other party by the party seeking to rely on it.
The case of Ampleforth Abbey Trust v Turner & Townsend (RIBAJ, Legal, October 2012) shows how the Act can bite. In that case the court struck out a clause limiting the consultant’s liability to a sum far below the required level of professional indemnity insurance, on the basis that it was unreasonable.