Welcome clarity on net contribution clauses upholds inclusion of all obligations, even on a breached contract
Net contribution clauses apportion liability in the case of defects caused by the negligence of several parties. Until recently there were very few cases on their interpretation, but now we have several. The latest sheds light on how widely they can be applied.
The case involved Radius, a housing developer, and its engagement of JNP Architects to design and oversee the construction of two apartment blocks in Northern Ireland. The apartments were to be built off a concrete platform which required water proofing. The original design called for a full tanking solution using Hydroguard.
After a contractor had been appointed, a quantity surveying error was discovered meaning less than a quarter of the required Hydroguard had been allowed for. The architect devised a cheaper, partially tanked design involving the use of a ‘Famguard skirt’. Famguard is more reliant on a high degree of workmanship than Hydroguard.
The water proofing failed and water ingress occurred before and after completion of the works. The main cause was found to be the failure of the Famguard skirt. This was the result of workmanship failings by the contractor but also a lack of adequate supervision by JNP. Given the vulnerability of the Famguard design to workmanship errors, JNP ought to have built in additional safeguards (such as hose-testing) to ensure the revised design was effectively implemented.
Crucially, JNP had also failed to obtain Radius’ consent to the change in design, contrary to the terms of its appointment. Although Radius representatives had attended some site meetings and received copies of site minutes, ‘informed’ consent could not be implied from that alone. In the court’s view, ‘a deliberate decision was made to keep Radius in the dark’. Had consent been properly sought, the court found that Radius would have required assurances and safeguards to ensure that the Famguard skirt would work just as well as the Hydroguard design. Without such assurances, money would have been found to keep the Hydroguard solution.
JNP was appointed under the RIBA Standard Conditions of Engagement, which included a net contribution clause, reversing the common law rule that an employer may sue either its contractor or its architect/consultant for the full amount of a loss which both can be said to have caused or contributed to. The principal effect is to transfer the risk of insolvency of one or the other responsible parties on to the employer. The contractor in this case had indeed become insolvent, so should the employer be limited to only a proportionate recovery from the architect, bearing the contractor’s proportion itself?
Radius argued that the clause only applied to negligent design by JNP and not to its obligation to obtain consent to a change in design. The failure to obtain consent, Radius said, made JNP wholly responsible for the problems which occurred.
The contractor had become insolvent, so should the employer be limited to only a proportionate recovery from the architect, bearing the contractor’s portion itself?
The court disagreed. The clause applied to all JNP’s obligations under the appointment. It could not have been intended that some obligations would fall within the clause and others not, depending merely on whether consent to changes had been obtained. The clear intention in including the net contribution clause was not that JNP would ‘be responsible for any fault on the part of the builder’ but only for JNP’s share of the responsibility.
This decision follows previous cases upholding the operation of net contribution clauses and emphasises the width they can have. The court was prepared to uphold the clause even though as a result the employer faces the prospect of a less than full recovery in respect of a ‘high risk design’ which, in breach of contract, it was not given the opportunity to consider and object to. The negotiation around the inclusion of net contribution clauses in your appointments is likely to become even more intense as a result.
In Plain English: consent
One of the key questions in the case above is that Radius did not give ‘informed’ consent to the design changes. In the context of a professional appointment, consent given by a lay client will not absolve the architect from liability in circumstances where the client is relying on the architect to avoid defects, unless the client has given its approval with full knowledge of the defects. The requirement of consent is therefore, in this context, a requirement for informed consent. In the absence of informed consent, an architect could potentially alter the design, without the client knowing why, and without understanding what were the advantages and disadvantages of the change, from a cost point of view and for the long term viability of the project.
By contrast, a court might not look so kindly on a client who has a team of advisers that provides input to the client on changes raised by a contractor. In those circumstances, if the client gives its consent to the contractor without the contractor having explained the ramifications, but with the client having taken the advice of its team, a client might well be deemed to have given its informed consent.
Alistair McGrigor is a partner at CMS Cameron McKenna Nabarro Olswang LLP