Caught in the net

30 September, 2014
by: Cripps Pemberton Greenish

Net contribution clauses have been in the news lately. Missed that? One of them was upheld by the court. Well, let’s remind ourselves what they are and what they seek to do.

Let’s start with a construction professional involved on a project, say the architect. Now our poor architect has got something wrong and the employer has suffered loss. Whilst the architect acknowledges his mistake, it was partly the fault of the contractor as well. The employer decides to go after the architect alone. Under the law, the architect is liable to the employer for 100% of the loss despite the fact that the contractor was also to blame.

Unfair? Not entirely because the architect may have rights under the Civil Liability (Contribution) Act 1978. Under this Act, the architect may be able to claim a contribution towards the damages from the contractor.

But many construction professionals do think it is unfair and try to include ‘net contribution clauses’ in their contracts, appointments and collateral warranties. These clauses say that if more than one party is at fault, the professional is only liable for its share on the basis of what is fair and reasonable. It is also assumed that the other wrongdoers have paid up their fair share.

Sounds reasonable? Maybe, but this is in effect a limitation of liability clause. If the clause is effective, the real impact is to transfer the risk of insolvency of the joint wrongdoer away from the professional and on to the employer. In other words, if our architect has to rely on the Civil Liability (Contribution) Act 1978, it would have to pursue the contractor for a contribution – which will be of no use if the contractor is bust. But if the net contribution clause is effective, it is the employer that would be left with a worthless remedy against the contractor. What may appear fair and reasonable at first sight may not always prove to be so.