Net contribution clauses – effectiveness confirmed

A recent decision has given judicial backing to the validity of Net Contribution Clauses (‘NCC’).

A recent decision has given judicial backing to the validity of Net Contribution Clauses (‘NCC’).

An NCC seeks to limit the liability of a consultant to the proportion that it is alleged that the consultant is actually to blame.  In West v Ian Finlay & Associates [2014] the clause sought to limit liability to the amount reasonable to pay “…in relation to the contractual responsibilities of other consultants, contractors and specialists appointed...”

At first instance the wording of the clause was held to be ambiguous. As the clients were treated as consumers the clause was interpreted in their favour pursuant to the Unfair Terms in Consumer Contracts Regulations 1999 (‘‘UTCC’’). This meant that the reference to other contractors would not be taken as to apply.

On appeal it was held that the clause was not ambiguous and was ‘crystal clear’. The Court could then take account of the alleged fault of the building contractor (who was insolvent) and limit liability accordingly. The Court came to this conclusion on the basis that the clause did not breach the UTCC or the Unfair Contract Terms Act 1977 because any imbalance between the parties was not significant since the clients were found to be ‘savvy’, the clause could be found in RIBA standard forms and the clients took the final decision to appoint the building contractor with the risk of financial failure.

The Court of Appeal also said that the clause was not unusual and it was doubted whether any commercial lawyer would object to its inclusion. This conclusion is in fact to be doubted and such clauses are not routinely accepted.

NCC’s have been commonly used in the construction industry for many years and their effectiveness has been confirmed in this case. There will clearly be a benefit to consultants and their insurers of including such a clause, but developers and contractors will need to be aware of the consequences of agreeing to include such a term. Many funders and institutional purchasers prefer to include a cap on liability in appointments rather than an NCC and this case is likely to see that trend continue. 

Share on Twitter