A recent decision by the Court of Appeal (CA) in West v Ian Finlay & Associates (a firm) will, in the words of one colleague, “add spice to negotiations”.
The CA held that a net contribution clause in a professional appointment was effective in limiting liability. The CA held that the clause was both “crystal clear”, noting that the facts of the case did not permit an alternative interpretation, and fair, that is within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999 and Unfair Contract Terms Act 1977.
Interestingly, the CA held that the mechanism for deciding what is a “reasonable apportionment” under a net contribution clause is the same as that applicable when deciding what may be “just and equitable” under the Civil Liability (Contribution) Act 1978 (CLCA). Many of you may be aware of the sometimes argued amendments to such clauses to the effect that the CLCA mechanism applies.
However, commentators are split as to the fairness, statutory or commercial, of the decision. Some suggesting that the case, at least in part, rests on its own facts whilst others have claimed this to be the dawn of a new world order.
Whilst net contribution may or may not be common market practice, it is an issue that has concerned professionals for many years. After all why should they be expected to take the risk, i.e. financial liability, for a jointly liable party, over which they are unlikely to have had any input and/or control as to their selection and management, in the event of that party’s insolvency.
However, by contrast, an employer may ask why, as the ‘wronged’ party and potentially not sufficiently skilled or able to determine proportionate liability, they should be disadvantaged from recovery, particularly if the parties are uncooperative and finger point elsewhere in an attempt to avoid liability.
So what will this decision mean?
- Teamwork and costs: parties to any construction project may have to be more engaged in due diligence processes in future. There will be cost implications of more intensive due diligence;
- Procurement and liability: one possibility is an increase in the use of Design & Build arrangements with employers seeking a one-stop point of insolvency liability in the contractor. Care will need to be taken in the drafting and negotiating of these clauses (and liability arrangements generally) as attempts to introduce ambiguity to doubt the enforceability of such clauses may arise with tougher negotiating positions being taken; and
- An opportunity? Despite the risks, there could be an opportunity to re-invent or re-imagine construction project liability arrangements. One interesting side-effect may be an increase in project insurance policies as parties seek ways to mitigate the displacement of risks.