[2014] EWCA 316 Civ

We reported on the first instance decision in Issue 155. In that decision, the Wests had previously been awarded damages and interest totalling £649,251.06 and £243,688.89 respectively against IFA in connection with the renovation and improvement of a property in Putney. IFA appealed.

The net contribution clause (the “NCC”) stated:

“Our liability for loss and 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.”

Mr Justice Edwards-Stuart had held that the NCC did not operate to limit IFA’s liability to the Wests in a situation where the other party liable was the main contractor, Maurice Armour (Contracts) Ltd (“Armour”), therefore, he did not reduce the Wests’ damages on account of the fact that Armour was also responsible for some of the losses. Here, IFA submitted that the Judge should have held that the NCC did operate to limit IFA’s liability when any other contractor was responsible for some of the loss and that the case should be remitted back to the TCC to reassess the amount it was reasonable for IFA to pay. The Wests agreed with the Judge’s view, but even if he was wrong, the NCC cannot operate to exclude the principle of joint and several liability. If the NCC was to have that effect, it should be held unenforceable under (a) the requirement of good faith in the UTCC Regulations 1999; and (b) the reasonableness requirement in UCTA 1977.

The key question for Vos LJ in considering the Judge’s reasoning regarding construction was the context upon which he (and the Wests) placed such reliance. Vos LJ held that the normal meaning of words was clear: the NCC stated that IFA’s “liability for loss or damage” was to be limited to the amount that it was reasonable for it to pay having regard to “the contractual responsibilities of other consultants, contractors and specialists appointed by [the Wests]”. There was, in his view, no limitation on the words “other consultants, contractors and specialists appointed by [the Wests]”, and they must be taken to mean any such persons, including any appointed main contractor, but excepting IFA (because of the use of the word “other”. The fact that IFA was a consultant and not really a contractor was immaterial to the analysis.

The meaning of the NCC was clear and the relevant factual matrix did not lead Vos LJ to conclude that the parties should be taken to have used the wrong language to express their agreement. Consequently, there was no need for the Judge to resort to the provisions of 7(2) of the UTCC Regulations which state that:

“[i]f there is doubt about the meaning of a written term, the interpretation which is more favourable to the consumer shall prevail.”

The second issue concerned the questions of unfairness under Regulation 5 of the UTCC and reasonableness under UCTA. The Wests submitted that the Judge was wrong for the following main reasons:

  1. The Judge wrongly equated lack of good faith with bad faith, and failed to have regard to all relevant matters under regulations 5 and 6 of the UTCC Regulations.
  2. The NCC placed the risk of Armour’s insolvency on the Wests, and this was especially disadvantageous taken together with the arbitration provisions. The adverse consequences were not drawn to the Wests’ attention as recommended by the RIBA.
  3. The NCC was a clause of a type listed in schedule 2 to the UTCC Regulations, in that it inappropriately limited liability, and required the Wests to sue other parties to obtain full recompense.
  4. The NCC caused a significant imbalance in the parties’ rights and obligations arising under the agreement to the detriment of the Wests. Where IFA and the contractor were liable in law for the same loss, IFA could escape responsibility for a significant proportion of that loss making it disadvantageous for the Wests to sue IFA at all, and shifting the risk of others’ insolvency from IFA to the Wests.

Vos LJ noted that whilst each case turned on its own facts, here the openness of the presentation of the NCC, IFA’s fair dealing in relation to it and the reasonable equality of bargaining power of the parties, were to be weighed in favour of a finding that the inclusion of the NCC satisfied the requirement of good faith.

Vos LJ did not consider that, viewed in isolation, the imbalance was significant due to the fact that the inclusion of such clauses was commonplace in standard RIBA forms, and that a NCC would not be considered unusual in a commercial contract. The Wests also had the final say over the choice of main contractor. In such circumstances, the NCC could not be seen to be so weighted in favour of IFA as to tilt the parties’ rights and obligations under the contract significantly in IFA’s favour. Furthermore, the NCC did not cause a significant imbalance in the parties’ rights and obligations in a manner or to an extent that was contrary to the requirement of good faith. Vos LJ therefore rejected the contention that the NCC was not binding on the Wests under the UTCC Regulations. He was also satisfied that the NCC fulfilled the requirement of reasonableness within the meaning of UCTA and was therefore an effective limitation on IFA’s liability.