In the English decision in West -v- Ian Finlay & Associates, the Court considered if a net contribution clause could offer any protection or limitation of liability to an architect who faced claims in relation to damages allegedly caused by a main contractor.
Ian Finlay and Associates ("the Architect") were appointed by the Wests in relation to renovations being carried out at their home. The Architect in turn prepared the contractual documentation relative to the appointment of the main contractor – Maurice Armour (Contracts) Ltd ("Armour") who carried out works in June of 2006. However, in May 2007, defective workmanship was discovered which required rectification. As a result, the Wests had to vacate the property for around 20 months. Armour subsequently became insolvent so the Wests raised a claim against the Architect.
The basis of the claim was the Architect's failure to identify and remedy the defective workmanship. As a result of this failure, the Wests sought over £800,000 in respect of remedial works and damages for inconvenience, distress and discomfort.
In refuting the claim, the Architect relied, amongst other grounds, on its terms of engagement with the Wests, in particular the following net contribution clause ("the Clause"), the relevant part of which stated:
"[The Architect's] liability for loss and damage will be limited to the amount that it is reasonable for [the Architect] to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by [the Wests]."
The Wests argued that this clause was unfair. In assessing this argument the Court considered the Clause in the context of Unfair Terms in Consumer Contracts Regulations 1999 ("the Regulations"). It held that the Clause was not in itself unfair as it was not the intention of the Architect to mislead the Wests, nor was it inserted in bad faith. The Clause itself was, therefore, enforceable.
The Court then had to consider the scope of the Clause and whether or not it extended to Armour. In the event of any ambiguity, the Regulations provide that a contract will be construed in favour of the consumer. In this case, an agreement existed whereby the Wests themselves were to procure certain aspects of the works directly so as to keep costs down by not having to incur the Architect's percentage fee for his involvement.
The Court held that the "natural reading" of the Clause was that the limitation of liability would apply only to the contractors and suppliers appointed directly by the Wests, not those appointments in which the Architect was involved and for which he received a fee. On this interpretation, the Clause did not extend to Armour.
Accordingly, the Architect was unable to rely on the net contribution clause and was found liable for the Wests' claim.
Although the Regulations do not apply to contracts between businesses, the decision illustrates how crucial it is to avoid any ambiguity when drafting these types of clauses and ensure that they are drafted in such a way as to give the protection which the consultant no doubt expected.