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Casting your net (contribution clause) wide

The Wests engaged Mr Finlay to provide architect services in relation to the refurbishment of their home, working alongside a main contractor and a specialist contractor.  Following the works, the main contractor went bust and then defects arose in the works so the Wests sued Mr Finlay (“IFA”).  IFA argued that the main contractor was also to blame and relied on a net contribution clause (NCC) in his own appointment, which said: 

“Our liability for loss or damage will be limited to the amount that is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by you.”

In April 2013, the TCC found that the reference to “other… contractors” was to the specialist contractor and not to the main contractor, since the architect had known that there was going to be a specialist contractor.  The Wests were awarded £649,251.06 plus interest totalling £243,688.89.  This was, therefore, a dark day for architects (and other professionals).  Articles written following the TCC’s decision therefore advised professionals to widen the drafting of their NCCs and make sure that all relevant parties are listed.

The Court of Appeal (“CA”) on 27 March 2014 reversed this decision.  They said that the TCC had considered the interpretation of the NCC when such exercise was unnecessary since “the normal meaning of the words is crystal clear…. And they must be taken to mean any such persons, including any main contractor ultimately appointed, but of course excepting IFA itself (because of the use of the word “other”)”.  The CA dismissed any suggestion that the parties had accidentally used the wrong language to express their agreement and also ruled that the NCC was not in breach of the Unfair Contract Terms Act (1977) or the related UTCC Regulations.  The main reasons for the CA’s decision were that:

  1. “The Wests’ appointment of others and the fact of those others’ insolvency caused the detriment, and both were outside IFA’s control;
  2. It is fair and reasonable that the Wests should assume that risk of a third party insolvency….;
  3. The Wests were sophisticated and intelligent, whilst IFA was a one man band of modest means….; and
  4. NCCs are common in both commercial and consumer contracts… and are not so onerous or unusual as to need to be brought specifically to the Wests’ attention” 

The CA emphasised the point further saying:

“A provision rendering IFA liable (as between itself and the Wests’ own chosen contractors) only for losses which it can reasonably be held responsible, and which requires the Wests to take the insolvency risk of those chosen contractors would seem to be reasonable, and indeed to be expected.”

It is therefore fairly safe to assume (pending any appeal to the Supreme Court), that if your professional appointment includes a NCC with wording similar to that in IFA’s appointment, you will be able to rely on it.  However, we would recommend a “belt and braces” approach of ensuring that any list is sufficiently complete and also that you (as the professional) draw this clause to the attention of your consumer clients in the covering letter sending your appointment to them for signature.

 Post script

We do not yet know how this Judgement will affect the level of damages awarded to the Wests as that has been referred back to the TCC for the trial judge to reconsider. 

 Post-Post script

It is also worth mentioning two other points which arose in West: interest and damages for distress and inconvenience:

  1. Interest: the Wests were originally awarded 7% p.a. above base on their actual expenditure in remedying the defects.  The CA decided that the TCC had erred in considering the Wests’ actual method of financing the remedial works and should have considered “an appropriate borrowing rate for persons in the Wests’ position”.  The CA concluded that this was 4.5%p.a. above base. 
  2. Distress and inconvenience: the Wests (and their infant son) were awarded £14,000 for distress and inconvenience.  The CA found that the Judge had erred in awarded damaged “above the well-accepted maximum mentioned in the AXA Insurance case.”  The CA reduced the damages to £6,000.

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These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice. 

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