West and another v Ian Finlay & Associates
Technology and Construction Court, April 2013
West v Ian Finlay & Associates is one of the very rare cases that considers the impact of “net contribution clauses” (NCC) on the industry. The clients (Mr and Mrs West) were having works done on a £1.7m house in Putney. These works included changes to the layout and grounds. They agreed a specification for the works with the architect Ian Finlay & Associates, and they entered into an agreement in February 2006. The clients also directly appointed consultants, contractors and specialists in an attempt to reduce their costs.
The project went into dispute over a number of issues and ultimately the court held that the architect (among others) was negligent in its duties.
Ian Finlay & Associates had an NCC in its appointment, which it attempted to use to limit its liability when damages were being decided. The clause stated: “Liability for a loss and damage is 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 client”
The court first ruled that the NCC was not “unfair” under the Unfair Terms and Consumer Contracts Regulations (UTCCR) 1999. This act was referred to because this was a business-to-consumer contract. Interestingly, there is a Scottish decision which has decided differently on this point.
Unfortunately for the architect, the court also held that the NCC, although it referred to “consultants, contractors and specialists”, was not intended to refer to the main contractor. This was a vital point because the main contractor on the project had apparently caused many of the problems but had become insolvent.
The court’s decision making in this matter was influenced by the UTCCR because the regulations state that, where there is any doubt on the matter, the court must infer the most favourable interpretation to the consumer.
The court therefore interpreted the NCC as covering only those suppliers directly appointed by the clients (such as kitchen installers) and not the main contractor.
Stephen Clarke’s analysis
This case illustrates exactly why consultants (and their insurers) are so anxious to have NCCs in their appointments.
The general position is that when more than one party is liable for the same damage then they are jointly and severally liable. So a party that is only 1% liable can be pursued for 100% of the loss. The party that is pursued in this way can then try to recover an equitable percentage of the damages under the Civil Liabilities (Contribution) Act 1978, but this does not work if the other party (who in this example was 99% liable) is insolvent.
Therefore, if a consultant can get away with having a NCC in their appointment and so avoid the joint and several liability, it effectively shifts the risk of insolvency of other design professionals from the consultant to the employer.
Despite the fact that the result in this case seems unfair to the architect, there is a certain logic to it because the architect received a fee related to the main contract, and also had design and inspection responsibilities in relation to the main contractor’s work.
It should be noted that this example is a very loosely drafted NCC compared to that in the ACE or RIBA appointments or that incorporated in the JCT warranties, which may well have led to a different decision. It is also important to remember that this is a business-to-consumer rather than a business-to-business contract, which again could have led to a different result.
What is the practical impact? The court suggested that for a NCC to be “fair” it should be drawn to the attention of the party to whom it disadvantages and procedures to do this should be put in place by consultants (especially when dealing with consumers).
This is likely to lead to a further intensification of the war between insurers and consultants on one side, and employers and funders on the other, in relation to NCCs.
