Net contribution clauses upheld

In a recent case, a housing association sued the architect, contractor, quantity surveyor and engineer for negligence and breach of contract. Two apartment blocks suffered from water ingress. In the event, only the case against the architects was pursued.

The architects relied upon a Net Contribution Clause, NCC, in their contract, which, if effective, would convert a joint and several liability into a several liability only. This meant that they would be jointly liable with the contractor, and would only be liable only for their share of the blame. In a contract with a NCC, the employer: “cannot recover more than the percentage contribution which would be found against the Architect if the Contractor and other consultants contributed in proportion to their fault:” [Section 2-033 of Hudson’s Building and Engineering Contracts (13th Edition)].The parties agreed that there was a binding NCC clause, but differed on what its effect was.

The architect had made changes to waterproofing specification without the housing association’s consent. The housing association’s case was that case that if the architects had acted without authorisation in changing the design of the waterproofing to the transfer slab then the architects would be wholly at fault for any problems/defects which arose due to the application of Famguard irrespective of whether or not the contractor had fitted it correctly.

The Court disagreed because that was an attempt by an injured party to escape the limitation of liability in a contract by claiming that the contract breaker had been guilty of some fundamental breach. In those circumstances, the contract breaker could not rely upon the contract; in particular the limitation of liability clause.

Secondly, the parties would not have reasonably contemplated at the time of making the agreement that the architects would not be able rely on the NCC if they were in breach of contract by failing to obtain the housing association’s informed consent to make changes in the design. It did not make commercial sense for the parties to have agreed that the NCC would apply to their relationship, but not if the architects were in breach of paragraph (c) of the Terms of Engagement which required no material alteration without the housing association’s consent. The construction proposed by the housing association would produce the absurd result that the architects would be precluded from relying on the NCC when they were in breach of a term of the contract requiring them to obtain the housing association’s approval for design change.

The housing association’s claim was in tort and contract. The fact that the housing association could also frame its case in negligence did not assist it in arguing that it should be entitled to ignore the NCC. The architects were entitled to rely on the NCC despite their failure to obtain the housing association’s consent to the change from Hydroguard to Famguard.