Evil – or misunderstood?

Poor Prince Charles has suffered his usual bad press lately. It seems that his questionable communications skills, further hampered by a half pound of plums in the mouth, mean that plants are the only living organisms that really understand him. But poor communication and image does not mean that his underlying intentions are bad.

Now, Prince Charles would probably not thank me for comparing him to a net contribution clause, but there are certain similarities. For example, both are somewhat off-putting in the packaging. It is hardly surprising that the party on the receiving end of a net contribution clause feels that its long-winded and complex format looks suspiciously like a legal stitch-up.

Unfortunately, it needs to be complex in order to be legally effective. However, as with Prince Charles, unfortunate packaging does not mean the underlying objective is unjust, and many of the complaints raised against net contribution clauses are similarly based on bad press and misconceptions.

For those who may not know, a net contribution clause inserted into a contract effectively reduces a party's share of liability to reflect their share of fault. Without it, a party can be held liable for 100% of the damage, even if it was partly caused by another party that is not in court to pay its share of the damages, perhaps due to insolvency, or because it is not being jointly sued.

The net contribution clause has the effect of "deeming" that the claimant has already recovered the appropriate share from any other parties in respect of their fault, so that the respondent can only be found liable for its own remaining share of fault.

The arguments for and against a net contribution clause existing at all in a contract have been well covered by others in recent issues of Building (see, in particular, Rachel Barnes on 18 February, page 68, and Ian Insley, 26 May, page 54). I will only say that there is not usually the same necessity for the clause in a contract of appointment as in a warranty. Provided the other culpable parties have not gone into liquidation, then the contractual nexus that exists between the client and its consultants and contractors will usually have the effect in law of enabling a jointly liable respondent to join others into court proceedings without the need to rely on a net contribution provision.

Without a net contribution provision in respect of a collateral warranty, the warrantor may not be able to join the other culpable parties into the action if they have not also provided a warranty. The result is that the warrantor may well have to stand alone, unable to divide the damages payable with others who were also at fault.

What I do instead intend to address are some of the misconceptions and injustices suffered by all sides concerning the detail of the principle.

One common misconception is the idea that a net contribution clause in a designer's warranty should only state that the designer's liability is "net" of the share of liability of other designers. This seems to be based on the strange premise that a designer will only ever be jointly liable with another designer. However, where, for example, the designer has an inspecting role, it is most likely to share liability with a party whose work it is inspecting, generally the contractor, which should therefore also be accounted for.

A further myth lies in the idea that, in a design-and-build contract, the consultant's liability should not be net of that of the design-and-build contractor. Now this gets a little complicated. As the design-and-build contractor is fully liable for the consultant's work, then to deduct the contractor's share of fault would mean deducting 100% liability from the consultant, leaving it with no liability at all, even where it is clearly at fault. It is unjust for consultants to insist on this.

However, there would similarly be an injustice in not naming the design-and-build contractor as a party whose liability should be deducted in assessing the net liability of the consultant.

For example, where a defect is caused 20% by the consultant and 80% by the workmanship of the design-and-build contractor, the consultant, if sued alone, would be found liable for 100% of the damages. Nevertheless, with a commonsense approach, a compromise can be reached to settle the potential injustices on either side.

The net contribution clause can be drafted so that the consultant's liability is reduced by the design-and-build contractor's share of fault only in respect of duties that fall outside the remit of the consultant.

I have frequently seen warranties setting a precondition of validity that similar warranties be granted by all other parties involved in the project. Such wording can make life very difficult for the client, who must then ensure that it has obtained a warranty from all others, no matter how minor their role, to avoid every other warranty being rendered worthless.

Net contribution clauses, on the other hand, work very much more in favour of the client and the recipients of warranties because, as usually drafted, they do not make the warranty in any way conditional on similar warranties being granted by third parties – a point often misunderstood.

I believe that, provided a reasonable middle ground is adopted by all concerned, net contribution clauses are not the evil they are sometimes made out to be. Like Prince Charles, they just need a little love and patient understanding.