Words of warning

What Is the difference between responsibility and liability? No, this is not a riddle I found inside a Christmas cracker, it is a serious question with serious consequences. I hope there is a difference because, if not, consultants using the standard form appointments published by their professional bodies could be in trouble.

A few weeks ago (22 November, pages 56-57), Judge Anthony Thornton explained the unfortunate case of Co-op Retail Services vs Taylor Young. In brief, after the works were damaged by a fire, the negligent engineer was sued by its client and looked to the contractor and its subcontractor to pay a contribution towards the damages. They were alleged to be in breach of their own obligations, but under the JCT contract they were jointly insured with the client under an all-risks policy. This meant that they were not liable to the client for the fire – between client and contractor it was just an insurance matter. As the engineer's claim under the 1978 Contribution Act relied on the contractor's liability to the client, no liability meant no contribution. The consultants had to bear the whole of the damages.

As a result of this case, requests for the inclusion of net contribution clauses in consultants' appointment documents have become more frequent. The hope is that if the consultant's primary liability to its client is limited to its "fair share" after taking into account default by other members of the team, it does not need to worry about whether it can get a contribution from others under the 1978 act.

Correct in principle, but take a close look at the wording. To paraphrase that used by the Association of Consulting Engineers: The liability of the engineer shall be limited to such sum as it ought reasonably to pay having regard to its responsibility for the loss on the basis that all other consultants and contractors owe a similar duty to the client in respect of their own obligations and are deemed to have paid to the client such proportion of the loss which it would be just and equitable for them to pay having regard to the extent of their responsibility.

Now for the million-euro question – does this get around the problem encountered by Taylor Young? Not if responsibility is exactly the same as liability. If it is, the contractor's responsibility to the client in that case would have been zero – the fire being an insurance matter – and the proportion of loss that it would be deemed to have paid would therefore be nil. The consultant would be left with 100% of the damages.

If the contractor was in default, it could be responsible for the fire even though it was not legally liable for it

So are they the same? Arguably not. It could be said that responsibility is a wider concept, that the contractor was responsible because it was in breach of an obligation, regardless of whether the consequence of that breach were covered by insurance such that the contractor had no liability for it. A distinction was suggested by Lord Denning in a 1953 case: "In my opinion, the ordinary meaning of the word 'liable' in a legal context is to denote the fact that a person is responsible at law." He clearly regarded responsibility as wider than liability.

Taking Denning's approach, the ACE wording – and the similar clauses used by other professional bodies – could be enough to protect consultants. If the contractor was in default, it could be responsible for the fire even though it was not liable for it – and the net contribution clause could be used to reduce the damages payable to the client by the engineer.

You may think that I am splitting hairs and it is clear what the net contribution clause is intended to do – and you may be right – but I have two warnings. First, the net contribution clause is a limitation on liability. Where there is any ambiguity, the courts always interpret limitation clauses against the person seeking to rely on them. Second, an "it's not fair" argument is unlikely to elicit the judge's sympathy. Time and again, cases involving the 1978 act have shown how specific its application is.

Maybe we would be better off revisiting the insurance arrangements than fighting about the wording of net contribution clauses. The issue in Taylor Young would disappear if consultants were jointly insured with the client and the contractor. However, this would leave insurers carrying a greater risk and, presumably, charging a higher premium.