Architects and their insurers will be pleased by a Court of Appeal decision which has supported a contractual defence to architects’ liability for damages.

A recent appeal has confirmed that ‘net contribution clauses’ are effective in limiting architects’ liability to their reasonable proportion of a loss where other parties were also liable.The ruling overturned an earlier decision which had potentially made an architect liable for the full cost, despite the inclusion of a net contribution clause in their appointment. The case involved Architects Ian Finlay & Associates (Findlay), which had been engaged to undertake renovations to a town house in Putney, alongside the main contractor Maurice Armour (Contracts) Limited (Armour). The works went disastrously wrong resulting in extensive damp, as well as mechanical and electrical defects in the property.

The owners, Mr and Mrs West claimed for damages, but Armour became insolvent before the case was heard. The Wests then claimed the full costs of the repairs from Finlay.

In its defence, Findlay relied on a net contribution clause in its contract. This stated that “Our liability for loss or damage will be limited to the amount that it is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by you.” In the first case the judge decided that this clause was unclear. He ruled that under the Unfair Terms in Consumer Contracts Regulations 1999, the clause should be interpreted in a way most favourable to the Wests. As a result the judge found Findlay liable for the full costs of £650,000 plus a further £260,000 of interest.

Findley took its case to appeal. The Court of Appeal decided that the meaning of the net contribution clause was in fact ‘crystal clear’. It also rejected the argument that the contract term was unfair, largely due to the use of net contribution clauses in standard RIBA forms and because the Wests took the final decision in choosing the main contractor. The court significantly reduced the damages Findlay had to pay.

Architects and their insurers will be relieved that net contribution clauses are regarded as ‘fair’ in domestic contracts and do protect them against unreasonable claims for damages”, said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “The clause needs to be included in contracts and warranties to be applicable however. Where it is included, Architects should take great care that the terms of the clause are clear and are brought to the attention of their client, as RIBA guidelines recommend, if they expect to rely in it in the future.

The case is explained in greater detail by law firm Brown Jacobson. It has also been reported on the Designing Buildings Wiki.

Brunel Professional Risks’ legally trained in-house team review contracts and terms of business for construction clients. This service is provided at no additional cost, unlike schemes from other brokers which attract additional fees or are outsourced.