Building Blocks: Limitation of liability clauses (part 2)

In this second part of my blog on limitation of liability clauses,  I look at net contribution clauses.

What is a net contribution clause?

A net contribution clause can be found in construction agreements such as consultant’s appointments and collateral warranties.

Under common law, if several parties contribute to the loss to an innocent party, then the innocent party can pursue any of the responsible parties for 100% of the claim, even if that party did not cause 100% of the loss.

The purpose of a net contribution clause is to reduce the liability of the professional (the consultant) to the proportion which a court would consider is the responsibility of that professional.

Why are they attractive to construction professionals?

A net contribution clause  will often be requested by a professional, and its insurers, during the negotiation process.

Say a negligent architect has contributed to 60% of the loss incurred by the employer.  Without a net contribution clause, the architect may be pursued for 100% of the loss.

It will then be up to the architect to separately bring a claim against the other professionals on the project who share responsibility for the loss, to recover a share of the damages it has to pay out. 

What are the risks to an employer?

The clause aims to transfer the risk from the professional to the employer. Logistically, this can be quite difficult.  The employer will need to apportion the liability to each individual responsible party on the project, and then pursue them individually for their respective contributions.  This is onerous and may not result in 100% of the loss being recovered.

Further, the risk of insolvency is major red flag.  If a net contribution is included in say the architect’s appointment, and the architect becomes insolvent, then there is no recourse for the employer in respect of  the architect’s liability portion.

Also, where projects are externally-funded, such clauses are usually rejected anyway at an institutional level so their inclusion could jeopardise funding agreements.


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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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