The difficulty is summed up by the first paragraph of that article, which stated: “The purpose of a net contribution clause is to try to ensure that where two or more parties are liable for the same damage, each party’s liability is restricted to the amount for which that party is responsible.”
That paragraph would be unobjectionable if it read: “… each party's liability to the other …”.
If more than one party is responsible for the same damage (as is nearly always the case), the principle of joint and several liability comes into play. This is the factor that is ignored by the proponents of net contribution clauses. Joint and several liability simply means that if more than one person is responsible for the same damage, each of the persons who caused it is liable for all of it, but has a right to claim a contribution from the other parties. The person who has suffered the damage has the option of suing all of the people who have caused it or just some of them. If they choose not to sue all the people responsible, the ones who have been sued can try to claim their share from the others.
Those advising contractors and professionals often claim that without a net contribution clause, their clients may end up paying the whole damages if other members of the team cannot pay their share. The argument is extended by claiming that, as each professional has no influence on who is appointed to the team by the client, it is unfair to make it bear the risk of the insolvency of any other team members. However, is it unfair to expect someone who has caused all the damage to pay for it? If one party is responsible for the damage they should pay for it, even though there might be other parties who could have been sued for a proportion of it.
There is no problem with a number of parties who are all responsible for damage seeking to share it out between them, but that should not be to the detriment of the client that has suffered the damage. This can be illustrated by an example.
Net contribution clauses allow a party who is responsible for the damage to escape the consequences of causing it
Suppose you own a house near a main road and two cars crash into it, causing it to collapse. You discover that whereas the driver of one car has comprehensive insurance, the other has none. The evidence from your expert is that the impact of either car by itself would have caused the house to collapse. In those circumstances, you would be aggrieved to discover that you could recover only half of the damage caused simply because one of the drivers was uninsured. The insured driver can have no cause for complaint if you sued for all of the loss because he was responsible (according to the evidence) for all of it. The fact that there was someone else who was also responsible is irrelevant.
Of course, the analogy is not exact as it is not a contract and you are not in any way responsible for choosing which cars hit you. However, the same principle is at work in that situation as it is in any construction project involving a contractor and several professionals, all of whom may have caused the damage.
If the position is that separate elements of the damage from a building collapse can be attributed to different failures, then the principle of joint and several liability does not apply and the building owner can only sue each party for the damage that is its fault. If the building owner sues any one member of the team for the whole loss, it risks making only a partial recovery against that party.
Net contribution clauses seek to ignore the principle of joint and several liability and allow a party who is responsible for all the damage to escape the consequences of causing that damage by requiring the innocent party to take only a proportion of the loss it has suffered. Contrary to widely expressed beliefs, lack of a net contribution clause in an appointment or a warranty does not increase a professional’s or a contractor’s liability. If the principle of joint and several liability applies, it is liable for the whole loss with a right to contribution from others. If it is not responsible for the whole loss, it cannot be successfully sued for the whole loss.
Ian Insley is head of the construction department at solicitor SJ Berwin & Co.