If you don't write a net contribution clause into your contract, you may find yourself paying all the damages for a breach that others are also responsible for. And it's not just insolvency that can land you in it …
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.

For example, if a contractor and an architect are liable to a client in respect of a defective floor – the contractor because of bad workmanship and the architect because it failed to pick it up on inspection – each is liable in respect of the same damage to the client for the full amount. Between themselves, however, the contractor may be found 60% liable and the architect 40% liable. A net contribution clause in the architect's appointment would limit the architect's liability to 40% of the damages.

In the absence of such a clause, the client can collect 100% of the damages from the architect and the architect would have to seek to recover 60% as a contribution from the contractor under the Civil Liability (Contributions) Act 1978.

This recovery would only be successful if the contractor had sufficient assets and/or was not insolvent at that time. Thus, the risk of the bankruptcy of one of the members of the construction team is borne by other members. Many forms of collateral warranties have included net contribution clauses for some time. They are now also included in standard form appointments such as those of the RIBA and the Association of Consulting Engineers.

A recent case makes it clear that insolvency is not the only risk against which a net contribution clause can offer protection.1

The assumed facts are these: Co-operative Retail Services appointed Wimpey on the JCT80 form of contract, and Wimpey employed Hall Electrical under one of the domestic subcontract forms.

It also appointed Taylor Young Partnership architect and Hoare Lea & Partners mechanical and electrical engineer on the job.

The insurance requirements of the JCT contract were met by a joint names policy that covered Co-operative Retail, Wimpey and Hall. There was a fire at the site and the building was extensively damaged. The joint names insurance covered the cost of the reinstatement works (£605 983) and the associated professional fees (£73 069). The cost of the consequential losses resulting from the delay caused by the fire amounted to £305 176 – these were borne by a different insurer.

  • Parties to an insurance policy may not be able to sue each other
  • Parties not on the policy may not be able to recover from those that are – even if they were also responsible for loss

It was assumed that the fire resulted to a greater or lesser extent from breaches of obligations by Taylor Young, Hoare Lea, Wimpey and Hall – that is, each party's breach was a substantial cause of the fire. This would make each of them potentially liable for all the losses. Co-operative Retail tried to recover all the losses from Taylor Young and Hoare Lea; they, in turn, sought a contribution from Wimpey and Hall.

When it came to court, His Honour Judge Wilcox held that the existence of the joint names policy prevented Co-operative Retail from suing Wimpey and Hall in respect of the losses covered by that policy because one assured party cannot sue a co-assured for loss in respect of which the co-assured is entitled to the benefit of the same insurance. The insurer is also prevented from bringing a subrogated claim against the co-assured. As to the consequential losses, the judge held that the effect of the contractual arrangements was that Co-operative Retail could not sue Wimpey for the delay caused by the fire, nor could Wimpey sue Hall.

It followed that neither Wimpey nor Hall were liable to Co-operative Retail in respect of any of the losses covered by the two insurance policies and, therefore, they were not liable to contribute to any losses payable by Taylor Young and Hoare Lea. As a result, Co-operative Retail would be entitled to recover the full amount of the damages (nearly £1m) from the architect and engineer and they could recover no contribution from Wimpey and Hall.

Judge Wilcox was not persuaded that it would be inequitable to impose a liability that could exceed "their proper culpability" on Taylor Young and Hoare Lea. The position in law is that, on the assumed facts, the two firms are liable for the full amount being claimed. They were (not unreasonably) hoping that the liability of others for the same amount would reduce the amount that they would have to pay. Unfortunately, those others were not actually liable, although it was assumed that their actions (along with those of Taylor Young and Hoare Lea) had caused the fire.

If the consultants' appointments had contained an appropriately worded net contribution clause, it could have reduced the amount payable by them by the amount that the court would have apportioned to Wimpey and Hall if Co-operative Retail had been able to sue them.

1 Technology and Construction Court, 21/12/99