Liability Limitation Valid, Rules Court

Liability Limitation Valid, Rules Court

When a loss is caused to one party by another, the party suffering the loss will often seek redress (damages) from the person or organisation that caused it. The process is relatively straightforward when one person or organisation is responsible for the loss, but what happens when it occurs as a result of the actions of two or more others?

In this circumstance, the law allows the person who has suffered the loss to sue any responsible party for the whole sum. It is then up to the person being sued to take their own action(s) against the others involved and they must then work out their relative liabilities between them.

Such circumstances occur fairly frequently in the construction industry, especially as insolvencies among contractors are relatively common. Where a contractor is insolvent, the sensible litigation strategy may well be to sue only the solvent organisations involved. In order to limit the potential losses that can result in such circumstances, 'net contribution clauses' (NCCs) are common. An NCC limits the liability of a contractor to the loss which it is reasonable to ascribe to them bearing in mind the liabilities of the others involved.

In a recent case, it was argued that such clauses are not effective in law, because they vitiate the principle of joint and several liability.

The case concerned a construction contract worth nearly £300,000 which involved considerable 'below ground' work on a house. The couple who owned the house found that there were considerable damp problems after the work had been completed. The work was done by a building firm under the supervision of an architectural firm.

The result was litigation against the architects only, because the builder was by then insolvent. The architects relied on an NCC to limit their liability and the argument over its effectiveness went all the way to the Court of Appeal. Essentially, the owners argued that consumer legislation prevented the limitation of their rights in the way the NCC purported to do.

The Court ruled that the wording of the NCC was clear and enforceable. It caused no imbalance between the respective rights of the couple who commissioned the work (and who had made the ultimate decision about which builder to use) and those who carried it out. Furthermore, other measures, such as the use of a performance bond, could have been put in place to limit the owners' risk.