Net contribution clauses and informed consent to variations: Radius Housing Association Limited v JNP Architects

In a persuasive review, the high court of Northern Ireland has provided guidance on net contribution clauses and the true meaning of consent to variations in a construction contract.

Net contribution clauses are frequently requested by consultants and can have significant impact on the employer's ability to recover. Employers must remain vigilant to ensure that net contribution clauses in any form are carefully considered and their consequences appreciated before being accepted.

The case is also illustrative that consultants must ensure employers are aware of the pros and cons of alternatives in order to effectively consent to a variation.

Background

Radius employed JNP Architects (the "Architect") on the construction of two apartment blocks. The building suffered serious damp penetration and a claim was brought against the contractor, the engineers, the quantity surveyor and the Architect. The claims against the engineers and the quantity surveyor were not pursued and the contractor was in administration, therefore the only avenue to recover damages was against the architect.

The problem of damp in the apartment buildings arose when the quantity surveyor (the "QS") made an error in the measurement of the damp proofing. The QS measured the area required as 64 sq metres when in fact it was over 300 square metres. The error was not picked up at tender stage and the contractor successfully tendered on the basis of 64 sq metres of high grade damp proofing (known as "Hydroguard"). As the apartments were to be social housing, it was known by all that increases in construction cost would be problematic. When the error was realised the "full tanking solution" of Hydroguard was replaced with a partial tanking solution using a product called Famguard. The Famguard was considered a poorer substitute which required greater skill to successfully lay and did not come with the same level of protection as the Hydroguard.

The Architect instructed the use of the Famguard in order to achieve a damp proofing solution for the large area for the same price as was originally tendered.

The judge found that both the Architect and the contractor shared responsibility for the defect.

Net contribution clause

The appointment with the Architect was under the RIBA Standard Conditions of Engagement and contained a net contribution clause ("NCC"), converting what would generally be joint and several liability into several liability only.

The result of the NCC was that the Architect was responsible for their share only of the blame and the employer "[could not] recover more than the percentage contribution which would be found against the architect if the contractor and other consultants contributed in proportion to their fault"[1].

The level of contribution had to be "just and equitable" having regard to the person's responsibility for the damage caused, meaning there had to be a review of the blameworthiness of a contributor, and the apportionment of damages was a matter for the discretion of the trial judge.

It was noted with disdain that the Architect failed to give evidence in court and an adverse inference was drawn.

Informed consent

The Architect's appointment stated that the Architect was not to make any alteration to the specification or approved design without consent, except in an emergency.

The judge had no doubt that such consent must be informed consent. It was not enough to state that the Employer had received minutes from a site meeting relating to the issue. In order for the consent to be valid, the Employer had to understand what they were consenting to, and senior employees of the Employer would need to know why the change was being made and what were the advantages and disadvantages associated with the change. No such consent was provided for the change from Hydroguard to Famguard and the Architect was held to have kept the Employer "in the dark" about the changes.

The judge held that the Architect was in breach of contract because the Architect did not obtain the consent of the Employer to change the waterproofing system and was in breach of its duty as architect in amending the design without taking adequate steps to ensure the new high risk design was effectively implemented.

It was held on the facts that the contractor failed to apply the Famguard in a competent and workmanlike manner and therefore responsibility must be apportioned between the two parties.

Conclusion

The NCC was held to be effective, ultimately meaning that the Employer will be unable to recover fully for the costs of rectifying the faulty works. The contractor being in administration did not mean that the Architect was liable for the full value of the claim meaning the Employer will be out of pocket for the failures.

However, it is worth noting that the judge took a very dim view of the failure of the Architect to obtain informed consent from the Employer for the variation. The case seems hold that where a consultant must obtain consent, they must go to reasonable lengths to explain the pros and cons to the alternatives. In this case there was seemingly a deliberate attempt to withhold such information from the Employer, but even a general failing or a perfunctory explanation of the potential downfalls of a variation could expose the consultant to a potential claim if it is found to be lacking.

[1] 2-033 Hudson's Building and Engineering Contracts (13^th Edition).