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Net Contribution Clauses

As yet in this jurisdiction, there is no concept of proportionate liability.  A claimant is entitled to recover the full loss from any one defendant, including in circumstances where more than one person is potentially liable in respect of the claim.  A net contribution clause ("NC clause") seeks to confine a party's liability to the loss which is attributable to that party only. NC clauses are most commonly discussed in the context of consultant appointments and collateral warranties on construction projects. If included in an appointment document, the NC clause purports to limit that consultant's liability to an amount that would be apportioned by the court on the basis other defendants are held liable for the same loss, or to an amount which is just and reasonable for the consultant to pay.

The motivation behind an NC clause is to overcome section 12 of the Civil Liability Act 1961 (the "1961 Act") which provides “…concurrent wrongdoers are each liable for the whole of the damage in respect of which they are concurrent wrongdoers.”  This is often referred to as the "1% rule" as these provisions mean that if a concurrent wrongdoer who is found to be responsible for 1% of the relevant damage may have to pay 100% of the damages awarded to the plaintiff.

In Ireland, the enforcement of NC clauses has not been specifically tested in the Irish courts and it remains to be seen whether an NC clause protects against the rigours of the 1961 Act.  However, there is no reason in principle why a clearly drafted NC clause should not be effective in an otherwise enforceable contract.  

In the UK case of West v Ian Finlay and Associates [2014] EWCA Civ 316 (which would be persuasive authority in Ireland) an NC clause was included in an architect’s appointment, which the architect later sought to rely upon. The court of appeal found that the consultant was entitled to rely on the limitation to their liability by way of the NC clause, the effect being that instead of being 100% liable for the plaintiff’s claim the architect was liable for the portion of that liability that was attributable to them only – which was 30% liability.

An NC clause will be considered on its own merits and parties should therefore ensure that careful consideration is given when drafting and negotiating such clauses.  When advising the client / employer, it is important that the effect of agreeing an NC clause, eg in terms of the litigation risk and the insolvency risk, is explained.

Private Sector 

As the effect of an NC clause transfers risk from the consultant to the client, NC clauses are frequently negotiated into and out of private sector consultant appointments and warranties.  NC clauses are proposed by consultants seeking to limit their exposure to a full claim (particularly in the event of the insolvency of a concurrent wrongdoer) and also to mitigate the effects of the uncertainty in the current insurance market.  However, clients may be reluctant to assume the insolvency risk of a defaulting party and to agree to pursue each concurrent wrongdoer for their proportion of the loss.  In transactions involving an institutional investor or Approved Housing Body, an NC clause may be considered "unbankable" and ultimately rejected as a barrier to funding.  Generally accepted alternatives to NC clauses include monetary limitations on liability and exclusions of consequential and indirect loss. 

At Matheson, we have experience in advising clients, funders, contractors and consultants on all aspects of net contribution clauses and their effects.

Public Sector 

Currently, the public works suite of contracts and conditions of engagement do not include an NC clause. Therefore, parties entering into these contracts with a contracting authority will be subject to the 1% rule.  

The Construction Industry Council ("CIC"),  the construction industry body that represents and promotes agreed policy for Ireland’s six largest construction bodies, has recently submitted a request to Government to introduce NC clauses in construction contracts to further assist consultants and contractors in the built environment sector in the delivery of the National Development Plan objectives. 

It remains to be seen how the Government will respond to the CIC's submission but the changes to the public works suite of contracts announced this year to introduce monetary caps on liability and to simplify the price variation provisions is an indication of the Government's efforts to provide for greater risk sharing within the public works suite of contracts. 

If you have any queries in relation to this insight, please do not hesitate to contact a member of our Construction and Engineering team.