West & Anor v Ian Finlay & Associates (a firm)

A contractual net contribution clause is construed by its ordinary and natural meaning. Context may show that wording is wrong only in a compelling case; courts should not manufacture ambiguity to invoke a consumer-favourable interpretation. Such a clause may limit an architect’s liability by reference to the responsibilities of other contractors, with the reasonable amount assessed as a contribution under section 2(1) of the Civil Liability (Contribution) Act 1978. Fairness is assessed holistically under regulations 5(1) and 6(1) of the Unfair Terms in Consumer Contracts Regulations 1999, and reasonableness under the Unfair Contract Terms Act 1977. Interest is broad-brush and based on general borrower characteristics, not actual borrowing. Distress damages must reflect the evidence and period of disruption.

The Wests sued their architect, Ian Finlay & Associates, for losses arising from defective renovation works. Edwards-Stuart J held IFA liable and awarded damages of £649,251.06, together with interest and £14,000 for distress and inconvenience: [2013] EWHC 868 (TCC).

IFA appealed. The appeal concerned the construction and enforceability of a net contribution clause, the appropriate rate of interest on remedial expenditure, and the award for distress and inconvenience. The Wests relied on the Unfair Terms in Consumer Contracts Regulations 1999 and the Unfair Contract Terms Act 1977. The central issues were whether the clause included the main contractor, whether it was unfair or unreasonable, and whether the damages awards were properly assessed.

The appeal was allowed. The court held that the net contribution clause was valid and binding, varied the interest award, reduced the damages for distress and inconvenience, and remitted the apportionment exercise to the trial judge.

1. The clause had a clear ordinary meaning. The reference to other consultants, contractors and specialists appointed by the Wests included the main contractor. The factual background was not sufficiently compelling to show that the parties had used the wrong words. Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896 and Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191 did not justify the construction adopted below. The court also applied the guidance in Mc Geown v Direct Travel Insurance [2004] 1 All ER (Comm) 609: ambiguity should not be manufactured to trigger regulation 7(2). Post-contractual conduct could not be used to construe the Agreement and did not assist in any event.
2. If valid, the clause required the court to assess what it was reasonable for IFA to pay by an evaluation analogous to contribution under section 2(1) of the Civil Liability (Contribution) Act 1978. The assessment was to be just and equitable having regard to responsibility for the damage, without regard to the solvency of other potentially liable parties.
3. Under regulation 5(1) of the Unfair Terms in Consumer Contracts Regulations 1999, significant imbalance and good faith had to be considered separately and together, as part of an overall assessment under regulation 6(1). The clause created an imbalance, insolvency risk and procedural disadvantage, but the imbalance was not significant in the circumstances. Alternatively, it did not operate contrary to good faith. The parties had broadly equal bargaining positions, the clause was customary, and the Wests could understand it and protect themselves by other means. The failure to draw it specifically to their attention weighed against good faith but was not decisive. The clause was therefore binding under regulation 8(1).
4. Applying sections 2, 3 and 11 of the Unfair Contract Terms Act 1977, and the relevant Schedule 2 factors, the clause was fair and reasonable to include when the Agreement was made. It was an effective limitation of liability. The purported arbitration provision was ineffective because it contained inconsistent wording permitting legal proceedings.
5. Interest was discretionary and had to compensate deprivation of money on a broad-brush basis. The court should consider the general characteristics of borrowers in the claimant’s position, not the claimant’s actual borrowing arrangements. The appropriate rate was 4.5% per annum over base rate, replacing 7%.
6. Damages for distress, inconvenience and discomfort were reduced to £6,000. The award had to reflect the evidence and the period of disruption, exclude distress caused by litigation, and recognise that disruption to a baby was less serious than disruption to an adult. The court applied the maximum discussed in AXA Insurance UK plc v Cunningham Lindsay UK [2007] EWCA 3023 (TCC).

The case was remitted to Edwards-Stuart J to assess the reasonable amount payable by IFA having regard to Armour’s contractual responsibilities.

1. Court of Appeal (Civil Division) allowed IFA’s appeal, held the net contribution clause binding, substituted interest at 4.5% over base rate, reduced general damages to £6,000, and remitted the apportionment issue.
2. High Court of Justice, Queen’s Bench Division, Technology and Construction Court ([2013] EWHC 868 (TCC)) held IFA liable and awarded £649,251.06 in damages, interest and £14,000 for distress and inconvenience.