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Court of Appeal helps architects fight back

West v Ian Finlay & Associates
Court of Appeal

Just as the DWF Fishburns Spring Construction Update was being issued at the end of March, the Court of Appeal handed down its judgment on the appeal in one of our featured cases, West & West v Ian Finlay & Associates. In basically reversing the finding at first instance and granting an appeal by the Architect Appellant against the first instance judge’s disallowance of a Net Contributions Clause (“NCC”), the case nonetheless reinforced the part of the original judgment that we had found most newsworthy, namely that a properly worded NCC would have been “fair” in domestic contracts. The Court of Appeal also reduced the damages which had been awarded to the claimants against the Architect for distress and inconvenience. In its judgment, the Court of Appeal explored in more detail the interaction of the NCC wording and relevant consumer protection legislation (the Unfair Terms in Consumer Contracts Regulations (“UTCC”) and Unfair Contract Terms Act (“UCTA”) and the judgment contains useful authority for the fairness and reasonableness of such a clause.

The Wests had engaged IFA as their Architect for the refurbishment of their property at Putney in South London, including mechanical and engineering services. The main Contractor was Armour and there were specialist contractors involved for various aspects. The property was found to have serious damp problems and defects with the M & E works and the floor slabs. Remedial works were protracted and shortly after completion a compulsory winding-up order was made against Armour. The following year the Wests issued a claim form against IFA and at trial IFA were held to be in breach of their professional duties in respect of the damp and replacement of the M & E works. Armour were also held to have caused the losses to some extent, but Armour were no longer in business nor accessible enough to claim against.

As summarised in our recent Update, the original trial judge held there to be some ambiguity in the wording of the NCC, requiring the Court to give it the interpretation that was most favourable to the Wests (under the contra proferentem rule) as the party not seeking reliance upon it. In passing the judge indicated that, had the NCC been “properly” worded, it would have allowed IFA’s liability to be reduced to the extent of Armour’s responsibility, and would not have offended against UCTA. The effect, though, of the ruling on the actual NCC wording was a substantial award of damages against IFA, compounded by interest at 7% per annum over base rate and an award for inconvenience, distress and discomfort of £14,000.

The Court of Appeal held that the first instance judge failed to adopt the ordinary and natural meaning of the words in the NCC and wrongly relied on post-contract evidence to construe its meaning. They did not consider the NCC wording to be ambiguous and there was, therefore, no need to apply the relevant UTCC regulation which states that where there is doubt about the meaning of the clause, the interpretation most favourable to the consumer should prevail.

The UTCC regulations about fairness did need to be considered: whether a significant imbalance in the parties’ obligations would arise if the NCC clause were to be allowed; and whether the contract had been negotiated in good faith. As to UCTA, it was held that the NCC satisfied the requirements of reasonableness, and that the wording provided an effective limitation on IFA’s liability. The suspicion has been that courts do not like Net Contributions clauses and their disturbance of the operation of joint and several liability. However the Court of Appeal has now in the West case discussed at length the wording of a Net Contributions Clause and whether it falls foul of consumer protection legislation. Its decision supports a standard clause used by architects and others to limit liability.

At first instance, Mrs West, as the person deemed to be most affected by the disruption of the remedial works, was awarded £7000, her husband £5000, and their infant son £2000. Meanwhile the lead authority case on this type of general damages (Axa Insurance) indicated that damages awards for this type of loss would not generally exceed £2500 per person per year, in the absence of particular symptoms or illnesses caused by the breaches. Nor did the Court of Appeal consider this case to be at the top end of the scale, despite acknowledging the stress undoubtedly caused to the Wests. As a consequence, the general damages were reduced to £6000 in total.

The interest awarded to the Wests was also reduced on appeal from 7% to 4.5% on the basis that the trial judge had taken as his starting point the Wests’ own expectations as far as interest was concerned, rather than firstly considering objectively what is fair and appropriate, before then taking into account the characteristics of the Wests to see whether this needed to be adjusted up or down.

Overall, therefore, the Court of Appeal judgement gives architects some welcome and much-needed ammunition with which to press for their liability to be limited to what is their “fair share”. It is good news for them and good news for their insurers at a time when there appears to be a rash of often quite significant professional negligence claims arising on domestic projects, and brought against the Architect, whether by default or design. Very often in claims of this nature, a small area of vulnerability is exploited by a Claimant to try and secure a windfall by way of the insurance policy that architects are required by law and by their profession to maintain. The West case, in its upholding of NCC clauses, its curtailment of distress damages awards and even in its reining in of interest has made a conspicuous contribution in the struggle to resist attempts by clients to extract unrealistic levels of damages and interest where a breach has been established.

For further information please contact Mark Klimt, Partner, on 020 7280 8802.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.