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

Factual and Procedural Background

This appeal concerns renovation and improvement works to a property owned by the Plaintiffs, a banker and an academic neuroscientist, against their architect's firm, Company A, led by its sole principal. The original trial occurred in November 2012 with judgment in April 2013 awarding damages to the Plaintiffs totaling over 890,000 pounds including interest. Company A appealed with permission granted in July 2013.

The dispute centers on the interpretation of a net contribution clause ("NCC") in the appointment agreement made in February 2006, which limited Company A's liability to the amount reasonable in relation to the contractual responsibilities of other consultants, contractors, and specialists appointed by the Plaintiffs. The main contractor, Company B, was found partly responsible for losses, but the trial judge held the NCC did not limit Company A's liability due to this joint responsibility.

The Plaintiffs purchased the property in June 2005 and entered the agreement with Company A in February 2006. The works included structural alterations and specialist installations by various contractors. Company B was appointed as the main contractor in June 2006. After completion in May 2007, serious defects emerged, leading to remedial works and temporary relocation of the Plaintiffs. Company B was compulsorily wound up in April 2010. The claim form was issued in September 2011 and the trial judge found breaches by Company A causing losses partly attributable to Company B.

Legal Issues Presented

1. What is the proper construction and effect of the net contribution clause ("NCC") in the appointment agreement between the Plaintiffs and Company A?
2. Whether the NCC operates to limit Company A's liability where another contractor, including the main contractor Company B, is responsible for some losses.
3. Whether the NCC is enforceable or unfair under regulation 5(1) of the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCC Regulations") and reasonable under the Unfair Contract Terms Act 1977 ("UCTA").
4. The appropriate rate of interest to be applied to damages for the Plaintiffs' actual expenditure.
5. The appropriateness of the award of damages for distress and inconvenience to the Plaintiffs and their infant child.

Arguments of the Parties

Appellant's Arguments

• The NCC should be construed to limit Company A's liability to the amount reasonable in relation to all other contractors appointed by the Plaintiffs, including the main contractor Company B.
• The trial judge erred by not applying the ordinary and natural meaning of the NCC and by relying on post-contractual communications.
• The NCC does not exclude the main contractor from its ambit despite Company B being appointed after the agreement.
• The interest rate awarded was excessive; it should have been 3% over base rate rather than 7% over base rate.
• The award for distress and inconvenience was excessive and should be reduced further based on established precedents.

Respondent's Arguments

• The trial judge was correct in his construction of the NCC, limiting its application to specialist contractors appointed directly by the Plaintiffs and not the main contractor Company B.
• The NCC cannot exclude the principle of joint and several liability.
• The NCC, if construed to exclude joint and several liability, should be held unenforceable for unfairness under the UTCC Regulations and unreasonable under UCTA.
• The interest rate of 7% over base rate was appropriate given the Plaintiffs' actual borrowing costs.
• The damages for distress and inconvenience were justified based on the disruption endured.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed contractual interpretation of the NCC, emphasizing that the words "other consultants, contractors and specialists appointed by [the Plaintiffs]" should be given their ordinary and natural meaning, encompassing all such persons including the main contractor, Company B. The court rejected the trial judge's reliance on post-contractual documents and subjective intent, finding no ambiguity in the clause and no justification for applying contra proferentem or regulation 7(2) of the UTCC Regulations.

Regarding unfairness under regulation 5(1) of the UTCC Regulations, the court acknowledged the NCC imposed a significant imbalance by limiting Company A's liability and shifting insolvency risk of other contractors to the Plaintiffs. However, it found that the clause was presented fairly, the Plaintiffs were sophisticated parties in a position of equal bargaining power, and the clause was common in commercial contracts. Consequently, the NCC did not violate the requirement of good faith or cause an unfair significant imbalance.

On the reasonableness test under UCTA, the court applied relevant Schedule 2 factors, concluding that the clause was reasonable given the parties' equal bargaining positions, the Plaintiffs' awareness of the clause, and available alternatives to manage risk.

The court concluded that the NCC is a valid and binding limitation clause. It further reasoned that the amount reasonable for Company A to pay under the NCC should be determined similarly to an apportionment under the Civil Liability (Contribution) Act 1978, requiring a remittance to the trial judge for assessment of Company A's contribution relative to Company B.

On interest, the court found the trial judge erred in awarding 7% over base rate, as this reflected the Plaintiffs' actual borrowing costs including exchange rate losses, which should not have been considered. The appropriate approach is to award interest reflecting what a reasonable private borrower would pay, estimated at 4.5% over base rate.

Regarding damages for distress and inconvenience, the court held the trial judge's award exceeded the established maximum based on precedent. It reduced the award to a total of 6,000 pounds, reflecting a fair assessment of the disruption and distress experienced.

Holding and Implications

The court ALLOWED THE APPEAL on all three main grounds.

Holding: The net contribution clause ("NCC") is valid, binding, and should have been enforced by limiting Company A's liability to a reasonable amount considering the responsibilities of other contractors, including the main contractor Company B. The case is remitted to the trial judge to determine the apportionment of liability and damages accordingly.

The interest rate awarded is reduced from 7% to 4.5% per annum over base rate, and the award for distress and inconvenience is reduced from 14,000 to 6,000 pounds.

Implications: This decision clarifies the proper construction and enforceability of net contribution clauses in architectural appointment agreements, reinforcing that such clauses will be upheld if fairly presented and reasonable, even where they limit joint and several liability. The ruling emphasizes the importance of the ordinary meaning of contractual terms and cautions against reliance on subjective post-contractual intentions. The court’s approach to interest and damages for distress affirms established principles balancing fairness and compensation. No new precedent was established beyond the application of existing legal principles to the facts.