DEFENCE OF ABATEMENT FOR DEFECTIVE WORKS
MOHAMAD FAIRUZ BIN KIPRAWI
UNIVERSITI TEKNOLOGI MALAYSIA
DEFENCE OF ABATEMENT FOR DEFECTIVE WORKS
MOHAMAD FAIRUZ BIN KIPRAWI
A master’s project report submitted in fulfillment of the
requirements for the award of the degree of
Master in Science of Construction Contract Management.
Faculty of Built Environment
Universiti Teknologi Malaysia
November 2009
iii
DEDICATION
To my beloved parents, late grandmother, fiancée and my sisters
Thank you for your love, support and everything
iv
ACKNOWLEDGEMENT
Highest gratitude and to Allah S.W.T. who give me ideas and physical
strength to complete this research.
First of all, I would like to express my deepest gratitude to my supervisor, Dr.
Nur Emma Mustafa for her patience, guidance, advice and kind assistance in order to
complete this research on time.
I also would like to express my gratitude to all the lecturers for the Master of
Science (Construction Contract Management) course for their patient, commitment
and kind advise during the process of completing this master project and course.
Last but not least, a token of appreciation goes to my parents, fiancée and
sisters for their love, care and support in my life.
v
ABSTRACT
Defective works are one of the major issue in the Malaysian construction industry
which have been the main concerned by the industry players, especially the employer.
Although everyone in the industry is aware of this problem, the defective building works
are still unpreventable and cause a lot of claims and litigation in the industry. In the
context of construction law, the little known common law right of abatement can provide
an employer with the entitlement, by way of defence to a contractor’s claim, to reduce
sums otherwise payable to contractors by asserting that the sum claimed has not been
earned. A typical example arises in circumstances where an employer asserts that the
value of works claimed by a contractor should be reduced on account of defects in those
works. To date, abatement has not achieved the same status as the similar and inter-linked
defence of set-off. This common law right to abate will provide an alternative to the
employer as a defence for claim for defective works. Unlike set-off, abatement is a
common law rights which can be used by all the parties in the industry without having to
serve any early notice or need to be stated clearly in the conditions of contract. In view of
the above, this study has been conducted and the data are collected using Lexis-Nexis
database. Subsequently, related cases are gathered and analysed. There are three main
principles of abatement and one principle on measure of damages in abatement has been
indentified. Judges will depend on the facts in every single case to award damages based
on the principle of abatement.
vi
ABSTRAK
Kecacatan kerja merupakan salah satu isu utama di dalam industri pembinaan di
Malaysia yang telah menjadi perhatian utama oleh setiap pihak di dalam industri
terutamanya majikan. Walaupun semua pihak mengetahui tentang masalah ini, namun ia
masih tetap tidak dapat dielakkan dan telah menyebabkan pelbagai tuntutan dan kes-kes
perundangan di dalam industri ini. Di dalam konteks undang-undang pembinaan,
abatement, yang merupakan hak yang terdapat di dalam common law, boleh memberikan
hak kepada majikan dengan memberi perlindungan daripada tuntutan pihak kontraktor,
hak untuk mengurangkan jumlah pembayaran yang sepatutnya dibayar dengan
menyatakan nilai kerja yang dituntut di dalam tuntutan yang telah dibuat oleh pihak
kontraktor tidak diperolehi. Sebagai contoh, pihak majikan menyatakan nilai kerja yang
dituntut telah berkurangan di sebabkan oleh kecacatan pada kerja tersebut. Sehingga
masa kini, abatement masih lagi kurang digunakan di mahkamah berbanding dengan
perlindungan set-off. Hak abatement akan memberi satu alternatif kepada pihak majikan
untuk melindungi hak mereka dalam kecacatan kerja. Tidak seperti set-off, abatement
boleh digunakan oleh semua pihak tanpa perlu memberi sebarang notis awal ataupun
perlu dinyatakan secara jelas di dalam syarat-syarat kontrak. Berdasarkan yang tersebut,
kajian ini telah dilakukan dan data telah dikumpul melalui pangkalan data Lexis Nexis.
Kes-kes yang berkaitan telah dikumpul dan dianalisa. Daripada analisa tersebut, terdapat
tiga prinsip utama abatement dan satu prinsip berkaitan dengan cara menilai kerugian
telah dikenal pasti. Hakim akan bergantung dengan setiap fakta di dalam setiap kes untuk
menentukan ganti rugi berdasarkan prinsip abatement.
vii
TABLE OF CONTENTS
CHAPTER
I
II
TITLE
PAGE
TITLE
i
DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENT
iv
ABSTRACT
v.
TABLE OF CONTENTS
vii.
LIST OF TABLES
x
LIST OF CASES
xi
LIST OF ABBREVIATIONS
xiii
INTRODUCTION
1
1.1
Background of Study
1
1.2
Problem Statement
4
1.3
Objective of the Study
6
1.4
Scope of Study
6
1.5
Significance of the Study
7
1.6
Methodoly of Study
7
DEFECTS
10
2.0
Introduction
10
2.1
Definition
11
2.2
Qualitative Defects
12
2.3
Patent/Latent Defects
13
viii
2.4
Defective Work in Malaysian Standard Form Of
Contract
2.4.1
Defective Work Claim During Construction
Period
2.4.2
2.6
III
19
Defetcs and Interim Payment
21
2.5.1
The Contractual Position
21
2.5.2
Interim Valuations, Certificate and Payment
21
Conclusions
25
ABATEMENT IN UK CONSTRUCTION INDUSTRY
26
3.0
Introduction
26
3.1
Set-Off
27
3.2
Abatement
28
3.3
Differences Between Set-Off and Abatement
32
3.4
Common Law Right of Abatement of Price
36
3.5
Abatement Under UK’s Housing Grants, Construction
And Regenation Act 1996 (HCGRA), Part II
37
3.5.1
Witholding Payment
40
3.5.2
Abatement and Set-Off in Response to the Claim
42
3.5.3
The Adjudicator’s Decision – Abatement and
Set-Off in Response
3.6
IV
16
Defect Work Claim During the Defects
Liability Period
2.5
15
Consclusion
43
46
PRINCIPLES OF ABATEMENT AND MEASURE OF
DAMAGES DUE TO DEFECTIVE WORKS
47
4.0
Introduction
47
4.1
Common Law Right for Abatement
49
4.1.1
Gilbert-Ash (Northern) Ltd v Modern
ix
Engineering (Bristol) Ltd
4.2
4.3
4.4
4.5
V
49
Measure for Cost of Damages
52
4.2.1
B.R. Hodgson Ltd v Miller Construction Ltd
52
4.2.2
C.A. Dunquemin Ltd v Raymond Slater
54
4.2.3
Mondel v Steel
56
The Rights for Abatement of Price Due to Causes
Other Than Defects
59
4.3.1
59
Mellows Archital Limited v. Bell Projects Limited
The Rights for Abatement in Cross Action Claim
61
4.4.1
62
Davis v Hedges
Conclusion
65
CONCLUSIONS AND RECOMMENDATIONS
66
5.1
Introduction
66
5.2
Summary of Study Finding
66
5.3
Problems Encountered During Study
68
5.4
Further Study
68
5.5
Conclusion
68
REFERENCES
69
BIBLIOGRAPHY
71
x
LIST OF TABLES
TABLE NO.
5.1
TITLE
Summary of study findings
PAGE
67
xi
LIST OF CASES
CASES
Anglian Building Products Ltd v W&C French (Construction) Ltd
[1972] 16 BLR 1
Barret Steel Buildings Ltd v Amec Construction Ltd [1997] 15-CLD-10-07
Baxall Securities Ltd v Sheard Walshaw Partnership [2002] BLR 100
Bim Kemi AB v Blackburn Chemicals Ltd [2001] All ER (D) 13
Brown v M. Kinally 2 Esp. 278
B.W.P. (Architectural) Ltd v Beaver Building Systems Ltd [1998] 42 BLR 86
C.A. Duquemin Ltd v Raymond Slater [1993] 65 BLR 124; 35 Con LR 147
Davis v Hedges [1871] 6 QB 687
Dawnays Ltd v FG Minter Ltd and Trollope & Colls Ltd [1971] 1 BLR 16
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974]
1 BLR 75
Hamlet v Richardson 9 Bing. 644
Halesowen Presswork and Assemblies Ltd v National Westminster Bank Ltd
[1972] AC 785
Hanak v Green [1958] 1 BLR 4
Hargreaves B. Limited v Action 2000 Ltd [1992] 62 BLR 72
Hutchisons v Harris [1978] 10 BLR 19
Jackson v Mumford [1902] 51 WR 91
Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93
McGriffin v Palmers Shipbuilding and Iron Co Ltd [1882] 10 QBD 5
Mellowes Archital Ltd v Bell Projects Ltd [1997] 87 BLR 26
Mondel v Steel [1841] 1 BLR 106
xii
Multiplex Construction (UK) Ltd v Cleveland Bridge UK Ltd [2006]
Adj.L.R.12/20
P&M Kaye Ltd v Hoiser & Dickinson [1972] 1 WLR 146
Riverstone Meat Pty Ltd v Lancashire Shipping Company Ltd [1961] AC 807
Rotterham MBC v Frank Haslam Milan & Co Ltd & M.J. Gleeson (Northern)
Ltd [1996] 78 BLR 1 CA
Ruxely Electronics and Construction Ltd v Forsyth [1995] 73 BLR 1
Stewart Gill v Horatio Myer [1992] 2 All ER 257
Sunderson v National Coal Board [1961] 2 QB 44
Tate v Latham & Son [1897] 1 QB 502
Tubeworks Ltd v Tilbury Construction Ltd [1985] 30 BLR 67
Yandle & Sons v Sutton, Young and Sutton [1922] 2 Ch 199
Yarmouth v France [1897] 19 QBD 647
xiii
LIST OF ABBREVIATIONS
AC
Appeal Cases
All ER
All England Law Reports
All ER Rep
All England Law Reports, Reprint
BLR
Building Law Reports
CLJ
Construction Law Journal
Con LR
Construction Law Reports
CLR
Commonwealth Law Reports
EG
Estate Gazette
EGD
Estate Gazette Digest
Exch
Court of Exchequer
HL
House of Lords
HGCRA
Housing Grants, Construction and Regeneration Act 1996
JCT
Joint Contracts Tribunal
KB
Kings Bench Law Report
LGR
Local Government Reports
LJQB
Lae Journal Reports, Queens Bench
LR, CP
Law Reports, Common Pleas
QB, QBD
Law Reports: Queen’s Bench Division
WLR
Weekly Law Report
1
CHAPTER I
INTRODUCTION
1.1
Background Of Study
Most of the time, a set off in construction arise due to dissatisfaction of one
party to another party on the quality of the works carried out. In the historical case of
Hanak v. Green,1 the builder asserted he could set off his counterclaims against the
claims made by Mrs Hanak due to her dissatisfaction of his work. The analysis made
by the Court of Appeal, which agreed with the builder’s assertion, resolved the
dispute between Mrs Hanak and her builder. However, the problems of set-off
continues to exist in the construction industry where there are claims and
counterclaims because the question continues to arise whether one can be set off
against the other.2
Originally, there are no common law right at all to set off a counter claim.3
The common law did, however, allow the remedy of abatement. In Oxford Dictionary
Of Law, abatement is defined as “ any reduction or cancellation of money payable”.
Here, the employer does not seek to set up a cross claim against the contractor’s
1
[1958] 2 WLR 755.
Neil F. Jones (1991). “Set-off In The Construction Industry.” Blackwell Science, United Kingdom, pg
1.
3
Ibid.
2
2
claim, but rather alleges that, because of the defects, the contractor’s claim itself is not
justified.4
The law in respect of the defence of abatement was recently considered in
detail by the English courts in Multiplex Construction (UK) Ltd v Cleveland Bridge
UK Ltd.5 After an analysis of the case law on the defence of abatement, Justice
Jackson held that the following principles apply:
(1)
In a contract for the provision of labour and materials where performance has
been defective, the employer is entitled at common law to maintain the
defence of abatement against claims for payment.
(2)
The measure of abatement is the amount by which the product has diminished
in value due to the actions of the contractor.
(3)
The method of assessing diminution of value depends on facts of the case.
(4)
In some cases, diminution may be assessed by comparing the current market
value of the construction with the market value that it ought to have had.
Otherwise, and as was the case here, the best method was the cost of the
remedial works, as the value of the steelworks did not have a market value in
the conventional sense, only to the contractor who was obliged to produce the
completed stadium;
(5)
The measure of abatement can never exceed the sum that would have been
otherwise due to the contractor.
(6)
Abatement is not available as a defence to a claim in respect of professional
services.
4
Murdoch, J. and Hughes, W. (1992). “Construction Contracts Law and Management.” E & FN Spon,
London, pg 336.
5
[2006] Adj.L.R. 12/20
3
(7)
Claims for delay / disruption / damage caused to anything other than what the
contractor constructed cannot feature in the defence of abatement.
The difference between abatement, set-off and counterclaim is all too often
misunderstood.6 Abatement is the process of reducing a price or a value on the
grounds, for example, that the works have not been properly carried out, incomplete,
or not carried out at all.7 By contrast a set-off is a defence to a claim used to reduce or
extinguish a claim and is resultant from a party’s breach of contract. However a
counterclaim, whilst also results from a party’s breach of contract, may also give rise
to an award for damages.8
These distinctions can often be quite important, particularly in the context of
the Construction Act in the UK, where it has been held that a set-off may not be made
in the absence of a withholding notice.9 A withholding notice will not, however,
normally be required for a defence of abatement to be argued. That is to say, if the
work is defective, the amount due to the contractor may be reduced correspondingly
and thus, in reality, there is no withholding against the proper amount due.10
6
Silver, R. (2008). “Abatement, Set-Off and Counterclaim – What’s the Difference? ” from
http://www.silver-shemmings.co.uk/construction-law/abatement-set-off-counterclaim.asp
7
Ibid
8
Silver, R. (2008). “Abatement, Set-Off and Counterclaim – What’s the Difference? ” from
http://www.silver-shemmings.co.uk/construction-law/abatement-set-off-counterclaim.asp
9
Brewer, G. (2006). “Legal Case Study: The defence of abatement”. Contract Journal.
http://www.contractjournal.com/Articles/2006/11/01/52679/legal-case-study-the-defence-ofabatement.html
10
Ibid.
4
1.2
Problem Statement
In the context of construction law, the little known common law right of
abatement can provide an employer with the entitlement, by way of defence to a
contractor’s claim, to reduce sums otherwise payable to contractors by asserting that
the sum claimed has not been earned. A typical example arises in circumstances
where an employer asserts that the value of works claimed by a contractor should be
reduced on account of defects in those works. To date, abatement has not achieved
the same use in courts as the similar and inter-linked defence of set-off.11
In Malaysian construction industry Standard Contract Form, there is no
express provision for abatement as a defence to contractor’s claim. Out of three most
common used Standard Contract Form (which is Public Work Department 203, PAM
Contract 2006 and CIDB Standard Form of Contract for Building Works) only PAM
Contract 2006, clearly expressed that entitlement for Employer to set off claim made
by Contractor12 under the following conditions:
i)
The Architect or Quantity Surveyor (on behalf of the Employer) has
submitted the Contractor complete details of their assessment of such setoff;
ii)
A written notice have been given to the Contractor by the Employer
specifying his intention to set-off the amount and the gorunds on which
set-off is made.
Although the defence of abatement has been recognized for at least 150
years,13 its use in the construction field raises one difficulty. This is where the
disputed claim rests, not upon a simple assertion by the contractor that money is due,
11
Dolan, S. (2007). “The Common Law Defence of Abatement : A Change of Direction” .from
http://www.mhc.ie/news-+-events/legal-articles/220/
12
See Clause 30.4 of PAM 2006.
13
Mondel v Steel [1841] 8 M & W 858.
5
but rather on architect’s certificate or its equivalent.14 In such circumstances an
employer seeking to defend the claim will face an uphill tasks, since it requires the
court to be convinced of a substantial possibility that the work has been over certified.
It is established that clear evidence will be needed and that vague allegations of
defective work will not suffice.15
A claim for set-off may potentially have a wider reach than abatement.
Damages claimed as a set-off may concern, for example, the cost of putting right
defects in the work, but may also include damages suffered as a consequence of the
manner in which the work has been carried out, for example, damages for delay.16
The measure of abatement, on the other hand, must be limited to the difference in
value of the work itself as a consequence of the defective work. Additionally, a set-off
must be raised by way of a separate cross-claim. An abatement may, however, simply
be regarded as a defence to a claim for payment in respect of defective work.17
In the case of C.A. Duquemin Ltd v. Raymond Slater,18 it was explained that
abatement entitles the purchaser to deduct the difference between the value of the
work and materials at the date supplied and their value if they had not been defective.
It does not, however, permit anything other than a deduction against the price. This
case however, left open question, particularly in the context of building contracts, as
to which work and materials are subject to abatement.19
While abatement has been the subject of debate in the modern construction
industry for some time now, it is an important clause to be aware of as it still remains
14
Murdoch, J. and Hughes, W. (1992). “Construction Contracts Law and Management.” E & FN
Spon, London, pg 336.
15
Murdoch, J. and Hughes, W., loc.cit.
16
Brewer, G., loc.cit.
17
Ibid.
18
[1993] 65 BLR 124
19
Neil F. Jones , loc. cit.
6
a valuable tool in the armoury of a party who has suffered loss as a result of defective
works.20
In view of these issues, this study will try to find what are the principles of
abatement and the main criteria on the measure of damages to a defective works in
which abatement claim is made as a defence to a claim.
1.3
Objective of the Study
The objective of this research is to identify the principles of abatement claim
and what are the criteria on the measure of damages on which an abatement claim
can be made due to defective works.
1.4
Scope of Study
Based on the objective, the approach adopted in this study is based on case
law which covers the following areas:
a) Only abatement claim cases due to defective works will be discussed in the
study
b) Court cases referred in this study are mainly from English cases which is
reported in Lexis Nexis..
20
Brewer, G., loc.cit.
7
1.5
Significance of the Study
This study is expected to assist the Malaysian construction industry player to
understand and give them a brief picture on what abatement is. This will also help
them, especially the aggrieved party, the right and option other than set off, to defence
themselves from defective works done by the other party. It is also to help the
aggrieved party when seeking for damages from the wrongdoer, where he can
compare the facts of his case and the fact of cases list down in this study to proceed
with his abatement claim.
1.6
Methodology of Study
Methodology is important and is a vital guideline on how this study is being
carried out systematically to achieve its objective. The stages involved are explained
as below.
The first stage of this study is establishing the problem statement. This is the
preliminary process in determining the issues and problems which is going to be
studied. Literature review on documents as book, journals and internet were used to
determine the issue. This is to assist the writer to acquire ideas, knowledge and
information relating to the topic studied. It is also to help the writer identified issues
or problems related to the topic.
The next stage is data collection and research design stage. This is the stage
where all relevant data and information were collected, mainly through documentary
analysis. All collected data and information were recorded systematically. The
source of these date were mainly from the English Law Report, Construction Law
Report and other law journals. It is collected through the Lexis-Nexis online
8
database. All the cases relating to the research topic will be sorted out from the
database. Important cases will be collected and used for the analysis at the later stage.
After collecting data, the further stage involved in this study is data analysis
and interpretation. In this stage of research, data were analyzed, interoperated and
arranged. This process is to convert the data collected to necessary information which
will be used for the research.
The final stage of this research process is writing up and conclusions. It
involves mainly the writing up and checking of the writing. Conclusion and
recommendations will be made based on the findings during the stage of analysis.
9
Stage 1
Problems Statement
Approach: Literature review
• Books, journals, internet sources
Fix the research topic
Fix the research objective, scope and prepare the research outline
Identify type of data needed and data sources
Stage 2
Data Collection
Research Design
Approach: Documentary Analysis
• Law Journals, e.g. Malayan Law Journal,
Construction Law Report, etc.
Stage 3
Stage 4
Analyzing and Interpreting Data
Writing-up
10
CHAPTER II
DEFECTS
2.0
Introduction
Defect has always been an issue in any construction works. In Ruxely Electronics
& Construction Ltd. v. Forsyth21, Mr Forsyth discovered that his recently constructed
swimming pool was shallower by 9 inches than the specification called for.22 Despite the
workmanship and materials conforming in all other respects with the quality requirements
of the specifications, the pool was nonetheless, in law, defective.23 Mr Forsyth sued for
compensation, however found himself lost on appeal about the correct approach to the
assessment of compensation. Mr Forsyth’s complaint about the depth of his pool serves
an illustration that defects can encapsulate more than just bad workmanship and
materials, and the quality is just one category of defective works.24 It is useful therefore to
have a general definition of the term ‘defect’, to understand what is meant by ‘patent’ and
‘latent’ defects and to appreciate the impact of discoverability on the status and legal
consequences of defects.25
21
[1995] 73 BLR 1
Kevin Barrett (2008). “Defective Construction Work and The Project Team.” Wiley-Blackwell. United
Kingdom
23
Ibid.
24
Ibid.
25
Ibid.
22
11
2.1
Definition
So, what is defined by defect? In Tate v. Latham and Son26, defect is defined as ‘a
lack or absence of something essential to completeness’. The Tate definition arose in the
context of a workman’s compensation claim under the Employer Liability Act 1880. In
that case a fence intended to protect the operator was missing from a dangerous piece of
machinery, so it was defective.27 Other example of cases which attempt to define ‘defect’
include McGriffin v. Palmers Shipbuilding & Iron Co Ltd.28 where an obstruction
protruding from a furnace (but which was not a part of it) did not render the furnace
defective; Yarmouth v.France29, where it was decided that a defect in an item of plant
included ‘anything which render the plant, etc. unit for the use for which it is intended,
when used in a reasonable way and with reasonable care’; and the curious decision in
Jackson v. Mumford30, which decided that the word ‘defect’ did not include design defect.
The Tate definition is not sufficiently all embracing. After all, building work can
be complete but nonetheless defective – and the Yarmouth definition is potentially too
wide, as building can be a unit for use, yet not be defective in the sense that someone can
be held responsible for its unfitness.31 Further, the Jackson decision should be treated
with some caution.32 It was not followed, although, to be fair it was not cited in Baxall
Securities Ltd. v. Sheard Walshaw Partnership33, where the Court of Appeal considered
that a flaw includes design as well as workmanship.34 So, Jackson ( which concerned the
interpretation of an agreement) is, perhaps, one of those cases that should be treated as
confined to its own special facts – a recurring judicial euphemism for binding decisions
that do not sit easily with established principles or a prior line of authority.35
26
[1897] 1 QB 502
Kevin Barrett, loc.cit.
28
[1882] 10 QBD 5
29
[1897] 19 QBD 647
30
[1902] 51 WR 91
31
Kevin Barret, loc.cit.
32
Ibid.
33
[2002] BLR 1000
34
Kevin Barret, loc.cit.
35
Ibid.
27
12
If the case do not provide a complete definition of the term ‘defect’, then the
dictionaries cannot be criticised if they do no better. For example, Oxford Dictionary of
Law (6th edition)36 somewhat enigmatically defines ‘defect’ as meaning ‘ a fault or failing
in a thing’, without identifying how the fault or fail should be judged.
Daniel Atkinson, in his articles published in his web site, defined ‘defect’ as work
which fails to comply with the express descriptions or requirements of the contract,
including very importantly any drawings or specifications, together with any implied
terms as to its quality, workmanship, performance or design. By definition, therefore,
defects are breaches of contract by the contractor.37
It is convenient then to return to Mr Forsyth;s pool. The insufficiency of the
pool’s depth meant that it did not conform to the specification. The builder was
contractually obliged to achieve the requirements of the specification. As he had not done
so, he had breach his contract with Mr Forsyth.38 So, in the context of building work, a
more useful definition of the term ‘defect’ is simply to say that something that does not
conform to the agreed specification is defective.39
2.2
Qualitative Defects
Qualitative defects can be categorised in various ways, including:
•
36
Work (including design) or materials not of acceptable quality;
Oxford University Press (2006). “Oxford Dictionary of Law (6th Edition”.
Daniel Atkinson (1999). “Defects” from http://www.atkinson-laww.com/ cases/CasesArticles
/Articles/Defects.htm
38
Kevin Barret, loc.cit.
39
Ibid.
37
13
•
Work (including design) or materials that are in themselves of acceptable
quality, but which nonetheless do not confirm with the specification or the design
brief; and
•
Work that is in complete
Builders must complete the agreed work using materials and workmanship
conforming to the contractual requirements.40 If they fail to provide anything necessary to
bring about the completion in accordance with the contractual requirements then the work
is – latent defects excepted – incomplete.41 In this respect the third category (i.e.
incomplete work) may encapsulate the first and second categories if the non-conforming
work or materials are discovered before completion of the works.42 Defects failing into
any of these three categories may give rise to claims against some or all of the project
team.43
2.3
Patent/Latent Defects
Defects, whether their qualitative nature, may be patent or latent. It is important to
be able to decide when a defects is patent and when it is latent.
The starting point, in terms of the case law, is Yandle & Sons v. Sutton44, which
decided that a defect is patent if it is open or visible to the eye. But later, in Sunderson v.
National Coal Board45, a defect was said to be patent if observable, whether or not
actually observed.46
40
Kevin Barret, loc.cit
Ibid.
42
Ibid.
43
Ibid.
44
[1922] 2 Ch 1999
45
[1961] 2 QB 244
46
Kevin Barret, loc.cit
41
14
Latent defects, on the other hand, are those that are hidden and, as a corollary to
Sanderson, not observable. In Baxall Securities v Sheard Walshaw Patnership47 it was
explained that whether a defect is latent is determined by reference to the inadequacy of
the works or materials: ‘The concept of a latent defect is not a difficult one. It means a
concealed flaw. What is a flaw? It is the actual defect in the workmanship or design..’
But when is a concealed flaw in workmanship or design (and for that matter
materials) to be regarded as observable even though not actually observed? Sanderson
confirms that answering this questions is an exercise that must be approached
objectively.48 For example, in Riverstone Meat Pty Ltd v. Lanchashire Shipping Company
Ltd49, a case that concerned the carriage of goods by sea, it was decided that defects were
not latent if discoverable by the exercise of due diligence.50 In Rotherham MBC v. Fank
Haslam Milan & Co Ltd and M.J. Gleeson (Norhern) Ltd51, a building case concerning
the suitability of materials, the term latent defect was described as meaning ‘ in its widest
sense a … failure in work or materials to conform to contract in a respect not apparent on
reasonable examination’.52 In this case it was not appropriate by the specifier or builder at
the time of specification or supply, and could not have been ascertained by the customary
examination available, that the specified materials suffered from an inherent
characteristics that rendered them unsuitable for the purpose for which they had been
specified.53 Therefore, the defect was truly latent.
Defects are of fundamental importance because:
i. they affect the value of work done (and therefore the obligation to pay, or the right
to receive payment);
ii. they may prevent work being regarded as complete;
47
[2002] BLR 100
Ibid.
49
[1961] AC 807
50
Kevin Barret, loc.cit
51
[1996] 78 BLR 1 CA
52
Kevin Barret, loc.cit
53
Ibid.
48
15
iii. they may entitle purchasers (and sometimes third party) to compensation; and
iv. they may even entitle purchaser to terminate the building contract or the
appointment of professional consultants.
The importance of the distinction between patent and latent defects often depends
on the contractual terms.54 For example, it may not be permissible to certify completion if
there are patent defects, or it may be that liability for loss is excluded in respect of latent,
but not patent, defects.55 Further, whether defects are patent may be relevant to the duty to
mitigate loss and may engage the defence of contributory negligence.56 Finally, whether a
defect is patent or latent may sometimes be relevant to the commencement of the relevant
limitation period.57
2.4
Defective Work in Malaysian Standard Form Of Contract Provisions
In Malaysia, it is a common practise for parties involved in a large construction
project to adopt Standard Form of Contract as a basis for entering a formal contract. The
two (2) most often used Standard Form are PAM and PWD Standard Form of Building
Contract. These two standard forms of contracts do specify a number of provisions
regarding of defective works which only deal with the defective works during
construction period and defect liability period only.
54
Kevin Barret, loc.cit.
Ibid.
56
Ibid.
57
Ibid.
55
16
2.4.1
Defective Work Claim During Construction Period
Under the PAM 2006 and PWD Form 203A 2007, there are numbers of clauses
that governs the quality of contractor’s work and the materials supplied including the
rights, duties and obligations of the parties in respect of defects. Under the Materials,
Good and Workmanship To Conform To Description, Testing and Inspection Clause 6.1,
PAM 2006 and Materials, Goods and Workmanship, Clause 35, PWD 203A 2007, it is
clearly stated that all works, materials, goods and workmanship by the contractor shall be
of “the respective quality and standards described in the Contract Documents’ and “in
accordance with the standard of the workmanship in the industry”.
The obligation of the contractor to procure and achieve the specified quality, kind
and standard is an absolute one.58 If the contractor fails to do so, he would be in breach of
contract unless the Superintending Officer is willing to permit a substitution by way of a
variation instruction.59 In the situation where the contract document does not specify, it
would be implied in law that the materials or goods will be of good quality and the
workmanship will be carried out with proper skill and care (see Young & Marten Ltd v
McManus Childs Ltd60.
It was also stated under the clause 35.1 PWD 203A 2007 and clause 6.2 PAM
2006, Superintending Officer or Architect also have the rights to request contractor to
submit any documentation such as certificates, vouchers or other evidence to proof that
the materials and goods complied with the contract. In the event if there is noncompliance by the contractor to submit what has been requested, the Superintending
Officer or the Architect may give order to:
58
Lim Chong Fong, “The Malaysian PWD Form of Construction Contract.” Sweet & Maxwell Asia,
Selangor, 2004,pp 29.
59
Ibid.
60
[1969] 1 AC 454
17
(a) Rectify, demolish, reconstruct or remove such materials or goods at the
contractor’s own cost.61
(b) Deduct the amount of money of such to rectify, demolish, reconstruct or
remove from the money due to contractor.62
There are also provisions that empower the superintending officer or the architect
to instruct the contractor to open up for inspection of any work covered up and carry out
test on any materials or goods already incorporated in the proposed work or any executed
work.63
Clause 6.5 of PAM 2006 and Clause 36.3 of PWD 203A 2007 also expressed that
the Superintending Officer of the Architect have the power, in case where the materials,
goods and workmanship provided by the contractor are not in accordance to the contract,
to instruct the contractor as follow:
(a) Removal, demolition and construction64
These are the expressed power of Superintending Officer and Architect to
deal with work, materials, goods and workmanship which not in
accordance with the contract.65 In PAM 2006, architect has the power to
instruct the contractor to remove, demolish and reconstruct the defective
work. Similar in PWD 203A where the Superintending Officer has the
power to instruct contractor to remove or reconstruct any defective works.
Both standard forms require this to be done in writing. Architect or
Superintending Officer cannot merely condemn the defective works
without ordering removal.66 In the case of Holland Hannen & Cubitts
(Northern) Ltd v Welsh Health Technical Servises Orhganisation67, it was
61
See Clause 6.5(a), 6.5(b), 6.5(c), 6.5(d) of PAM 2006 and Clause 36.3 of PWD 203A 2007.
See Clause 6.5(e), 6.7 of PAM and Clause 33.0 of PWD 203A 2007.
63
See Clause 35.2 of PWD 203A 2007 and Clause 6.3 of PAM 2006.
64
See Clause 6.5(a), 6.5(b) of PAM 2006 and Clause 5.1(d), 36.3 of PWD 2007.
65
Wong Bi Xia (2009).”Measure Of Damages For Defective Building Works.” Universiti Teknologi
Malaysia. Tesis Msc.
66
Wong Bi Xia, loc.cit.
67
[1981] 18 BLR 80.
62
18
held that a notice condemning the windows that installed by the sub
contractor are not in accordance with the contract does not create a valid
notice as the notice does not require removal of anything by the architect.
(b) Acceptance68
With the consent of employer, the architect may in writing to allow
contractor to leave all work, materials, goods or workmanship without any
removal, demolition or reconstruction to the work.69 However, this
acceptance is subject to set off of all cost, loss and expense incurred and
suffered by the employer.
(c) Variation70
The obligation of the contractor to procure and achieve the specific kind,
standard and quality of materials, goods and workmanship is an absolute
one.71 If the contractor fails to do so, he will be in breach of contract
unless the architect or Superintending Officer is willing to permitting
substitution by way of variation order.72
Clause 6.7 of PAM 2006 and Clause 5.3 of PWD 203A 2007 allowed the
employer to employ other person or a third party to rectify the works or to make good all
the non compliance works by the contractor if he in default in not complying with the
Superintending Officer’s or the Architect instruction to remove, demolish, reconstruct or
rectify the defective works. All the cost incurred by the Employer including the cost for
loss and expense is recoverable from the contractor. This is an addition to the other two
remedies which the employer possesses: an action for breach, namely, treating the
contract as repudiated at common law and the drastic procedure of determination.73 This
clause provide employer with a more practically effective remedy. Its object is to enable
68
See Clause 6.5(e) of PAM 2006.
Wong Bi Xia, loc.cit.
70
See Clause 6.1 and Clause 11 of PAM 2006 and Clause 35.1 and Clause 24 of PWD 203A 2007.
71
Lim Chong Fong, loc.cit.
72
Ibid.
73
Sundra Rajoo, “The Malaysian Standard Form Of Building Contract (The PAM 1998 Form).” Malayan
Law Journal Sdn. Bhd., Kuala Lumpur. 1994. pp 99.
69
19
the employer to secure the physical performance on the site of the Super Intending
Officer’s or the Architect’s instruction when a contractor refuses or neglects to obey the
instruction.74
2.4.2
Defect Work Claim During The Defects Liability Period
There are also provisions in PAM 2006 and PWD 203A 2007 that governs the
contractor’s responsibility for rectifying defect works after the completion of the work.
Clause 15 of PAM 2006 and Clause 48 of PWD 203A 2007 specifies that the contractor is
responsible for any defect, imperfection, shrinkage or any other default which appears
during the Defect Liability Period (DLP). Lord Diplock in P&M Kaye Ltd v Hosier &
Dickinson Ltd75 said of Clause 15(2) of the JCT 1963 Form which is equally applicable to
these two clauses :
“Condition 15 imposes the contractor a liability to mitigate the damage caused by
his breach by making good defects of construction at his own expense. It confers
upon him the corresponding right to do so. It is a necessary implication from this
that the employer cannot, as he otherwise could, recover as damages from the
contractor the difference between the value of the works if they had been
constructed in conformity with the contract and their value in their defective
condition, without first giving to the contractor the opportunity of making good
the defects.”
Under Clause 15.4 PAM 2006 and Clause 48.1(b) PWD 203A 2007, the
Superintending Officer or the Architect is allowed to specify in a schedule of defect any
defect, shrinkage, imperfection or any other fault which appear within the DLP and
deliver to the contractor not later than fourteen (14) days after the expiry of the D LP. The
contractor is obliged, after receiving the schedule, to make good all the defects specified
74
75
Ibid.
[1972] 1 WLR 146
20
within 3 months under PWD 203A 2007 or 28 days or within such longer period as may
agreed in writing by the Architect as stated in PAM 2006.
In the event where the contractor refuse or fail to rectify and make good the
defects, Clause 15.4 PAM 2206 entitled the employer to recover the cost of making good
defect by employ and pay third party to rectify the defects and this cost shall be set-off by
the employer under Clause 30.4. For PWD 203A, under Clause 48.2, the cost will be
deducted from any money due or to become due to the contract and failing which such
costs will be recovered from the Performance Bond or as a debt due from the contractor.
2.5
Defects and Interim Payment
Under the common law, builders are, subject to the doctrine of substantial
performance, entitled to be paid only when work is complete unless the contract expressly
provides otherwise.76 In practice most building contracts, with the exception perhaps of
those of very short duration, expressly include some mechanism for payment on account
to the builder.77 Indeed, for most builders, the cash flow generated by payments on
account is generally crucial to their solvency. Lord Denning, in the case of Gilbert-Ash
(Northern) Ltd v. Modern Engineering (Bristol) Ltd78 famously said:
“There must be a cash flow in the building trade. It is the very lifeblood of the
enterprise.”
This cash flow is so important that the Parliament of United Kingdom intervened
in 1996 to provide a mandatory statutory framework for interim payment and
76
Kevin Barret, loc.cit
Ibid.
78
[1973] 1 BLR 75
77
21
deductions.79 It is to see that builders are paid on account for the work done as a project
progresses, but only if the work is done properly. If there are defects, then work cannot be
said have been done properly and so purchasers ought not to be obliged to pay for it.80
2.5.1
The Contractual Position
Standard form of contract conditions tend to provide that builders are entitled for
payment, including interim payment, only in respect of work properly executed. In this
respect the terms dealing with payment amount to a direction to the person charged with
valuing the work. For example, in PAM 2006 the architect is obliged to certify for
payment only ‘the total value of work properly executed’ and ‘ the percentage of the
value of material and goods delivered’.81 Similarly, the Superintending Officer under the
PWD 203A 2007 conditions is obliged to certify the estimated total value of the work
properly executed and up to 90% of the value of the unfixed materials and goods
delivered to or adjacent site intended for the incorporation into the permanent works.82
2.5.2
Interim Valuations, Certificates and Payments
Interim valuations, certificates and payments do not amount to an
acknowledgement that work is defect free unless the contract provides otherwise in which
they rarely do.83 Furthermore, interim certificates do not, unless the contract provides
79
Kevin Barret, loc.cit
Ibid.
81
See Clause 30.2 of PAM 2006.
82
See Clause 28.4 of PWD 203A 2007.
83
Kevin Barret, loc.cit
80
22
otherwise, give rise to a ‘temporary finality’ or ‘pay now, sue later’ requirement.84 This is
because interim valuations, certificates and payments are usually provisional. This means
that the valuer may, unless the contract provides otherwise, adjust interim valuations/
certificates by omitting the value of work previously included and paid for if it is
subsequently discovered to be defective.85 The valuer may address such adjustments at
the next valuation/ certification, but in any event the purchaser may do so earlier
(including after a valuation has been notified or certified, but before the payment of the
sum due) if defects are discovered after a valuation or certificate is issued to the builder.
The provisional nature of interim valuations and certificates is reflected in the
practice of assessing the gross value of all work done up to the valuation date, rather than
the value of work done between valuation dates.86 This means that, if that work that has
been valued and included in a certificate is subsequently discovered to be defective, the
gross value can be adjusted in the next interim valuation or certificate by excluding the
defective works from the gross valuation. This will inevitably have an impact on the net
payment due.87
Things will get problematic if defects are discovered after a certificate is issued
but before payment is made, particularly so if it is disputed that the work in question is
defective.88 If this occurs, builders sometimes insist that payment of the certified sum is
made, while purchasers usually refuse to pay any more than the true value after taking
account of subsequently discovered defects which usually means paying less than the net
sum due under the valuation or certificate in question.89 This is especially likely if defects
are significant (either individually or collectively) and will result in the builder being
substantially overpaid if the full amount certified is paid.90 This desire to avoid payment
is all the stronger where purchasers lack confidence in their builder’s ability to repay if
the defects are not corrected by the next valuation date. The practice of making
84
Ibid.
Ibid.
86
Ibid.
87
Ibid.
88
Ibid.
89
Kevin Barret, loc.cit
90
Ibid.
85
23
deductions from interim payment to reflect the true value of works has led builders to
challenge the right to make such deductions.
One such challenge met with success. This occurred in Dawnays Ltd v. F.G.
Minter and Trollope & Colls Ltd,91 where it was said, in the Court of Appeal, that an
interim certificate is the equivalent of cash or a negotiable instrument and therefore must
be paid less only permitted deductions (which, under the particular contract in Danways,
included only retention, discount and previous payments). Later, however, in GilbertAsh92 the House of Lords took a different view. In this case it was said that:
‘…in construing a contract one starts with the presumption that neither party
intends to abandon any remedies for its breach arising by operation of law and
clear express words must be used in order to rebut this presumption.’
The effect of this was that the purchaser was allowed to exercise the right
ordinarily available at law to set off against certified sums the amount of his cross-claim
for breach of contract.93 While there remained some debate as to whether the Gilbert-Ash
decision applied only to the particular contract under scrutiny, it is a decision that has
been treated since as one of universal applications. The result has been that, in the
absence of clear words, the courts have refused to exclude the defences to payment
otherwise available at law.94 For example, in NEI Thompson Ltd v. Wimprey
Construction UK Ltd,95 a contractual set off clause was held not to exclude the common
law right of set off.
In United Kingdom, the outcome of Gilbert-Ash was that some publishers of
model conditions, notably the JCT, amended some of their sub-contract conditions to
limit the right of builders to set off against sums due to their subcontractors. The JCT
limited the right of set off to those instances where notice in writing of the intention to
set off was given within a stipulated period before the contractual payment date and
91
[1971] 1 BLR 16
Supra No.76
93
Kevin Barret, loc.cit
94
Ibid.
95
[1987] 39 BLR 65
92
24
provided for an adjudicator to determine the validity of the deductions so notified.96
Subsequently, however, the usefulness (to subcontractors) of this mechanism was reduced
when the courts made it clear that the defence of abatement was subject to Gilbert-Ash
principle and remained available unless clear words excluded it and that words excluding
or restricting the right to set off cross claims were not sufficient to exclude the defence of
abatement (see Acsim (Southern) Ltd. v. Danish Contracting and Development Co Ltd97
and A.Cameron Ltd v. John Mowlem Plc98 ). The effect of these decisions was that
builders retained the right to dispute the value of work done by their subcontractors and
also retained the right to pay less than the amount certified if they did so, but denuded the
contractual adjudicator of power to determine the validity of the abatement.99 This
rendered the pre-1996 JCT adjudication mechanism largely worthless.
The position was much the same in the main contract relationship between
purchaser and builder. In this respect the Court of Appeal, in C.M. Pillings & Co Ltd v.
Kent Investments Ltd,100 could not find nothing in the wording or provisions of the JCT
Prime Cost Contract 1967 edition either requiring immediate payment of certified sums
where a bona fide dispute as to the correctness of the certificate existed, or making
payment of a certified sum a condition precedent to the right to arbitrate the dispute.
Likewise it was found that other main contracts with similar wording did not exclude the
right to set off certified sums (see R.M. Douglas Construction Ltd. v. Bass Leisure Ltd101
). The effect of these decisions was that the payer retained the right to adjust the valuation
at any time in the absence of clear express contractual provision to the contrary and so
could always protect himself from the impact of defects by consequently adjusting the
amount of an interim payment right up to the point of payment.
96
Kevin Barret, loc.cit
[1989] 47 BLR 59
98
[1990] 52 BLR 24
99
Kevin Barret, loc.cit
100
[1985] 30 BLR 80
101
[1990] 53 BLR 119
97
25
2.6
Conclusion
Defects are categorised into two types, which are Qualitative Defect and Patent/
Latent Defects. Under the Malaysian construction Standard Form of Contract, contractor
is obliged to carry out and complete the work in accordance to the standard and
specification as spelt in the contract. Employer has the right to instruct and require the
contractor to repair or rectify any defective or works not up to the specification and
standard which occurred during the construction period and Defect Liability Period at
contractor’s own cost. Failing to do so, contractor can be held as in breach of contract and
Employer have the rights to take action in respecting of the defective works by employing
third party to rectify the works which the cost to be borne the main contractor or by setoff and abatement the value of defective works in the interim certificates.
26
CHAPTER III
ABATEMENT IN UK CONSTRUCTION INDUSTRY
3.0
Introduction
When defects occur as a result of breach of contract or duty, the injured party
is entitled to an award of compensation for loss suffered, put simply, a sum of money
that recognises and reimburses all of the losses suffered as a result of the breach.
Sometimes, however, the injured party may want to enforce performance either as an
alternative or in addition to claiming compensation.
Obtaining compensation can be achieved in one of three ways:
a) The first is a form of judicially recognized self help called abatement.
b) The second is another judicially recognized form of self help called set off.
c) The third way is by way of an action for damages which is right to commence
legal proceedings for an award of compensation.
27
In considering what defences may be available, much depends upon what
steps a contractor takes to enforce the claim to payment.100 If the matter is taken to
arbitration or to a full trial in court, then those proceedings should deal with all the
issues between the parties.101
3.1
Set-Off
The remedy set-off is a procedural device that permits the injured party to
offset the compensation he claims against money claimed by the alleged wrongdoer
under the same or any other contract.102
The right of set-off is not unfettered. It applies only to claims and conterclaims
in three situations:
•
First, where the amounts claimed by each party amount to a liquidated debt or
money demand that can be ascertained with certainty at the time of pleading
(known as common law set-off) – but a claim for damages will not generally
fall into this category.103
•
Second, where there is a close and inseparable connection between claim and
counterclaim such that it would be manifestly unjust to give judgment on the
claim without taking into account the counterclaim (known as equitable setoff). Generally, this requires the claim and counterclaim to arise from
connected dealings,104 but the mere existence of two or more contacts between
the parties does not itself amount to a connected dealing.105
100
Murdoch, J. and Hughes, W. (1992). “Construction Contracts Law and Management.” E & FN
Spon, London, pg 336.
101
Ibid.
102
Kevin Barret, loc.cit
103
See Hargreaves (B) Ltd. v. Action 2000 Ltd [1992] 62 BLR 72
104
See Bim Kemi Ab v. Blackburn Chemicals Ltd [2001] All ER (D) 13
105
See Anglian Building Products Ltd v. W&C French (Construction) Ltd [1972] 16 BLR 1
28
•
Third, where the claimant is insolvent, a set-off of mutual dealings is
permitted under the Insolvency Act 1986 and the Insolvency Rules 1986.
The effect of a set-off is that the court will not permit the enforcement of the
claim, even if it is admitted, until the counterclaim has been determined.106
The right of set-off may be excluded or restricted by contractual terms,
although in accordance with the Gilbert-Ash principle, clear words are required to
affect an exclusion of the right of set-off.107 Where the contract out of which the claim
arises is a construction contract for the purposes of the Housing Grants, Construction
and Regeneration Act 1996 as in the UK, the right of set-off may be exercised only if
notice is given in accordance with that Act.
3.2
Abatement
The common law right of abatement is a defence which is generally limited to
contracts for sale of goods or for work and materials and can be invoked by a
defendant to reduce the value of goods and services supplied by the claimant where,
for some reason, the goods and services in fact supplied did not justify the payment of
the full agreed price by the defendant.108 So it means the right of the person for whom
work is carried out to reduce the price which he has agreed to pay, usually because the
work has not been done properly, or has not been completed.109 It is a means of
adjusting the sum payable, rather than requiring a separate cross-claim to be brought.
Accordingly, abatement goes to the question of what amount becomes “due” under
106
Kevin Barret, loc.cit
Ibid.
108
Simon JA Tolson (2004). “ Payment, Abatement and Set-Off” from
http://www.fenwickelliott.co.uk/files/docs/articles/html/payment_abatement_setoff.htm
109
Simon JA Tolson, loc.cit.
107
29
the contract and should be considered when preparing the payment notice but not
necessarily a withholding notice.
Abatement is a common law right to reduce the price or value of work on the
grounds that the work is defective or incomplete. Abatement is therefore only
available where there are defects in the quality of the works. It cannot be used as a
defence to claims for delay or disruption to the works, or claims for damage to other
property. Nor can it be used as a defence to payment for professional services, such as
design and engineering work or technical and supervisory services.110
The measure of the abatement will be the amount by which the works have
diminished in value as a result of the deficient or defective performance. The method
of assessing the diminution in value will depend on the facts and circumstances in
each case. In some cases, the diminution in value may be determined by comparing
the current market value of the item as constructed, with the market value that it ought
to have had. In other cases, the diminution in value may be determined by reference to
the cost of remedial works111.
The right to abate the price does not permit anything other than a deduction
against the price. It was confirmed by the Court of Appeal in Mellowes Archital Ltd v.
Bell Project Ltd112 that abatement applies only to the subject matter of the contract in
question, i.e. the work and goods supplied and then only where the breach results in
diminution in value of the subject matter. In this respect it was said that:
“It is therefore clear that , for a party to be able to rely upon the common law
right to abate the price which he pays for goods supplied or work done, he
110
Herber Smith (2009). “Set-Off and Abatement Under International Construction Contract” from
http://www.herbertsmith.com/NR/rdonlyres/2FE9904E-2AE1-4FE5-A615-4777F206A298/11396
/Newsletter4EJune2009.pdf
111
Ibid.
112
[1997] 87 BLR 26
30
must be able to assert that the breach of contract has directly affected and
reduced the actual value of the goods or work, the thing itself.”
The result in this case was that the purchaser could not abate the price by
reference to delay costs. There is some uncertainty as to the extent to which the
defence of abatement applies to a professional consultancy contract.113
The importance of abatement is that the alleged wrongdoer must sue for his
money if he disagrees that he is in breach or disagrees with the amount deducted, but
the court will not order the injured party to pay the sum withheld pending trial (i.e. it
will not grant summary judgment) unless it is satisfied that the defendant has no real
prospect of successfully defending the claim.114
In Barrett Steel Buildings Ltd v. Amec Construction Ltd,115 it was decided that
the cost of remedying defects might be relied upon as the measure of the diminished
value. However, that was a case where the court was asked to determine whether the
defendant had an arguable defence to the claim (in which case summary judgment had
to be refused), so the position may be different on a final determination of the
defence. The right to abate does not require the alleged wrongdoer to pay money to
the injured party.116 If the abatement extinguishes the price (or any unpaid balance)
altogether (as may occur if the cost of remedial works exceed the price or any unpaid
balance), the injured party must, if he wishes to recover the balance, bring an action
for compensation and prove his entitlement (unless he can set off the balance against
money owed to the builder under a different contract).117
113
See Hutchison v. Harris [1978] 10 BLR 19
Kevin Barrett (2008). “Defective Construction Work and The Project Team.” Wiley-Blackwell.
United Kingdom. pp 165
115
[1997] 15-CLD-10-07
116
Supra No. 114
117
Supra No. 114
114
31
The common law right to abate the price is one of those rights that the law
presumes to be available unless clear words in the relevant contract expressly
excluded it. This doctrine has been stated in Gilbert – Ash (Northern) Ltd. v. Modern
Engineering (Bristol) Ltd118 as below:
“[It] has long been a general principle of law that if one man does work for
another, the latter when sued, may defend himself by showing that the work
was badly done and that the claim made in respect of it should be diminished.
On the same principle, the purchaser of an article sold with a warranty may,
when sued for the price, say that there was a breach of warranty and he may
set this up in order to diminish or even extinguish the price.”
Nevertheless, the decision in Halesowen Presswork v. Westminister
Bank119confirms that the presumption may be impliedly rebutted. Further, the right of
abatement may expressly excluded or restricted, but it was decided in the Mellowes
case that words that exclude the right of set-off did not operate to exclude the right to
abate. If the right to abate is expressly excluded, the exclusion will be subject to the
requirements of the UK’s Unfair Contract Terms Act 1977, as occurred in Steward
Gill Ltd v. Horatio Myer & Co. Ltd.120
In this case, the plaintiff made a contract to provide a conveyor system for the
defendant, with payment by installments. The plaintiffs claimed the last 10% but as
the conveyor had faults, the defendant wished to set off its claim against the payment.
The plaintiff's standard terms provided that customers could not withhold payment
because of any "payment, credit, set-off, counterclaim, allegation of incorrect or
defective goods or any other reason whatsoever". The Court of Appeal held that the
clause was not within s3 but as it restricted remedies it was within s13 (s13(1)(b)). It
was subject to the test of reasonableness and reading the clause as a whole, it was too
wide and stopped the defendant using a genuine set-off. The clause was therefore
118
[1973] 1 BLR 75
[1972] AC 785
120
[1992] 2 all ER 257
119
32
unreasonable and the plaintiff could not rely on it. However, the defendant may rely
on abatement to get his right due to the defective conveyor supplied by the plaintiff
because it was already decided in Mellowes case that excluding the right to set-off did
not operate to exclude the right to abate for the injured party.
3.3
Differences Between Set-Off And Abatement
The rights of set off and abatement are common, but frequently
misunderstood. Although at first sight they have many similarities, they are in fact
very different and operate in completely different ways. Set-off, which is a form of
counterclaim, concerns the deduction of damages caused by a party’s breach of
contract. A set-off can be applied to reduce or extinguish payments otherwise due
under the contract. Abatement, on the other hand, concerns the common law right to
reduce sums otherwise payable by asserting that the sum claimed has not been
earned121.
Conversely, set-off does not relate to the amount which the supplier is entitled
to be paid for the work which he has done, but refers to an entirely separate right
which accrues to the purchaser through the supply of what was contracted for, which
relates not to the value of what was supplied but, instead, to the consequences of the
manner in which it was performed.122 An essential prerequisite for a right of set-off is
that the supplier has committed a breach of contract entitling the purchaser to
damages. An obvious example of this is a claim for liquidated and ascertained
damages, or even unliquidated damages, for delay.123
121
Brewer, G. (2006). “Legal Case Study: The defence of abatement”. Contract Journal.
http://www.contractjournal.com/Articles/2006/11/01/52679/legal-case-study-the-defence-ofabatement.html
122
Simon JA Tolson, loc.cit.
123
Ibid.
33
As a matter of principle, abatement involves an argument that goes to the
quantification of the sum “due” under the contract, whereas set-off may, if the
circumstances exist, constitute a ground for withholding payment of some part of
what is “due”. It follows that, in terms of payment notices and withholding notices, an
abatement should be raised at the valuation stage and, at the latest, at the time the
payment notice is required to be given. Conversely, a set-off is not a matter which
relates to valuation and the paying party must therefore ensure that it is protected by
an effective and valid withholding notice given at the proper time.
An example of case which distinguish the rule of set-off and abatement is
Barret Steel Buildings Ltd v. AMEC Construction.124 This case was examined base on
DOM 2 sub-contract conditions for use with JCT 81 Design and Build Contract.
AMEC were main contractors for the building of a hospital. They had subcontracted the design, supply and erection of the structural steelwork for the building
to Barrett. A dispute arose concerning the design of the steelwork which AMEC
alleged to be defective. They considered that the steelwork was unfit for its purpose in
that the floor slab sagged to an unacceptable degree.
Accordingly AMEC advised their sub-contractor of their intention to set-off
monies under clause 23.2.1 of the sub-contract, arising from the use of a proprietary
self-levelling screed to correct the deflection in the floors. On receipt of this notice,
the sub-contractor proposed adjudication and arbitration as provided for in the subcontract. However, a meeting took place one month later which culminated in AMEC
notifying Barrett that they had "withdrawn implementation" of clause 23.2.1. Matters
were not however resolved and AMEC continued to refuse to pay interim applications
for payments. Finally, Barrett applied to the court for summary judgment pursuant to
the rules of the Supreme Court Order 14 or, alternatively, for an interim payment
124
[1997] 15-CLD-10-7
34
pursuant to Order 29 Rule 10.
In its defence and counter-claim AMEC submitted that they had a good
defence to Barrett's claim on three different counts as follows:
•
They firstly argued that they were entitled to an abatement of the sub-contract
price such that any outstanding liability to Barrett would be extinguished, by
reference to the diminution in value of the sub-contract works by reason of the
defects
•
Secondly, they argued that they were entitled to set-off the sums for remedial
works counter-claimed under clause 23.2.2 of the sub-contract
•
Thirdly, they argued that payment of the sums claimed in Barrett's applications
for payment were not due as the work was not "properly executed" in
accordance with the terms of the sub-contract.
Barrett argued that AMEC could not maintain a set-off against them because
the set-off claim, if it had ever been valid, had been withdrawn by AMEC. They
further argued that there was no difference between the so-called abatement as
pleaded and the claim to set-off the costs of the remedial works. If the abatement plea
was allowed, this would mean that the restrictions on the right of the contractor to
raise the set-off as imposed by the sub-contract conditions would be valueless to a
sub-contractor.
In a fairly sweeping judgement the court held that the sub-contractor was not
entitled to payment as claimed. It was held that the DOM 2 conditions did not prevent
AMEC from relying on the defence of abatement. AMEC were entitled to plead that
the value of Barrett's work was diminished by the cost of the works needed to rectify
35
the defects in it.
Interestingly, the court also held that at the same time AMEC would be
entitled to claim a set-off of the same costs under clause 23 of the sub-contract based
on a claim for damages for breach of contract. If AMEC were successful under both
heads they would not be permitted a double benefit.
Of further importance, the court held that a defendant in a supply contract,
including a building contract, may rely on the cost of remedying defects as a measure
of the reduced value of the goods or services provided. In the context of construction,
such costs may often be greatly in excess of the original value or price of the work
done.
The court also recognised that AMEC's third line of defence that the work was
not "properly executed" in accordance with the sub-contract was equally valid. Such a
claim was not in the nature of a set-off but was a ground of defence similar to but
distinct from the common law defence of abatement. It arose under the contract and
therefore was not excluded by the set-off provisions of the contract.
Finally, and perhaps academically, the court held that AMEC had not
withdrawn their claim to a set-off. Notifying that they had "withdrawn
implementation" of clause 23.2.1 had not amounted to withdrawal of their claim to a
set-off, but merely that they would not implement the claim before the outcome of
discussions between the parties was known.
36
3.4
Common Law Rights of Abatement Of Price
Generally in the UK, there are two different ways in which laws can be made.
The first is statutory law, which is made by Parliament and sets out measures to
protect the environment and the public by establishing general rules under which
environmental matters are regulated.125 Generally, although not exclusively, breaches
of statutory law are crimes and are punished by the courts using criminal sanctions,
such as fines, imprisonment or Court Orders. The second system is that of Common
Law, which is law made by Judges establishing legal precedents arising from disputes
between one person and another. Common law looks at the reasonableness of actions
and where actions are judged to be counter to established rights, the Courts can
impose civil sanctions such as injunctions, award of compensatory damages and Court
Orders. The framework of environmental rights is established under various types of
common law, principally the law of tort, but to a lesser extent contract and property.
The Employer will not wish to pay the full contract price first and then
counterclaim for damages by way of set-off. Apart from the inconvenience of doing
so, the legal fees as well as the cost of the remedial works themselves will create a
significant adverse cashflow for the Employer.126 He will also increase his exposure
to the consequences of the Contractor’s possible insolvency, always a serious
consideration in the present economic climate.127 Instead the Employer will wish to
deduct the cost of remedial works from the amount due to the Contractor. He has this
right at common law to raise a defence of abatement against any action for payment in
full by the contractor Slater v. CA Dumequin Ltd128. This right of abatement only
applies to defects which are patent at the time payment is due.129
125
Waste Dynamics (2003). “Common Law and Civil Liability” from
http://www.wastedynamics.name/images/ No9%20Common%20Law.pdf
126
Daniel Atkinson (1999). “ Defects” from http://www.atkinson-law.com/cases/ CasesArticles/
Articles/Defects.htm
127
Ibid.
128
[1992] 29 CON LR 24
129
Supra No.125
37
It is suggested that the amount by which the Employer might rightfully reduce
the amount due to the Contractor is limited to the cost which the Contractor would
have incurred in remedying any defect.130
Where the defects are the responsibility
of the Contractor and he does not carry out the remedial work within a reasonable
time then the Employer is entitled to abate the amount otherwise due to the
Contractor, by the amount it would cost the Employer to remedy the defect. This
additional liability arises from the Contractor’s further breach of contract in not
remedying the defect.
3.5
Abatement Under UK’s Housing Grants, Construction And Regeneration
Act 1996 (HGCRA), Part II
The Housing Grants, Construction and Regeneration Act 1996, (HGCRA)
introduced statutory provisions seeking to regulate the right to withhold payment, and
so impacts on the law of set-off.131
Under Section 104, it is stated that the HGRCA only applies to ‘construction
contracts’ , these being contracts :
1) For the carrying out of construction operations ;
2) Arranging for the carrying out of construction operations by others ;
3) Providing labour or the labour of others for the carrying out of construction
operations.
References to construction contracts include agreements to carry out
architectural design or surveying work and to provide advice on building,
engineering, decoration or landscaping in relation to construction operations.
130
Ibid.
Neil F. Jones (1991). “Set-off In The Construction Industry.” Blackwell Science, United Kingdom,
pg 47 - 61
131
38
Construction operations are themselves defined in section 105 of the Act and
may broadly be summarized as work or work and materials in connection with
building and engineering. Agreements purely for the sale of goods do not come within
the definition. Certain operations are expressly excluded from the definition of
construction operations132 including, by virtue of the Construction Contracts
Exclusion Order 1998 (SI 1998 No. 648), certain agreements arising under statute and
under the private finance initiative.133 The exclusion order also excludes certain
finance and development agreements from the ambit of the HGCRA. Further the
HGCRA does not apply to contracts with a ‘residential occupier’ of a dwelling or
flat.134Lastly, the HGCRA only applies to agreements in writing.135 (defined in section
107).
In relation to construction contracts, it is provided by the HGCRA that:
•
A party shall have the right to refer disputes to adjudication under a
procedure complying with section 108 ; and
•
A party shall be entitled to stage payments unless the duration of the
work is or is expressed to be less than 45 days (section 109); and
•
The contract shall provide an adequate mechanism for determining
what payments become due, when and the final date for payment
(section 110); and
•
The right to withhold payment is restricted to those circumstances
where an ‘effective notices’ is given (section 111); and
•
There shall be a right to suspend performance for non-payment
(section 112); and
•
Pay when paid provisions, except those linked to insolvency, are
prohibited (section 113).
132
See Section 105(2), HGCRA 1996 Part II
Neil F. Jones, loc. cit.
134
See Section 106, HGCRA 1996 Part II
135
See Section 107, HGCRA 1996 Part II
133
39
Further, where construction contract does not comply with any of these
requirements, the relevant provisions of the Scheme for Construction Contracts will
apply as if the Scheme were an implied term of the contract.136
The JCT and other bodies have amended their standard forms of contract with
the intention that they should comply with the HGCRA.137 Despite this, there is
nothing to stop the parties using earlier versions of JCT contracts if they wish.138 To
the extent that those earlier version do not comply with the HGCRA, the consequent
effect will be that the relevant parts of the Scheme will be implied.139 In addition, in
relation to those contracts which do not come within the definition of ‘construction
contract’, the parties are free to adopt terms which do not conform with the HGRCA.
For these reasons it cannot be assumed that the pre-existing versions of the standard
forms of building contract in use prior to the HGCRA will entirely fall into disuse, or
that the decisions relevant to them will become entirely redundant.
Where party wishes to rely on any of the provisions of the Scheme for
Construction Contracts it will have to go through the process of establishing that the
contract in question:
•
Is a construction contract; and
•
Does not relate to a residential occupier; and
•
Is in writing; and
•
Does not conform with a particular requirement of the HGCRA.
Adjudicators appointed under the Scheme may find themselves called on to
decide on the above matters.140
136
See Section 104 (4), HGCRA 1996 Part II
Neil F. Jones, loc. cit.
138
Ibid.
139
Ibid.
140
Neil F. Jones, loc. cit
137
40
3.5.1 Withholding Payment
A statutory restriction on the right to withhold payment is conferred by section
111(1) which provides:
1) A party to a construction contract may not withhold payment after the final
date for payment of a sum due under the contract unless he has given an
effective notice of intention to withhold payment.
The notice mentioned in section 110(2) may suffice as a notice of intention to
withhold payment if it complies with the requirements of this section.
2) To be effective such a notice must specify:
a) The amount proposed to be withheld and the ground for withholding
payment, or
b) If there is more than one ground, each ground and the amount
attributable to it,
and must be given not later than prescribed period before the final date for payment.’
Prima facie, section 111(1) does not restrict the right to abate the price (i.e. the
value of the measured work) because:
1)
It does not expressly do so; and
2)
The words of section 111(1), i.e.’ … of a sum due to under the
contract…’, arguably allow the paying party the right to contend that
there is no sum ‘due’ because of either defective, incomplete or nonconforming work. Support for this proposition may be discerned, by
analogy, from the decisions in Acsim v. Danish, Cameron v. Mowlem
and Barrett Steel Buildings Ltd v. Amec Construction Ltd (see-Chapter
2). However, there may be an exception to this approach (see section
3.2.2).
41
Assuming, as is likely, that the courts interpret section 111(1) as leaving the
common law right to abate intact, the paying party under a construction contract will,
in principle, be entitled at any time to exercise the right to abate the price without
giving any advance notice of the intention to do so.141 Therefore if defective
incomplete or non-conforming work is discovered after the payment notice under
section 110(2) is given, and after the last date for giving notice of intention to
withhold payment has passed, the paying party may reduce the amount to be paid by
reference to the value of the abatement of the price.142 Although it will remain open to
the paying party to dispute the sum ‘due’, the receiving party could overcome this by
asking the arbitrator to decide the amount due, the date when it was due and whether
and effective notice was given in accordance with the contract.143
In principle, therefore, it would appear that the effective notice under section
111(1) will only apply to the withholding of payment by way of set-off. If so, then in
order to determine that may be withheld it will be necessary look at the background
law, in which case a party wishing to withhold payment will be required to establish
that the basis for withholding payment is not prohibited by the contract and is one of
the three recognized categories of set-off, and if unable to do so the party withholding
payment will be ordered to pay the sum due.144
If the preceding propositions are correct, the HGCRA is procedural in nature,
at least in relation to set-off, and does not alter the substantive law concerning
abatement or set-off.145 Furthermore, it means that the HGCRA has not addressed the
Latham recommendation that set-offs should not relate to any contract other than the
one in progress, or the criticism of set-off.146
141
Neil F. Jones, loc. cit.
Ibid.
143
Ibid.
144
Neil F. Jones, loc. cit.
145
Ibid.
146
Ibid.
142
42
3.5.2 Abatement And Set-Off In Response To The Claim
Under Part 1 of the Scheme, by paragraph 20, the Adjudicator ‘… shall decide
the matters in dispute’ and may take into account any other matters … which are
matters under the contract which he considers are necessarily connected with he
dispute’.
If adjudication is commenced in relation to a claim for the value of work done,
the employer might respond by alleging that the work is defective. If so, paragraph 20
of the Scheme permits a defects cross-claim to be utilized as a defence against a
valuation claim. The defects entitle the paying party to invoke the defence of
abatement (see section 1.3) which is necessarily connected with the dispute.147 It was
not necessary to give notice of set-off under the pre-April 1998 contracts in order to
exercise the right to abate.148
The position is likely to be different, however, where defects are relied on by
way of an equitable set-off rather than abatement. In those circumstances the
adjudicator should not entertain the defects cross-claim unless it has been the subject
of an effective notice.149
Allowing a cross-claim into an adjudication would beg the question of whether
it can stand as a counterclaims well as a defence. This is difficult but it is possible
that, so far as the cross-claim overtops the original claim, it may constitute a separate
dispute so that the adjudicator ought not to make a decision in favour of the
counterclaiming party other than by way of dismissing the original claim to the extent
that it is extinguished by the cross-claim.
147
Neil F. Jones, loc. cit.
See Ascim (Southern) Ltd v. v. Danish Contracting & Development Co. Ltd [1989] 47 BLR 22
149
See Section 1.3 GGCRA Part II, 1996
148
43
3.5.3 The Adjudicator’s Decision – Abatement and Set-Off In Response
The Scheme adjudicator is empowered by Rule 20 of the Scheme to decide the
matters in dispute. In so doing he may decide that any of the parties to the dispute is
liable to make a payment under the contract, and decide when the payment is due and
the final date for payment. This power is subject to any effective notice of
withholding of payment.
Further disputes may arise between the parties after the adjudicator has given
his decision on a particular dispute. For example, the adjudicator may order that a
payment be made but the paying party may discover defects (or further defects) after
the adjudicator has given his decision and, as a result, refuse to pay the amount
decided on in the decision.150 The paying party could argue that he is merely abating
(this would be the position where he is setting off a defect cross-claim against a
valuation claim) or legitimately setting off within the contract (setting off may,
however, be difficult because under the Scheme a notice of intention to withhold
payment under section 111 will nearly always need to be served before the decision is
reached, if it is to be effective in avoiding having to honour the decision itself).151 It is
arguable however that the paying party, if he can establish either an abatement or
(subject to an effective notice ) a set-off, may be able to resist payment of an
adjudicator’s award.
There is, however, a further difficulty to be overcome when deploying an
abatement of an adjudicator’s decision. Namely the effect of Rule 23 of the Scheme
which provides:
1.) In his decision, the adjudicator may, if he thinks fit, order any of the
parties to comply peremptorily with his decision or any part of it.
150
151
Neil F. Jones, loc. cit.
Ibid.
44
2.) The decision of the adjudicator shall be binding on the parties and they
shall comply with it until the dispute is finally determined by legal
proceedings, by arbitration (if the contract provides arbitration or the
parties otherwise agree to arbitration) or by agreement between the
parties’.
By virtue of Rule 23 the parties are bound to comply with the decision until
the dispute is finally determined. It is difficult to reconcile the concept of abating or
setting off against decisions with the strict wording of Rule 23(2). It is arguable that
adjudicators’ decisions are not susceptible to abatement or set-off.152 If so an
exception may exist to the general rule, mentioned in section 3.1.4, that the paying
party has the right to contend that there is no sum due. It is arguable that rule 23(2),
properly construed, does not prevent the abatement of an adjudicator’s decision on the
basis that the binding nature of the decision is only as to the amount payable subject
to the terms of the contract relating to and affecting payment. However this view may
prove inconsistent with the decision in Macob Civil Engineering Ltd v. Morrison
Construction Ltd,153 which found that decisions are binding even when the adjudicator
errs on the facts, law or procedure. It may be that Rule 23(2) is ultra vires (see section
3.2.3)154.
Enforcement of the adjudicator’s decision may be sought though the court
either by an application under Part 24 of the CPR155 for summary judgment or
exceptionally by way of mandatory injunction or an order for specific performance.156
It is anticipated that Part 24 CPR will probably be the more favoured route for
enforcement of decisions requiring the payment of money.157 The basis of the
application will be that the adjudicator has decided that the sum is due and that any
152
Neil F. Jones, loc. cit.
[1999] CILL 1470; 16-CLD-05-07
154
Supra No.151
155
CPR – The Civil Procedure Rules which came into effect on 26 April 1999
156
See Macob Civil Engineering v. Morrison Construction Ltd. [1999] CILL 1470; 16-CLD-05-07
157
Supra No. 151
153
45
defence to payment ‘has no real prospect’ of succeeding until the matter is finally
determined by the court or by agreement.
The defendant might seek to raise an arguable defence to the claim by relying
on a post decision abatement or set-off and arguing that the obligation to pay has been
discharged by virtue of the abatement which, in effect, constitutes a form of
compliance.158 Post decision abatement or set-off is not expressly inhibited by Rule
20 or Rule 23(2). Alternatively it may argued that the underlying basis of the
abatement or set-off justifies the court granting a stay of execution judgment pending
the determination of the abatement or set-off as a special circumstance under Order 47
of the Rules of the Supreme Court (expressly preserved by the CPR) or for making a
conditional order under Part 24 CPR.159
It is uncertain whether the first of the preceding arguments will succeed. If it
does it will be seen as seriously undermining Scheme adjudication, especially as the
post-decision abatement or set-off will not finally determine the dispute giving rise to
the decision. There is some authority indicating that the second argument will not
generally find favour. In the case of B.W.P (Architectural) Ltd. v. Beaver Building
System Ltd,160 it was held that the existence of a bona fide counterclaim did not
provide sufficient reason for a stay of execution. Further, in Tubeworkers Ltd v.
Tilbury Construction Ltd,161 the court, in connection with the old Green Form of
subcontract, was unwilling to usurp the function of the adjudicator by granting a stay
of execution of judgment. In that case the court accepted that there might be
exceptional circumstances to justify the grant of a stay but that the relevant terms of
the contract’ must be paramount and take precedence over the court’s discretion under
Order 47’.
158
Neil F. Jones, loc. cit.
Ibid.
160
[1998] 42 BLR 86
161
[1985] 30 BLR 67
159
46
Whether the terms of Rule 23(2) will be found to override the right to abate or
the court’s residuary discretion to grant a stay in exceptional circumstances remains to
be seen.162 However, an exceptional circumstances might be found to exist where, for
instance, there are competing adjudication decisions as a result of the post decision
abatement or set-off being referred to adjudication.163 If one of the parties insisted on
payment of decision in his favour without taking account of the decision in favour of
the other party that might, assuming the right to abate is found to have been abrogated
by Rule 23(2), constitute an exceptional circumstance justifying a stay of execution or
a ground for making a conditional order.
3.6
Conclusion
The defences of set off and abatement share some similarities. In actual fact,
they are very different claims and have their own requirements and methods of
application. Care should be taken to ensure that the correct defence is used in the
correct context and that the requirements of the Construction Act are followed. The
key point to remember is that abatement operates to reduce the contract price, whereas
set off is the right to set off another claim against that contract price.
162
163
Neil F. Jones, loc. cit.
Ibid.
47
CHAPTER IV
PRINCIPLES OF ABATEMENT AND MEASURE OF DAMAGES DUE TO
DEFECTIVE WORKS
4.0
Introduction
As discussed before, the rule of abatement is a right that exists in common
law. This means it is something a defendant can argue even if the contract with the
contractor or sub-contractor does not deal with abatement. As abatement is only a
defence to a claim, it could be equally argued as part of a counterclaim under the
contract i.e. that the contractor has breached a contractual obligation by producing
defective works.
Over the last 15 or so years this rule has been the subject of debate as the
construction industry and the courts attempt to define the rule’s application in
today’s industry.165
165
Greg Brownlee (2009), “ Understanding The Rule Of Abatement.” From
http://www.cnplus.co.uk/hot-topics/legal/understanding-the-rule-of-abatement/5204633.article
48
Essentially abatement is a defence to a claim for payment by a contractor
or sub-contractor. It applies in circumstances where a defendant argues that they
are not liable to pay the amount claimed because there are defects in the work for
which the payment is sought. If a defendant is able to prove that the alleged
defects do exist and that the defects have caused a reduction in the value of the
thing constructed, the defendant will only be liable to pay an amount that accounts
for this reduction in value. A withholding notice will not, however, normally be
required for a defence of abatement to be argued.
The notice obligations under the section 111 of the UK’s Housing Grants,
Construction and Regeneration Act 1996 are well understood. The consequences
of not providing the right notice on time means the party concerned then has a
very restricted ability to argue before a tribunal that they are not liable to pay the
full amount claimed – however, abatement is an exception. An employer’s right to
defend a claim for full payment on the basis that defects have reduced the value of
the construction project will override the failure to provide, or properly provide, a
Section 111 notice. That is to say, if the work is defective, the amount due to the
contractor may be reduced correspondingly and thus, in reality, there is no
withholding against the proper amount due.
So, in what are the principles which entitled the injured party to establish a
defence of abatement of price to a payment claim and how is the value of
abatement measured? This chapter will discuss the principles of abatement of
price that have been used by the court. In doing this, relevant cases from United
Kingdom has been used which are mostly found through Lexis-Nexis database
and some are found in books relating to abatement and set-off.
After the analyses have been done, there are several principles which have
been taken into consideration by the court in accessing and granting an abatement
of price. The principles in awarding and measuring the damages in abatement of
price which will be discussed as follows:
49
i) Common Law right for abatement
ii) Measure for cost of damages
iii) The right of abatement of price due to causes other than defects
iv) The rights for abatement in cross action claim
4.1
Common Law Right For Abatement
An injured party can seek for abatement of defective works through the
Common Law right though it is not expressly included in the construction
contract. Abatement of price should not be indistinguishable from an award of
damages.
4.1.1 Gilbert-Ash (Northern) Ltd v. Modern Engineering (Bristol) Ltd166
The appellants entered into a contract with Bradford Corporation to carry
out building work on a market development scheme. The principal contract was in
the usual R.I.B.A. Local Authorities (with Quantities) 1963 edition form, clause
27 whereof provided that where the employer's architect had certified sums as due
to a nominated sub-contractor the con-JJ tractor was required to pay them over to
the sub-contractor within 14 days of certification less only:
(i)
any retention money provided for by the sub-contract;
(ii)
any sum to which the contractor might be entitled in respect of delay an
the completion of the sub-contract works and
(iii)
166
a specified cash discount.
[1974] 1 BLR 75, HL
50
The appellants adopted a special sub-contract form for nominated subcontractors which incorporated the principal contract save where its terms
differed from the sub-contract form. Clause 14 of the sub-contract form, relating
to the payment of sub-contractors differed from clause 27 of the principal
contract in that the contractor became liable to pay only when he received the
money from the employer and in that it also provided that " if the sub-contractor
fails to comply with any of the conditions of this sub-contract the contractor
reserves the right to suspend or withhold payment , the contractor also reserves
the right to deduct from any payments certified as due .and the amount of any
bona fide contra accounts and/or other claims which he, the contractor, may have
against the sub-contractor in connection with this or any other contract."
The appellants contracted for the steelwork to be done by the respondents
as nominated sub-contractors. The work was due for completion by May 17, 1969,
but it was not completed until June 12, 1969.
The corporation's architect certified the sum of £14,532 as due to the subcontractors but the contractor paid over only £10,000. On the sub-contractors'
claim for the balance of £4,532 the appellants relied on clause 14 of the subcontract and counter-claimed for delays and defective work. On the trial of the
preliminary issue whether clause 14 effectively excluded the principle laid down
in Dawnays Ltd. v. Minter167 , where it was said in the Court of Appeal, that an
interim certificate is the equivalent of cash or negotiable instrument and therefore
must be paid less only permitted deductions which in this case only retention,
discount and previous payment.
The sums certified and paid to contractors as due to sub-contractors must
be paid over without deductions except as provided for under clause 27 of the
principal contract, the official referee held that, albeit the clause had to be
167
[1971] 1 BLR 19
51
narrowly construed, it entitled the contractors to withhold the balance of the
amount due pending the determination of their cross claims for unliquidated
damages against the sub-contractors for delay and defective work. On appeal, the
Court of Appeal reversed that decision.
The learned judge, Lord Diplock held that a building contract is an entire
contract for the sale of goods and work and labour for a lump sum price payable
by installments as the goods are delivered and the work is done. Since the turn of
the nineteenth century at least there has been a principle of law which is
applicable to contracts of this type, but its effect is the converse of that expounded
by the Court of Appeal in the instant case. That principle is stated authoritatively
in the judgment of Parke B. in Mondel v. Steel168 who described it as "established"
by that date. In so far as it applies to contracts for the sale of goods it has since
been incorporated in section 53 of the Sale of Goods Act 1893; in so far as it
applies to contracts for work and labour it still rests upon the common law. The
principle is that when the buyer of the goods or the person for whom the work has
been done is sued by the seller or contractor for the price, stated in the act as
below:
" it is competent for the defendant, . . . not to set-off, by a proceeding in the nature
of a cross action, the amount of damages which he has sustained by breach of the
contract, but simply to defend himself by showing how much less the subject
matter of the action was worth, by reason of the breach of contract;"
From the case above, the principle taken by the court in determining
whether a party can take an abatement action in a building contract where there is
no expressed provision for abatement stated in the contract is that a building
contract is an entire contract of sale of good which permitted action abatement to
be taken.
168
[1841] 1 BLR 106
52
4.2
Measure for Cost of Damages
The measure of the cost which the injured party suffers is based on the
difference between the value of the work and materials at the date supplied and
their value if they had not been defective. The court has decided that it is not only
the value of material which can be deducted, but also the value of the whole work
which has been affected due to the defective work. The other important principle
held by the court is that the deduction of price should not exceed the value of the
work itself should it not have been defective.
4.2.1 B.R. Hodgson Ltd v. Miller Construction Ltd (1995) Unreported
Hodgson was a specialist subcontractor employed by Miller under a
DOM/1 subcontract to carry out floor screeding work. The measured work was
valued at £81,195.60, of which Miller had paid £50,947.25. Hodgson issued
proceedings for the balance due, being £27,317.85. Miller contended that the work
was defective because, contrary to the requirements of the subcontract
specification, Hodgson had failed to load the slurry grout on the concrete slabs.
Hodgson admitted that it had breached the contract but asserted that the cost of the
work omitted was £192.08. Miller contended that the cost of the work omitted was
£1,358.00. However, Miller also contended that there should be deducted from the
price of the works the sum of £32,407.28 by way of abatement of the price
because by reason of the breach the floor was valueless. Hodgson argued that the
abatement should, at most, be the sum of £1,358.00, representing the value of the
materials omitted.
53
The official Referee decided that there was nothing in the subsequent
authorities materially detracting from or adding to the statement of law in Mondel
v. Steel169. Further, he held that the abatement was not limited to the cost of the
missing grout. The contract was for the laying of a floor, and as it was contended
that the absence of the grout made the floor worthless, Miller should have leave to
defend.
By way of example the judge observed that, in a contract for the
construction of a simple reinforced concrete beam in breach of which steel
reinforcement was omitted, such that the beam was incapable of being safely
loaded, the beam for all practical purposes would be wholly valueless. The judge
considered that it would be an odd conclusion if the innocent party, in showing
how much less the beam was worth, was limited to establishing only the value of
the missing steel.
From the above case, the principle took by the court in determining the
diminishing value of work in abatement is not only the value of the defective
material itself which can be deducted, but also the diminishing value of the work
itself due to the defective work. This can be seen in the example given by the
judge where it not only the value of the missing materials which can be omitted,
but also the diminishing value of the works itself due to the missing materials.
This principle can be best applied in the current building defects scenario where
most of the time, the Contractor will try to cut corners by not applying or using
the specified materials or not following the specification in doing works which
can affect the value and the quality of the works.
169
1 BLR 106
54
4.2.2 C.A Dunquemin Ltd v. Raymond Slater170
The arbitrator, in evaluating the cost of abatement, treat it as a form of
variation and would value additional work for which no specific rates were
available since it was unlikely that the Bills of Quantities would cover the costs of
diminishing value involved. He acknowledge that evaluations made in this way
could result in ‘excess payments’ indistinguishable from damages in the
counterclaim, but wrote that if the various abatements are aggregated and applied
to the contract sum that was admissible. He substituted for the £ 41,041.91 award
in favour of the contractors to an award of £ 62, 497.00 in favour to the employer.
C.A. Duquemin Ltd applied to the court under section 22 and 23 of the
Arbitration Act 1950 for the interim award to be remitted to him on the ground
that he misconduct the proceedings which resulted in award.
The learned Judge Newey held that although the abatement price could
result in a ‘Nil’ award or judgment, it could not possibly result the seller being
ordered to make a payment to the buyer, since the abatement consists of the
difference between the goods as warranted and the value of the goods delivered.
The right of abatement is recognized in respect of goods in the Sale Of
Good Act 1863, which codified existing common law rules. The provisions of the
the 1863 Act have been re-enacted with amendments by the Sale of Goods 1979,
which reads:
“Where there is a breach of warranty by the seller… the buyer is not by reason
only of such breach of warranty entitled to reject the goods, but he may :
170
[1993] BLR 124
55
a) set up against the seller the breach of warranty in diminution or extinction
of the price, or
b) maintain an action against the seller for damages for breach of warranty.”
Section 53(2) states the measure of the damages which the buyer may
claim against “the estimated loss directly and naturally resulting in the ordinary
course of events from the breach of warranty”. The loss may obviously include the
cost of carrying out the remedial works.
Section 53(3) deals with the measure of “abatement”; it is “prima facie”
the difference between the value of the goods at the time of delivery to the buyer
and the value they would have had if they had fulfilled the warranty”. If the value
of the goods delivered was “nil” the seller cannot obtain any payment for them
from the buyer, but there is no possibility of his being ordered to make a payment
to the buyer. Cost of repair cannot be taken into account.
Judge Newey held further that the common law applicable to the
abatement of claims for damages in respect of supply of goods and the supply of
work and materials must originally have been the same and he think that,
notwithstanding statutory codification of those applicable goods, they remain the
same. He further held the arbitrator should deduct the difference between the
value of the work and materials supplied at the date when they were supplied and
their value if they had not been defective, but had been in accordance to the
contract. the result could have been to reduce the contractors’ claim to nil, but
could not have produced what might be described as “negative value”.
From the above case, the principle taken by the court in determining the
cost diminution value of work in abatement is that it should not exceed the value
of the work itself should it not have been defective and in accordance to contract.
56
This is explained under Section 53(3) Sale Of Good Act 1979 where “abatement”;
is the difference between the value of the goods at the time of delivery to the
buyer and the value they would have had if they had fulfilled the warranty”. If the
value of the goods delivered was “nil” the seller cannot obtain any payment for
them from the buyer, but there is no possibility of the seller being ordered to make
a payment to the buyer due to the diminishing value of the goods.
4.2.3 Mondel v Steel171
The action in this case was based on a special assumpsit on a contract to
build a ship for the plaintiff, at a certain rate per ton, and according to a certain
specification (setting it out) and the breach assigned was for not building the ship
with scantling, fastening and planking which is specified in the specification by
reason whereof the ship, in a certain voyage, was so much strained that it became
necessary to re-fasten and repaired. The plaintiff lost the use of the ship during the
time she was undergoing such repairs.
The defendant pleaded that the plaintiff ought not further to maintain his
action in respect of the alleged breach of contract, because he the defendant,
heretofore, before the Court of Exchequer at Westminster, in an action sought to
recover from the plaintiff the sum of 86 pounds 6s 4d, being the balance of the
price of the said ship calculated according to the said agreement and which
remained unpaid to him. The present defendant also try to recover from the
present plaintiff the further sum of 134 pounds 3s 2d, being the value of certain
work, labour and materials done and provided for the present plaintiff by the
present defendant in and about the said ship, for the extra additional to the work,
labour and materials mentioned and included in the said agreement. The whole of
171
[1841]1 BLR 106
57
the pleadings in that action were then set out. The defendant further says that all
the said issues were duly joined between him and the present plaintiff and
afterwards, at the General Sessions of Assize at Liverpool, before justices of the
Court of Common Pleas of the said county palatine of Lancaster, the said issues
were then tried by a jury.
The jury, in the first trial found that the defendant in this action had
committed a breach of the said contract and that the plaintiff was entitled for
compensation and damages in respect thereof. Their verdict for the present
defendant, for the difference only between the said compensation and damages
which they so found the plaintiff in this action was entitled to by reason of the said
breach of contract, the amount of the said balance, the value of the said extra and
additional work and labour and materials as aforesaid for the sum of 120 pounds
only. This was considerably less than the amount of the said balance and the value
of the extra and additional work, labour and materials. The defendant further says
that the said jury then found all the said issues as aforesaid joined for him,
assessed his damages on occasion of the premises in the said action, besides his
costs and charges by him in his said suit, to the said sum of 120 pounds.
Proceedings were afterwards had in the Court of Exchequer at Westminster and it
was considered by the said court that the present defendant should recover against
the present plaintiff his said damages of 120 pounds and also 264 pounds for his
costs and charges which said judgment still remained in full force and effect, not
in the least reversed or made void.
However, Judge Park B, in his judgment held that this plea states in
substance that the defendant had sued the plaintiff for the balance of the agreed
price of the vessel after payment of 3,500 pounds and also for a sum of 134
pounds odd for extra work for work, labour and for goods sold and delivered has
been made. This issue was joined and on the trial of the cause, the plaintiff gave
evidence in his defence of the same breach of contract alleged in the declaration
and insisted that if the amount of compensation to which he was entitled,
exceeded or equalled the balance of the price and the value of the extra work, the
58
present plaintiff was entitled to a verdict. If it was less, that he was entitled to a
deduction from the amount of both, which is an amount of compensation.
The plea proceeds to state (which the Judge assume correctly for the
purposes argument though the statement has arisen from mistake) that the learned
judge before whom the cause was tried, directed the jury and they found that the
present defendant had committed a breach of contract, and was entitled to some
compensation. They deducted from the price of the vessel and value of the extra
work and the present defendant had judgment for the amount, after such deduction
had been made, since the commencement of this suit. The plaintiff demurred to
this plea, assigning several causes of special demurrer, which it is not necessary to
notice, which in Judge Park B’s opinion that it is bad in substance.
He then held that that in all these cases of goods sold and delivered with a
warranty, work and labour, as well as the case of goods agreed to be supplied
according to a contract, the rule which has been found so convenient is
established. It is competent for the defendant, in all of those, not to set-off, by a
proceeding in the nature of a cross-action, the amount of damages which he has
sustained by breach of the contract, but simply to defend himself by showing how
much less the subject-matter of the action was worth, by reason of the breach of
contract. For defendant to obtain or is capable of obtaining, an abatement of price
on that account, he must be considered as having received satisfaction for the
breach of contract, and is precluded from recovering in another action to that
extent; but no more.
The opinion, therefore, attributed on this record to the learned judge is
incorrect and his decision was not warranted by law. All the plaintiff could by law
be allowed in diminution of damages, on the former trial, was a deduction from
the agreed price, according to the difference, at the time of the delivery, between
the ship as she was and what she ought to have been according to the contract. All
claim for damages beyond that, on account of the subsequent necessity for more
59
extensive repairs which could not have been allowed in the former action can
now be recovered.
From the case above, in abatement, the injured party not only can claim for
the diminuishing value of the works, but also the cost of repairing the works. This
can be seen in the judgment by Judge Park B where he has allowed the plaintiff to
recover the cost of repairing the defective ship. In accessing the amount where the
injured party can recover in an abatement calim, the court will not only access the
diminuishing value of the works, but also the amount of repairing works which
have been done to the work.
4.3.
The Rights for Abatement of Price Due To Causes Other Than Defects
Claim for delay, disruption or damaged caused by anything other than
which the contractor has constructed, could not be feature in a defence of
abatement.
4.3.1 Mellows Archital Limited v. Bell Projects Limited172
Mellows were subcontractors to Bell under a DOM/1 form of sub-contract.
Bell withheld £10,165.49 from the value of the work done because of losses
incurred as a result of delay by Mellows. At first instance Judge Wilcox, sitting as
an Official Referee, held that Bell’s losses could not be asserted by way of set-off
owing to the failure to comply with clause 23.2 of DOM/1. Nonetheless the judge
held that the claim for delay was an arguable defence to the interim payment
172
[19917] 87 BLR 26
60
claim, if the delay claim could be characterized not as a matter of set-off but as a
matter of abatement. Mellows appealed. The Court of Appeal held that the
defence of abatement does not include claims that assert losses attributable solely
to delay. In particular, as Lord Justice Hobhouse put it:
“It is therefore clear that, for a party to be able to rely upon the common
law right to abate the price which he pays for goods supplied or work
done, he must be able to assert that the breach of contract has directly
affected and reduced the actual value of the goods or work – “the thing
itself”.
In his judgement, he held that for a party to be able to rely upon the
common law right to abate the price which he pays for goods supplied or work
done, he must be able to assert that the breach of contract has directly affected and
reduced the actual value of the goods or work - the thing itself. In other words any
other loss or damage, if it is to be relied upon by way of answer to a claim for the
price, has to arise from the principle of equitable set-off. In most contractual
relationships there would be no need to draw a distinction between the two types
of defence. But under DOM/1 it is necessary to do so.
Whilst it may be possible to conceive of a case in which delay has affected
the value of the thing itself, the normal effect of breaches of the obligation of
timeous performance will be to cause losses to the other contracting party which
are consequential upon that breach and therefore can only be relied upon, if at
all, under the principle of equitable set-off. In the present case the factual situation
is clear. The plaintiff sub-contractor’s claim to be paid the price is based upon the
valuation of the goods supplied and work done. Indeed the valuation was the
defendant main contractor’s own valuation, and is undisputed. The case of the
defendants is that the plaintiffs’ delays caused them serious losses through the
prolongation of the head contract, the disruption of their own contractual works
and those of other sub-contractors, the need to accelerate other work, and the
61
reduced contribution to their own overhead expenses. Thus, the defendants’ case
is based upon financial losses which they say they have suffered as a consequence
of the plaintiffs, breaches of their obligations of timeous performance. Subject to
the terms of Clause 23, those losses can be relied upon to support an equitable setoff but they cannot justify the legal defence of abatement of the price.
In this case, Lord Justice Hobhouse held that the common law right of
abatement can only be use where the injured party is able to assert that the breach
of contract has directly affected and reduced the actual value of the goods or the
work – the thing itself. For breaches of the obligation of timeous performance, the
loses to the other contracting can only be recovered by way of equitable sett-off,
but not by way of abate the price of the goods and the works.
4.4
The Rights For Abatement In Cross Action Claim
The injured party has the rights to claim for abatement of price although
all the payment due to the other party has been paid by him. This principle will
not apply if he had set the cause of action is the breach of contract that cause of
action existed before and was independent of the payment and the only question
is, whether the plaintiff is precluded from recovering by reason of his not having
set up that breach of contract in defence to the former action it up, and either
failed to substantiate it, or obtained an inadequate reduction where his right of
action would have been extinguished. But not having done so, his right of action
remains.
62
4.4.1 Davis v Hedges173
CASE stated on appeal from the County Court of Oxfordshire, holden at
Oxford.
The action was brought to recover the sum of 42l. 19s. 6d., being damages
sustained by the plaintiff for the improper performance of certain work agreed to
be done by the defendant for the plaintiff at his house, Burford, Oxon, under a
building contract, and for not performing the work according to certain
specifications and also for removing certain partitions and appropriating certain
materials.
After the opening of the plaintiff's case, it was stated to the judge that the
defendant had brought an action in the Court of Common Pleas against the
plaintiff for the recovery of the price of the work under the contract, and had
recovered the whole amount.
It was, however, contended on behalf of the plaintiff that he was not in any
way prejudiced in the present action, which was one for damage for the nonfulfillment of a contract, by the fact that the defendant had brought a previous
action against him in a superior court, to recover the price of the work done, the
improper performance of which was the subject-matter of the present case: in
other words, that the plaintiff either could not, or in the alternative was not bound
to set off the subject-matter of the present action in and to the previous action of
the defendant, but could now bring his cross action. The judge decided the
contrary, and no suited the plaintiff.
Judge Hannen in his judgement said that the plaint was for damages for the
non-performance and improper performance of certain works which the plaintiff
173
[1871] 6 QB 687
63
had employed the defendant to execute.
The defence set up was, that the defendant had sued the plaintiff for the
price of the work now alleged to have been improperly done, and that the plaintiff
had settled by paying the whole amount then sued for; and as the plaintiff might
have given the non-performance and defective performance now complained of in
evidence, in reduction of damages, the plaintiff was precluded from bringing a
cross action for that which he might have availed himself of as a defence to the
former suit.
The county court judge decided in favour of the defendant, holding that all
the damages now sued for might have been used in reduction of damages in the
former action, and that for anything which might have been so used no cross
action could be maintained. Judge Hannen’s opinion that the decision by the
country judge was erroneous.
His judgement was held by referring to the particular point decided in
Mondel v. Steel 174was, that a person who has in fact obtained, in an action
brought against him, an abatement of the price of work done, by reason of a
breach of contract in its execution, is not precluded from suing for special damage
resulting from the breach of contract; but it leaves undecided the question whether
he was bound to obtain the abatement in the action in which he was a defendant,
or might recover it as damages in a cross action. The expression of Parke, B.,
which was a good deal relied on in the argument, that "to the extent that he
obtains, or is capable of obtaining, an abatement of price, he must be considered
as having received satisfaction for the breach of contract," has reference to the
facts of the case in which the plaintiff did claim and did obtain an abatement. It is
clear that before any action is brought for the price of an article sold with a
warranty, or of work to be performed according to contract, the person to whom
174
[1841]1 BLR 106
64
the article is sold, or for whom the work is done, may pay the full price without
prejudice to his right to sue for the breach of warranty or contract, and to recover
as damages the difference between the real value of the chattels or work, and what
it would have been if the warranty or contract had not been broken.
He held that there must be a new trial.
Judge Lush, in the second judgement by referring to Hamlet v.
Richardson175 and Brown v. M'Kinally176 held that in the present case, the cause
of action is the breach of contract; that cause of action existed before and was
independent of the payment; and the only question is, whether the plaintiff is
precluded from recovering by reason of his not having set up that breach of
contract in defence to the former action. If he had set it up, and either failed to
substantiate it, or obtained an inadequate reduction, his right of action would have
been extinguished. But not having done so, his right of action remains.
4.5
Conclusion
Having analyzed and reviewed all the cases above, it has been noticed that
the judge will evaluate the diminishing value of works based on the principle sets
in the Sale of Good Act in which it is just not the value of defective material will
be taken consideration, but also the diminishing overall value of the work itself
caused by the defective works.
175
176
9 Bing. 644
2 Esp. 278
65
Abatement, although was not specifically expressed in the conditions of
construction contract, is still a valid defence for a claim since it is acknowledged
in the common law under the Sale of Good Act. This right cannot be denied and
the injured party in the construction contract can use their rights to claim for
abatement in works if there are defects or works which are not in accordance to
the specification and contract. However, claim for damages due to delay,
disruption or damaged caused anything other than which the contractor has
constructed cannot be raised as a defence of abatement.
From the principle of abatement in the UK above, the Malaysian
construction industry may also adopt the principle of abatement as a defence for
defective works. This is due to the concept where a construction contract is also
governed by the common law under the Sale of Goods Act. There is also
provision under clause 59 in Malaysian Sale of Goods Act 1957 to give the right
for the injured party to abate the price, which reads:
“ Where there is a breach of warranty by the seller, or where the buyer elects or
is compelled to treat any breach of condition on the part of the seller as a breach
of warranty, the buyer is not by reason only of such breach of warranty entitled to
reject the goods; but he may-
(a) set up against the seller the breach of warranty in diminution or extinction
of the price; or
(b) sue the seller for damages for breach of warranty
66
CHAPTER V
CONCLUSIONS AND RECOMMENDATION
5.1
Introduction
The title of this study is defence of abatement in defective works. As
mentioned in introduction, the objective of this study is to find the principles of
abatement claim and what are the criteria on the measure of damages which
abatement claim can be made due to defective works. This chapter would also
discuss the problems encountered during the preparation of this study and the
recommendation for further study.
5.2
Summary of Study Findings
Overall, the objective of this study has been achieved through the literature
review and the documentary analysis of law cases. The principles of abatement
claim and what are the criteria on the measure of damages which abatement claim
can be made due to defective works have been identified and is summarized in
Table 5.1
67
Table 5.1: Summary of study findings
Item
Description
Findings
1
Principles of Abatement
Findings
a.
Rights of abatement under
Common Law
• Gilbert-Ash
(Northern)Ltd v Modern
Engineering Ltd
• The injured party have the right of
abatement under the Sale Of Good
Act although the rights was not
expressed in the condition of contract
b.
Rights for abatement for
damages other than defective
works
• Mellows Archital Ltd v
Bell Projects Ltd
•
Claim for delay, disruption or
damaged caused by anything other
than which the contractor has
constructed, could not be feature in
a defence of abatement.
c.
Rights for abatement in cross
action claim
• Davis v Hedges
•
The injured party have the rights to
claim for abatement of price
although all the payment due to the
other party have been paid by him
This principle will not apply if he
had set the cause of action in the
breach of contract that cause of
action existed before and failed
•
2
Measure of Damages
a
Measure of diminution value
in defective works
• B.R. Hodgson Ltd v.
Miller Construction Ltd
(1995) Unreported
• C.A Dunquemin Ltd v.
Raymond Slater
• Mondel v Steel
Findings
•
•
The measure of the cost which the
injured party suffers is based on the
difference between the value of the
work and materials at the date
supplied and their value if they had
not been defective.
It is not only the value of material
which can be deducted, but also the
value of the whole work which has
been affected due to the defective
work.
68
5.3
Problems Encountered During Study
The main problem encountered during preparing this study is the lack of
reference source due to the geographical location. As a part time student located in
Sarawak, it is difficult for us to source for books and journal for reference due to
lacks of books in our State library. The other problem encountered is the time
constraint. In the two month period given, writing has been executed in a very
quick manner, particularly during data collection process. If there is more time
and source available, this study can be done in a more comprehensive way.
5.4
Further Studies
For further research on abatement, it is suggested that a study on whether
the application of abatement of price based can be taken as an action based on our
local common law and construction law.
5.5
Conclusion
Abatement is the common law right in which a party can institute to assert
his or her rights. Although this right is not expressly stated in most of the standard
forms of contract, however due to the nature of construction which also governed
by the Sale of Goods Act, this right has become available to be use and utilized.
In set-off, notice have to be served earlier before action of set-off can be
took. This is expressly stated in the conditions of contract whether used in the
UK’s construction industry of our Malaysian construction industry. The
69
uniqueness of abatement is that the injured party would not have to serve any
notice for them to take the defence of abatement for a claim.
Abatement have to be distinguish from set-off. The value of works which
will be diminish should not exceed the amount of the work itself should the work
is not defective. This principle is different with set-off where the value which is
going to be set-off can be more than the value of the work itself. In assessing an
abatement claim, judges will took into consideration only to the value of defective
material and value of the work due to the defective material as an amount to be
deducted from a claim.
There is a wide potential in abatement which may be utilized by the
construction industry in protecting their rights in contract. Damages due to
defective works are the common problems faced by our construction industry
today and abatement may become one of the effective defence in claim for the
damages due to defective works.
69
REFERENCES
Brewer, G. (2006). “Legal Case Study: The defence of abatement”. Contract Journal,
Retreive 15 July 2009, from
http://www.contractjournal.com/Articles/2006/11/01/52679/legal-case-studythe-defence-of-abatement.html.
Daniel Atkinson (1999). “Defects”Retreive 15 July 2007, from http://www.atkinsonlaww.com/ cases/CasesArticles /Articles/Defects.htm
Dolan, S. (2007). “The Common Law Defence of Abatement : A Change of
Direction” . Retrieve 18 July 2009 from http://www.mhc.ie/news-events/legal-articles/220/.
Greg Brownlee (2009), “ Understanding The Rule Of Abatement.” Retrieve 18 July
2009 from http://www.cnplus.co.uk/hot-topics/legal/understanding-the-ruleof-abatement/5204633.article
Herber Smith (2009). “Set-Off and Abatement Under International Construction
Contract” Retrieve 18 July 2009 from
http://www.herbertsmith.com/NR/rdonlyres/2FE9904E-2AE1-4FE5-A6154777F206A298/11396 /Newsletter4EJune2009.pdf
John Parris (1993). ”Construction Law Digest”. BSP Professional Books. Oxford.
Kevin Barrett (2008). “Defective Construction Work and The Project Team.” WileyBlackwell. United Kingdom
70
Lim Chong Fong, (2004). “The Malaysian PWD Form of Construction Contract.”
Sweet & Maxwell Asia, Selangor.
Murdoch, J. and Hughes, W. (1992). “Construction Contracts Law and
Management.” E & FN Spon, Great Britian.
Neil F. Jones (1991). “Set-off In The Construction Industry.” Blackwell Science,
United Kingdom
Silver, R. (2008). “Abatement, Set-Off and Counterclaim – What’s the Difference? ”
Retrieve 2 August 2009 from http://www.silver-shemmings.co.uk/
construction-law/abatement-set-off-counterclaim.asp.
Simon JA Tolson (2004). “ Payment, Abatement and Set-Off” Retrieve 2 August
2009 from http://www.fenwickelliott.co.uk/files/docs /articles/html/
payment_abatement_setoff.htm
Sundra Rajoo, “The Malaysian Standard Form Of Building Contract (The PAM 1998
Form).” Malayan Law Journal Sdn. Bhd, Kuala Lumpur.
Wong Bi Xia (2009).”Measure Of Damages For Defective Building Works.”
Universiti Teknologi Malaysia. Tesis Msc.
71
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