| Date | 19 November 1997 |
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| Judgment | Barrett Steel Building Ltd -v- AMEC Construction Ltd, 3 March 1997. 15CLD1011 |
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| The Issue | Refusal to pay for works carried out defectively. |
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| Implication |
The main contractor may have three lines of defence against a claim for payment for defective work. An abatement at common law, a set-off under the sub-contract provisions, or non-payment for works which are not completed in accordance with the contract. |
printSet-off, which is a form of counter-claim, concerns the deduction of damages caused by a party's breach of contract to reduce or extinguish payments due to that party under the contract. This can be contrasted with an abatement, which concerns the right to reduce sums otherwise payable by asserting that the sum claimed has not been earned. An abatement may therefore arise as a consequence of a breach of contract, for example defective works. Unlike set-off, however, an abatement may not necessarily require a breach of contract to be established. The case of Barrett Steel Building Ltd -v- AMEC Construction Ltd examined these matters in the context of the DOM 2 sub-contract conditions for use with the JCT 81 Design and Build form of contract. AMEC were main contractors for the building of a hospital. They had sub-contracted 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 sub-contract. However, a meeting took place one month later which culminated in AMEC notifying Barrett that they had "withdrawn implementation" of clause 23.2.1.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 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. 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 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.
CJ-9741
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