| Date | 14 January 2008 |
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| Judgment | Mellowes Archital Ltd -v- Bell Projects Ltd, CA 15th October 1997 [1997 CILL 1320] |
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| The Issue | Whether a claim in respect of delayed costs can be applied as an abatement against a claim for payment by a sub-contractor. |
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| Implication |
There is a clear distinction between claims in respect of defective work, and those in respect of delayed performance. In the latter case recovery must be by way of a set-off or cross claim complying with, where appropriate, the terms of the contract. |
printIn Contract Journal of the 19th November 1997 I examined the case of Barrett Steel Building -v- Amec Construction which considered the types of defence a main contractor might have against a claim for payment from a sub-contractor for defective work. The case concluded that the main contractor may effectively have three lines of defence. It might make an abatement of the sub-contractor's claim by deducting a sum of money corresponding to the reduction in value of the defective works. Secondly, the main contractor would be entitled to set-off the sums for remedial works, in accordance where appropriate with the express terms of the sub-contract for set-off. Thirdly, the main contractor would in any event be obliged to pay only for those works properly executed in accordance with the terms in the contract, and thus a claim for payment for defective works would be correspondingly reduced. The case of Mellowes Archital Ltd -v- Bell Projects Ltd examined the manner in which a main contractor might similarly defend against a sub-contractor's claim for payment. In this case however, it was not argued that the works were defective, but instead that there had been delay in the performance of the subcontractor which had given rise to damages suffered by the main contractor. The Court of Appeal concluded that this was an entirely different situation and that the main contractor would not have the three lines of defence highlighted above. The main contractor's claim for the costs of delay could only be recovered by way of a set-off. Whilst in many cases this distinction would have no practical effect, in the context of a DOM/1 sub-contract, which contained 'exclusive remedy' mechanisms for the deduction of set-off, this decision was of critical importance. Where the main contractor had failed to operate the sub-contract mechanisms for set-off in accordance with the strict time scales, it would be denied its defence to the sub-contractor's claim for payment. Mellowes, the sub-contractor, sought summary judgment of interim payments due on 13th August 1995 and 13th September 1995. On 18th September 1995 Bell, the main contractor, wrote to their sub-contractor alleging that it had incurred additional cost due to delays on Mellowes part. If proved, these losses would have been sufficient to extinguish the sub-contractor's claim. Many readers will be very familiar with the provisions of clause 23.2 of the DOM/1 sub-contract, which in effect states that set-off by the main contractor will only be permitted when it has been quantified in detail and with reasonably accuracy, and the contractor has given notice in writing concerning the set-off, not less than three days before the corresponding sub-contractor's payment becomes due. In the Official Referees court it was held that Bell had failed to comply with the time scale for notice contained in clause 23.2 and thus these losses could not be applied as a set-off. However, the official referee held that there was nothing to stop the main contractor circumventing the provision of clause 23.2, applying these losses by way of an abatement. The general common law rule concerning abatement was established in 1941 in the case of Mondel -v- Steel. In this case it was held that the defendant might "simply defend himself by showing how much less the subject matter of the action was worth, by reason of the breach of contract". Whilst it was logical that "the subject matter of the action" (ie the goods or services being provided) might not necessarily be rendered of less worth by reason simply of delay, the Official Referee held that there was nothing in the rule to prevent an abatement of losses occasioned by delay. Lord Justice Buxton in the Court of Appeal held that this decision was misconceived. He recalled that Mondel -v- Steel was a case concerning repairs occasioned by defective works, and thus the abatement concerned itself with the reduced value of the works and not with "collateral" or consequential loss arising from delay in performance. Agreeing with this argument Lord Justice Hobhouse said "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'. Thus any other loss or damage, if it is to be relied upon as an answer to claim for payment, has to arise from the principle of equitable set-off."
CJ-9802
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