6 January 2009 00:33

Abatement, set-off and counterclaim – what’s the difference?

Multiplex Construction (UK) Ltd v Cleveland Bridge UK Ltd, TCC 5 June 2006.

The difference between abatement, set-off and counterclaim is all too often misunderstood. 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, are incomplete, or not carried out at all. 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. 

Damages sought as a counterclaim or advanced as part of a set-off will usually relate to the cost of rectifying the defective works or the costs caused by delay by the application of liquidated damages.  Abatement, however, will relate to the resultant reduction in value of the work as a result of the defect. 

Pursuant to the provisions of the “Construction Act” (Housing Grants Construction and Regeneration Act 1996) a party is required to issue a compliant notice of withholding in order to be permitted to apply a set-off against an amount otherwise due. Generally, however, where a party seeks to apply an abatement, no notice of withholding is required insofar as a party is only obliged to pay the amount properly due. 

In Multiplex Construction v Cleveland Bridge a dispute arose out of the construction of the steelwork for the new Wembley stadium, and included allegations by Multiplex that there were extensive defects in the steelwork.  

In arriving at his decision, the Judge reviewed every case cited to him in relation to abatement and concluded:

• in a contract for the provision of labour and materials where performance has been defective, the employer is entitled at common law to maintain a defence of abatement
• the measure of abatement is the amount by which the product of the contractor’s endeavours had been diminished in value as a result of that defective performance;
   
• the method of assessing diminution in value will depend upon the facts and circumstances of each case;
   
• in some cases, diminution in value may be determined by comparing the current market value of what has been constructed with the value of what should have been constructed. In other cases, it may be determined by the cost of the remedial works (either in isolation or in conjunction with other factors for determining diminution in value);
   
• the measure of abatement can never exceed the sum which would otherwise have been due to the contractor as payment;
   
• abatement is not available as a defence to a claim for payment in respect of professional services; and
   
• claims for delay, disruption or damage to anything other than that which the contractor has constructed cannot feature in a defence of abatement.

R Silver
March 2007

 

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