So what is abatement? Simply, it is the right to reduce the price for work or materials when what is provided is less than the contract requires. For example, if building work is defective, a claim for the full price can be reduced (abated) by the difference between the price and the true value of the work. In contrast, set-off is the right to deduct from payment otherwise due – for instance, the cost of remedying the defective work.
This uncertainty led wise payers to give notice for abatement as well as set-off – something you should continue to do if you can. However, when notice has been overlooked or given late, and you have lost the right to withhold, you may still be able to avoid paying what is claimed if it is not "payment of a sum due under the contract" as Section 111 puts it.
Here is a simple guide (taken from reported cases) as to whether or not notice is needed.
The scenario in each case is a claim for payment by a payee against a payer (a subcontractor against a contractor, a contractor against an employer, and so on).
When notice is not necessary
- The payee applied for valuation but didn't actually apply for payment. No payment application equals nothing due (Maxi vs Morton Rolls).
- The payee has not actually done any of the work for which he claims payment. There is nothing due and no sum to be withheld (SL Timber vs Carillion; Woods Hardwick vs Chiltern).
- The payment application doesn't comply with the contract. The payee was obliged to send a VAT invoice (Shimizu vs LBJ) or make an application with supporting documents and didn't. Failure to satisfy a pre-condition to the right to payment means payment is not yet due.
- Payment is not yet due but the payer has a set-off. Notice given too soon will be ineffective (Strathmore Building Services vs Colin Scott Greig).
- The claim is excessive (in terms of rates, prices or measured quantities). This is a valuation dispute and does not give rise to withholding.
When notice is probably necessary
- The work has not been done properly. If the work is not in accordance with the contract, its value is less than the sum claimed – this is true abatement. Legal opinion is divided (SL Timber vs Carillion; Woods Hardwick vs Chiltern, but, in contrast, see Northern Developments vs J & J Nicholls; Whiteways vs Impressa). It may be worth arguing that notice is not necessary – some adjudicators and judges will agree.
When notice is necessary
- A payment certificate has been issued under the contract. Pay now argue later (Rupert Morgan vs Mr and Mrs Jervis).
- The payee was overpaid on its previous application and the payer wants to recoup from the current payment. This is withholding (Millers Specialist Joinery vs Nobles).
- The payer has a claim against the payee (set-off), for example, for delay, liquidated damages or defects; or because the payer claims "contra-charges", for instance for providing scaffolding, clearing away debris, or repairing damage. All these are examples of set-off (VHE vs RBSTB; KNS vs Sindall; Edmund Nuttall vs Sevenoaks DC; Northern Developments).
- The payer gave notice against the previous application and made withholding, but the payee's latest application includes a claim for the monies previously withheld. Repeat notice is required because you cannot give notice to withhold before payment is due (Whiteways; Strathmore).
- The valuation shows why the payer is paying less than claimed. A notice under Section 110 that also complies with Section 111 is effective.
- The payer wants to withhold against an adjudicator's decision. It can only do this if the decision relates to money not yet due (Shimizu). Once it becomes due, notice is necessary.
Ken Salmon is partner and head of the construction team at Mace & Jones Solicitors.