Driver Trett Digest Issue 25 - Flipbook - Page 9
DIGEST | ISSUE 25
...when a claim is made for the price of
goods sold and delivered, or work and labour
done, the defendant is entitled to set-off or
set up against the amount claimed...
A counterclaim can be for a greater sum and is commonly
used for such things as recovering delay costs for the
rectification of defective works. However, there must be a
breach of contract and damages incurred as a consequence.
The right to set-off within the UK exists under common law.
In Gilbert Ash v Modern Engineering1 the House of Lords
held that ‘It has been a well-sealed principle of law since the
middle of the last (19th) century that when a claim is made
for the price of goods sold and delivered, or work and labour
done, the defendant is entitled to set-off or set up against
the amount claimed, any damages which he has suffered as
a result of the plaintiff’s breach of the contract, under which
the goods were sold and delivered, or the work and labour
were done.’
Section 111 of the Housing Grants, Construction and
Regeneration Act2 provides for the use of a pay less notice as
the common approach taken for set-off in the construction
industry.
There are four categories of set-off used commonly within
the construction industry:
Equitable set-off can be used not only as a defence for a
claim but also as grounds for withholding payment. A typical
example could be a claim for unliquidated damages for
negligence being set off against a claim for payments due
under a contract.
Insolvency set-off derives from the Insolvency Act 1986 and
Insolvency (England and Wales) Rules 1986. This assists
the creditor who may be required to pay debts owed to an
insolvent party to avoid paying such debts.
BURDEN OF PROOF
The burden of proof remains with the party withholding
the money under a contra charge or counterclaim, in the
same way that a party making a claim for variations would
have to fully substantiate such a claim.
It is not uncommon, however, under the common forms of
contract used within the UK to see a payment notice / pay
less notice with a single line item for said contra charge,
stating that further information is to be provided.
As with all claims, whoever asserts must prove. This may be
unfamiliar ground for the paying party, who would usually
be requesting more information from their contractor or
subcontractor, and not often in a position where every penny
claimed must be substantiated. If the employer wants to use
that sword against the contractor, there is no short cut; the
substantiation of all costs must be provided.
In conclusion, it is essential that the works carried out comply
with the contract requirements and proper records are
maintained. It is a far better position to be protected by the
shield of the contract and records if a claim / counterclaim
needs to be defended.
Contractual set-off
Legal set-off
Equitable set-off
Insolvency set-off
Contractual set-off is usually an agreed right within a
contract, where the parties have an ongoing relationship. The
right to set-off can also be excluded for similar reasons.
Legal set-off is a procedural remedy only applying in litigation
/ arbitration, where mutual debts exist and are due and
payable at the commencement of proceedings. The debts
must be substantiated, and therefore exclude unliquidated
damages. This can also be referred to as the defence and
counterclaim.
1 Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd
(1976) 1 BLR 73
2 Housing, Grants Construction and Regeneration Act (HGCRA)
1996 as amended by Part 8 of the Local Democracy, Economic
Development and Construction Act (LDEDCA) 2009, Section 109
‘Entitlement to Payment’
9
