HGCR Act 1996 - Payment for Defective Work

© Daniel Atkinson 2001 30 September 2001

Practice Note

It is not clear whether Section 110 or Section 111 apply to the notice for abatement of price.

It is suggested that a Section 111 Notice for abatement is not necessary for defects which are patent or obvious at the time of assessment of the work in question, but should be given in view of the conflicting authorities.

Defects which become apparent later need to be notified under Section 111 in the valuation of additional works.

If the last payment has been made before the defect becomes apparent an adjudicator’s order can be sought or litigation or arbitration commenced as appropriate.

If work is defective and it is noticed, or should have been noticed, at the time of assessment of the value of the work - a patent defect - then subject to the terms of the Contract the valuation of the work can be reduced by the reduction in value of the work - abatement of price. Unless the contract states otherwise there is no right to full payment for work which is defective. It is suggested therefore that this is an issue of valuation of the Sum Due and it is not necessary to issue a Notice of Withholding under Section 111.

If the defect is a latent defect and only becomes apparent later after interim payment has already been made in full for the work, the matter is less clear.

It is normal in the construction industry for each interim valuation to be provisional and subject to adjustment in subsequent valuations. Payments are on account and not binding on subsequent valuations. Normally each application prompts a fresh measure of the works carried out in which case account must be taken of each defect known at that time.

If the valuation simply lists the value of previous valuations and then list additional matters since the last valuation, it is only defects in the additional work which can be taken into account. A Section 111 Notice is required for latent defects which become known when further payment becomes due it is suggested on the basis of Whiteways Contractors (Sussex)Limited v Impresa Castelli Construction UK Limited (Aug 2000) TCC.

The problem of latent defects is demonstrated in  Re: A Company (1299 of 2001) (15^th May 2001). In GAL issued a Statutory Demand on CCL for payment of an unpaid amount of £9,702.47 on two valuations. CCL obtained an injunction without notice restraining GAL from presenting the petition pending a final injuction.

CCL were main contractors in the construction of four houses and engaged GAL as sub-contractors for the roofing works. Some days after the final date for payment of the second valuation CCL had reported to GAL that rear kitchen roofs were ponding severely. Some 6 weeks later CCL notified GAL that in addition to leaks, felt gutters had been fitted instead of lead. This therefore was an issue of defective work. CCL had no opportunity to raise the question of defective work at the time of the valuations since it was unaware of them.

It was argued that Section 111 Notice only applied to monies which were in fact due and that this required the Court to consider whether the sum demanded was irrecoverable, in whole or in part, because of the defective performance of the Contract.

It was held that if the work was defective the employer had a right to recover damages for breach of contract in subsequent litigation or arbitration. This did not however alter the position that by virtue of Section 111 the employer was obliged to pay forthwith without deduction in the absence of a withholding notice. It was held that any other construction of Sections 110 and 111 would rob them of all practical significance.

CCL were therefore held liable to pay £9,702.47 without deduction regardless of any defence which might otherwise have existed by reason of the alleged defects of the works. CCL had not taken steps to litigate its cross-claim for defective work. It was probable that CCL could have been able to obtain an adjudication order on the matter which would have been enforceable. Accordingly there was a significant possibility that a future court would find that CCL had a reasonable opportunity to litigate the cross-claim. Accordingly it could not be concluded that there was no reasonable prospect of success, so GAL was allowed to present its petition and CCL refused the injunction sought.